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RNS
Majedie Investments PLC  -  MAJE   

Annual Financial Report

Released 07:00 05-Dec-2017

RNS Number : 3521Y
Majedie Investments PLC
05 December 2017
 

MAJEDIE INVESTMENTS PLC

 

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2017

 

The full Annual Report and Accounts will shortly be available via the Company's website at www.majedieinvestments.com or by contacting the Company Secretary on telephone number 020 7954 9531.

 

The Directors present the results of the Company for the year ended 30 September 2017.

 

INVESTMENT OBJECTIVE

 

The Company's investment objective is to maximise total shareholder return whilst increasing dividends by more than the rate of inflation over the long term.

 

Highlights

2017

2016

Total shareholder return (including dividends):

13.0%

3.0%

Net asset value total return (debt at fair value including dividends):

12.6%

16.3%

Net asset value total return (debt at par value including dividends):

10.4%

16.0%

Total dividends (per share):

9.75p

8.75p

Directors' valuation of investment in Majedie Asset Management Limited:

£61.5m

£57.1m

 

YEAR'S SUMMARY

 

Group Capital Structure

Note

2017

2016

%

As at 30 September

 

 

 

 

Total assets

1

£216.5m

£203.9m

+6.2

Which are attributable to:

 

 

 

 

Debenture holders (debt at par value)

2

£34.0m

£33.9m

 

Equity Shareholders

 

£182.5m

£170.0m

+7.4

Gearing

4

17.1%

18.5%

 

Potential Gearing

4

18.6%

20.0%

 

Group total returns (capital growth plus dividends)

5

 

 

 

Net asset value per share (debt at par value)

3

+10.4%

+16.0%

 

Net asset value per share (debt at fair value)

3

+12.6%

+16.3%

 

Share price

 

+13.0%

+3.0%

 

Group capital returns

 

 

 

 

Net asset value per share (debt at par value)

3

341.6p

318.1p

+7.4

Net asset value per share (debt at fair value)

 

327.8p

299.8p

+9.3

Share price

 

281.5p

257.1p

+9.5

Discount of share price to net asset value per share

 

 

 

 

Debt at par value

 

17.6%

19.2%

 

Debt at fair value

 

14.1%

14.2%

 

Group revenue and dividends

 

 

 

 

Net revenue available to Equity Shareholders

 

£6.0m

£4.9m*

 

Net revenue return per share

 

11.1p

9.3p*

+19.4

Total dividends per share

 

9.75p

8.75p

+11.4

Total administrative expenses

 

£1.8m

£1.9m*

 

Ongoing Charges Ratio:

6

 

 

 

Group and Company

 

1.5%

1.6%

 

 

Notes:

Definitions used in the Annual Report are as follows:

1.      Total Assets: Total assets are defined as total assets less current liabilities.

2.      Debt at par or fair value: Par value is the nominal or face value attached to the debentures which will be paid by the Company to the debenture holders at maturity. Fair value is the estimated market value the Company would pay (on the relevant reporting date), as a willing buyer, to a debenture holder, as a willing seller, in an arms-length transaction.

3.      Net Asset Value: The Net Asset Value (NAV) is the value of all of the Company's assets less all liabilities. The NAV is usually expressed as an amount per share.

4.      Gearing and Potential Gearing: Gearing represents the amount of borrowing that a company has and is calculated using the Association of Investment Companies (AIC) guidance. It is usually expressed as a percentage of equity shareholders' funds and a positive percentage or ratio above one shows the extent of the level of borrowings. Gearing is calculated as borrowings less net current assets to arrive at a net borrowings figure. Potential Gearing excludes cash from the calculation. Details of the calculation for the Company are in note 25 below.

5.      Total Return: Total returns include any dividends paid as well as capital returns as a result of an increase or decrease in a company's share price or NAV.

6.      Ongoing Charge Ratio (OCR): Ongoing charges are a measure of the normal ongoing costs of running a company. Further information is shown in the Business Review section of the Strategic Report below.

* Includes both continuing and discontinued operations.

 

Year's high/low

 

2017

2016

Share price

High

310.0p

272.3p

 

Low

249.9p

240.0p

Net asset value - debt at par

High

344.0p

318.1p

 

Low

308.6p

260.1p

Discount - debt at par

High

21.4%

19.2%

 

Low

7.1%

2.6%

(Premium)/Discount - debt at fair value

High

17.2%

14.3%

 

Low

2.5%

(3.4%)

TEN YEAR RECORD

to 30 September 2017

 

Year
End

Total†
Assets
£000

Equity
share-
holders'
Funds
£000

NAV
Per Share
(Debt at
par value)
Pence

Share
Price
Pence

Discount
%

Earningsˆ
Pence

 

 

 

 

Ordinary

Dividend**

Pence

Total

Dividend**
Pence

Gearing†
%

Potential
Gearing†
%

Company
Ongoing
Charges#
%

2008

187,209

153,465

296.5

250.0

15.68

12.45

10.50

12.75

16.69

21.99

1.30

2009

157,943

124,181

238.7

189.8

20.51

8.14

10.50

10.50

17.22

27.19

1.71

2010

150,940

117,159

225.2

191.5

15.00

11.83

10.50

13.00

24.11

28.83

1.85

2011

145,683

111,634

214.5

139.5

34.96

4.66

10.50

10.50

(1.72)

30.28

1.92

2012

146,057

112,234

215.6

155.8

27.74

4.90

10.50

10.50

9.24

30.14

1.83

2013

159,013

125,166

240.5

160.0

33.47

6.80

10.50

10.50

21.47

27.04

1.73

2014

167,934

134,061

256.7

229.0

10.79

9.36

7.50

7.50

23.39

25.27

1.66

2015

183,708

149,807

281.9

257.3

8.74

9.42

8.00

8.00

21.25

22.63

1.88

2016

203,917

169,986

318.1

257.1

19.18

9.25

8.75

8.75

18.46

19.96

1.58

2017

216,507

182,544

341.6

281.5

17.59

11.14

9.75

9.75

17.09

18.61

1.54

 

Notes:

† Calculated in accordance with AIC guidance.

ˆ Includes both continuing and discontinued operations.

# As from May 2012, Ongoing Charges replace previous cost ratios.

** Dividends disclosed represent dividends that relate to the Company's financial year. Under International Financial Reporting Standards (IFRS) dividends are not accrued until paid or approved. Total dividends include special dividends paid, if any.

STRATEGIC REPORT

 

CHAIRMAN'S STATEMENT

 

In the year ended 30 September 2017 the NAV (net asset value with debt at par) rose by 10.4% on a total return basis whilst the share price rose by 13.0%, also on a total return basis. The Board is recommending a total dividend for the year of 9.75p, an increase of 11.4%. The FTSE All Share Index and MSCI World Index (in sterling terms) rose by 11.9% and 14.9% respectively, on a total return basis.

 

The Company's shares have continued to trade at a discount to NAV (debt at fair value) and the Board continues to monitor opportunities to reduce the discount. Against a backdrop of political instability in the UK following the inconclusive General Election in June and the tortuous Brexit negotiations Stock Markets have reached all-time highs. The Board decided on 6 November 2017 to redeem its 2020 9.5% Debenture to reduce the Company's gearing.

 

Results and Dividends

The Company had a capital return for the year of £11.6m compared to £18.7m in 2016. Total income for the Company was £7.5m compared to £6.5m in 2016. The increase in income reflects higher dividends from Majedie Asset Management (MAM) and the MAM UK Equity Segregated Portfolio.

 

Total administrative expenses and management fees have fallen from £1.9m to £1.8m which reflects lower administrative expenses of £0.2m owing to a further reduction in property costs and the fund administration function being insourced offset in part by higher fund management fees which increased by £0.1m due to higher assets under management.

 

The self-managed nature of the Company and its size mean costs are somewhat higher than average, though the Fund costs paid to MAM, as fund manager and included in the ongoing charges ratio (OCR), are more than offset by the dividend received from MAM. Costs remain a key area of focus for the Board.

 

The net revenue return after taxation for the year to September 2017 was £6.0m compared to £4.9m in the year to 30 September 2016. The Board increased the interim dividend by 16.7% to 3.5p partially to rebalance the split between the interim and final dividend. The Board is recommending a final dividend of 6.25p which is an increase of 11.4% for the full year. This follows an increase of 9.4% in the year to 30 September 2016. The final dividend will be payable on 24 January 2018 to shareholders on the register on 12 January 2018. The Board retains its policy to increase dividends above the rate of inflation over the long term and since rebasing the dividend in 2014 has increased the dividend by 30.0%. The dividend is fully covered by current year earnings and the Company retains sizable revenue reserves.

 

MiFID II and PRIIPs

New European regulation through the Packaged Retail and Insurance based Investment Regulation (PRIIPs) and MiFID II come into force on 1 January and 3 January 2018 respectively. The Company, as an Investment Company is not subject to MiFID II as under the Alternative Fund Managers Directors (AIFMD) it is regulated by the Financial Conduct Authority (FCA) as an Alternative Investment Fund (AIF). However, the Company's securities are distributed by parties who are subject to MiFID II rules and so the Company will be required to provide certain additional disclosures.

 

PRIIPs requires the Company to publish a Key Investor Document (KID) which will be on the website. The KID requires the disclosed costs of the Company to include costs of investing such as Stamp Duty, transaction costs and Debenture interest. The cost calculation set out in the KID will therefore be different from the OCR which the Company will continue to publish for comparison.

 

Share Issuance

The Company retains its ambition to narrow the discount to NAV and eventually grow the Company through further share issuance. The benefits to shareholders of growing the Company would be to reduce the ratio of ongoing charges and increase the liquidity of the shares and to this end the Company has permission to issue up to 10% of its equity at a premium to the prevailing NAV (debt at fair value). It is intended to renew this permission at the AGM.

 

Gearing

The redemption of the 2020 9.5% Debenture reduces the Company's gearing to approximately 11% which is more in line with the peer group. The Debenture was issued in 1994 when the interest rate environment was very different. Historically, early redemption was punitive from a cost perspective. It is therefore pleasing to be able to retire expensive debt at only a 0.6% dilution of NAV (debt at fair value) and at a time when stock markets are close to all-time highs. In the future the lower interest payable, lower management fees and lower investment income will improve the net revenue return after taxation by £0.2m per annum. The Company realised assets sufficient to repay the Debenture immediately prior to issuing the notice of redemption.

 

Asset Allocation

The asset allocation of the Company provides exposure to funds that are managed by a highly regarded boutique manager in which the Company retains a significant stake of 16.8%.This produces some key points of differentiation which sets the Company apart from many of its peers in the Global Growth Sector.

 

Firstly, the value of the holding in MAM is derived from a long agreed formula that is calculated twice a year. Over the long term this provides a good comparator, but in the short term can produce distortions such as appearing to lag the performance of competitors.

 

Secondly your Company's holding in the MAM Tortoise Fund, an Absolute Return Fund, is designed, in part, to reduce the downside volatility of returns to shareholders. In times of rapidly rising markets this holding can therefore depress relative returns which will, all else being equal, be recouped in less buoyant market conditions.

 

Thirdly, the long only funds performed well with the MAM UK Equity Segregated Portfolio, the MAM UK Income Fund, the MAM Global Equity Fund and the MAM Global Focus Fund, which together make up 51.2% of gross assets, all ahead of their benchmarks, although the MAM US Equity Fund, which makes up 3.8% of gross assets, was marginally behind.

 

Finally, the Company's geographic allocation superficially appears more UK centric (see below) than others in the sector. However on a look through basis the FTSE All Share Index derives up to 70% of its earnings from overseas. Thus shareholders are more exposed to global equity earnings than the simple domicile of quoted companies would suggest.

 

The Board views the Company's key differentiators as positive for shareholders over the medium term, but recognises returns may be less correlated to Stock Market performance as a result. Political risk in the UK and US seems to be at high levels and markets have enjoyed an eight year rally since the depths of 2009. The world economy has performed well, but further progress may be more difficult as the interest rate cycle turns and Quantitative Easing is curtailed. I am confident that against such a background the broad spread of the Company's holdings and lower gearing will provide resilience.

 

AGM

The AGM will be held on 17 January 2018 at 12.00 noon at the City of London Club, 19 Old Broad Street, London EC2N 1DS. Details are set out in the notice of meeting in the full annual report on the Company's website. There will be presentations from MAM and the Board and an opportunity to ask questions. I hope you will be able to attend.

 

Andrew J Adcock

Chairman

4 December 2017

 

EXTRACTS FROM THE STRATEGIC REPORT

 

CHIEF EXECUTIVE'S REPORT

 

The Company's assets are allocated at the discretion of the Board between a number of investment strategies managed by MAM and the Company retains an equity holding in MAM of 16.8%. The Company has no overall benchmark; rather each fund has its own benchmark. The Company's total assets were £216.5m at 30 September 2017. In the year, the main change in asset allocation was a reduction in the MAM UK Segregated Portfolio of £5.25m and the MAM UK Income Fund of £3.75m and an increased allocation to the MAM Tortoise Fund of £5.0m. There were no sales of MAM shares during the year.

 

MAM Funds and Investment Performance

The MAM UK Equity Fund is the flagship product of MAM, having started in March 2003, and since inception to 30 September 2017 has returned 12.9% per annum net of fees with a relative outperformance against its benchmark FTSE All Share Index of 3.4% per annum. The Company's assets are invested in a segregated portfolio that is managed pari passu to the MAM UK Equity Fund. The funds are predominantly invested in UK equities with overseas equities limited to 20% and the strategy incorporates a dedicated allocation to UK smaller companies. The sum invested in the MAM UK Equity Segregated Portfolio at 30 September 2017 was £64.2m which represents 29.7% of the Company's total assets. In the year to 30 September 2017 the MAM UK Equity Segregated Portfolio returned 12.9% net of fees which is an outperformance of 1.0% against its benchmark. The positive contributors at a sector level over twelve months were overweight positions in Banks, Support Services and the MAM UK Smaller Companies Fund and underweight positions in Tobacco, whilst the negative contributors were overweight positions in Telecoms, Food Retailers and General Retailers.

 

The MAM Tortoise Fund is a global equity absolute return product which started in August 2007. Its objective is to achieve positive absolute returns in all market conditions, through investment primarily in long and synthetic short positions in equities over rolling three year periods, with less volatility than a conventional long only equity fund. Since inception the Fund has returned 8.1% per annum net of fees. At 30 September 2017, the Company has an allocation of £35.5m, which represents 16.4% of total assets. The Fund returned -4.4% net of fees in the year to 30 September 2017. The positive contributors were long positions in Banks and Diversified Telecoms and short positions in Food Producers whilst the detractors were short positions in Aerospace and Defence, Healthcare Providers and Luxury Goods. Overall the Fund was positioned too defensively and was at times during the year net short of a strong equity market.

 

The MAM UK Income Fund started in December 2011. Its objective is to maintain an attractive yield whilst outperforming the FTSE All Share Index over the longer term, with up to 20% of the Fund invested in overseas equities. The historic yield is 4.9%. Since inception the Fund has returned 15.1% per annum net of fees, which is an outperformance of 4.4% per annum against its benchmark. At 30 September 2017 the Company has an allocation of £17.1m, which represents 7.9% of the Company's total assets. In the year to 30 September 2017 the Fund returned 12.0% net of fees, which represents an outperformance against its benchmark of 0.1%. The positive contributors were overweight positions in Financial Services, Life Insurers and Travel and Leisure whilst the detractors were overweight positions in Oil and underweight positions in Mining and Banks.

 

The MAM Global Equity and Global Focus Funds were launched in June 2014. Their objectives are to provide a total return in excess of the MSCI All Country World Index over the long term through investment in a diversified portfolio (Global Equity Fund) or concentrated portfolio (Global Focus Fund) of global equities including emerging markets. Since inception the funds have returned 14.7% and 14.1% per annum net of fees for the sterling share classes which represents an outperformance of 0.5% per annum for the MAM Global Equity Fund and an underperformance of 0.1% per annum for the MAM Global Focus Fund against their benchmark the MSCI All Country World Index. At 30 September 2017 the Company has allocations of £21.8m and £7.7m respectively to the MAM Global Equity Fund and MAM Global Focus Fund, representing 10.1% and 3.5% of total assets. In the year to 30 September 2017 the funds returned 16.4% and 16.0% net of fees respectively, which represents outperformance of 1.5% and 1.1%. The positive contributors at the sector level were overweight positions in Software and Consumer Services and underweight positions in Pharmaceuticals whilst the detractors were overweight positions in Internet Marketing and Mining and an underweight position in Banks.

 

The MAM US Equity Fund was launched in June 2014 and since its inception has returned 16.6% per annum net of fees for the sterling share class. This represents an underperformance of 1.3% per annum against its benchmark S&P 500 Index. At 30 September 2017 the Company had an allocation of £8.3m, which represents 3.8% of total assets, and in the year the Fund returned 12.6% net of fees which represents an underperformance of 1.5%. The positive contributors at the sector level were overweight positions in Software, Consumer Services and IT Services whilst the detractors were overweight positions in Mining, Food Retail and Professional Services.

 

The aggregate geographic and sector exposures and performance of the MAM UK Equity Segregated Portfolio, MAM UK Income Fund, MAM Global Equity Fund, MAM Global Focus Fund and MAM US Equity Fund are shown below. The exposures are determined by the domicile of the stock exchange on which the underlying equity is listed and do not attempt to determine the domicile of the earnings. The factsheets for the funds in which the Company is invested are available on the Company's website and show the largest overweight and underweight positions for each fund as well as other relevant information.

