Majedie Investments PLC

Half-Yearly Financial Report

31 March 2020

Financial Highlights for the half year ended 31 March 2020

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 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 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 2020 the NAV at par and NAV at FV (net asset value with debt at par and at fair value) fell by 22.4% and 23.2% respectively on a total return basis. The share price fell by 30.2% over the period, also on a total return basis. Over the six months the FTSE All-Share index fell by 22.0% and the MSCI All Country World Index fell by 14.9% in sterling terms.

The year started with a positive outlook for UK markets with a new, stable Government and an end to the Brexit chaos in sight. The COVID-19 pandemic and the subsequent lockdowns of economies in February and March caused the Global economy a massive demand shock and stock markets fell heavily. Governments around the world have intervened on an unprecedented scale, and stock markets have recovered from the lows in March, but are likely to remain volatile. At an operational level the Company and Majedie Asset Management (MAM) have adapted to a remote working environment and are functioning well.

Results and Dividend

The Company had a capital loss for the six months to 31 March 2020 of £37.3m including a reduction in value for the Company's holding in MAM of £7.2m to £30.6m. The Directors have amended the basis on which they value MAM following advice from an external advisor. Further details can be found in the section on MAM.

Total income received from investments was £4.0m compared to £4.8m in the six months to 31 March 2019. The dividend received from MAM was £2.9m compared to £3.5m in the 6 months to 31 March 2019 and the income from MAM Funds decreased by £0.2m to £1.1m. Total administration costs and management fees reduced by £0.1m to £0.8m and finance costs were unchanged at £0.8m.

The net revenue return after tax was £3.4m compared to £4.3m in the six months to 31 March 2019.

The Board has declared an interim dividend of 4.4p (2019: 4.4p) which will be paid on 19 June 2020 to shareholders on the register on 5 June 2020.

Asset Allocation

The Company invests through a number of equity investment strategies managed by MAM and retains an equity holding in MAM of 17.2%. The Company has no overall benchmark; rather each Fund has its own benchmark and it is expected that performance will be driven by stock picking at the Fund level. The Company's total assets were £138.0m at 31 March 2020.

There were no sales of MAM shares over the period. The Company's holding in MAM's Global Focus Fund was redeemed in December 2019 and the proceeds reinvested into the newly launched International Equity Fund. In March 2020, in order to reduce gearing, £10m was raised from the MAM Funds.

MAM Funds and Investment Performance

The 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 its inception to 31 March 2020 it has returned 9.2% per annum net of fees, with a relative outperformance of 2.2% against its benchmark. The Company's assets are invested in a segregated mandate that is managed pari passu to the UK Equity Fund. The funds are invested primarily in UK equities with overseas equities limited to 20%. At 31 March 2020 the Company had an allocation to it of £36.1m, which represents 26.2% of total assets. In the six months to 31 March 2020 the mandate returned -22.9% net of fees, which is an underperformance of 0.9% against its benchmark. At the sector level the largest positive contributors were Aerospace and Defence, Mining (Gold) and Food Retail (all overweight) and the detractors were Pharmaceuticals and Utilities (both underweight) and Media (overweight). At the stock level the largest positive contributors were Barrick Gold, Tesco, QinetiQ (all overweight) and Glencore and Compass (neither held). The largest detractors were AstraZeneca (underweight), BAT and National Grid (neither held) and Pearson and FirstGroup (both overweight).

The Table below shows the principal overweight and underweight sector positions of the UK Equity Segregated Portfolio at 31 March 2020 relative to the FTSE All-Share Index in %

The Table below shows the principal overweight and underweight stock positions of the UK Equity Segregated Portfolio at 31 March 2020 relative to the FTSE All-Share Index in %

The 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. Since inception to 31 March 2020, the UK Income Fund has returned 7.4% per annum net of fees, with a relative outperformance of 2.2% against its benchmark. At 31 March 2020 the Company had an allocation to the UK Income Fund of £9.1m which represents 6.6% of total assets. In the six months to 31 March 2020 the Fund returned -23.1% net of fees, which is an underperformance of 1.1% against its benchmark. The largest positive contributors at a sector level were Personal Goods and Non-life Insurance (both overweight) and Travel and Leisure (underweight). At a stock level the largest positive contributors were Roche, Direct Line, BAE Systems and Domino Pizza (all overweight) and Unilever (underweight). The largest detractors were Meggitt, Lloyds Bank, Pearson and International Consolidated Airlines (all overweight) and AstraZeneca (not owned).

