MAJEDIE INVESTMENTS PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2022
The Directors of Majedie Investments PLC are pleased to announce the Annual Report and Accounts (“Annual Report“) for the year ended 30 September 2022. The Annual Report can be obtained from the Company’s website at www.majedieinvestments.com or by contacting the Company Secretary on telephone number 07936 332 503.
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 | 2022 | 2021 |
| Total shareholder return (including dividends): | -24.9% | 37.1% |
| Net asset value total return (debt at fair value including dividends): | -18.2% | 22.5% |
| Net asset value total return (debt at par including dividends): | -19.8% | 20.6% |
| Total dividends (per share): | 10.4p | 11.4p |
| Directors’ valuation of investment in Majedie Asset Management Limited: | Sold | £25.2m |
YEAR’S SUMMARY
| Capital Structure | Note(see below) | 2022 | 2021 | % | |
| As at 30 September | |||||
| Total assets | 1 | £137.6m | £173.0m | -20.4 | |
| Which are attributable to: | |||||
| Financial liabilities (debt at par value) | 2 | £20.8m | £20.8m | -23.1 | |
| Equity Shareholders Funds | £116.9m | £152.2m | |||
| Gearing | 3 | 12.6% | 12.3% | ||
| Potential Gearing | 3 | 17.8% | 13.7% | ||
| Total returns (capital growth plus dividends) | 4 | ||||
| Net asset value per share (debt at par value) | 5 | -19.8% | +20.6% | ||
| Net asset value per share (debt at fair value) | 5 | -18.2% | +22.5% | ||
| Share price | -24.9% | +37.1% | |||
| Capital returns | |||||
| Net asset value per share (debt at par value) | 5 | 220.6p | 287.1p | -23.1 | |
| Net asset value per share (debt at fair value) | 220.5p | 281.4p | -21.7 | ||
| Share price | 163.5p | 230.0p | -30.4 | ||
| Discount of share price to net asset value per share | |||||
| Debt at par value | 27.5% | 19.9% | |||
| Debt at fair value | 27.4% | 18.3% | |||
| Revenue and dividends | |||||
| Net revenue available to Equity Shareholders | £2.8m | £5.0m | |||
| Net revenue return per share | 5.2p | 9.4p | -44.7 | ||
| Total dividends per share | 10.4p | 11.4p | -8.7 | ||
| Total administrative expenses and management fees | £1.6m | £1.6m | |||
| Ongoing Charges Ratio | 6 | 1.3% | 1.2% | ||
Notes:
Alternative Performance Measures (APM) 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 carrying value of the debenture which will equate to the nominal value 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. 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 22.
4. 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.
5. 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.
6. Ongoing Charges Ratio (OCR) : Ongoing charges are a measure of the regular ongoing administration costs of running a company, as calculated in accordance with AIC guidance. Further information is shown in the Business Review section of the Strategic Report contained within the full Annual Report.
| Year’s high/low | 2022 | 2021 | |
| Share price | high | 243.0p | 252.5p |
| low | 160.0p | 176.0p | |
| Net asset value – debt at par | high | 297.1p | 304.2p |
| low | 220.7p | 245.0p | |
| Discount – debt at par | high | 28.7% | 30.0% |
| low | 14.9% | 13.3% | |
| Discount – debt at fair value | high | 28.5% | 27.9% |
| low | 13.4% | 11.2% |
Ten Year Record
to 30 September 2022
| Year End | TotalAssets ++£000 | Equity share-holders’ Funds£000 | NAV Per Share (Debt at par value)Pence | Share Price Pence | Discount% | Earnings Pence | Total Dividend** Pence | Gearing†% | Potential Gearing†% | Ongoing Charges Ratio#% |
| 2013 | 159,013 | 125,166 | 240.5 | 160.0 | 33.47 | 6.80 | 10.50 | 21.47 | 27.04 | 1.73 |
| 2014 | 167,934 | 134,061 | 256.7 | 229.0 | 10.79 | 9.36 | 7.50 | 23.39 | 25.27 | 1.66 |
| 2015 | 183,708 | 149,807 | 281.9 | 257.3 | 8.74 | 9.42 | 8.00 | 21.25 | 22.63 | 1.88 |
| 2016 | 203,917 | 169,986 | 318.1 | 257.1 | 19.18 | 9.25 | 8.75 | 18.46 | 19.96 | 1.58 |
| 2017 | 216,507 | 182,544 | 341.6 | 281.5 | 17.59 | 11.14 | 9.75 | 17.09 | 18.61 | 1.54 |
| 2018 | 199,151 | 178,626 | 334.3 | 277.5 | 16.99 | 12.47 | 11.00 | 10.01 | 11.49 | 1.33 |
| 2019 | 175,621 | 155,074 | 292.3 | 256.0 | 12.42 | 12.92 | 11.40 | 11.50 | 13.25 | 1.34 |
| 2020 | 152,153 | 131,333 | 247.7 | 176.5 | 28.74 | 9.11 | 11.40 | 10.97 | 15.85 | 1.34 |
| 2021 | 172,951 | 152,153 | 287.1 | 230.0 | 19.89 | 9.41 | 11.40 | 12.26 | 13.67 | 1.25 |
| 2022 | 137,647 | 116,887 | 220.6 | 163.5 | 27.50 | 5.20 | 10.40 | 12.65 | 17.80 | 1.34 |
Notes:
** Dividends disclosed represent dividends that relate to the Company’s financial year. Under UK adopted International Accounting Standards dividends are not accrued until paid or approved. Total dividends include special dividends paid, if any.