 

Majedie Asset Management

The Company retains its holding of 16.8% of MAM having not sold any shares in MAM in the year to 30 September 2017. The Company has no current intention to sell any shares in MAM, other than the obligation, if required, to sell shares in proportion to other founder shareholders to the MAM Employee Benefit Trust, up to a maximum of 1.0% each year. The Board has increased the value of the holding in MAM to £61.5m. The valuation is formulaic and reflects three year historic average earnings and cash held on the balance sheet. The Board believes it reflects fair value. The holding represents 28.4% of the Company's total assets at 30 September 2017. The Company also received dividends of £4.2m from its holding in MAM during the year.

 

MAM's assets under management increased to £14.6bn from £12.3bn during the year, which reflects stock market increases and net fund inflows during the year. The main contributor to fund inflows was the Tortoise Fund which had a capacity window that was subsequently closed. It is pleasing that the long only funds broadly outperformed their respective indices. The Global funds, having passed their important three year milestones have received broad endorsement from a number of investment consultants. The Tortoise Fund had a more difficult year as it was positioned too defensively.

 

Post Balance Sheet Date Events

Since the year end, the Company announced on 6 November 2017 that it will redeem the 9.5% 2020 Debenture on 6 December 2017. The NAV will be diluted by 0.6% (debt at Fair Value) and gearing will be reduced to approximately 11%. As stock markets have attained all-time highs it seems sensible and prudent to reduce the expensive gearing that the Company has borne for 22 years. The funds to repay the debenture holders have been raised pro rata across the long only funds and with a slightly higher proportion from the Tortoise Fund which has historically been a counterweight to the Company's gearing.

 

The Funds are currently positioned more defensively as markets have reached new heights and as the economic outlook seems to be changing with questions as to how markets react to a change in the interest rate cycle, the end of Quantitative Easing and pinch points being reached in labour markets in the US, UK, Germany and Japan.

 

Development of Net Asset Value

The chart below outlines the change in the Company's Net Asset Value (debt at par) over the year ended 30 September 2017. In aggregate, the NAV has increased by £12.5m, comprised of investment gains of £22.0m being offset by expenses and interest of £4.6m and dividends paid to shareholders of £4.9m.

 

NAV 30.09.2016

£170.0m

MAM UK Equity Segregated Portfolio

+£8.3m

MAM

+£8.6m

MAM Funds

+£5.1m

Admin Costs and Other

(£1.8m)

Finance Costs

(£2.8m)

Dividend Paid

(£4.9m)

NAV 30.09.2017

£182.5m

 

Allocation of Total Assets as at 30 September 2017

 

Value
£000

 

% of
Total Assets

MAM UK Equity Segregated Portfolio

64,237

 

29.7

MAM UK Income Fund

17,119

 

7.9

MAM Global Equity Fund

21,812

 

10.1

MAM Global Focus Fund

7,677

 

3.5

MAM US Equity Fund

8,251

 

3.8

MAM Tortoise Fund

35,485

 

16.4

MAM

61,549

 

28.4

Net Cash/realisation fund*

377

 

0.2

 

216,507

 

100.0

 

* Net Cash and realisation fund does not include cash held in the MAM UK Equity Segregated Portfolio or MAM funds.

 

MAM Fund Performance

 

12 months to 30 September 2017
% Fund return


% Benchmark return


% Relative performance

Since MI invested
% Fund return

% benchmark return

% Relative Performance

MAM UK Equity Segregated Portfolio

12.9

11.9

1.0

26.5

26.9

(0.4)

MAM UK Income Fund

12.0

11.9

0.1

33.3

31.3

2.0

MAM Global Equity Fund

16.4

14.9

1.5

56.3

54.1

2.2

MAM Global Focus Fund

16.0

14.9

1.1

53.7

54.1

(0.4)

MAM US Equity Fund

12.6

14.1

(1.5)

65.0

71.1

(6.1)

MAM Tortoise Fund

(4.4)

-

-

3.1

-

-

               

 

Notes:

All Fund returns are quoted in Sterling, net of fees.

The initial investment in the MAM UK Equity Segregated Portfolio was made on 22 January 2014.

The initial investment in the MAM UK Income Fund was made on 29 January 2014.

The initial investments in the MAM Global Equity Fund, MAM Global Focus Fund and MAM US Equity Fund were made on 30 June 2014 and 26 June 2014 respectively, at the inception of each fund. The Company is invested in the Sterling share classes.

The initial investment in the MAM Tortoise Fund was made on 29 January 2014.

 

William Barlow

CEO

4 December 2017

 

FUND ANALYSIS

at 30 September 2017

 

Geographic and Sector Analysis at 30 September 2017

 

 

United Kingdom

North America

 

Europe

Emerging Markets

Asia Pacific

 

Cash

Total

Basic Materials

5.5

2.6

0.0

0.4

0.3

 

8.8

Consumer Goods

1.0

2.4

0.3

0.5

0.4

 

4.6

Consumer Services

12.9

2.1

0.9

1.4

0.7

 

18.0

Financials

13.2

3.2

0.1

0.8

0.1

 

17.4

Healthcare

2.1

2.5

0.8

0.0

0.0

 

5.4

Industrials

6.7

0.7

1.2

0.2

0.0

 

8.8

Oil & Gas

12.9

1.0

0.0

0.0

0.0

 

13.9

Technology

1.4

4.6

0.0

1.9

0.0

 

7.9

Telecommunications

3.3

0.0

3.9

0.0

0.9

 

8.1

Utilities

3.0

0.7

0.0

0.0

0.0

 

3.7

Cash

 

 

 

 

 

3.3

3.3

 

62.0

19.8

7.2

5.3

2.4

3.3

100.0

 

Notes:

The assets analysed above are the aggregate exposure of the MAM UK Equity Segregated Portfolio, MAM UK Income Fund, MAM Global Equity Fund, MAM Global Focus Fund and MAM US Equity Fund. The aggregate represents a total of 55.0% of the Company's total assets.

 

Exposures are classified on the stock exchange on which the underlying equity is listed and the relevant FTSE sector classification

 

Twenty Largest MAM UK Equity Segregated Portfolio Holdings

at 30 September 2017

Company

Fair Value
£000

 

% of UK
Equity Segregated
Portfolio

MAM UK Smaller Companies Fund

5,779

 

9.0

Royal Dutch Shell PLC

4,351

 

6.8

BP PLC

4,025

 

6.3

HSBC Holdings PLC

3,225

 

5.0

Tesco PLC

2,563

 

4.0

WM Morrison Supermarkets PLC

1,984

 

3.1

Vodafone Group PLC

1,956

 

3.0

Centrica PLC

1,883

 

2.9

GlaxoSmithKline PLC

1,730

 

2.7

Orange SA

1,561

 

2.4

Marks & Spencer PLC

1,553

 

2.4

BT Holdings PLC

1,514

 

2.4

Barclays PLC

1,328

 

2.1

Anglo American PLC

1,281

 

2.0

Royal Bank of Scotland PLC

1,253

 

2.0

Electrocomponents PLC

1,210

 

1.9

Rentokil Initial PLC

1,014

 

1.6

Barrick Gold Corporation

970

 

1.5

Standard Chartered PLC

950

 

1.5

KAZ Minerals PLC

934

 

1.5

Sub-total

41,064

 

63.9

Other (including cash)

23,173

 

36.1

Total

64,237

 

100.0

 

BUSINESS REVIEW

 

Introduction and Strategy

 

Majedie Investments PLC (the Company) is an investment trust company and an Alternative Investment Fund (AIF), with an investment objective to maximise total shareholder return, whilst increasing dividends by more than the rate of inflation over the long term. In seeking to achieve this objective, the Board has determined an investment policy and related guidelines or limits. The investment objective and policy (as detailed below) were both last approved by shareholders at a General Meeting of the Company on 27 February 2014.

 

The Company is subject to the Alternative Investment Fund Managers Directive (AIFMD). The AIFMD regulates the Alternative Investment Fund Managers (AIFMs) of AIFs. The Company's status under the AIFMD is that it is a self-managed AIF (meaning that it is an AIFM as well as an AIF), which requires the Company to be authorised and regulated by the Financial Conduct Authority (FCA). The AIFMD also requires the appointment of a depositary and the Company has appointed Bank of New York Mellon UK (BNYM (UK)) to be its depositary. Further details concerning the Company's regulatory environment are set out below.

 

The Company's broker is J.P. Morgan Cazenove, and the Company is a member of the AIC (the trade body for closed-ended investment companies).

 

The purpose of the Strategic Report is to inform the shareholders of the Company and help them assess how the Directors have performed their duty to promote the success of the Company in accordance with section 172 of the Companies Act 2006 by:

 

·      analysing development and performance using appropriate Key Performance Indicators (KPIs);

·      providing a fair and balanced review of the Company's Business;

·      outlining the principal risks and uncertainties affecting the Company;

·      describing how the Company manages these risks;

·      setting out the Company's environmental, social and ethical policy;

·      outlining the main trends and factors likely to affect the future development, performance and position of the Company's business; and

·      explaining the future business plans of the Company.

 

Business Model

 

The Company has been streamlining its operations in recent times which has now resulted in the removal of all other group entities. At the start of the year, Majedie Portfolio Management Limited (MPM) was in the process of being de-authorised by the FCA and then liquidated, having not traded since June 2016. MPM was de-authorised by the FCA on 1 December 2016, placed into liquidation on 5 January 2017 and was dissolved on 4 October 2017. As such, this Annual Report and Accounts are presented as group accounts for the final time. Further details about MPM can be found in note 14 to the Annual Report below.

 

The business model currently used by the Company delegates certain arrangements to other service providers. These delegations are in accordance with the AIFMD (the details of the material delegations can be found below), but the Board, as AIFM, and in accordance with the Company's investment objective and policy, directs and monitors the overall performance, operations and direction of the Company. The Company undertakes all administration operations itself under the Company's business model.

 

The Company's Employee, Social, Environmental, Ethical and Human Rights policy is contained in the Directors' Report below.

 

Investment Objective

 

The Company's investment objective is to maximise total shareholder return whilst increasing dividends by more than the rate of inflation over the long term.

 

Investment Policy

 

·    General

The Company invests principally in securities of publicly quoted companies worldwide and in funds managed by its investment manager, though it may invest in unquoted securities up to levels set periodically by the Board, including its investment in MAM. Investments in unquoted securities, other than those managed by its investment manager or made prior to the date of adoption of this investment policy (measured by reference to the Company's cost of investment), will not exceed 10% of the Company's gross assets.

 

·    Risk Diversification

Whilst the Company will at all times invest and manage its assets in a manner that is consistent with spreading investment risk, there will be no rigid industry, sector, region or country restrictions. The overall approach is based on an analysis of global economies sector trends with a focus on companies and sectors judged likely to deliver strong growth over the long term. The number of investments held, together with the geographic and sector diversity of the portfolio, enable the Company to spread its risks with regard to liquidity, market volatility, currency movements and revenue streams.

 

The Company will not invest in any holding that would, at the time of investment, represent more than 15% of the value of its gross assets save that the Company may invest up to 25% of its gross assets in any single fund managed by its Investment Manager where the Board believes that the investment policy of such funds is consistent with the Company's objective of spreading investment risk.

 

The Company may utilise derivative instruments including index-linked notes, contracts for difference, covered options and other equity-related derivative instruments for efficient portfolio management and investment purposes.

 

Any use of derivatives for investment purposes will be made on the basis of the same principles of risk spreading and diversification that apply to the Company's direct investments, as described above.

 

Investment Restrictions

For the avoidance of doubt, as a listed investment company, if and for so long as required by the Listing Rules in relation to closed-ended investment companies, the Company will also continue to comply with the following investment and other restrictions:

 

·      the Company will at all times, invest and manage its assets in a way which is consistent with its object of spreading investment risk and in accordance with its published investment policy;

 

·      the Company will not conduct any trading activity which is significant in the context of the Company (or, if applicable, its Group as a whole); and

 

·      not more than 10% in aggregate of the value of the gross assets of the Company at the time the investment is made will be invested in other closed-ended investment funds which are listed on the Official List (except to the extent that those funds have published investment policies to invest no more than 15% of their gross assets in other investment companies which are listed on the Official List). However, no more than 15% of the gross assets of the Company at the time the investment is made will be invested in other closed-ended investment funds which are listed on the Official List.

 

·    Asset Allocation

The assets of the Company will be allocated principally between investments in publicly quoted companies worldwide and in investments intended to provide an absolute return (in each case either directly or through other funds or collective investment schemes managed by the Company's investment manager) and the Company's investment in MAM itself.

 

·    Benchmark

The Company does not have one overall benchmark, rather each distinct group of assets is viewed independently. Any investments made into funds managed by the Company's investment manager will be measured against the benchmark or benchmarks, if any, whose constituent investments appear to the Company to correspond most closely to those investments. It is important to note that in all cases investment decisions and portfolio construction are made on an independent basis. The Board however sets various specific portfolio limits for stocks and sectors in order to restrict risk levels from time to time, which remain subject to the investment restrictions set out in this section.

 

·    Gearing

The Company uses gearing currently via long-term debentures. The Board has the ability to borrow up to 100% of adjusted capital and reserves. The Board also reviews the level of gearing (borrowings less cash) on an ongoing basis and sets a range at its discretion as appropriate. The Company's current debenture borrowings are limited by covenant to 66 2/3%, and any additional indebtedness is not to exceed 20%, of adjusted capital and reserves.

 

Regulatory and Competitive Environment

The Company is an investment trust and has a premium listing on the London Stock Exchange. It is subject to United Kingdom and European legislation and regulations including UK company law, IFRS, Listing, Prospectus and Disclosure Guidance and Transparency Rules, taxation law and the Company's own Articles of Association. The Directors are charged with ensuring that the Company complies with its objectives as well as these regulations.

 

Under the Companies Act 2006, section 833, the Company is defined as an investment company.

 

As outlined previously the Company is subject to the AIFMD. The AIFMD requires that all AIFs are managed by a regulated AIFM in accordance with the requirements of the Directive. These requirements are in respect of risk management, conflicts of interest, leverage, liquidity management, delegation, the requirement to appoint a depositary, regulatory capital, valuations, disclosure of information to investors or potential investors, remuneration and marketing.

 

The financial statements report on profits, the changes in equity, the balance sheet position and the cash flows in the current and prior financial period. This is in compliance with current IFRS as adopted by the EU, supplemented by the Statement of Recommended Practice for Investment Trust Companies and Venture Capital Trusts (SORP) issued in November 2014 and updated in January 2017. The principal accounting policies of the Company are set out in note 1 to the accounts below.

 

Total Return Philosophy & Dividend Policy

The Directors believe that investment returns will be maximised if a total return policy is followed whereby the Investment Manager pursues the best opportunities. The policy aim is to increase dividends by more than inflation over the long term. Further details are under the Dividend Growth section below. The Company has a comparatively high level of revenue reserves for the investment trust sector. At £24.6m, the revenue reserves represent over four times the current annual dividend distribution. The strength of these reserves will assist in underpinning the Company's progressive dividend policy in years when the income from investments is insufficient to completely cover the annual distribution.

 

Performance Management

The Board uses the following KPIs to help assess progress against the Company's objectives. Further comments on these KPIs are contained in the Chairman's Statement and Chief Executive's Report sections of the Strategic Report respectively.

 

·      NAV and Total Shareholder Return:

The Board believes that NAV return is fundamental to delivering value over the long-term and is a key determinant of shareholder return. The Board further believes that, in accordance with the Company's objective, the total return basis (which includes dividends paid out to shareholders) is the best measure of how to measure long-term shareholder return. The Board, at each meeting, receives reports detailing the Company's NAV and shareholder total return performance, asset allocation and related analyses. Details of the NAV and share price total return performance for the year are shown in the Year's Summary above.

 

·      Investment Group performance:

The Board believes that after asset allocation, the performance of each of the investment groups is the key driver of NAV return and hence shareholder return. The Board receives, at each meeting, detailed reports showing the performance of the investment groups which also includes relevant attribution analysis. The Chief Executive's Report provides further detail on each investment group's performance for the year.

 

·      Share price premium/discount:

As a closed-ended listed investment company, the share price of the Company can and does differ from that of the NAV. This can give rise to either a premium or discount and as such is another component of Total Shareholder Return. During the year the discount has moved within a range ending the year at a slightly lower value to that at the start of the year (with the NAV with debt at par), resulting in the Company's share price gain outperforming the gain in the Company's NAV (with debt at par).

 

The Board continually monitors the Company's premium or discount, and does have the ability to buy back shares if thought appropriate, although it must be noted that this ability is limited by the majority shareholding held by members of the Barlow family. Additionally the Board has approval (and is seeking to renew such approval for another year) to issue new shares, at a premium to the relevant NAV (with debt at fair value), in order to meet any natural market demand. Details of movements in the Company's share price discount or premium over the year are shown in the Year's Summary above.

 

·      Expenses:

The Board is aware of the impact of costs on returns and is conscious of seeking to minimise these (taking into account the Company's self-managed status). The current industry-wide measure for investment trusts is the OCR, which seeks to quantify the ongoing costs of running the Company. This measures the annual normal ongoing costs of an investment trust, excluding performance fees, one-off expenses and investment dealing costs, as a percentage of average equity shareholders' funds. Any investments made into pooled funds are included using the Company's share of estimated ongoing fund running costs. The Chairman's Statement above provides further details on the expenses during the year. Details of the OCR for the year are shown in the Year's Summary above.

 

·      Dividend Growth:

Dividends paid to shareholders are an important component of Total Shareholder Return and this has been included in the Company's investment objective. The Board is aware of the importance of this objective to the Company's shareholders but wishes to be prudent and is of the view that a sustainable and progressive dividend policy, paying dividends out of current year income and not reserves is appropriate.