The Table below shows the principal overweight and underweight sector positions of the UK Income Fund at 31 March 2020 relative to the FTSE All-Share Index in %

The Table below shows the principal overweight and underweight stock positions of the UK Income Fund at 31 March 2020 relative to the FTSE All-Share Index in %

The Global Equity and 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 (Global Equity Fund) or concentrated portfolio (Global Focus Fund) of global equities including emerging markets. The holding in the Global Focus Fund was sold in December 2019 and the proceeds immediately reinvested in the International Equity Fund at launch. Since inception to 31 March 2020 the Global Equity Fund has returned 9.1% per annum net of fees for the sterling share class, with a relative outperformance of 0.7% per annum against its benchmark.  At 31 March 2020 the Company had an allocation of £18.1m to the Global Equity Fund which represents 13.1% of the Company's total assets. In the six months to 31 March 2020 the Fund returned -13.0%, which is an outperformance of 1.8% against its benchmark. At the sector level the largest positive contributors were Mining (Gold) and Interactive Media and Services (both overweight) and Banks (underweight) whilst the detractors were Technology Hardware (underweight) and Airlines and Semiconductors (both overweight). Positive stock contributors were Barrick Gold, Kao, M3, Sartorius Stedim Biotech and Amazon (all overweight), whilst the detractors were Tullow Oil, US Foods, Frontdoor and ON Semiconductor (all overweight) and Apple (underweight).

The Table below shows the principal overweight and underweight sector positions of the Global Equity Fund at 31 March 2020 relative to the MSCI All Country Index in %

The Table below shows the principal overweight and underweight stock positions of the Global Equity Fund at 31 March 2020 relative to the MSCI All Country Index in %

The International Equity Fund launched in December 2019. The objective of the Fund is to produce a total return in excess of the MSCI All Country ex US Index. Since inception to 31 March 2020 the International Equity Fund has returned -9.7% net of fees, with a relative outperformance of 8.4% against its benchmark. At 31 March 2020 the Company had an allocation to the International Equity Fund of £7.2m which represents 5.2% of total assets. At the sector level the largest positive contributors were Healthcare, Consumer Discretionary, and Materials (all overweight) whilst the detractors were Industrials, Consumer Staples and Utilities (all underweight). Positive stock contributors were Ambu, Prosus, Sartorius Stedim Biotech, Barrick Gold and Novo Nordisk (all overweight), whilst detractors were Copa, Anglo American, Royal Dutch Shell and Creditcorp (all overweight) and Tencent (underweight).

The Table below shows the principal overweight and underweight sector positions of the International Equity Fund at 31 March 2020 relative to the MSCI All Country ex US Index in %

The Table below shows the principal overweight and underweight stock positions of the International Equity Fund at 31 March 2020 relative to the MSCI All Country ex US Index in %

The US Equity Fund was launched in June 2014. Its objective is to produce capital growth over the long term through investment in a diversified portfolio of primarily US equities. Since inception to 31 March 2020 the Fund has returned 11.2% per annum net of fees for the sterling share class, with a relative underperformance of 1.2% against its reference benchmark, the S&P 500 Index. At 31 March 2020 the Company had an allocation of £6.8m to the US Equity Fund which represents 4.9% of total assets. In the six months to 31 March 2020 the US Equity Fund returned -16.4% net of fees, which is an underperformance of 3.3% against its benchmark. At the sector level the largest positive contributors were Banks (underweight) and Wireless Telecoms and Aerospace (both overweight), whilst the detractors were Food Retailing (overweight) and Technology Hardware and Semiconductors (both underweight). Positive stock contributors were T-Mobile US, Microsoft, Electronic Arts and Amazon (all overweight) and Boeing (underweight) whilst the detractors were US Foods, Parsley Energy, Frontdoor, Zimmer Biomet (all overweight) and Apple (underweight).

