Majedie Investments PLC

Half-Yearly Financial Report

31 March 2019

Financial Highlights for the half year ended 31 March 2019

Investment Objective and Policy Statement

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.

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 Majedie Asset Management Limited (MAM). Investments in unquoted securities, other than those managed by its investment manager or made prior to the date of the 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.

Asset Allocation

The assets of the Company will be allocated principally between investments in publicly quoted companies worldwide, 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 in 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 net gearing (borrowings less cash) on an on-going basis and sets a range at its discretion as appropriate. The Company's current debenture borrowings are limited by covenant to 66⅔%, and any additional indebtedness is not to exceed 20%, of adjusted capital and reserves.

Chief Executive's Report

In the six months ended 31 March 2019 the NAV at par and NAV at FV (net asset value with debt at par and at fair value) fell by 4.2% and 4.5% respectively on a total return basis. The share price fell by 2.9% over the period, also on a total return basis. Over the six months the FTSE All Share Index fell by 1.8% and the MSCI All Country World Index fell by 2.0% in sterling terms.

Results and Dividend

The Company had a capital loss for the six months to 31 March 2019 of £11.9m. The loss includes a reduction in the holding value of Majedie Asset Management of £2.9m. The valuation is based on a formula which has been used in prior years; however, in light of lower valuations of other fund management companies, the Board has felt it prudent to discount the formulaic valuation, which reduces the value of the holding in MAM to £52.3m. The retained valuation represents a discount to the formulaic valuation of £9.6m or 15%.

The total income received from investments was £4.8m compared to £4.7m in the six months to 31 March 2018. The dividend received from MAM of £3.5m was the same as in the six months to 31 March 2018 and the income from the MAM Funds increased by £0.1m. Total administration expenses and management fees were flat at £0.9m. Finance costs fell by £0.2m due to the redemption of the 2020 Debentures in December 2017.

The net revenue return after tax for the six months to 31 March 2019 was £4.3m compared to £4.1m in the six months to 31 March 2018.

The Board has declared an interim dividend of 4.4p (2018: 4.0p), which will be paid on 14 June 2019 to shareholders on the register on 31 May 2019.

Asset Allocation

The Company invests through a number of investment strategies managed by MAM and retains an equity holding in MAM of 17.1%. The Company has no overall benchmark; rather each fund has its own benchmark. The Company's total assets were £187.8m at 31 March 2019. In the six months to 31 March 2019 there were no significant changes to the asset allocation and no sales of MAM shares.

MAM Funds and investment Performance

The MAM UK Equity Fund launched in March 2003. Its objective is to produce a total return in excess of the FTSE All-Share Index over the long term. Since inception to 31 March 2019 it has returned 11.5% per annum net of fees, with a relative outperformance of 2.6% against its benchmark. The Company's assets are invested in a segregated mandate 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. At 31 March 2019 the Company had an allocation to it of £54.4m, which represents 29.0% of total assets. In the six months to 31 March 2019 the mandate returned -4.4% net of fees which is an underperformance of 2.6% against its benchmark. At the sector level the largest positive contributors were Telecoms, Healthcare Equipment and Mining (gold) (all overweight); detractors were Utilities, Oil Equipment (both overweight) and Beverages (not owned). The positive stock contributors to performance over the six months included Serco, Barrick Gold and Marshalls (all overweight); detractors were Centrica, Ensco (both overweight) and Diageo (not held).

The table below shows the principal overweight and underweight sector positions of the MAM UK Equity Segregated Portfolio at 31 March 2019 relative to the FTSE All-Share Index in %.

The MAM UK Income Fund launched in December 2011. Its objective is to maintain an attractive yield whilst outperforming the FTSE All-Share Index over the long term, with up to 20% invested in overseas equities. The historic yield is 5.3%. Since inception to 31 March 2019, the Fund has returned 12.3% per annum net of fees, with a relative outperformance of 3.3% per annum against its benchmark. At 31 March 2019 the Company had an allocation of £14.7m, which represents 7.8% of the Company's total assets. In the six months to 31 March 2019 the Fund returned -5.6%, which represents an underperformance of 3.8%. The largest positive contributors at a sector level were Food Producers, Life Insurers (both overweight) and General Industrials (not owned); detractors were Oil and Gas Producers, Utilities (both overweight) and Mining (underweight). Positive stock contributors were Legal and General, Pearson and Roche (all overweight) and detractors were Centrica, Aviva (both overweight) and Diageo (not held).

The table below shows the principal overweight and underweight sector positions of the MAM UK Income Fund at 31 March 2019 relative to the FTSE All-Share Index in %.