 

The Board receives detailed management accounts and forecasts which show the actual and forecast financial outturns for the Company and the Group. For the 3 years to 30 September 2017, which is for the period after the rebasing of the dividend in 2014, average dividend growth has been 9.2 % per annum, which is well ahead of inflation.

 

Principal Risks

 

The principal risks and the Company's policies for managing these risks and the policy and practices with regard to financial instruments are summarised below and in note 25 to the accounts.

 

i.    Investment Risk:

The Company has a range of equity investments, including a substantial investment in an unlisted asset management business, UK and global equities (both on a direct basis (via the MAM UK Equity Segregated Portfolio (UKES)) and via collective investment vehicles (the MAM Funds), and an investment in an absolute return fund, the MAM Tortoise Fund. The major risk for the Company remains investment risk, primarily market risk; however it is recognised that the investment in MAM continues to represent concentration risk for the Company. Additionally the Brexit outcome provides another element to the investment risk faced by the Company.

 

The number of investments held, together with the geographic and sector diversity of the portfolio, enables the Company to spread its risks with regard to liquidity, market volatility, currency movements and revenue streams (including Brexit).

 

Under the terms of the Investment Agreement, the Investment Manager manages the majority of the Company's investment assets. The portfolios of MAM UK Equity Segregated Portfolio and the MAM Funds are actively managed by MAM against benchmarks and each have specific limits for individual stocks and market sectors that are monitored in real time. It should be noted that MAM UK Equity Segregated Portfolio and the MAM Funds' returns will differ from the benchmark returns. The MAM Tortoise Fund is an absolute return fund whose returns are not correlated to equity markets.

 

The investment risks are moderated by strict control of position sizing, low use of leverage and investing in liquid stocks. Also the level of risk at a net asset value level increases with gearing. In certain circumstances cash balances may be raised to reduce the effective level of gearing. This would result in a lower level of risk in absolute terms.

 

Other risks faced by the Company include the following:

 

ii.   Strategy Risk:

An inappropriate investment strategy could result in poor returns for shareholders and the introduction or widening of the discount of the share price to the NAV per share. It is important to note that the investments in the MAM funds do provide the Company with exposure to a range of strategies. The Board regularly reviews strategy in relation to a range of issues including investment policy and objective, the allocation of assets between investment groups, the level and effect of gearing and currency or geographic exposure;

 

iii.  Business Risk:

Inappropriate management or controls in the Company or at MAM could result in financial loss, reputational risk and regulatory censure. The Board has representation on the MAM governing board to monitor business financial performance and operations and receives detailed reports from Company management on financial and non-financial performance;

 

iv.  Compliance Risk:

Failure to comply with regulations could result in the Company losing its listing, losing its FCA authorisation as a self-managed AIF or being subjected to corporation tax on its capital gains.

 

The Board receives and reviews regular reports from its service providers and Company management on the controls in place to prevent non-compliance of the Company with rules and regulations. The Board also receives regular investment listings and income forecasts as part of its monitoring of compliance with section 1158 of the Corporation Tax Act 2010; and

 

v.   Operational Risk:

Inadequate financial controls, failure by an outsourced supplier to perform to the required standard, or dependency on a small number of individuals could result in misappropriation of assets, loss of income and debtor receipts and misreporting of NAVs. The Board and Audit Committee regularly review statements on internal controls and procedures and subject the books and records of the Company to an annual external audit. In addition the Company's Depositary provides an additional level of oversight over the Company's operations. The Corporate Governance statement and the Report of the Audit Committee in the Company's Annual Report and Accounts provide further information in respect of internal control systems and risk management procedures.

 

Given the nature of the Company's operations, the Board believes that Brexit is likely to have a minimal impact on the Company.

 

On behalf of the Board

 

Andrew J Adcock

Chairman

4 December 2017

 

DIRECTORS' REPORT

 

The Directors submit their report and the accounts for the year ended 30 September 2017.

 

Introduction

The Directors' Report includes the Corporate Governance statement, the Report of the Audit Committee, and the Directors' Remuneration Report. A review of the Company's business is contained in the Strategic Report (which includes the Chairman's Statement) and should be read in conjunction with the Directors' Report.

 

Principal Activity and Status

The Company is a public limited company and an investment company under section 833 of the Companies Act 2006. It operates as an investment trust and is not a close company. The Company has been a member of the AIC since 20 January 2014.

 

The Company has received historic written confirmation from HM Revenue & Customs that it meets the eligibility conditions and is an approved investment trust for taxation purposes under section 1158 of the Corporation Tax Act 2010, with effect from 1 October 2012, subject to it continuing to meet the eligibility conditions and on-going requirements. In the opinion of the directors, the Company continues to direct its affairs so as to enable it to continue to qualify as an approved investment trust.

 

Results and Dividend

The consolidated net revenue return before taxation arising from operations amounted to £5,964,000

(2016: continuing operations consolidated net revenue return of £4,956,000, and a net loss before taxation arising from discontinued operations of nil).

 

The Directors recommend a final ordinary dividend of 6.25p per ordinary share, payable on 24 January 2018 to shareholders on the register at the close of business on 12 January 2018. Together with the interim dividend of 3.50p per share paid on 16 June 2017, this makes a total distribution of 9.75p per share in respect of the financial year (2016: 8.75p per share).

 

Risk Management and Objectives

The Company as an investment trust, and the Group, are subject to various risks in pursuing their objectives. The nature of these risks and the controls and policies in place across the Group that are used to minimise these risks are further detailed in the Strategic Report and in note 25 of the Accounts.

 

Directors

The Directors in office at the date of this report are listed in the Company's full Annual Report and Accounts.

 

Directors' retirement by rotation and appointment is subject to the minimum requirements of the Company's Articles of Association and the AIC Code of Corporate Governance.

 

The Company's Articles of Association require that at every Annual General Meeting any Director who has not retired from office at the preceding two Annual General Meetings shall stand for re-appointment by the Company. However, the Board have agreed that it is good practice that all Directors be re-appointed annually. As such Messrs. AJ Adcock, PD Gadd and RDC Henderson will retire at the forthcoming Annual General Meeting and, being eligible, will offer themselves for re-appointment.

 

In accordance with Listing Rule 15.2.13A, Mr JWM Barlow, being a non-executive Director of Majedie Asset Management Limited, the Investment Manager, must submit himself for annual re-appointment.

 

The Board believes that the performance of the Directors continues to be effective, that they demonstrate commitment to their roles and that they have a range of business, financial and asset management skills and experience relevant to the direction and control of the Company.

 

The Board, having considered the retiring Directors' performance within the annual Board performance evaluation, hereby recommend that shareholders vote in favour of the proposed re-appointments.

 

 

Qualifying Third Party Indemnity Provisions

There are no qualifying third party indemnity provisions or qualifying pension scheme indemnity provisions which would require disclosure under section 236 of the Companies Act 2006.

 

Directors' Interests

Beneficial interests in ordinary shares as at:

 

 

 30 September
2017

 

1 October
2016

Mr AJ Adcock

           50,000

 

           50,000

Mr JWM Barlow

         692,083

 

         692,083

Mr PD Gadd

           54,224

 

           52,589

Mr RDC Henderson

             24,700

 

             24,700

 

Non-beneficial interests in ordinary shares as trustees for various settlements as at:

 

 

 30 September
2017

 

1 October
2016

Mr JWM Barlow

2,828,251

 

 2,828,251

 

There have been no changes to any of the above holdings between 30 September 2017 and the date of this report.

 

Substantial Shareholdings

At 30 September 2017, the Company has been notified of the following substantial holdings in shares carrying voting rights:

 

Mr HS Barlow

  

15,017,619

28.10%

Aviva plc

 

6,941,341

12.99%

Mr MHD Barlow

 

1,776,241

3.32%

Miss AE Barlow

 

2,029,148

3.80%

Mr JWM Barlow

 Non-beneficial 

2,828,251

5.32%

 

The substantial voting rights disclosed above include the total holdings of shares within certain trusts where there are other beneficiaries.

 

There have been no changes to any of the above holdings between 30 September 2017 and the date of this report.

 

Annual General Meeting

The Annual General Meeting will be held at City of London Club, 19 Old Broad Street, London EC2N 1DS on Wednesday, 17 January 2018 at 12 noon. The notice convening the Annual General Meeting is available on the Company's website.

 

The Board considers that Resolutions 1 to 14 are likely to promote the success of the Company and are in the best interests of the Company and its shareholders as a whole. The Directors unanimously recommend that you vote in favour of the Resolutions as they intend to do in respect of their own beneficial holdings.

 

Issue and Buyback of Shares

The Board is of the view that an increase of the Company's stock in issue provides benefits to shareholders including a dilution of the Company's gearing and cost of its debentures, a reduction in the Company's administrative expenses on a per share basis and increased liquidity in the Company's shares. As such the Board sought and received approval, at the Annual General Meeting (AGM) on 18 January 2017, to allot new shares for cash, and without first offering them to existing shareholders in proportion to their holdings, up to a maximum of 5,338,000 shares (being approximately 9.99% of the Company's existing share capital at that time). These two existing authorities will expire at the 2018 AGM. The Directors undertake not to allot any such new shares unless they are allotted at a price representing a premium to the Company's then prevailing NAV per share, with debt at fair value.

 

During the year no shares have been allotted. (2016: a total of 306,000 shares were allotted (for total consideration of £806,000 with issue costs of £1,000).

 

The Board continue to be prepared to issue new shares in order to meet natural market demand subject to the restriction that any new shares will be issued at a premium, and as such shareholder approval is sought at the AGM to renew the authority to issue new shares, without first offering them to existing shareholders in proportion to their holdings, up to a maximum of 5,338,556 shares (being approximately 9.99% of the Company's existing share capital). The renewed authority will expire at the 2019 AGM.

 

Since 1 October 2016, and up to the date of this report, the Company has made no buybacks for cancellation of its ordinary shares. At the AGM in 2017 the Directors were given power to buy back 8,010,505 ordinary shares (being 14.99% of the Company's existing share capital). Since the AGM the Directors have not bought any shares under this authority. This authority will also expire at the 2018 AGM.

 

In order to provide maximum flexibility, the Directors consider it appropriate that the Company be authorised to make such purchases and accordingly shareholder approval is sought at the AGM to renew the authority of the Company to exercise the power contained in its Articles of Association to make buybacks of its own shares. The maximum number of shares which may be purchased shall be 8,010,506 ordinary shares (being approximately 14.99% of the Company's issued share capital). Any shares so purchased will be cancelled or held in treasury. The restrictions on such purchases (including minimum and maximum prices) are outlined in the Notice of Meeting. The Authority will be used where the Directors consider it to be in the best interests of the shareholders and will expire at the 2019 AGM.

 

Capital Structure

As part of its corporate governance the Board keeps under review the capital structure of the Company. At 30 September 2017, the Company had a nominal issued share capital of £5,343,900, comprising 53,439,000 ordinary shares of 10p each, carrying one vote each. All of the shares of the Company are listed on the London Stock Exchange, which is a regulated market.

 

The Company holds no shares in Treasury.

 

The Company deploys gearing through two long-term debentures: £15m 9.5% debenture stock 2020 and £25m 7.25% debenture stock 2025, which were issued in 1994 and 2000 respectively. In 2004 the Company redeemed £1.5m of the 2020 issue and £4.3m of the 2025 issue as an opportunity arose to redeem at an attractive price. On 6 November 2017 the Company gave notice that it would exercise its right to redeem the entire outstanding holdings of the March 2020 debenture - see note 27 below.

 

The limits on the ability to borrow are described in the investment policy above. The Board is responsible for managing the overall gearing of the Company. Details of gearing levels are contained in the Year's Summary above, and in note 25 to the Accounts.

 

There are: no restrictions on voting rights; no restrictions concerning the transfer of securities in the Company; no special rights with regard to control attached to securities; no agreements between holders of securities regarding their transfer known to the Company; and no agreements which the Company is party to that might affect its control or trigger any compensatory payments for Directors, following a takeover bid.

 

Notice period for general meetings

The Board believes that it is in the best interests of shareholders of the Company to have the ability to call meetings on 14 clear days' notice should a matter require urgency. The Board will therefore, as last year, propose a resolution at the AGM to approve the reduction in the minimum notice period from 21 clear days to 14 clear days for all general meetings other than annual general meetings. The Directors do not intend to use the authority unless immediate action is required.

 

Future Developments

The Chairman's Statement and the Chief Executive's report above provide details concerning relevant future developments of the Company in the forthcoming year.

 

Employee, Social, Environmental, Ethical and Human Rights policy

The Company, as an investment trust, has limited direct impact upon the environment. In carrying out its activities and relationships with its employees, suppliers and the community, the Company aims to conduct itself responsibly, ethically and fairly.

 

The Company falls outside the scope of the Modern Slavery Act 2015 as it does not meet the turnover requirements under that act. The Company does operate by outsourcing significant parts of its operations to reputable professional companies, including investment management to MAM. In doing so MAM complies with all the relevant laws and regulations and also takes account of social, environmental, ethical and human rights factors, where appropriate.

 

Carbon Reporting

In accordance with the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013, the Company is required to report on its greenhouse gas emissions. In accordance with the regulations, the Company has determined that its organisational boundary, to which entities the regulations apply, is consistent with its consolidated accounts.

 

The Company operates in the financial services sector, and in common with many organisations employs outsourcing such that most of its activities are performed by other outside organisations which do not give rise to any reportable emissions by the Group.

 

However the Company, as a self-managed investment trust, does undertake activities at its sub-leased premises. In accordance with the provision of the centrally provided building services (including heating, light, cooling etc) to all lessees in the building by the landlord, and by the superior lessee, it is considered that the Company does not have emissions responsibility in respect of these services, which rather rest with the landlord or superior lessee. The Company does however have responsibility for various other emissions in the usage of electricity by its office equipment in the course of undertaking its duties but it is not able to determine their amounts as compared to those provided by the landlord or superior lessee.

 

Additionally, the Company has many investments in companies around the world; however the Company does not have the ability to control the activities of these investee companies and as such has no responsibility for their emissions. Therefore, the Directors believe that the Group has no reportable emissions for the year ended 30 September 2017 (2016: nil).

 

Donations

The Company made no political or charitable donations during the year (2016: nil) to organisations either within or outside of the EU.

 

Gender Diversity

The Board are aware of the recommendations made in the Hampton-Alexander Review in respect of gender diversity in the boardroom. The Company's policy on diversity is included in the section on the Nomination Committee in the Company's full Annual Report and Accounts and this is applied when a new appointment to the Board is required. There has been no change in the Board and at the year end the composition of the Board was that all the Directors were male. The composition of the Company's employees is 66.6% male and 33.3% female.

 

Post Balance Sheet Date Events

On 6 November 2017, the Company gave notice that it was to redeem £13.5 million, (being the total outstanding) of the 9.50% March 2020 debentures. Further details are contained in the Chairman's Statement and Chief Executive's Report above, and in note 27 below.

 

Material Contracts

 

·      Majedie Asset Management Limited

The Board has appointed MAM as its investment manager, the terms of which are defined under an Investment Agreement dated 13 January 2014. The agreement divides the Company's investment assets into a combination of a segregated portfolio and the MAM in-house funds, with the Board having the ability, subject to certain capacity constraints in respect of the MAM funds, for the determination of the asset allocation of its investment assets, both initially and on an on-going basis.

 

The Investment Agreement provides that the segregated portfolio is to be managed on the same basis as the MAM UK Equity Fund, with other investments being made into the various MAM Funds, as decided by the Board as part of their asset allocation requirements. Further details on the allocation of the investments managed by MAM are included in the Chief Executive's Report above.

 

The fees payable under the Investment Agreement are detailed below:

Portfolio/Fund*

Management
Feeˆ

Performance
Feeˆ

 MAM UK Equity Segregated Portfolio

 0.75% p.a.

Nil

 MAM Tortoise Fund

 1.50% p.a.

20%†

 MAM UK Income Fund

 0.75% p.a.

Nil

 MAM Global Equity Fund

 0-0.75% p.a.**

Nil

 MAM Global Focus Fund

 0-1.00% p.a.**

Nil

 MAM US Equity Fund

 0.75% p.a.

Nil†

 

* The fees are calculated under the terms of the Investment Agreement or the relevant fund prospectus.

ˆ The fees charged to the MAM UK Equity Segregated Portfolio are charged directly to the Company's Statement of Comprehensive Income. All other fund fees are charged within the relevant fund.

† The performance fee entitlement only occurs once the 5% p.a. hurdle has been exceeded and is calculated on a high water mark basis.

** The management fee range reflects the investments made into different share classes.

 

The Investment Agreement entitles either party to terminate the arrangement with six months' notice after an initial period which ended on 31 December 2015.

 

·      BNY Mellon Trust & Depositary (UK) Limited

The Company has appointed BNYM (UK) Limited (BNYM (UK)) to provide depositary services as required by the AIFMD and certain other associated services under the terms of a depositary agreement dated 19 June 2014. The services provided by BNYM (UK) as Depositary for the Company include:

 

·      general oversight responsibilities over the issue and cancellation of the Company's share capital, the carrying out of net asset value calculations, the application of income, and the ex-post review of investment transactions;

·      monitoring of the Company's cash flows and ensuring that all cash is booked in appropriate accounts in the name of the Company or BNYM (UK) acting on behalf of the Company; and

·      ensuring that the Bank of New York Mellon SA/NV, London Branch (BNYM) (to whom BNYM (UK) has delegated the safekeeping of all assets held within the Company's investment portfolio, including those classed as financial instruments for the purpose of the AIFMD), in accordance with the terms of a Global Custody Agreement, retains custody of the Company's financial instruments in segregated accounts so that they can be clearly identified as belonging to the Company and maintains records sufficient for verification of the Company's ownership rights in relation to assets other than financial instruments.