† Calculated in accordance with AIC guidance.
# As of May 2012, under AIC guidance, Ongoing Charges Ratio replaced previous cost ratios.
++ Total Assets are defined as total assets less current liabilities.
STRATEGIC REPORT
CHAIRMAN’S STATEMENT
The year ended 30 September 2022 was very disappointing for shareholders as the NAV at par and fair value (net asset value with debt at par and fair value) fell by 19.8% and 18.2% respectively on a total return basis. The share price fell by 24.9% also on a total return basis. By way of comparison, the FTSE All-Share Index fell by 4.0% and the MSCI All Country Index fell by 4.2% in sterling terms and in both cases, on a total return basis.
The sale of Majedie Asset Management Limited (MAM) to Liontrust Asset Management PLC (Liontrust) announced in December 2021 was completed on 1 April 2022. In May 2022 Majedie Investments PLC (the Company) announced that the Board was considering the Company’s investment objective together with the range of assets that should be considered for inclusion in the Company’s portfolio, as well as its own responsibilities for portfolio allocation.
On 10 November 2022 the Company announced that, following an extensive review of the Company’s investment management arrangements, it had entered into a conditional agreement to appoint Marylebone Partners LLP (Marylebone) as the Company’s investment manager. Following its recent approval by the FCA, a Shareholder Resolution to implement the new investment policy will be voted on by shareholders at the General Meeting on 25 January 2023.
The Board believes the change in investment manager and the adoption of the new investment policy will provide the following benefits to shareholders:
· Potential for differentiated and repeatable investment performance, enabled by a transition to a liquid endowment model. The model is a long-term strategy that focusses on fundamental investments and incorporates multi-asset return sources that are realisable within a 2-3 year time horizon. It will not feature private equity, venture capital, infrastructure or property. Over the three years to 30 September 2022, Marylebone representative track record has delivered net annualised performance in GBP of +8.4%, some 4% ahead of the U.K. Consumer Price Index.
· A differentiated return profile, complementing shareholders’ other investments. Given the opportunity across its three core activities, Marylebone believes it should be possible to deliver capital appreciation, whilst funding a dividend out of a combination of underlying income and capital growth.
· Alignment of interests and participation in the future growth of Marylebone. The Company will receive, for no consideration, an interest in Marylebone entitling it to 7.5% of residual profits and capital.
· The Board is aware of investors (including parties connected to Marylebone) who have expressed an interest in becoming shareholders. The Board and Marylebone believe this may help narrow the discount to Net Asset Value at which the Company’s shares trade currently, whilst potentially improving liquidity and paving the way for future growth.
· Cost mitigation. Marylebone will reduce the management fee payable by Majedie by 50% for a period of twelve months and make a significant ongoing contribution to the cost of marketing the Company.
Results and Dividends
In the twelve months to 30 September 2022 the Company had a capital loss of £31.9m which includes
£12.0m resulting from the decline in value of the Liontrust shares received as part of the MAM transaction.
Total income received from investments was £3.9m compared to £6.1m in the twelve months to 30 September 2021. The dividend received from MAM was £1.2m, compared to £4.0m the previous year and the income from MAM Funds was £2.7m compared to £2.1m in 2021. Total administration costs and management fees and finance costs were £1.7m and £1.5m respectively.
The net revenue return after tax decreased from £5.0m in the year to 30 September 2021 to £2.8m in the year to 30 September 2022. The interim dividend was maintained at 4.4p and the Board is recommending a final dividend of 4.2p and a special dividend of 1.8p. The reduction in the final dividend reflects the reduction in net revenue and the special dividend reflects the new dividend policy of paying circa 0.75% of NAV quarterly.
The final dividend will be payable on 27 January 2023 to shareholders on the register at 13 January 2023 and the Company’s shares go ex-dividend on 12 January 2023.
Investment Performance
The investment performance of the funds in which the Company is invested was disappointing both on an absolute and relative basis with the notable exception of the Tortoise Fund which increased by 8.6%. The CEO’s report which follows gives further detail on the reasons behind this.