The MAM Global Equity and MAM Global Focus Funds 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 (MAM Global Equity Fund) or concentrated portfolio (MAM Global Focus Fund) of global equities incorporating emerging markets. Since inception, the Funds have returned 12.5% and 12.0% per annum net of fees for the sterling share classes which represent an outperformance of 0.6% and 0.1%, respectively against their benchmark. At 31 March 2019 the Company had allocations of £22.7m and £8.0m to the MAM Global Equity and MAM Global Focus Funds representing 12.1% and 4.3% of total assets. In the six months to 31 March 2019 the Funds returned 0.6% and 1.1% net of fees which represents an outperformance of 2.6% and 3.1% respectively. At the sector level, for the MAM Global Equity Fund, the largest positive contributors were Internet and Direct Retail, Biotechnology and Metals and Mining (all overweight); detractors were Entertainment, Interactive Media and Health Care Technology (all overweight). Positive stock contributions were Ionis Pharmaceuticals, Mercadolibre and Royal KPN (all overweight); detractors were Take-Two Interactive, Parsley Energy and Baidu (all overweight). For the MAM Global Focus Fund, the largest positive contributors to performance at a sector level were Internet and Direct Retail, Diversified Telecom Services and Biotechnology (all overweight); detractors were Entertainment, Energy Equipment and Chemicals (all overweight). Positive stock contributions were Royal KPN, Ionis Pharmaceuticals and Barrick Gold (all overweight); detractors were Take Two Interactive, Diamond Offshore Drilling and Softbank (all overweight).

The tables below shows the principal overweight and underweight sector positions of the MAM Global Equity Fund at 31 March 2019 relative to the MSCI All Country Index, in %.

The tables below shows the principal overweight and underweight sector positions of the MAM Global Focus Fund at 31 March 2019 relative to the MSCI All Country World Index, in %.

The MAM US Equity Fund was launched in June 2014. Since inception the Fund has returned 14.5% per annum net of fees for the sterling share class. This represents an underperformance of 1.5% per annum against its benchmark S&P 500 Index. At 31 March 2019 the Company had an allocation of £8.8m which represents 4.7% of total assets. In the six months to 31 March 2019 the Fund returned 0.5% net of fees which is an outperformance of 2.5% against its benchmark. At the sector level the largest positive contributors to performance were Insurance (overweight), Technology Hardware (underweight) and Media (overweight); detractors were REITs, Household Products (both not held) and Airlines (overweight). Positive stock contributors were New York Times, American Electric Power (both overweight) and Apple (not owned); detractors were Parsley Energy, Lockheed Martin and Alaska Air (overweight).

The table below shows the principal overweight and underweight sector positions of the MAM US Equity Fund at 31 March 2019 relative to the S&P 500 Index, in %.

The MAM Tortoise Fund is a global equity absolute return fund which was launched in August 2007. Its objective is to achieve positive absolute returns in all market conditions over rolling three year periods, with less volatility than a conventional long only fund. Since inception to 31 March 2019, the Fund has returned 6.4% per annum net of fees. At 31 March 2019 the Company had an allocation of £26.4m, which represents 14.0% of total assets. The Fund returned -0.4% for the six months to 31 March 2019. At a sector level the largest positive contributors to performance were Metals and Mining (Gold), Diversified Telecom Services (both long) and Trading Companies and Distributors (short); the detractors were Energy Equipment, Food Retail and Utilities (all long). Positive stock contributions were Goldfields, Sibanye Gold and Barrick Gold (all longs); detractors were Ensco, Sainsbury and Diamond Offshore Drilling (all longs).

The table below shows the principal long and short positions (on a net basis) of the MAM Tortoise Fund at 31 March 2019, in %.

Majedie Asset Management

The Company retains its holding in MAM and 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. MAM's assets under management declined over the six months to 31 March 2019 from £14.1bn to £12.4bn which reflects stock market declines and a net outflow of funds. The value of the holding in MAM at 30 September 2018 was £58.7m which included the value of the MAM final dividend of £3.5m which the Company received in December 2018.

The Board has felt it appropriate to reduce the value of its holding in MAM to £52.3m, which represents 27.9% of total assets. The valuation is based on a formula which has been used in prior years and reflects three year historic average earnings and cash held on the balance sheet. However, in light of market conditions, the current valuations of other fund management companies, the performance of certain MAM Funds and net outflows over the period, the Board felt it appropriate to reduce the valuation.  The current valuation represents a discount to the formulaic valuation of 15% or £9.6m.

Board

Sadly, Andrew Adcock who had joined the Board in 2008 and became Chairman in 2010 passed away in January 2019. Andrew's contribution to the Company had been immense; in particular he was instrumental in moving the investment management to MAM in 2014. He will be much missed by the Company and his colleagues.

 David Henderson, who joined the Board in 2011, became interim Chairman in December 2018 and Chairman on the passing of Andrew. He currently retains his position as Chairman of the Audit and Nomination Committee; however, the Board is close to concluding a search for a new Non Executive Director to Chair the Audit Committee.

Jane Lewis joined the Board as a Non Executive Director in January 2019. Jane brings a deep knowledge and understanding of Investment Companies having worked in the sector for over twenty years. She was director of corporate finance and broking at Winterflood Investment Trusts until 2013 and is non-executive director of a number of Investment Companies.

Summary

The six month period to 31 March 2019 was a story of two very different quarters. In the quarter to December 2018 the FTSE All-Share Index fell by 10.3% and the MSCI All Country World Index (in sterling terms) fell by 10.7%. Markets became concerned that leading economic indicators were turning down at the same time that Central Banks were increasing interest rates and some economic forecasts suggested that the US economy could fall into recession in 2019.  Stock markets, having traded at all-time highs and on historically stretched valuations, fell sharply.