 

No specific conflicts have been identified as arising as a result of the delegation of the provision of custody and safekeeping services by BNYM (UK) to BNYM. The terms of the depositary agreement provide that, where certain assets of the Company are invested in a country whose laws require certain financial instruments to be held in custody by a local entity and no such entity is able to satisfy the requirements under the AIFMD in relation to use of delegates by depositaries, BNYM (UK) may still delegate its functions to such a local entity and be fully discharged of all liability for loss of financial instruments of the Company by such local entity.

 

The Depositary receives an annual fee for its services based on a sliding scale on the total gross portfolio assets of the Company, payable monthly in arrears. The depositary agreement in place with BNYM (UK) and the related custody agreement in place with BNYM continues unless and until terminated: without cause upon the Company and BNYM (UK) giving not less than 90 days' notice and upon BNYM (UK) giving notice expiring not less than 18 months after the date of the agreement, in each case such notice to be effective only if a new Depositary has been appointed.

 

·      Link Market Services Limited (Link)

Company Secretarial services are provided by Link, following their acquisition of Capita Asset Services on 6 November 2017. Such services continue to be provided under the previous Company Secretarial Services Agreement, dated 25 April 2016. The agreement mandates that Link Company Matters Limited will act as Link's nominated corporate secretary. The agreement also provides for fees to be paid quarterly and to be based on a fixed annual amount and be subject to annual RPI increases with either party to give notice to terminate the agreement with 12 months' notice.

 

Listing Rule Disclosure

The Company confirms that there are no items which require disclosure under Listing Rule 9.8.4R in respect of the year ended 30 September 2017.

 

AIFMD

The Company is subject to the AIFMD, which requires certain financial and non-financial disclosures in respect of Annual Reports.

 

These disclosures are met by the Company in its Annual Report. In addition certain specific disclosures are required which are:

 

·      Remuneration

Total remuneration details for the Directors (who are considered to be code staff under the Directive) are shown in the Report on Directors' Remuneration. Remuneration details for staff are included in Note 7 to the accounts. There was £5,000 of variable remuneration paid during the year.

 

·      Leverage

Under the AIFMD, the Company is required to disclose its actual leverage (calculated in accordance with the Directive under the Gross & Commitment methods) and it must also set a limit in respect of leverage it can use. The Company has set a limit of 1.5 times (1 times being defined as no leverage) and as at 30 September 2017 had leverage of 1.17 times under the Gross method and 1.19 times under the Commitment method. Note 25 to the accounts provides further details.

 

·      Investor Pre-investment information

The AIFMD requires that potential investors are provided with certain information. The Company provides this information on its website at www.majedieinvestments.com and there have been no material changes over the year to the date of this report.

 

Disclosure of Information to Auditors

As far as each of the Directors are aware:

 

·      there is no relevant audit information of which the Company's Auditors are unaware; and

·      they have taken all steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company's Auditors are aware of that information.

 

This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006.

 

Auditors

Ernst & Young LLP were re-appointed as Auditors on 20 January 2017. During the year an Audit tender was undertaken in accordance with EU regulation. Further details are contained in the Report of the Audit Committee in the Company's full Annual Report and Accounts. Ernst & Young LLP have indicated their willingness to continue in office and a resolution will be proposed at the AGM to re-appoint them as Auditors.

 

Viability

The Directors have assessed the prospects of the Company over the five year period to September 2022. The Directors believe that this period is appropriate as the Company is a long-term investor in equity markets.

 

In their assessment of the viability of the Company, the Directors have considered each of the Company's principal risks and uncertainties. The Directors have also considered the Company's income and expenditure projections, the level of borrowings (leverage of 1.17 times (Gross method) and 1.19 times (Commitment method) are well below the 1.5 times limit. In addition the current borrowings of £34.0m are over 5 times covered by the current total assets) plus as the Company's investments primarily comprise readily realisable securities (equal to 71.2% of total assets as at 30 September 2017), these can be sold to meet funding requirements as necessary.

 

Based on the Company's processes for monitoring expenses, share price discounts or premium, the allocation in its investment portfolio to an absolute return fund, the Investment Manager's compliance with the investment restrictions and objective, concentration and liquidity risk, the current large margin of safety over the covenants on its debentures and financial controls, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five year period to September 2022.

 

Going Concern

The Directors believe, after review and due consideration of future forecast and cashflow projections that the Company has adequate financial resources to continue in operational existence for a period of at least 12 months from the date that the financial statements were approved. For this reason and taking account of the large number of readily realisable investments held within its portfolio, the Board continues to adopt the going concern basis in preparing the financial statements.

 

By Order of the Board

 

Link Company Matters Limited

Company Secretary

4 December 2017

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and the Group financial statements in accordance with applicable United Kingdom law and those IFRS as adopted by the European Union. Under Company Law the Directors must not approve the Group financial statements unless they are satisfied that they present fairly the financial position, financial performance and cash flows of the Group for that period. In preparing the Group financial statements the Directors are required to:

 

·      select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently;

·      present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

·      provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group's financial position and financial performance;

·      state that the Group has complied with IFRS, subject to any material departures disclosed and explained in the financial statements;

·      make judgements and estimates that are reasonable and prudent; and

·      state that the Annual Report taken as a whole, is fair, balanced and understandable and provides sufficient information to allow shareholders to assess the Group's performance.

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the Group financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, a Corporate Governance Statement, a Directors' Remuneration Report and a Directors' Report that comply with that law and those regulations.

 

The Directors of the Company, whose names are shown in the Company's full Annual Report and Accounts, each confirm to the best of their knowledge that:

 

·      the financial statements, which have been prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group;

·      the Annual Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces; and

·      they consider that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

 

By order of the Board

 

Andrew J Adcock

Chairman

4 December 2017

 

REPORT OF THE DEPOSITARY

 

Report of the Depositary to the shareholders of Majedie Investments PLC

 

Depositary's responsibilities

The Depositary is responsible for the safekeeping of all custodial assets of the Company, for verifying and maintaining a record of all other assets of the Company and for the collection of income that arises from those assets.

 

It is the duty of the Depositary to take reasonable care to ensure that the Company is managed in accordance with the Alternative Investment Fund Managers Directive (AIFMD), the FUND Sourcebook and the Company's Instrument of Incorporation, in relation to the calculation of the net asset value per share and the application of income of the Company. The Depositary also has a duty to monitor the Company's compliance with investment restrictions and leverage limits set in its offering documents.

 

Report of the Depositary to the shareholders of Majedie Investments PLC for the year ended 30 September 2017

Having carried out such procedures as we consider necessary to discharge our responsibilities as

Depositary of the Company, it is our opinion, based on the information available to us and the explanations provided, that in all material respects the Company, acting through the AIFM has been managed in accordance with AIFMD, the FUND sourcebook, the Instrument of Incorporation of the Company in relation to the calculation of the net asset value per share, the application of income of the Company; and with investment restrictions and leverage limits set in its offering documents.

 

For and on behalf of

 

 

BNY Mellon Trust & Depositary (UK) Limited

160 Queen Victoria Street

London EC4V 4LA

 

NON-STATUTORY ACCOUNTS

The financial information set out below does not constitute the Company's statutory accounts for the years ended 30 September 2017 and 2016 but is derived from those accounts. Statutory accounts for 2016 have been delivered to the Registrar of Companies, and those for 2017 will be delivered in due course. The Auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditors' report can be found in the Company's full Annual Report and Accounts at www.majedieinvestments.com.

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 30 September 2017

 

 

 

 

2017

 

 

 

2016

 

Group and Company

Notes

Revenue
return
£000

Capital
return
£000

Total
£000

 

Revenue
return
£000

Capital
return
£000

Total
£000

Investments

 

 

 

 

 

 

 

 

Gains on investments at fair value through profit or loss

13

 

14,680

14,680

 

 

21,919

21,919

Net investment Result

 

 

14,680

14,680

 

 

21,919

21,919

Income

 

 

 

 

 

 

 

 

Income from investments

3

7,414

 

7,414

 

6,433

 

6,433

Other income

3

49

 

49

 

47

 

47

Total income

 

7,463

 

7,463

 

6,480

 

6,480

Expenses

 

 

 

 

 

 

 

 

Management fees

4

(122)

(364)

(486)

 

(109)

(325)

(434)

Performance fees

4

 

(4)

(4)

 

 

 

 

Administration expenses

5

(673)

(650)

(1,323)

 

(712)

(779)

(1,491)

Return before finance cost and taxation

 

6,668

13,662

20,330

 

5,659

20,815

26,474

Finance costs

8

(704)

(2,112)

(2,816)

 

(703)

(2,110)

(2,813)

Net return before taxation

 

5,964

11,550

17,514

 

4,956

18,705

23,661

Taxation

9

(13)

 

(13)

 

(17)

 

(17)

Net return after taxation for the year from continuing operations

 

5,951

11,550

17,501

 

4,939

18,705

23,644

Discontinued operations

 

 

 

 

 

 

 

 

Net return for the year from discontinued operations

15

 

 

 

 

 

 

 

Total comprehensive income for the year

 

5,951

11,550

17,501

 

4,939

18,705

23,644

 

 

 

 

 

 

 

 

 

Return per Ordinary Share

 

pence

pence

pence

 

pence

pence

pence

Basic for continuing operations

11

11.1

21.6

32.7

 

9.3

35.0

44.3

Basic for discontinued operations

11

 

 

 

 

 

 

 

Basic total

11

11.1

21.6

32.7

 

9.3

35.0

44.3

 

The total column of this statement is the Consolidated Statement of Comprehensive Income of the Group prepared in accordance with IFRS as adopted by the European Union. The supplementary revenue return and capital return columns are prepared under guidance published by the AIC.

 

All amounts relatable to continuing operations.

 

The notes below form part of these accounts

 

COMPANY STATEMENT OF COMPREHENSIVE INCOME

for the year ended 30 September 2017

 

 

 

 

2017

 

 

 

2016

 

Group and Company

Notes

Revenue
return
£000

Capital
return
£000

Total
£000

 

Revenue
return
£000

Capital
return
£000

Total
£000

Investments

 

 

 

 

 

 

 

 

Gains on investments at fair value through profit and loss

13

 

14,680

14,680

 

 

21,919

21,919

Net Investment Result

 

 

14,680

14,680

 

 

21,919

21,919

Income

 

 

 

 

 

 

 

 

Income from investments

3

7,414

 

7,414

 

6,433

 

6,433

Other income

3

49

 

49

 

47

 

47

Total income

 

7,463

 

7,463

 

6,480

 

6,480

Expenses

 

 

 

 

 

 

 

 

Management fees

4

(122)

(364)

(486)

 

(109)

(325)

(434)

Performance fees

4

 

(4)

(4)

 

 

 

 

Administration expenses

5

(673)

(650)

(1,323)

 

(712)

(779)

(1,491)

Return before finance costs and taxation

 

6,668

13,662

20,330

 

5,659

20,815

26,474

Finance costs

8

(704)

(2,112)

(2,816)

 

(703)

(2,110)

(2,813)

Net Return before taxation

 

5,964

11,550

17,514

 

4,956

18,705

23,661

Taxation

9

(13)

 

(13)

 

(17)

 

(17)

Net Return after taxation for the year

 

5,951

11,550

17,501

 

4,939

18,705

23,644

 

 

 

 

 

 

 

 

 

Return per Ordinary Share

 

pence

pence

pence

 

pence

pence

pence

Basic

11

11.1

21.6

32.7

 

9.3

35.0

44.3

 

The total column of this statement is the Statement of Comprehensive Income of the Company prepared in accordance with IFRS as adopted by the European Union. The supplementary revenue return and capital return columns are prepared under guidance published by the AIC.

 

All amounts relate to continuing operations.

 

The notes below form part of these accounts.

CONSOLIDATED AND COMPANY STATEMENT OF CHANGES IN EQUITY

for the year ended 30 September 2017

 

Group

Notes

Share
capital
£000

 

Share
premium
£000

 

Capital
redemption
reserve
£000

 

Capital
reserve
£000

 

Retained earnings
£000

 

Total
£000

Year ended 30 September 2017

 

 

 

 

 

 

 

 

 

 

 

 

As at 1 October 2016

 

5,344

 

3,054

 

56

 

141,648

 

19,884

 

169,986

Net return for the year from continuing operations

 

 

 

 

 

 

 

11,550

 

5,951

 

17,501

Dividends declared and paid in year

10

 

 

 

 

 

 

 

 

(4,943)

 

(4,943)

As at 30 September 2017

 

5,344

 

3,054

 

56

 

153,198

 

20,892

 

182,544

 

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

 

 

 

 

 

 

 

 

 

 

 

Year ended 30 September 2017

 

 

 

 

 

 

 

 

 

 

 

 

As at 1 October 2016

 

5,344

 

3,054

 

56

 

137,949

 

23,583

 

169,986

Net return for the year

 

 

 

 

 

 

 

11,550

 

5,951

 

17,501

Dividends declared and paid in year

10

 

 

 

 

 

 

 

 

(4,943)

 

(4,943)

As at 30 September 2017

 

5,344

 

3,054

 

56

 

149,499

 

24,591

 

182,544

 

 

 

 

 

 

 

 

 

 

 

 

 

Group

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended 30 September 2016

 

 

 

 

 

 

 

 

 

 

 

 

As at 1 October 2015

 

5,313

 

2,280

 

56

 

122,943

 

19,215

 

149,807

Net return for the year from continuing operations

 

 

 

 

 

 

 

18,705

 

4,939

 

23,644

Net return for the year from discontinued operations

15

 

 

 

 

 

 

 

 

 

 

 

Share issue

19

31

 

775

 

 

 

 

 

 

 

806

Share issue expenses

19

 

 

(1)

 

 

 

 

 

 

 

(1)

Dividends declared and paid in year

10

 

 

 

 

 

 

 

 

(4,720)

 

(4,720)

As at 30 September 2016

 

5,344

 

3,054

 

56

 

141,648

 

19,884

 

169,986

 

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended 30 September 2016

 

 

 

 

 

 

 

 

 

 

 

 

As at 1 October 2015

 

5,313

 

2,280

 

56

 

119,244

 

22,914

 

149,807

Net return for the year

 

 

 

 

 

 

 

18,705

 

4,939

 

23,644

Share issue

19

31

 

775

 

 

 

 

 

 

 

806

Share issue expenses

19

 

 

(1)

 

 

 

 

 

 

 

(1)

Dividends declared and paid in year

10

 

 

 

 

 

 

 

 

(4,270)

 

(4,270)

As at 30 September 2016

 

5,344

 

3,054

 

56

 

137,949

 

23,583

 

169,986

 

The notes below form part of these accounts.

 

CONSOLIDATED AND COMPANY BALANCE SHEET

as at 30 September 2017

 

 

Notes

Group

2017
£000

Company

2017

£000

Group

2016
£000

Company

2016

£000

Non-current assets

 

 

 

 

 

Property and equipment

12

50

50

52

52

Investments at fair value through profit or loss

13

213,748

213,748

201,359

201,359

Investment in Subsidiary

14

 

 

 

162

 

 

213,798

213,798

201,411

201,573

Current assets

 

 

 

 

 

Trade and other receivables

16

228

228

356

356

Cash and cash equivalents

17

3,566

3,566

3,467

3,467

 

 

3,794

3,794

3,823

3,823

Total assets

 

217,592

217,592

205,234

205,396

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Trade and other payables

18

(1,085)

(1,085)

(1,317)

(1,479)

Total assets less current liabilities

 

216,507

216,507

203,917

203,917

Non-current liabilities

 

 

 

 

 

Debentures

18

(33,963)

(33,963)

(33,931)

(33,931)

Total liabilities

 

(35,048)

(35,048)

(35,248)

(35,410)

Net assets

 

182,544

182,544

169,986

169,986

 

 

 

 

 

 

Represented by:

 

 

 

 

 

Ordinary share capital

19

5,344

5,344

5,344

5,344

Share premium account

20

3,054

3,054

3,054

3,054

Capital redemption reserve

 

56

56

56

56

Capital reserve

 

153,198

149,499

141,648

137,949

Revenue reserve

 

20,892

24,591

19,884

23,583

Equity Shareholders' Funds

 

182,544

182,544

169,986

169,986

 

 

 

 

 

 

Net asset value per share

21

pence

pence

pence

pence

Basic

 

341.6

341.6

318.1

318.1

 

 

 

 

 

 

 

Approved by the Board of Majedie Investments PLC (Company no. 109305) and authorised for issue on 4 December 2017.

 

Andrew J Adcock

Chairman

 

The notes below form part of these accounts.