As a result of the sale of MAM the Company received a combination of shares in Liontrust and cash which was valued at £22.4m on 7 December 2021, the date the transaction with Liontrust was announced, compared with the valuation of the Company’s holding in MAM at 30 September 2021 of £25.2m. Subsequent to the announcement the share price of Liontrust declined and at 30 September 2022 the transaction value had reduced by a further £9.2m to £13.2m including dividends received from Liontrust, a loss for the year of £12.0m.
The Company was able to negotiate the removal of the lock up on selling Liontrust shares in July 2022. Subsequently, it has sold 108,000 Liontrust shares for an average price of 908p per share. At 30 September 2022 the Company had a holding of 539,207 shares in Liontrust.
Notwithstanding the writedowns in the stake in MAM in recent years the Company has benefitted from providing seed capital to MAM in 2002 both in terms of capital growth and receipt of dividends. The Board would like to thank the team for their hard work and dedication in growing the business and wishes them well in their new role as the Global Fundamental Team at Liontrust.
Investment Management Arrangements
As described earlier the Company has announced it has entered into a conditional agreement to appoint Marylebone as its investment manager. Founded in 2013 Marylebone is an independent firm, currently managing US $400m for professional and institutional clients which includes charities, foundations, family offices and high net worth individuals.
With equities at its heart, Marylebone’s long-term fundamental approach is aligned with Majedie’s ethos. Their proposition met the Board’s criteria for an investment manager who could deliver differentiated investment outcomes and bring a new and relevant proposition to the investment trust sector, whilst developing the Company’s culture and history.
The Board selected Marylebone for its ability to identify differentiated investment opportunities and reputation for protecting and growing the wealth of its clients. Marylebone’s investment approach includes three core strategies, comprising special investments, allocations to specialist funds managed by third parties and a focused portfolio of listed equities. Marylebone sources investments through a global network, which its principals have built over nearly three decades at industry leading firms. The Board believes it will be increasingly important to identify differentiated sources of performance from the large and growing set of less researched opportunities that are available within this wider investment mandate, in addition to those in other major asset classes.
In order to proceed with the appointment of Marylebone, the Company intends to amend its investment policy at a General Meeting. This will enable Majedie to pursue a high-conviction, long-term approach that is unconstrained by geographic limitations or any formal benchmark. Following adoption of the new investment strategy, the Company will target annualised total returns (net of fees and expenses, in GBP) of at least 4% above the UK Consumer Price Index, measured over rolling five-year periods. The target total return will include an annual dividend, paid quarterly.
Each quarterly dividend payment is initially expected to comprise 0.75% of the relevant quarter-end Net Asset Value, leading to an annual dividend of approximately 3% of Net Asset Value. Further details are included in an accompanying circular for General Meeting.
Marketing
The Company normally conducts marketing through face-to-face meetings together with research from Kepler to targeted wealth managers. The review of the Company’s investment management arrangements has curtailed such meetings, but following the announcement a number of such meetings have taken place both virtually and in person. It is intended that this will continue once the new managers are in place. The Company also uses doceo, a web portal that provides financial information and video presentations to retail investors on Investment Companies. There is currently a video presentation by William Barlow on the appointment of Marylebone and an overview from Dan Higgins, CIO of Marylebone on doceo via the link https://doceo.tv/funds/majedie-investments/.
Outlook
The previous twelve months have been painful for investors, as all asset classes with the exception of
commodities have fallen. The realisation that inflation was not transitory and that authorities were behind the curve caused Central Banks, led by the US, to raise interest rates aggressively. This was exacerbated by the Ukraine conflict which put significant pressure on commodity prices. After a decade of ultra-loose monetary policy following the financial crisis and COVID, the change in policy was a shock for investors. Bond rates rose significantly and equity markets sold off and there was significant rotation away from growth stocks.
The Board will retain the Company’s exposure to markets until the shareholders have approved the proposed changes to the Company’s investment management arrangements because the equity valuations had approached attractive levels at the year end. There is evidence that inflation is peaking as the supply side shocks from COVID are easing and commodity prices have appeared to have peaked.
Turbulence in markets has greatly expanded the opportunity set available to Marylebone to pursue a
liquid endowment strategy, in particular in equities and credit. Illiquid strategies that were favoured by low interest rates no longer offer an attractive risk reward for investors. The multi asset approach that will be pursued uses the Investment Company structure to add value and provide differentiated returns over the long term. The Board has consistently stated that it wishes to grow the Company for the benefit of all shareholders and has already seen significant investment from new investors since the announcement in November. Over time with good investment performance the Board is confident that the discount will narrow and new shares will be issued.
Arrangements for the AGM
The AGM will be held at the City of London Club, 19 Old Broad Street, London EC2N 1DS at 12.00pm on Wednesday 25 January 2023. Dan Higgins, CIO of Marylebone, will present the new investment strategy. I very much look forward to welcoming shareholders in person after the last two years meetings have been restricted.
Christopher Getley
Chairman
19 December 2022