The new year brought a change of policy from Central Banks and a much more dovish outlook for monetary policy particularly in the US and China. Stock markets rallied, with the FTSE All-Share Index rising by 9.4% and the MSCI All Country World Index (in sterling terms) rising by 8.5%. It is noticeable however that expectations for global economic growth were not upgraded and forecast earnings growth is muted. US, German and UK unemployment rates are low, so the risk of rising wage pressure has increased. Other global macroeconomic risks include a further escalation of the trade dispute between US and China. Of course, from a UK perspective, the Brexit chaos and political fallout weigh on the market and in recent years the UK market has performed relatively poorly and seen substantial investor outflows. Nevertheless, in the six months to 31 March 2019 the FTSE All- Share Index has performed in line with the MSCI All Country World Index, suggesting that at current ratings UK markets have discounted much of the uncertainty.

The Company's overall investment performance for the six months to 31 March 2019 was disappointing. There were two main reasons. First, the Company's investment in MAM was written down by 5%. The Board think it prudent to apply a discount to the formulaic valuation that has been used in previous years. Secondly, the UK Funds underperformed their benchmarks in the first quarter of 2019. In anticipation of more volatile markets their managers had tilted their portfolios to defensive value orientated stocks, but, as markets rallied, the more expensive momentum stocks out-performed. Whilst the defensive positioning of the Funds has been premature the Board remain confident that it should be relatively resilient should markets deteriorate.

During the period under review, the Company bought, for cancellation, 7,000 shares in response to a discount that the Board deemed unwarranted. The Board will continue to monitor closely the level of the discount.

Development of Net Asset Value (NAV)

The chart below shows the NAV development during the six months to 31 March 2019. In aggregate the NAV has decreased by £11.3m, having recorded total investment income and losses of £6.0m, having incurred net administration and finance costs of £1.6m, and having paid out dividends of £3.7m.

Allocation of Total Assets at 31 March 2019

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

MAM Fund Performance

Notes:

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

The initial investment in 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 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

Chief Executive
For and on behalf of the Board

21 May 2019

Fund Analysis

at 31 March 2019

Geographic and Sector Analysis at 31 March 2019

Notes:

The assets analysed above are the net exposure of the MAM UK Equity Segregated Portfolio, MAM UK Income Fund, MAM Global Equity Fund, MAM Global Focus Fund, the MAM US Equity Fund and MAM Tortoise Fund. The MAM Tortoise Fund, as an absolute return fund, invests through CFDs, on a net exposure basis. As the MAM Tortoise Fund is an absolute return fund, the percentages do not sum to 100%. The aggregate of the funds represents a total of 71.9% of the Company's total assets. In previous years the MAM Tortoise Fund net exposures were not disclosed. 

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

Twenty Largest Portfolio Holdings 

at 31 March 2019

The assets analysed above show the Company's largest twenty holdings on a look through basis across all assets. 

Interim Management Report                

The important events that have occurred during the period under review, the key factors influencing the financial statements and the principal uncertainties for the remaining six months of the financial year are set out in the Chief Executive's Report above. This Half-Yearly Financial Report has not been audited or reviewed by the Company's auditor.

The financial statements continue to be prepared on a going concern basis. The approach used for the Annual Report is applied, including proper consideration of financial and cashflow forecasts, and it is believed that the Company has adequate financial resources to continue to operate for the foreseeable future.

The principal risks facing the Company remain unchanged since the date of the Annual Report for the year ended 30 September 2018, as set out in the Business Review within the Strategic Report (pages 18 and 19), with no particular subsequent heightened uncertainty. Risks faced by the Company include, but are not limited to, market risk, discount volatility, regulatory risk, financial risk, risks associated with banking and hedging and non-compliance with Section 1158 of the Corporation Tax Act 2010.

Responsibility Statement of the Directors in respect of the Half-Yearly Financial Report

In accordance with the Disclosure Guidance and Transparency Rules 4.2.7R and 4.2.8R, we confirm that to the best of our knowledge:

(a)        the condensed set of financial statements has been prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting, as adopted by the European Union, as required by the Disclosure Guidance and Transparency Rule 4.2.4R, and gives a true and fair view of the assets, liabilities and financial position of the Company;

(b)        the Chief Executive's Report includes a fair review of the information required to be disclosed under the Disclosure Guidance and Transparency Rule 4.2.7R, interim management report. This includes (i) an indication of important events that have occurred during the first six months of the financial year, and their impact on the condensed set of financial statements presented in the Half-Yearly Financial Report and (ii) a description of the principal risks and uncertainties for the remaining six months of the financial year; and

(c)        there were no changes in the transactions or arrangements with related parties as described in the Annual Report for the year ended 30 September 2018 that would have had a material effect on the financial position or performance of the Company in the first six months of the current financial year.

David Henderson

Chairman

For and on behalf of the Board

21 May 2019