 

CONSOLIDATED AND COMPANY CASH FLOW STATEMENT

for the year ended 30 September 2017

 

 

Notes

Group

2017
£000

Company

2017

£000 

Group

2016
£000

Company

2016

£000

Net cash flow from operating activities

 

 

 

 

 

Company net return before taxation*

 

 

17,514

 

23,661

Consolidated net return before taxation from continuing operations*

 

17,514

 

23,661

 

Consolidated net return before taxation from discontinued operations

 

 

 

 

 

Adjustments for:

 

 

 

 

 

Gains on investments

13

 

(14,680)

 

(21,919)

Gains on investments relating to continuing operations

13

(14,680)

 

(21,919)

 

Gains on investments relating to discontinued operations

15

 

 

 

 

Accumulation dividends

 

(338)

(338)

(329)

(329)

Depreciation

 

25

25

78

78

Foreign exchange losses/ (gains)

 

(1)

(1)

(10)

(10)

Purchases of investments

 

(26,043)

(26,043)

(13,378)

(13,378)

Sales of investments

 

28,580

28,580

15,838

15,838

 

 

5,057

5,057

3,941

3,941

Finance costs

 

2,816

2,816

2,813

2,813

Operating cashflows before movements in working capital

 

7,873

7,873

6,754

6,754

Increase/(decrease) in trade and other payables

 

5

5

(11)

151

(Increase)/decrease in trade and other receivables

 

(46)

(46)

146

241

Net cash inflow from operating activities before tax

 

7,832

7,832

6,889

7,146

Tax recovered

 

31

31

2

2

Tax on unfranked income

 

(15)

(15)

(34)

(34)

Net cash inflow from operating activities

 

7,848

7,848

6,857

7,114

Attributable to:

 

 

 

 

 

Net cash inflow from operating activities from continuing operations

 

7,848

 

6,857

 

Net cash inflow from operating activities from discontinued operations

 

 

 

 

 

Investing activities

 

 

 

 

 

Purchase of tangible assets

 

(23)

(23)

(66)

(66)

Net cash outflow from investing activities

 

(23)

(23)

(66)

(66)

Financing activities

 

 

 

 

 

Interest paid

 

(2,783)

(2,783)

(2,783)

(2,783)

Dividends paid

 

(4,943)

(4,943)

(4,270)

(4,270)

Net proceeds from share issues

 

 

 

1,192

1,192

 

 

 

 

 

 

Net cash outflow from financing activities

 

(7,726)

(7,726)

(5,861)

(5,861)

 

 

 

 

 

 

Increase/(Decrease) in cash and cash equivalents for the year

22

99

99

930

1,187

Cash and cash equivalents at start of year

 

3,467

3,467

2,537

2,280

 

 

 

 

 

 

Cash and cash equivalents at end of year

 

3,566

3,566

3,467

3,467

 

* Includes dividends received in the year of £7,040,000 (2016: £6,132,000) and interest received of £3,000 (2016: £1,000).

 

The notes below form part of these accounts.

 

NOTES TO THE ACCOUNTS

 

General Information

Majedie Investments PLC is a company incorporated and domiciled in England under the Companies Act 2006. The Company is registered as a public limited company and is an investment company as defined by Section 833 of the Companies Act 2006. The address of the registered office is given below. The nature of the Group's operations and its principal activities are set out in the Business Review section of the Strategic Report above.

 

Critical Accounting Assumptions and Judgements

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting assumptions. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas requiring a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are set out below.

 

Assessment as investment entity

Entities that meet the definition of an investment entity within IFRS 10 are required to measure their subsidiaries at fair value through profit or loss rather than consolidate them, unless their main purpose and activities are providing services that relate to the investment entity's investment activities. The criteria which define an investment entity are, as follows:

 

·      obtains funds from one or more investors for the purpose of providing those investors with investment services;

·      commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both; and

·      measures and evaluates the performance of substantially all of its investments on a fair value basis.

 

The Board has agreed with the recommendation of the Audit Committee that the Company meets the definition of an investment entity. This conclusion will be reassessed on an annual basis, if any of these criteria or characteristics change.

 

The Company's subsidiary MPM provided investment management services and is not itself an investment entity and as such is consolidated into the Group accounts. MPM was placed into liquidation on 5 January 2017 and was dissolved on 4 October 2017.

 

Unquoted Investments

Unquoted investments are valued at management's best estimate of fair value in accordance with IFRS having regard to International Private Equity and Venture Capital Valuation Guidelines as recommended by the British Venture Capital Association. The principles which the Group applies are set out below. The inputs into the valuation methodologies adopted include historical data such as earnings or cash flow as well as more subjective data such as earnings forecasts, discount rates and earnings multiples. As a result of this, the determination of fair value requires management judgement. At the year end, unquoted investments (including MAM, but excluding the MAM funds) represent 33.8% (2016: 33.7%) of consolidated shareholders' funds.

 

1 SIGNIFICANT ACCOUNTING POLICIES

 

The principal accounting policies adopted are set out as follows:

 

The accounts above comprise the audited results of the Company and its subsidiary for the year ended 30 September 2017, and are presented in pounds Sterling rounded to the nearest thousand, as this is the functional currency in which the Group and Company transactions are undertaken.

 

Going Concern

The Directors have a reasonable expectation that the Company has sufficient resources to continue in operational existence for a period of at least 12 months from the date that the financial statements were approved. Accordingly, the financial statements have been prepared on a going concern basis.

 

Presentation of Statement of Comprehensive Income

In order to reflect better the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. Additionally the net revenue is the measure that the Directors believe to be appropriate in assessing the Company's compliance with certain requirements set out in section 1158 of the Corporation Tax Act 2010.

 

Basis of Accounting

The accounts of the Group and the Company have been prepared in accordance with IFRS. They comprise standards and interpretations approved by the International Accounting Standards Board and International Financial Reporting Committee, interpretations approved by the International Accounting Standards Committee that remain in effect, to the extent they have been adopted by the European Union.

 

Where presentational guidance set out in the SORP regarding the financial statements of investment trust companies and venture capital trusts issued by the AIC in November 2014, and updated in January 2017, is not inconsistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.

 

Basis of Consolidation

The Company is an investment entity as defined by IFRS 10 and, as such, does not consolidate the entities it controls unless they provide investment related services to the Company. Instead, interests in such entities are classified as fair value through profit or loss, and measured at fair value.

 

The Consolidated Accounts incorporate the accounts of the Company and the entity controlled by the Company which provide investment related services made up to 30 September each year. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

 

The results of subsidiaries acquired or disposed of are included in the Consolidated Statement of Comprehensive Income from the effective date of acquisition or disposal as appropriate. All Group entities have the same year end date.

 

Where necessary, adjustments are made to the financial statements of the subsidiary to bring the accounting policies used into line with those used by the Group.

 

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

 

Standards Issued But Not Yet Effective

At the date of authorisation of these financial statements, the following relevant Standards and Interpretations have not been applied in these financial statements since they were in issue but not yet effective and/or adopted:

 

International Accounting Standards and Interpretations (IAS/IFRS/IFRICs)

Effective date

IAS 7

Disclosure Initiative Amendments to IAS 7 Statement of Cash Flows

1 January 2017

IFRS 9

Financial Instruments: Classification & Measurement

1 January 2018

IFRS 15

Revenue from Contracts with Customers

1 January 2018

IFRS 16

Leases

1 January 2019

 

The Directors initial assessment is that it is not anticipated that the adoption of the above Standards and Interpretations would have a material impact on the financial statements in the period of initial application. In respect of IFRS 9 and IFRS 15 which will first be adopted by the Company during the year ended 30 September 2019, a detailed assessment of any quantitative impact of the adoption of these standards will be undertaken during the year ended 30 September 2018.

 

Management anticipates that all of the relevant pronouncements will be adopted in the relevant accounting period in which the standard is effective.

 

Foreign Currencies

The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates, i.e. its functional currency. For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in Pounds Sterling (Sterling) which is the functional currency of the Company, and the presentational currency of the Group. Transactions in currencies other than Sterling are recorded at the rate of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items and non-monetary assets and liabilities that are fair valued and are denominated in foreign currencies are re-translated at the rates prevailing on the balance sheet date.

 

Income

Dividend income from investments is taken to the revenue account on an ex-dividend basis. UK dividends are included net of tax credits. Overseas dividends are included gross of any withholding tax. Where the Company has elected to receive scrip dividends in the form of additional shares rather than in cash, the amount of the cash dividend foregone is recognised as income. Any excess in the value of the shares received over the amount of the cash dividend is recognised in the capital column.

 

Special dividends are taken to the revenue or capital account depending on their nature.

 

Deposit interest and other interest receivable is included on an accruals basis.

 

Expenses

All administrative expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the Statement of Comprehensive Income, all expenses have been presented as revenue items except as follows:

 

·      Expenses which are incidental to the acquisition or disposal of an investment are treated as capital costs and separately identified and disclosed (see note 13).

·      Expenses are split and presented partly as capital items where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated, and accordingly the investment management expenses have been allocated 75% to capital, in order to reflect the Directors' expected long-term view of the nature of the investment returns of the Company.

·      The investment management performance fee, which is based on capital out-performance, is charged wholly to capital.

 

Pension Costs

Payments made to the Group's defined contribution group personal pension plan are charged as an expense as they fall due on an accruals basis.

 

Finance Costs

75% of finance costs arising from the debenture stocks are allocated to capital; 25% of the finance costs are charged on the same basis to the revenue account. Premiums payable on early repurchase of debenture stock are charged 100% to capital. In addition, other interest payable is allocated 75% to capital and 25% to the revenue account. Finance costs are debited on an accruals basis using the effective interest method.

 

Taxation

The tax charge represents the sum of the tax currently payable and deferred tax.

 

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

 

In line with the recommendations of the SORP, the allocation method used to calculate tax relief on expenses presented against capital returns in the supplementary information in the Statement of Comprehensive Income is the marginal basis. Under this basis, if taxable income is capable of being offset entirely by expenses presented in the revenue return column of the Statement of Comprehensive Income, then no tax relief is transferred to the capital return column.

 

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

 

No provision is made for tax on capital gains since the Company operates as an investment trust for tax purposes.

 

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Leasehold improvements are depreciated in equal annual instalments over the minimum period of the lease whereas depreciation for other tangible assets is provided for at 25% to 33% per annum using the straight-line method.

 

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

 

Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease.

 

Financial Instruments

Financial assets and financial liabilities are recognised on the Group's Balance Sheet when the Group becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value.  

 

Investments Held at Fair Value Through Profit or Loss

The Group classifies its investments in debt and equity securities as financial assets or financial liabilities at fair value through profit or loss, as defined by IAS 39.

 

When a purchase or sale is made under a contract, the terms of which require delivery within the timeframe of the relevant market, the investments concerned are recognised or derecognised on the trade date.

 

All investments are designated upon initial recognition as held at fair value through profit or loss, and are measured at subsequent reporting dates at fair value, which is either the bid price or the last traded price for listed securities, depending on the convention of the exchange on which the investment is quoted. Investments in unit trusts or open ended investment companies are valued at the closing price, the bid price or the single price as appropriate, released by the relevant investment manager.

 

Fair values for unquoted investments, or investments for which the market is inactive, are established by using various valuation techniques in accordance with the International Private Equity and Venture Capital Valuation (IPEV) Guidelines. These may include recent arm's length market transactions, the current fair value of another instrument which has substantially the same earnings multiples, discounted cash flow analysis and option pricing models. Where there is a valuation technique commonly used by market participants to price the instrument and that technique has been demonstrated to provide reliable estimates of prices obtained in actual market transactions, that technique is utilised.

 

The fair value of an investment at the beginning of the year is used when an investment is transferred between hierarchy levels.

 

Changes in the fair value of investments and gains on the sale of investments are recognised as they arise in the Statement of Comprehensive Income.

 

Investment in Subsidiary

In its separate financial statements the Company recognises its investment in its subsidiary at fair value.

 

Trade Receivables

Trade receivables do not carry any interest and are stated at carrying value which is reduced by appropriate allowances for estimated irrecoverable amounts.

 

Cash and Cash Equivalents

Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value.

 

Non current liabilities

The debentures are initially recognised at cost, being the fair value of the consideration received less issue costs where applicable. After initial recognition, all interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate. The effective interest rate is the rate that exactly discounts estimated future payments over the expected life of the financial liabilities to the net carrying amount on initial recognition.

 

Trade Payables

Trade payables are not interest bearing and are stated at carrying value.

 

Capital Reserve

Gains and losses on the sale of investments and investment holding gains and losses are accounted for in the Statement of Comprehensive Income and subsequently in the Capital Reserve. Additionally and as detailed above, finance costs and expenses are allocated to the Capital Reserve.

 

Share Premium Account

Share premium account represents the excess over nominal value of consideration received for equity shares, net of expenses of the share issue.

 

Revenue Reserve

The net revenue return for the year is included in the Revenue Reserve along with dividends to shareholders (when they are paid or approved in general meetings).

 

Dividends payable to shareholders

Dividends to shareholders are accounted for in the period in which they are paid or approved in general meetings. Dividends payable to shareholders are recognised in the Statement of Changes in Equity.

 

2 BUSINESS SEGMENTS

 

For management purposes the Company and Group are organised into one principal activity, being investing activities, as detailed below:

 

Investing activities

The Company's investment objective is to maximise total shareholder return whilst increasing dividends by more than the rate of inflation over the long term. The Company operates as an investment trust company and its portfolio contains investments in companies listed in a number of countries. Geographical information about the portfolio is provided above and to exposure to different currencies is disclosed in note 25 below.

 

3 INCOME

 

 

Group and Company
2017
£000

 

 

Group and Company
2016
£000

 

Income from investments

 

 

 

 

 

Franked dividend income*

6,967

 

 

5,943

 

Accumulation income

338

 

 

329

 

Overseas dividends

109

 

 

161

 

 

 

7,414

 

 

6,433

Other income

 

 

 

 

 

Deposit interest

3

 

 

1

 

Sundry income

46

 

 

46

 

 

 

49

 

 

47

Total income

 

7,463

 

 

6,480

 

 

 

 

 

 

Total income comprises:

 

 

 

 

 

Dividends

7,414

 

 

6,433

 

Interest

3

 

 

1

 

Other income

46

 

 

46

 

 

 

7,463

 

 

6,480

 

 

 

 

 

 

Income from investments

 

 

 

 

 

Listed UK

1,910

 

 

3,016

 

Listed overseas

109

 

 

184

 

Unlisted - MAM funds

1,253

 

 

 

 

Unlisted

4,142

 

 

3,233

 

 

 

7,414

 

 

6,433

 

* Includes MAM Ordinary dividend income of £4,142,000 (2016: £3,233,000)

 

4 MANAGEMENT FEES

 

 

Group and Company
2017

 

Group and Company
2016

 

Revenue
return
£000

Capital
return
£000

Total
£000

 

Revenue
return
£000

Capital
return
£000

Total
£000

Investment management

122

364

486

 

109

325

434

Performance

 

4

4

 

 

 

 

 

122

368

490

 

109

325

434

 

The investment management fees are payable to MAM in accordance with an Investment Agreement. Further details on the terms of this Investment Agreement are given in the Directors' Report above. The investment management fees charged and shown are only in respect of the investment in the MAM UK Equity Segregated Portfolio. Investment management fees in respect of the investments made in the other MAM funds are charged directly in the relevant fund and included in the relevant fund's published net asset value price and hence form part of that investment's valuation in the Company's accounts. These costs are however included in the Company's OCR calculation above on a best estimates basis. At 30 September 2017, an amount of £122,000 was outstanding for payment of investment management fees due to MAM on the MAM UK Equity Segregated Portfolio (2016: £115,000).

 

Performance fees are also payable to MAM in respect of the investment in the MAM Tortoise fund, but not on any other MAM fund investment. The performance fees are calculated in accordance with the fund's prospectus using an equalisation method. As these fees are individual to each investor they are charged to each investor and not the fund. The MAM Tortoise fund charges performance fees on the basis of its fund year and these fees are in respect of the fund year ended 30 September 2016. In accordance with the AIC SORP these fees are charged wholly to capital. There were no amounts outstanding as at 30 September 2017.

 

5 ADMINISTRATIVE EXPENSES

 

 

Group and Company
2017
£000

 

Group and Company
2016
£000

 

Staff costs - note 7

451

 

414

 

Other staff costs and Directors' fees

185

 

178

 

Advisers' costs

315

 

352

 

Information costs

124

 

93

 

Establishment costs

30

 

56

 

Operating lease rentals - premises

60

 

79

 

Depreciation on tangible assets

25

 

78

 

Auditor's remuneration (see below)

43

 

34

 

Relocation costs

 

 

72

 

Other expenses

89

 

135

 

 

 

1,322

 

1,491

 

A charge of £650,000 (2016: £779,000) to capital and an equivalent credit to revenue has been made in the Group and Company to recognise the accounting policy of 75% of direct investment administration expenses to capital.

 

Total fees charged by the Auditor for the year, all of which were charged to revenue, comprised:

 

 

Group and Company
2017
£000

 

 

Group and Company
2016
£000

 

Audit services - statutory audit

33

 

 

33

 

Other audit related services

1

 

 

1

 

Liquidation services

9

 

 

 

 

 

 

43

 

 

34

 

Other audit related services relate to a review of the Company's debenture covenant in 2017 and in 2016.

 

6 DIRECTORS' EMOLUMENTS

 

 

Company
2017
£000

 

 

Company
2016
£000

 

Fees

143

 

 

143

 

Salary

177

 

 

173

 

Other benefits

8

 

 

8

 

 

 

328

 

 

324

 

The Report on Directors' Remuneration in the Company's full Annual Report and Accounts, explains the Company's policy on remuneration for Directors for the year. It also provides further details of Directors' remuneration.

 

7 STAFF COSTS INCLUDING CEO

 

 

Group and Company
2017
£000

 

 

Group and Company
2016
£000

 

 

Salaries and other payments

370

 

 

341

 

 

Social security costs

50

 

 

45

 

 

Pension contributions

31

 

 

28

 

 

 

 

451

 

 

414

 

 

 

Group
2017
Number

 

 

Group
2016
Number

 

Average number of employees:

 

 

 

 

 

Management and office staff

 

3

 

 

3

 

8 FINANCE COSTS

 

 

Group and Company
2017

 

Group and Company
2016

 

Revenue
return
£000

Capital
return
£000

Total
£000

 

Revenue
return
£000

Capital
return
£000

Total
£000

Interest on 9.50% 2020 debenture stock

321

961

1,282

 

321

961

1,282

Interest on 7.25% 2025 debenture stock

375

1,126

1,501

 

375

1,126

1,501

Amortisation of issue expenses on the debenture stocks

8

25

33

 

7

23

30

 

704

2,112

2,816

 

703

2,110

2,813

 

Further details of the debenture stocks in issue are provided in note 25 and note 27.

 

9 TAXATION

 

Analysis of tax charge

 

 

Group and Company
2017
£000

 

 

Group and Company
2016
£000

 

 

Tax on overseas dividends

13

 

 

17

 

 

 

Reconciliation of tax charge:

The current taxation rate for the year is lower (2016: lower) than the standard rate of corporation tax in the UK of 19.5% (2016: 20.0%). The differences are explained below:

 

 

Group and Company
2017
£000

 

 

Group and Company
2016
£000

 

Net return before taxation for the year from continuing operations

17,514

 

 

23,661

 

Net return before taxation for the year from discontinued operations

 

 

 

 

 

Net return before taxation

 

17,514

 

 

23,661

 

 

 

 

 

 

Taxation at UK Corporation Tax rate of 19.5% (2016: 20.0%)

3,414

 

 

4,732

 

 

 

 

 

 

 

Effects of:

 

 

 

 

 

- UK dividends which are not taxable

(1,424)

 

 

(1,189)

 

- foreign dividends which are not taxable

(21)

 

 

(37)

 

- gains on investments which are not taxable

(2,863)

 

 

(4,384)

 

- expenses which are not deductible for tax purposes

12

 

 

23

 

- excess expenses for the  current year

882

 

 

855

 

- overseas taxation which is not recoverable

13

 

 

17

 

Actual current tax charge

 

13

 

 

17

 

Group

After claiming relief against accrued income taxable on receipt, the Group has unrelieved excess expenses of £83,056,000 (2016: £78,499,000). It is not yet certain that the Group will generate sufficient taxable income in the future to utilise these expenses and therefore no deferred tax asset has been recognised.

 

Company

After claiming relief against accrued income taxable on receipt, the Company has unrelieved excess expenses of £83,028,000 (2016: £78,471,000). It is not yet certain that the Group will generate sufficient taxable income in the future to utilise these expenses and therefore no deferred tax asset has been recognised.

 

The allocation of expenses to capital does not result in any tax effect. Due to the Company's status as an approved investment trust, and the intention to continue meeting the required conditions in the foreseeable future, the Company has not provided for deferred tax on any capital gains and losses arising on the revaluation or disposal of its investments.

 

10 DIVIDENDS

The following table summarises the amounts recognised as distributions to equity shareholders in the period:

 

 

Group and
Company
2017
£000

 

 

Group and
Company
2016
£000

 

2015 Final dividend of 5.00p paid on 27 January 2016

 

 

 

2,667

 

2016 Interim dividend of 3.00p paid on 24 June 2016

 

 

 

1,603

 

2016 Final dividend of 5.75p paid on 25 January 2017

3,073

 

 

 

 

2017 Interim dividend of 3.50p paid on 16 June 2017

1,870

 

 

 

 

 

 

4,943

 

 

4,270

 

 

 

 

 

 

 

2017

£000

 

 

2016
£000

 

Proposed final dividend for the year ended 30 September 2017 of 6.25p (2016: final dividend of 5.75p) per ordinary share

3,340

 

 

3,073

 

 

 

3,340

 

 

3,073

 

The proposed final dividend has not been included as a liability in these accounts in accordance with IAS 10: Events after the Balance Sheet date.

 

Set out below is the total dividend to be paid in respect of the financial year. This is the basis on which the requirements of Section 1158 of the Corporation Tax Act 2010 are considered.

 

 

2017
£000

 

 

2016
£000

 

Interim dividend for the year ended 30 September 2017 of 3.50p (2016: 3.00p) per ordinary share.

1,870

 

 

1,603

 

Final dividend for the year ended 30 September 2016 of 6.25p (2016: 5.75p) per ordinary share.

3,340

 

 

3,073

 

 

 

5,210

 

 

4,676

 

Distributable reserves of the Company comprise the Capital and Revenue Reserves.

 

Dividends for the year (and for 2016) have been solely made from the Revenue Reserve.

 

11 RETURN PER ORDINARY SHARE

 

Basic return per ordinary share from continuing operations is based on 53,439,000 ordinary shares, being the weighted average number of shares in issue (2016: Basic return from continuing and discontinued operations of 53,366,070). Basic returns per ordinary share from continuing operations are based on the net return after taxation attributable to equity shareholders. (2016: Basic returns per ordinary share from continuing and discontinued operations are based on the net return after taxation attributable to equity shareholders).

 

 

Group
2017
£000

 

 

Group
2016
£000

 

Basic revenue returns from

continuing operations are based on net revenue after

taxation of:

5,951

 

 

4,939

 

Basic revenue returns from

discontinued operations are based on net revenue after taxation of:

 

 

 

 

 

Basic capital returns from

continuing operations are based on net capital return of:

11,550

 

 

18,705

 

Basic capital returns from

discontinued operations are based on net capital return of:

 

 

 

 

 

Basic total returns are based on a

return of:

 

17,501

 

 

23,644

 

 

 

 

 

 

 

Company
2017
£000

 

 

Company
2016
£000

 

Basic revenue returns are based

on net revenue after taxation of:

5,951

 

 

4,939

 

Basic capital returns are based

on net capital return of:

11,550

 

 

18,705

 

Basic total returns are based on a

return of:

 

17,501

 

 

23,644

 

12 PROPERTY AND EQUIPMENT

 

 

 

Group and Company
Leasehold
Improvements
£000

 

 

Group and Company
Office
Equipment
£000

 

 

Total
£000

 

Cost:

 

 

 

 

 

 

 

 

 

At 1 October 2016

 

28

 

 

207

 

 

235

 

Additions

 

 

 

 

23

 

 

23

 

Disposals

 

 

 

 

 

 

 

 

 

At 30 September 2017

 

 

28

 

 

230

 

 

258

 

 

 

 

 

 

 

 

 

 

Depreciation:

 

 

 

 

 

 

 

 

 

At 1 October 2016

 

4

 

 

179

 

 

183

 

Charge for year

 

5

 

 

20

 

 

25

 

Disposals

 

 

 

 

 

 

 

 

 

At 30 September 2017

 

 

9

 

 

199

 

 

208

 

 

 

 

 

 

 

 

 

 

Net book value:

 

 

 

 

 

 

 

 

 

At 30 September 2017

 

 

19

 

 

31

 

 

50

At 30 September 2016

 

 

24

 

 

28

 

 

52

 

 

13 INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

 

 

 

 

Group 2017

 

 

 

Group 2016

 

 

 

Listed
£000

 

Unlisted (MAM Funds)
£000

 

Unlisted

£000 

 

Total
£000

 

Listed
£000

 

Unlisted
£000

 

Total
£000

Opening cost at beginning of year

52,282

 

 

 

2,680

 

134,859

 

133,565

 

2,530

 

136,095

Gains/(losses) at beginning of year

1,714

 

 

 

54,558

 

66,500

 

(4,348)

 

49,897

 

45,549

Opening fair value at beginning of year

53,996

 

 

 

57,238

 

201,359

 

129,217

 

52,427

 

181,644

Purchases at cost

20,805

 

5,337

 

 

 

26,142

 

13,701

 

 

 

13,701

Sales - proceeds

(24,085)

 

(4,348)

 

 

 

(28,433)

 

(15,905)

 

 

 

(15,905)

Gains on sales

2,583

 

196

 

 

 

2,779

 

968

 

 

 

968

(Decrease)/Increase in investment holding gains

(7,593)

 

15,040

 

4,454

 

11,901

 

16,290

 

4,661

 

20,951

Transfer on delisting of shares*

(79,897)

 

79,897

 

 

 

 

 

(150)

 

150

 

 

Closing fair value at end of year

55,934

 

96,122

 

61,692

 

213,748

 

144,121

 

57,238

 

201,359

Closing cost at end of year

51,585

 

81,082

 

2,680

 

135,347

 

132,379

 

2,680

 

134,859

Gains at end of year

4,349

 

15,040

 

59,012

 

78,401

 

11,942

 

54,558

 

66,500

Closing fair value at end of year

55,934

 

96,122

 

61,692

 

213,748

 

144,121

 

57,238

 

201,359

                               

 

 

 

 

 

Company
2017

 

Listed
£000

 

Unlisted (MAM funds)

£000

 

Unlisted
£000

 

Subsidiary
company
£000

 

Total
£000

Opening cost at beginning of year

52,282

 

 

 

2,680

 

1,000

135,859

Gains/(losses) at beginning of year

1,714

 

 

 

54,558

 

(838)

65,662

Opening fair value at beginning of year

53,996

 

 

 

57,238

 

162

201,521

Purchases at cost

20,805

 

5,337

 

 

 

 

26,142

Sales - proceeds

(24,085)

 

(4,348)

 

 

 

 

(28,433)

Gains on sales

2,583

 

196

 

 

 

(838)

1,941

(Decrease)/Increase in investment holding gains

(7,593)

 

15,040

 

4,454

 

838

12,739

Return of Capital on liquidation of subsidiary

 

 

 

 

 

 

(162)

(162)

Transfer on delisting of shares*

(79,897)

 

79,897

 

 

 

 

 

Closing fair value at end of year

55,934

 

96,122

 

61,692

 

 

213,748

Closing cost at end of year

51,585

 

81,082

 

2,680

 

 

135,347

Gains at end of year

4,349

 

15,040

 

59,012

 

 

78,401

Closing fair value at end of year

55,934

 

96,122

 

61,692

 

 

213,748

 

 

 

 

 

 

 

 

 

                       

 

* During the year the MAM funds were delisted. This change has no impact on the pricing or liquidity of these funds (2016: Delisting of a realisation portfolio holding).

 

 

 

 

 

Company 2016

 

 

 

Listed
£000

 

 

Unlisted
£000

 

Subsidiary
entities
£000

 

Total
£000

Opening cost at beginning of year

133,565

 

 

2,508

 

1,000

 

137,073

Adjustment to opening cost*

 

 

 

22

 

 

 

22

(Losses)/gains at beginning of year

(4,348)

 

 

49,897

 

(838)

 

44,711

Opening fair value at beginning of year

129,217

 

 

52,427

 

162

 

181,806

Purchases at cost

13,701

 

 

 

 

 

 

13,701

Sales - proceeds

(15,905)

 

 

 

 

 

 

(15,905)

Gains on sales

968

 

 

 

 

 

 

968

(Decrease)/increase in investment holding gains

16,290

 

 

4,661

 

 

 

20,951

Transfer on delisting of shares

(150)

 

 

150

 

 

 

 

Closing fair value at end of year

144,121

 

 

57,238

 

162

 

201,521

Closing cost at end of year

132,379

 

 

2,680

 

1,000

 

135,859

Gains/(losses) at end of year

11,942

 

 

54,558

 

(838)

 

65,662

Closing fair value at end of year

144,121

 

 

57,238

 

162

 

201,521

                   

 

*The opening cost adjustment reflects a realignment of Group and Company costs in respect of the investment in MAM.

 

Unlisted investments include an amount of £142,000 in 4 companies (2016: £118,000 in 3 companies) and £61,550,000 (2016: £57,120,000) for the Company's investment in MAM as detailed below. The increase in the number of unlisted holdings from 3 to 4 is due to a corporate action on an existing nil valued holding during the year resulting in a gain for the period. During the year the MAM Funds delisted and accordingly were re-classified as Level 2 investments. Further details concerning the investments in the MAM Funds are shown below.

 

During the year the Company incurred transaction costs amounting to £127,000 (2016: £84,000), of which £107,000 (2016: £71,000) related to the purchase of investments and £20,000 (2016: £13,000) related to the sales of investments. These amounts are included in gains on investments at fair value through profit or loss, as disclosed in the Consolidated and Company Statement of Comprehensive Income.

 

The composition of the investment return is analysed below:

 

 

Group
2017
£000

 

 

Group
2016
£000

 

 

Company
2017
£000

 

 

Company
2016
£000

 

Net gains on sales of equity investments

2,779

 

 

968

 

 

1,941

 

 

968

 

Increase in holding gains on equity investments

11,901

 

 

20,951

 

 

12,739

 

 

20,951

 

Net return on investments

 

14,680

 

 

21,919

 

 

14,680

 

 

21,919

 

Fair value hierarchy disclosures

The Company is required to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy consists of the following three levels:

 

·      Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

An active market is a market in which transactions for the asset or liability occur with sufficient frequency and volume on an ongoing basis such that quoted prices reflect prices at which an orderly transaction would take place between market participants at the measurement date. Quoted prices provided by external pricing services, brokers and vendors are included in Level 1, if they reflect actual and regularly occurring market transactions on an arm's length basis.

 

·      Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).

 

Level 2 inputs include the following:

 

·      quoted prices for similar (i.e. not identical) assets in active markets.

·      inputs other than quoted prices that are observable for the asset (e.g. interest rates and yield curves observable at commonly quoted intervals).

·      inputs that are derived principally from, or corroborated by, observable market data by correlation or other means (market corroborated inputs).

 

·      Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

The level in the fair value hierarchy within which an asset or liability is categorised is determined on the basis of the lowest level input that is significant to the fair value measurement of the asset. For this purpose, the significance of an input is assessed against the fair value measurement of an asset or liability in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement requires judgement, considering factors specific to the asset or liability.

 

The determination of what constitutes 'observable' requires significant judgement by the Company. The Company considers observable data to be investments actively traded in organised financial markets. Fair value is generally determined by reference to stock exchange quoted market bid prices at the close of business on the balance sheet date, without adjustment for transaction costs necessary to realise the asset.

 

The table below sets out fair value measurements of financial assets in accordance with the IFRS fair value hierarchy system:

 

 

Group
2017

 

Group
2016

 

Level 1
£000

Level 2
£000

Level 3
£000

Total
£000

 

Level 1
£000

Level 2
£000

Level 3
£000

Total
£000

Financial assets held at fair value through profit or loss - equities and managed funds:

 

 

 

 

Listed equity securities

55,934

 

 

55,934

 

53,996

 

 

53,996

Listed equity securities (MAM funds)

 

 

 

 

 

90,125

 

 

90,125

Unlisted equity securities (MAM Funds)

 

96,122

 

96,122

 

 

 

 

 

Unlisted equity securities

 

 

61,692

61,692

 

 

 

57,238

57,238

 

55,934

96,122

61,692

213,748

 

144,121

 

57,238

201,359

 

 

 

 

 

 

 

 

 

 

 

Company
2017

 

Company
2016

 

Level 1
£000

Level 2
£000

Level 3
£000

Total
£000

 

Level 1
£000

Level 2
£000

Level 3
£000

Total
£000

Financial assets held at fair value through profit or loss - equities and managed funds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Listed equity securities

55,934

 

 

55,934

 

53,996

 

 

53,996

Listed equity securities (MAM funds)

 

 

 

 

 

90,125

 

 

90,125

Unlisted equity securities (MAM funds)

 

96,122

 

96,122

 

 

 

 

 

Unlisted equity securities

 

 

61,692

61,692

 

 

 

57,400

57,400

 

55,934

96,122

61,692

213,748

 

144,121

 

57,400

201,521

 

Investments whose values are based on quoted market prices in active markets, and therefore are classified within Level 1, include active listed equities. The Company does not normally adjust the quoted price for these instruments (although it may invoke its fair value pricing policy in times of market disruption - this was not the case for 30 September 2017 or 2016).

 

Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. As Level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect liquidity and/or non-transferability, which are generally based on available market information. During the year there were transfers of £90,125,000 (2016: £nil) from Level 1 to Level 2 for the MAM funds which delisted during the year. This change in classification has no impact on the pricing or liquidity of these funds.

 

Investments classified within Level 3 have significant unobservable inputs. As observable prices are not available for these securities, the Company has used valuation techniques to derive the fair value. In respect of unquoted instruments, or where the market for a financial instrument is not active, fair value is established by using recognised valuation methodologies, in accordance with IPEV Valuation Guidelines. New investments are initially held at cost, for a limited period, then at the price of the most recent investment in the investee. This is in accordance with IPEV Guidelines as the cost of recent investments will generally provide a good indication of fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

 

The following table presents the movement in Level 3 instruments for the year:

 

 

Group
2017

 

Group
2016

 

Total
£000

Equity
investments
£000

 

Total
£000

Equity
investments
£000

Opening balance

57,238

57,238

 

52,427

52,427

Transfers from Level 1

 

 

 

150

150

Total gains for the year included in the Statement of Comprehensive Income

4,454

4,454

 

4,661

4,661

 

61,692

61,692

 

57,238

57,238

 

 

 

 

 

 

 

Company
2017

 

Company
2016

 

Total
£000

Equity
investments
£000

 

Total
£000

Equity
investments
£000

Opening balance

57,400

57,400

 

52,589

52,589

Transfers from Level 1

 

 

 

150

150

Return of capital on liquidation of subsidiary

(162)

(162)

 

 

 

Total gains for the year included in the Statement of Comprehensive Income

4,454

4,454

 

4,661

4,661

 

61,692

61,692

 

57,400

57,400

 

Investments in Investment Funds

The Company has a number of investments in investment funds managed by MAM. Details of these investments are:

 

 

30 September 2017

 

30 September 2016

 

Investment
Value
£000

Proportion
Held
%

 

Investment
Value
£000

Proportion
Held
%

MAM Tortoise Fund

35,485

2.5

 

32,382

3.2

MAM Income Fund

17,119

1.9

 

19,752

2.2

MAM Global Equity Fund

21,812

45.0

 

18,735

45.1

MAM Global Focus Fund

7,677

4.6

 

6,617

31.9

MAM US Equity Fund

8,251

3.8

 

7,326

4.2

MAM UK Smaller Companies Fund*

5,779

1.0

 

5,312

1.3

 

* The MAM UK Smaller Companies Fund forms part of the MAM UK Equity Segregated Portfolio.

 

The fees charged on these investments are disclosed in the material contracts section of the Directors' Report above.

 

In addition, the total value of all investments managed by MAM at 30 September 2017 was £154.6 million (2016: £146.0 million). Further details on the investments in the MAM investment funds are contained in the Chief Executive's Report above.

 

Substantial Share Interests

The Company has invested £15 million in the MAM Global Equity Fund (which has a fair value of £21.8m as at September 2017). This is a substantial interest in that fund at 30 September 2017 (2016: MAM Global Equity Fund and MAM Global Focus Fund of £15 million and £5 million respectively). This holding is not assessed as a subsidiary or associate, and is accounted for as an investment held at fair value through profit or loss, in accordance with IAS 39.

 

Majedie Asset Management (MAM)

MAM is a UK based asset management firm providing investment management and advisory services across a range of UK and global equity strategies. The carrying value of the investment in MAM is included in the Consolidated and Company Balance Sheet as part of investments held at fair value through profit or loss.

 

 

2017
£000

 

 

2016
£000

 

Cost of investment

540

 

 

540

 

Holding gains

61,010

 

 

56,580

 

Fair value of investment at 30 September

 

61,550

 

 

57,120

 

The carrying value is usually assessed and approved twice a year by the Directors following the relevant recommendation by the Audit Committee. The fair value calculation is formulaic, with the significant input in assessing the price (and hence carrying value), being the 3 year average earnings of MAM together with earnings multiples applied to those earnings, and the value of surplus cash held by MAM. A 5% increase/decrease in MAM's earnings would result in an increase/decrease of 4.4% in the carrying value of MAM.

 

In accordance with the revised shareholders' agreement, the Company may sell a certain number of shares to the MAM Employee Benefit Trust at the relevant prescribed price (as calculated in accordance with the revised shareholders' agreement). The Company sold no shares during the year, or in 2016.

 

As at 30 September 2017, the Company holds 57,523 ordinary 0.1p shares representing a 16.8% shareholding in MAM (2016: 57,523 ordinary 0.1p shares representing a 16.7% shareholding).

 

14 INVESTMENT IN SUBSIDIARY

 

Majedie Portfolio Management Limited (MPM) was dormant having not traded since June 2016. It was placed into liquidation on 5 January 2017 and was dissolved on 4 October 2017.

 

15 DISCONTINUED OPERATIONS

 

There were no discontinued operations in the year. Discontinued operations shown relate to the closure of MPM, in 2016 as reported in last year's accounts. These are shown as nil because in accordance with the provision of its services, MPM charged the Company a fee for managing the Majedie Share Plan on a cost recovery basis only (MPM did not receive any fees from investors). All expenses incurred by MPM were paid for by the Company and netted off against any management fees due. As such MPM did report a nil net return and all such revenues and expenses incurred by it were eliminated on consolidation.

 

16 TRADE AND OTHER RECEIVABLES

 

 

Group and Company
2017
£000

 

 

Group and Company
2016
£000

 

Sales for future settlement

44

 

 

191

 

Prepayments

75

 

 

47

 

Dividends receivable

60

 

 

42

 

Taxation recoverable

49

 

 

76

 

 

 

228

 

 

356

 

The Directors consider that the carrying amounts of trade and other receivables approximates to their fair value.

 

17 CASH AND CASH EQUIVALENTS

 

 

Group and Company
2017
£000

 

 

Group and Company
2016
£000

 

Deposits at banks

2,900

 

 

2,857

 

Other cash balances*

666

 

 

610

 

 

 

3,566

 

 

3,467

 

*Other cash balances includes £666,000 (2016: £602,000) in relation to unclaimed dividends by shareholders. Such cash is held in a separate account by the Company's registrar and is not available to the Company for general operations.

 

18 TRADE AND OTHER PAYABLES

 

Amounts falling due within one year:

 

Group and Company
2017
£000

 

Group
2016
£000

 

 

Company
2016
£000

 

Purchases for future settlement

79

 

318

 

 

318

 

Accrued expenses

295

 

300

 

 

300

 

Amounts due to subsidiary undertakings

 

 

 

 

 

162

 

Other creditors

711

 

699

 

 

699

 

 

 

1,085

 

1,317

 

 

1,479

 

The Directors consider that the carrying amounts of trade and other payables approximates to their fair value.

 

Amounts falling due after more than one year:

 

Group and Company
2017
£000

 

 

Group and Company
2016
£000

 

£13.5m (2016: £13.5m) 9.50% 2020 debenture stock

13,459

 

 

13,445

 

£20.7m (2016: £20.7m) 7.25% 2025 debenture stock

20,504

 

 

20,486

 

 

 

33,963

 

 

33,931

 

Both debenture stocks are secured by a floating charge over the Company's assets. Expenses associated with the issue of the debenture stocks were deducted from the gross proceeds at issue and are being amortised over the life of the debentures. Further details on interest and the amortisation of the issue expenses are provided in note 8, and in note 27 in respect of the redemption of the £13.5m 9.50% 2020 debenture stock.

 

19 ORDINARY SHARE CAPITAL

 

 

Number

Company
2017
£000

 

Number

Company
2016
£000

As at 1 October

54,439,000

5,344

 

53,133,000

5,313

Ordinary 10p shares issued

 

 

 

306,000

31

As at 30 September

53,439,000

5,344

 

53,439,000

5,344

 

All shares are allotted fully paid up, and are of one class only. New ordinary shares can only be issued at a premium to the relevant NAV (with debt at fair value).

 

Ordinary shares carry one vote each on a poll. The Companies Act 2006 abolished the requirement for the Company to have authorised share capital. The Company adopted new Articles of Association on 20 January 2010 which, inter alia, reflected the new legislation. Accordingly the Company has no authorised share capital. The Directors will still be limited as to the number of shares they can allot at any one time as the Companies Act 2016 requires that Directors seek authority from the shareholders for the allotment of new shares.

 

20 SHARE PREMIUM

 

 

Group and
Company
2017
£000

 

 

Group and
Company
2016
£000

 

As at 1 October

3,054

 

 

2,280

 

Ordinary 10p shares issued

 

 

 

775

 

Issue costs

 

 

 

(1)

 

As at 30 September

 

3,054

 

 

3,054

 

21 NET ASSET VALUE

 

The net asset value per share (Group and Company) has been calculated based on equity shareholders' funds of £178,173,000 (2016: £169,986,000), and on 53,439,000 (2016: 53,439,000) ordinary shares, being the number of shares in issue at the year end.

 

22 ANALYSIS OF CHANGES IN NET DEBT

 

Group and Company

 

At 30
September
2016
£000

 

 

Cash
Flows
£000

 

 

Non
Cash
Items
£000

 

 

At 30
September
2017
£000

 

Cash at bank and

other cash balances

 

3,467

 

 

99

 

 

 

 

 

3,566

 

Debt due after one year

 

(33,931)

 

 

 

 

 

(32)

 

 

(33,963)

 

 

 

 

(30,464)

 

 

99

 

 

(32)

 

 

(30,397)

 

23 OPERATING LEASE COMMITMENTS

 

The Company operates in its premises by way of a sub-lease arrangement with a superior lease, which has three years remaining. The arrangement allows for participation in rent reviews etc as they occur. Following a rent review in the prior year the Company has an annual commitment of £60,000 under its sub-lease arrangement (2016: £60,000). This operating lease commitment is disclosed in the table below:

 

Expiry Date

Group
2017
£000

 

 

Group
2016
£000

 

Between one and two years

60

 

 

60

 

Between two and three years

60

 

 

60

 

Between three and four years

60

 

 

60

 

Between four and five years

 

 

 

60

 

 

 

180

 

 

240

 

24 FINANCIAL COMMITMENTS

 

At 30 September 2017 the Company had no financial commitments which had not been accrued for (2016: none).

 

25 FINANCIAL INSTRUMENTS AND RISK PROFILE

 

As an investment trust the Company invests in securities for the long term in order to achieve its investment objective as stated above. Accordingly the Company is a long term investor and it is the Board's policy that no trading in investments or other financial instruments be undertaken. Given the nature of the Group, the risk management processes of the Company had primacy but are aligned with those of the Group as a whole. Therefore the disclosures in this note primarily reflect that of the Company but are shown separately where materially different to the Group position.

 

Management of Market Risk

Management of market risk is fundamental to the Company's investment objective and the investment portfolio is regularly monitored to ensure an appropriate balance of risk and reward.

 

Exposure to any one entity is monitored by the Board and the Investment Manager (MAM). The Board has complied with the investment policy requirement not to invest more than 15% of the total value of the Company's gross assets, save that the Company can invest up to 25% of its gross assets in any single fund managed by MAM where the Board believes that the investment policy of such funds is consistent with the Company's objective of spreading investment risk.

 

From time to time the Company itself may seek to reduce or increase its exposure to equity markets and currencies by taking positions in index futures and/or options relating to one or more equity markets or currency forward contracts. There are no such positions as at 30 September 2017 or 2016. These instruments are used for the purpose of hedging some, or all, of the existing exposure with the Company's investment portfolio to those particular currencies or equity markets, or to enable increased exposure when deemed appropriate, and with the specific approval of the Board. In addition, MAM as Investment Manager can utilise derivative instruments for efficient portfolio management and investment purposes as it sees fit. There have been no derivatives used in the MAM UK Equity Segregated Portfolio in the period (2016: none). Some MAM funds do use derivatives to meet their investment objectives.

 

The Company's financial instruments comprise its investment portfolio (see note 13), cash balances, debtors and creditors that arise directly from its operations such as sales and purchases awaiting settlement, accrued income, and the debenture loans used to partially finance its operations.

 

In the pursuit of its investment objective, the Company is exposed to various risks which could cause short term variation in its net assets and which could result in both or either a reduction in its net assets or a reduction in the revenue profits available for distribution by way of dividend. The main risk exposures for the Company from its financial instruments are market risk (including currency risk, interest rate risk and other price risk), liquidity risk, concentration risk and credit risk.

 

The Board does set the overall investment strategy and allocation and has in place various controls and limits and receives various reports in order to monitor the Company's exposure to these risks. The risk management policies identified in this note have not change materially from the previous accounting period.

 

Market Risk

The principal risk in the management of the investment portfolio is market risk - i.e. the risk that values and future cashflows will fluctuate due to changes in market prices. Market risk is comprised of:

 

·      foreign currency risk; and

·      interest rate risk; and

·      other price risk i.e. movements in the value of investment portfolio holdings caused by factors other than interest rates or currency movements.

 

These risks are taken into account when setting the investment policy or allocation and when making investment decisions.

 

Foreign Currency Risk

Exposure to foreign currency risk arises primarily and directly through investments in securities listed on overseas equity markets. A proportion of the net assets of the Company are denominated in currencies other than sterling, with the effect that the balance sheet and total return can be materially affected by currency movements. The Company's exposure to foreign currencies through its investments in overseas securities as at 30 September 2017 was £6,787,000 (2016: Group and Company: £5,791,000 respectively).

 

The Company's investments in the MAM funds are in sterling denominated share classes. These share classes themselves are not hedged within the relevant MAM fund. The Company also has sterling denominated investments which may pay dividends in foreign currencies. Additionally the investment portfolio is subject to indirect foreign currency risk impacts by having investments in investee companies that whilst listed in the UK have global operations and as such are subject to currency impacts on their assets and revenues. It is not possible to accurately quantify these exposures and impacts.

 

MAM, as Investment Manager, monitors the Company's exposure to foreign currencies and the Director's receive regular reports on exposures.

 

The Company is able to, though unlikely to, enter into forward currency contracts as a means of limiting or increasing its exposure to particular currencies. Such contracts can be used for the purpose of hedging an existing currency exposure of the Company's investment portfolio (as a means of reducing risk), or to enable increased exposure when this is deemed appropriate.

 

The currency risk of the non-sterling monetary financial assets and liabilities at the reporting date was:

 

 

Group and Company
2017

 

Group and Company
2016

Currency exposure

Overseas
Investments
£000

Total
Currency
Exposure
£000

 

Overseas
Investments
£000

Total
Currency
Exposure
£000

US Dollar

1,763

1,763

 

945

945

Euro

4,096

4,096

 

4,026

4,026

Yen

251

251

 

595

595

Other non-Sterling

677

677

 

225

225

 

6,787

6,787

 

5,791

5,791

 

Sensitivity Analysis

If sterling had strengthened by 5% relative to all currencies on the reporting date, with all other variables held constant, the income and net assets would have decreased by the amounts shown in the table below. The analysis was performed on the same basis for 2016. The revenue impact is an estimated annualised figure based on the relevant foreign currency denominated balances at the reporting date.

Income Statement

 

Group and Company
2017
£000

 

 

Group and Company
2016
£000

 

Revenue return

 

 

 

 

 

Capital return

(339)

 

 

(290)

 

Net assets

 

(339)

 

 

(290)

 

A 5% weakening of sterling against the same currencies would have resulted in an equal and opposite effect on the above amounts, on the basis that all other variables remain constant. It should also be noted that the calculations are done at the reporting date and may not be representative of a year as a whole.

 

Interest Rate Risk

The Company's direct interest rate risk exposure affects the interest received on cash balances and the fair value of its debentures. Indirect exposure to interest rate risk arises through the effect of interest rate changes on the valuation of the investment portfolio. The vast majority of the financial assets held by the Company are equity shares, which pay dividends, not interest. The Company may, from time to time, hold small investments which pay interest.

 

The Board sets limits for cash balances and receives regular reports on the cash balances of the Company. The Company's fixed rate debentures introduce gearing to the Company which is monitored within limits and is also reported to the Directors regularly. Cash balances can also be used to manage the level of gearing to within the range as set by the Board. The Board sets the overall investment strategy and allocation and also has various limits on the investment portfolio which aim to spread the portfolio investments to reduce the impact of interest rate risk on investee company valuations. Regular reports are received by the Board in respect of the Company's investment portfolio and the relevant limits.

 

The interest rate risk profile of the financial assets and liabilities at the reporting date was:

 

 

Group and Company

2017

£000

 

 

Group
2016
£000

 

 

Company
2016
£000

 

Floating rate financial assets:

UK Sterling

3,566

 

 

3,467

 

 

3,467

 

Financial assets not carrying interest

213,976

 

 

201,715

 

 

201,877

 

 

 

217,542

 

 

205,182

 

 

205,344

 

 

 

 

 

 

 

 

 

Fixed rate financial liabilities:

 

 

 

 

 

 

 

 

UK Sterling

(33,963)

 

 

(33,931)

 

 

(33,931)

 

Financial liabilities not carrying interest

(1,805)

 

 

(1,317)

 

 

(1,479)

 

 

 

(35,048)

 

 

(35,248)

 

 

(35,410)

 

Floating rate financial assets usually comprise cash on deposit with banks which is repayable on demand and receives a rate of interest based, in part, on the UK base rates in force over the period. The Company does not normally hold non-UK cash as all foreign currency receivables or payables are converted back into sterling at the settlement date of the relevant transaction. The fixed rate financial liabilities comprise the Company's debentures, totalling £34.2 million in total on a nominal basis. They pay an average rate of interest of 8.1% per annum and mature in March 2020 (£13.5 million nominal) and March 2025 (£20.7 million nominal).

 

Sensitivity Analysis

Based on closing cash balances held as on deposit with banks, a notional 0.5% decrease in the UK base interest rates would have no effect on net assets and the net revenue return before tax of the Company.

 

A 0.5% increase in interest rates would result in a larger impact, due to the extremely low rates at the moment, as is shown in the table below. Both analyses are solely based on balances at the reporting date and is not representative of the year as a whole.

 

Income Statement

Group and Company
2017
£000

 

 

Group and Company
2016
£000

 

Revenue return

15

 

 

14

 

Net assets

 

15

 

 

14

 

Other Price Risk

Exposure to market price risk is significant and comprises mainly movements in the market prices and hence value of the Company's listed equity security investments and its investments in the unlisted MAM Funds, where although the funds themselves are unlisted they are invested in listed equity securities, which are both disclosed in note 13 above. The Company also has unlisted investments which are indirectly impacted by movements in listed equity prices and related variables. The Board sets the overall investment strategy and allocation which aims to achieve a spread of investments across sectors and regions in order to reduce risk. The Board receives reports on the investment portfolio, performance and volatility on a regular basis in order to ensure that the investment portfolio is in accordance with the investment policy.

 

MAM's policy as Investment Manager is to manage risk through a combination of monitoring the exposure to individual securities, industry and geographic sectors, whilst maintaining a constant awareness in real time of the portfolio exposures in accordance with the investment strategy. Any derivative positions would be marked to market and exposure to counterparties is also monitored on a daily basis by MAM. As at the year end of the Company did not hold any derivatives (2016: nil).

 

As mentioned earlier, MAM may, and do, use derivative instruments including index-linked notes, contracts for difference, covered options and other equity-related derivative instruments for efficient portfolio management and investment purposes. As also noted previously this occurs in the MAM funds and there have been no derivatives used in the MAM UK Equity Segregated Portfolio. The Directors have regular presentations from MAM on their investment strategy and approach.

 

The following table details the exposure to market price risk on the listed and unlisted equity investments:

 

 

 

Group and Company
2017
£000

 

Group
2016
£000

 

 

Company
2016
£000

 

Non-current investments held at fair value through profit or loss

 

 

 

 

 

 

 

 

 

Listed equity investments

 

55,934

 

 

53,996

 

 

53,996

 

Listed equity investments (MAM Funds)

 

 

 

 

90,125

 

 

90,125

 

Unlisted equity investments (MAM Funds)

 

96,122

 

 

 

 

 

 

 

Unlisted equity investments

 

61,692

 

 

57,238

 

 

57,238

 

Subsidiary company

 

 

 

 

 

 

 

162

 

 

 

 

213,748

 

 

201,359

 

 

201,521

 

Sensitivity Analysis

If share prices on listed equity security investments and the unlisted equity investments (MAM Funds) had decreased by 10% at the reporting date with all other variables remaining constant, the net return before tax and the net assets would have decreased by the amounts shown below. Details of the sensitivity analysis in respect of the investment in MAM is shown in note 13 above.

 

Income Statement

 

Group and Company
2017
£000

 

 

Group and Company
2016
£000

 

Capital return

 

15,206

 

 

14,412

 

Net assets

 

 

15,206

 

 

14,412

 

A 10% increase in listed equity security share prices would have resulted in a proportionately equal and opposite effect on the above amounts on the basis that all other variables remain constant. The analysis has been calculated on the investment portfolio held at the reporting date and this may not be representative of the year as a whole.

 

Credit Risk

Credit risk is the risk of other parties failing to discharge an obligation causing the Company financial loss. The Company's exposure to credit risk is managed by the following:

 

·      The Company's investments are held on its behalf by the Company's Depositary, who delegates safekeeping to the Custodian, the Bank of New York Mellon SA/NV, London branch, which if it became bankrupt or insolvent could cause the Company's rights with respect to securities held to be delayed. However under the AIFMD, the Depositary provides certain indemnities in respect of the Company's investments. The Company receives regular internal control reports from the Custodian which are reported to and reviewed by the Audit Committee.

·      Investment transactions are undertaken by MAM with a number of approved brokers in the ordinary course of business on a contractual delivery versus payment basis. MAM has procedures in place whereby all new brokers are subject to credit checks and approval by them prior to any business being undertaken. MAM utilises the services of a large range of approved brokers thereby mitigating credit risk by diversification.

·      Company cash is held at banks that are considered to be reputable and of high quality. Cash balances above a certain threshold are spread across a range of banks to reduce concentration risk.

 

Credit Risk Exposure

The table below sets out the financial assets exposed to credit risk as at the reporting date:

 

 

 

Group and Company
2017
£000

 

 

Group and Company
2016
£000

 

Cash on deposit and at banks

 

3,566

 

 

3,467

 

Sales for future settlement

 

44

 

 

191

 

Interest, dividends and other receivables

 

184

 

 

165

 

 

 

 

3,794

 

 

3,823

Minimum exposure during the year

 

3,249

 

 

2,163

 

Maximum exposure during the year

 

10,920

 

 

5,549

 

 

All amounts included in the analysis above are based on their carrying values.

 

None of the financial assets were past due or impaired at the current or prior reporting date.

 

Liquidity Risk

Liquidity risk is the risk that the Company will encounter difficulties in meeting its obligations as they fall due.

 

Liquidity risk is monitored, although it is recognised that the majority of the Company's assets are invested in quoted equities and other quoted securities that are readily realisable (all MAM fund investments are highly liquid). The Board has various limits in respect to how much of the Company's assets can be invested in any one company. The unlisted investments in the portfolio are subject to liquidity risk but such investments (excluding MAM) are a very small part of the portfolio and are in realisation mode. Nonetheless limits remain for any such investments and liquidity risk is always considered when making investment decisions in such securities. The Company is subject to concentration risk due to its investment in MAM, at 28.4% (2016: 28.3%) of the Company's investment portfolio. This investment is closely monitored by the Board which receives regular financial and operational reports, and it is believed that the current concentration risk here is mitigated somewhat by the diversification undertaken within the MAM business itself.

 

The Company maintains an appropriate level of non-investment related cash balances in order to finance its operations. The Company regularly monitors such cash balances to ensure all known or forecasted liabilities can be met. The Board receives regular reports on the level of the Company's cash balances. The Company does not have any overdraft or other undrawn borrowing facilities to provide liquidity.

 

A maturity analysis of financial liabilities showing remaining contractual maturities is detailed below;

 

 

Group and Company
2017

Undiscounted cash flows

Due within
1 year
£000

Due between
1 and 2 years
£000

Due between
2 and 3 years
£000

Due 3 years
and beyond
£000

Total
£000

9.50% 2020 debenture stock

 

 

 

13,500

13,500

7.25% 2025 debenture stock

 

 

 

20,700

20,700

Interest on financial liabilities

2,783

2,783

2,783

6,753

15,102

Trade payables and other liabilities

1,085

 

 

 

1,085

 

3,868

2,783

2,783

40,953

50,387

 

 

 

 

 

 

 

Group 2016

Undiscounted cash flows

Due

within
1 year
£000

Due

between
1 and 2 years
£000

Due

between
2 and 3 years
£000

Due

3 years
and beyond
£000

Total
£000

9.50% 2020 debenture stock

 

 

 

13,500

13,500

7.25% 2025 debenture stock

 

 

 

20,700

20,700

Interest on financial liabilities

2,783

2,783

2,783

8,895

17,244

Trade payables and other liabilities

1,317

 

 

 

1,317

 

4,100

2,783

2,783

43,095

52,761

 

 

 

Company 2016

Undiscounted cash flows

Due

within
1 year
£000

Due

between
1 and 2 years
£000

Due

between
2 and 3 years
£000

Due

3 years
and beyond
£000

Total
£000

9.50% 2020 debenture stock

 

 

 

13,500

13,500

7.25% 2025 debenture stock

 

 

 

20,700

20,700

Interest on financial liabilities

2,783

2,783

2,783

8,895

17,244

Trade payables and other liabilities

1,479

 

 

 

1,479

 

4,262

2,783

2,783

43,095

52,923

 

Categories of financial assets and liabilities

The following table analyses the carrying amounts of the financial assets and liabilities by categories as defined in IAS 39:

 

Financial assets

Group and Company
2017
£000

 

 

Group
2016
£000

 

 

Company
2016
£000

 

Financial assets at fair value through profit or loss

 

 

 

 

 

 

 

 

Equity securities

213,748

 

 

201,359

 

 

201,359

 

Subsidiary

 

 

 

 

 

 

162

 

 

 

213,748

 

 

201,359

 

 

201,521

Other financial assets*

 

3,794

 

 

3,823

 

 

3,823

 

 

 

 

 

205,182

 

 

205,344

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

Financial liabilities measured at amortised cost**

35,048

 

 

35,248

 

 

35,410

 

 

 

35,048

 

 

35,248

 

 

35,410

 

* Other financial assets include cash and cash equivalents, sales for future settlement, dividend and interest receivable and other receivables.

 

** Financial liabilities measured at amortised cost include; debenture stock in issue, purchases for future settlement, investment management fees and other payables and accrued expenses.

 

The investment portfolio has been valued in accordance with the accounting policy in note 1 to the accounts, i.e. at fair value. The debenture stocks are classified as level 3 under the fair value hierarchy. The fair value of the debenture stocks is calculated using a standard bond pricing method, using a redemption yield of a similar UK Gilt stock with an appropriate margin being applied.

 

 

Group and Company

Book
Value
2017
£000

 

 

Book
Value
2016
£000

 

 

Fair
Value
2017
£000

 

 

Fair
Value
2016
£000

 

£13.5m (2016: £13.5m) 9.50%

2020 debenture stock

13,459

 

 

13,445

 

 

15,620

 

 

16,605

 

£20.7m (2016: £20.7m) 7.25%

2025 debenture stock

20,504

 

 

20,486

 

 

25,706

 

 

27,111

 

 

 

33,963

 

 

33,931

 

 

41,326

 

 

43,716

 

Capital Management Policies and Procedures

The Company's capital management objectives are:

 

·      to ensure that it is able to continue as a going concern; and

·      to maximise the revenue and capital returns to its shareholders through a mix of equity capital and debt. The Directors set a range for the Company's net debt (comprised as debentures less cash) at any one time which is maintained by management of the Company's cash balances.

 

 

Group and Company
2017
£000

 

 

Group
2016
£000

 

 

Company
2016
£000

 

Net Debt

 

 

 

 

 

 

 

 

Adjusted cash and cash equivalents*

(2,709)

 

 

(2,506)

 

 

(2,344)

 

Debentures

33,963

 

 

33,931

 

 

33,931

 

Sub total

 

31,254

 

 

31,425

 

 

31,587

Equity

 

 

 

 

 

 

 

 

Equity share capital

5,344

 

 

5,344

 

 

5,344

 

Retained earnings and other reserves

177,200

 

 

164,642

 

 

164,642

 

Shareholders' funds

 

182,544

 

 

169,986

 

 

169,986

Gearing

 

 

 

 

 

 

 

 

Net debt as a percentage of shareholders' funds

 

17.1%

 

 

18.5%

 

 

18.6%

 

*Adjusted cash and cash equivalents comprise cash plus current assets less current liabilities.

 

Maximum potential gearing represents the highest gearing percentage on the assumption that the Company had no net current assets. As at 30 September 2017 this was 18.6% (2016: Group and Company 20.0%).

 

The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. The review includes:

 

·      the level of gearing, taking into account MAM's views on capital markets; and

·      the level of the Company's free float of shares as the Barlow family owns approximately 53% of the share capital of the Company; and 

·      the extent to which revenue in excess of that required to be distributed should be retained.

·      These objectives, policies and processes for managing capital are unchanged from the prior period.

 

The Company is also subject to various externally imposed capital requirements which are that:

 

·      the debentures are not to exceed, in aggregate, 66 2/3% of the adjusted share capital and reserves in accordance with the relevant Trust Deeds; and

·      the Company has to comply with statutory requirements relating to dividend distributions; and

·      the AIFMD imposes a requirement for all AIFs to have in place a limit on the amount of leverage that they may hold. It is then the responsibility of the relevant AIFM to ensure that this limit is not exceeded, which in this case is the Company (being a self-managed AIF).

 

Leverage is similar to gearing (as calculated in accordance with AIC guidelines previously), but the AIFMD mandates a certain calculation methodology which must be applied. Leverage as calculated under the AIFMD methodology for the Company is:

 

Gross Method

Company

2017

£000

 

Group
2016
£000

 

Company
2016
£000

Investments held at fair value through profit or loss

213,748

 

201,359

 

201,359

Investment in subsidiary held at fair value through profit or loss

 

 

 

 

162

Total investments at exposure value as defined under the AIFMD

213,748

 

201,359

 

201,521

 

 

 

 

 

 

Shareholders' funds

182,544

 

169,986

 

169,986

 

 

 

 

 

 

Leverage (times)

1.17

 

1.18

 

1.19

 

 

 

 

 

 

Commitment Method

Company

2017

£000

 

Group

2016

£000

 

Company

2016

£000

Investments held at fair value through profit or loss

213,748

 

201,359

 

201,359

Investment in subsidiary held at fair value through profit or loss

 

 

 

 

162

Cash and cash equivalents

3,566

 

3,467

 

3,467

Total investments at exposure value as defined under the AIFMD

217,314

 

204,826

 

204,988

 

 

 

 

 

 

Shareholders' funds

182,544

 

169,986

 

169,986

 

 

 

 

 

 

Leverage (times)

1.19

 

1.20

 

1.21

 

The leverage figures calculated above represent leverage as calculated under the gross and commitment methods as defined under the AIFMD (and a figure of 1 represents no leverage or borrowings). The two methods differ in their treatment of cash balances. In both methods the Company has included the debentures by including the value of investments purchased by those borrowings, rather than their balance sheet value. The Company's leverage limit under the AIFMD is 1.5 times, which equates to a borrowing level of 50% (the Company has not exceeded this limit at any time during the past or prior year).

 

These requirements are unchanged from the prior year and the Company has complied with them.

 

26 RELATED PARTY TRANSACTIONS

 

Majedie Asset Management (MAM)

MAM became Investment Manager to the Company from 13 January 2014 under the terms of an Investment Agreement. The agreement provides for MAM to manage the Company's investment assets on both a segregated portfolio basis and also by investments into various MAM collective investment vehicles or funds. Details of the Investment Agreement are contained in the material contracts section of the Directors' report above. As Investment Manager, MAM is entitled to receive investment management fees. In respect of the segregated portfolio investment these are charged directly to the Company and are shown as an expense in its accounts. Any fees due in respect of investments made into any MAM funds are charged in the fund's accounts and are therefore included as part of the investment value of the relevant holdings. Details concerning the Company's investments in the period in the MAM funds are shown in the Chairman's Statement & Chief Executive's Report above.

 

MAM is also entitled to receive performance fees on the Company's investment in the MAM Tortoise Fund. Further details on performance fees for the MAM Tortoise Fund are shown in the Directors' Report above and in Note 4 above.

 

In addition to the above, the Company retains an investment in MAM itself. Mr JWM Barlow is a non-executive Director of MAM, but receives no remuneration for this role. MAM is accounted for as an investment in both the Company and Group accounts and is valued at fair value through profit or loss. Details concerning the Company's investment in MAM are included in the Chairman's Statement & Chief Executive's Report above and in note 13 above.

 

Majedie Portfolio Management (MPM)

The Company did pay certain costs on behalf of MPM for operating the Company's Majedie Share Plan and was additionally charged a management fee by MPM. Any such costs that had been paid by the Company were recharged to MPM, net of any management fees due. Following a review of the provision of the Company's share savings plans, the Majedie Share Plan closed on 4 June 2016. MPM was dormant during the year and has been liquidated.

 

The table below discloses the transactions and balances between those entities:

 

Transactions during the period:

2017
£000

2016
£000

Dividend income received from MAM

4,142

3,233

MPM costs recharged by the Company

 

28

Performance fee income due to MAM (MAM Tortoise Fund only)

4

 

Management fee income due to MAM (segregated portfolio only)

486

434

 

 

 

Balances outstanding at the end of the period:

 

 

Between the Company and MAM (Segregated Portfolio investment management fees)

122

115

Value of the Company's investment in MAM

61,550

57,120

 

Transactions between group companies during the year were made on terms equivalent to those that occur in arm's length transactions.

 

Remuneration

The remuneration of the Directors, who are the key management personnel of the Company, are set out below in aggregate for each of the categories specified in IAS 24: Related Party disclosures. There are no amounts outstanding at 30 September 2017 for Directors fees or salary (2016: nil). Further information about the remuneration of individual directors is provided in the audited section of the Report on Directors' Remuneration in the full Annual Report and Accounts.

 

 

2017
£000

2016
£000

Short term employee benefits

338

324

 

338

324

 

27 POST BALANCE SHEET DATE EVENTS

 

On 6 November 2017, the Company gave irrevocable notice that it would be exercising its right to redeem the entire outstanding amount, being £13.5m, of the 9.50% March 2020 debenture stock. The redemption value was as calculated in accordance with the Trust Deed giving rise to a cost of £16.6m, including accrued interest, with a settlement date of 6 December 2017.

 

Registered Office

Registrars

1 King's Arms Yard

Computershare Investor Services PLC

London EC2R 7AF

The Pavilions

Telephone: 020 7626 1243

Bridgwater Road

Fax: 020 7374 4854

Bristol BS99 6ZZ

E-mail: majedie@majedieinvestments.com

Telephone: 0370 707 1159

Registered Number: 109305 England

 

 

Shareholders should notify all changes of name

Company Secretary

and address in writing to the Registrars.

Link Company Matters Limited

Shareholders may check details of their holdings,

The Registry

historical dividends, graphs and other data by

34 Beckenham Road

accessing www.computershare.com.

Beckenham

 

Kent BR3 4TU

Shareholders wishing to receive communications

 

from the Registrars by email (including

Investment Manager

notification of the publication of the annual and

Majedie Asset Management Limited

interim reports) should register on-line at

10 Old Bailey

http://www-uk.computershare.com/investor.

London EC4M 7NG

Shareholders will need their shareholder number,

Telephone: 020 7618 3900

shown on their share certificate and dividend

Email: info@majedie.com

vouchers, in order to access both of the above

 

services.

Depositary

 

BNY Mellon Trust & Depositary (UK) Limited

Auditors

BNY Mellon Centre

Ernst & Young LLP

160 Queen Victoria Street

25 Churchill Place

London EC4V 4LA

Canary Wharf

 

London E14 5EY

The Depositary has delegated the safe keeping

 

of the Company's assets to the Custodian, The

Stockbrokers

Bank of New York Mellon SA/NV, London

J.P. Morgan Cazenove

Branch.

25 Bank Street

 

London E14 5JP

AIFM

Majedie Investments PLC

 

 

ISIN

Solicitor

Ordinary: GB0005555221

Dickson Minto W.S.

Debenture 7.25% 31/03/2025: GB0006733058

16 Charlotte Square

 

Edinburgh EH2 4DF

Ticker

 

Ordinary: MAJE

Legal Entity Identifier

Debenture 7.25% 31/03/2025: BD22

2138007QEY9DYONC2723

 

 

Sedol

 

Ordinary: 0555522

 

Debenture 7.25% 31/03/2025: 0673305

 

 

 

National Storage Mechanism

A copy of the Annual Report and Financial Statements will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at: http://www.morningstar.co.uk/uk/NSM.

 

A copy of the Annual Report and Accounts and Notice of Annual General Meeting will be delivered to shareholders shortly and can also be found at www.majedieinvestments.com.

 

Annual General Meeting

The Company's Annual General Meeting will be held on 17 January 2018 at 12.00 pm at City of London Club, 19 Old Broad Street, London EC2N 1DS.

 

ENQUIRIES

If you have any enquiries regarding this announcement please contact Mr William Barlow on 020 7382 8185.

 

END

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.

 

 

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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Annual Financial Report - RNS