The Table below shows the principal overweight and underweight sector positions of the US Equity Fund at 31 March 2020 relative to the S&P 500 Index in %

The Table below shows the principal overweight and underweight stock positions of the US Equity Fund at 31 March 2020 relative to the S&P 500 Index in %

The 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 conventional long only equity funds, through investing in long and synthetic short positions in equities. Since inception to 31 March 2020 the Fund has returned 3.9% per annum net of fees. At 31 March 2020 the Company had an allocation to the Fund of £19.8m which represents 14.4% of total assets. In the six months to 31 March 2020 the Fund returned -14.5%. At the sector level the positive contributors were Consumer Discretionary and Real Estate (both short) and Consumer Staples (long), whilst the detractors were Energy, Communication Services and Banks (all long). Positive stock contributors were Compass, Hilton, Boeing and CarMax (all short) and Newmont (long) whilst detractors were Tullow Oil, Exxon Mobil, Royal Bank of Scotland, Societe Generale and Centrica (all long).

The Table below shows the principal long and short sector positions of the Tortoise Fund at 31 March 2020 in %.

The Table below shows the principal long and short stock positions (on a net basis) of the Tortoise Fund at 31 March 2020 in %.

Majedie Asset Management (MAM)

For the last ten years MAM has been valued using a backward looking methodology based on historic earnings. As AUM increased the valuation was deemed to be conservative. However, due to the evolving outlook for the asset management industry, a fall in AUM at MAM and its strategic decision to lower costs for investors by both reducing annual management charges and absorbing all UK OEIC administration costs, a discount has been applied to the formula in the last two years.

The Board, having taken external advice, has decided to adopt a new valuation methodology which, it believes, is a more appropriate basis for valuing the Company's holding in MAM going forward.

The revised basis for valuation annualises the most recent quarterly earnings of MAM, applies a median of a peer group price earnings multiple with an unlisted liquidity discount of 20% (although the Directors may adjust the discount depending on market conditions). Performance fee earnings multiples are further discounted by 50%. Surplus net assets are then added, having deducted 200% of Regulatory Capital.

It is intended that the valuation is updated each quarter and will be announced to the market. The Board believes the new valuation methodology will enhance the disclosure and transparency of the Company's investment in MAM for investors.

In the six months to 31 March 2020 MAM's AUM declined from £10.8bn to £8.1bn, reflecting lower stock market levels and a modest net outflow of funds. The most recent quarter saw a return to net inflows, including MAM's appointment to manage the Edinburgh Investment Trust PLC.

The revised valuation methodology values the Company's stake at £30.6m, comprised as follows:

Summary and outlook

This first quarter of the financial year was relatively strong for stock markets and in particular the UK, which was emerging from three years of Brexit chaos with a newly elected Government whose mandate was to fiscally pump prime the economy. The low valuation of the UK market was attracting the attention of international asset allocators. It seemed the patience of retaining an overweight UK stance would be rewarded. The chaos of COVID-19 and the resulting lockdowns across the world hit markets hard. The UK market was particularly hard hit for two reasons; its heavy exposure to banks which are now discouraged from paying dividends and secondly the collapse in the oil price as Saudi Arabia and Russia increased supply just as demand was falling heavily. Investors reacted to the chaos by buying the large technology stocks in the US, thereby ensuring the UK market underperformed its Global peers.

Markets have recovered some composure, but the shape of any recovery is difficult to judge. It does seem that in the new investment world good stock picking based on fundamental analysis will come to the fore. This plays to the core strengths of MAM, as shown by good relative performance in previous market dislocations and its distinctive long-term track record.

Development of Net Asset Value

The chart below outlines the change in the Company's Net Asset Value (debt at par) over the six months ended 31 March 2020. In aggregate, the NAV has decreased by £37.7m, comprised of net investment losses at the MAM Funds, including the UK Equity Segregated Portfolio, of £24.9m, a net write down of the investment in MAM by £7.4m, expenses and interest of £1.6m, share buybacks of £0.1m and dividends paid to shareholders of £3.7m.

Allocation of Total Assets at 31 March 2020

* Net Cash and realisation fund does not include cash held in the 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 the UK Equity Segregated Portfolio was made on 22 January 2014.

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

The initial investments in the Global Equity Fund, Global Focus Fund and 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 Tortoise Fund was made on 29 January 2014.

The Company's investment in the Global Focus Fund was redeemed on 12 December 2019 and the proceeds were invested in the International Equity Fund.

William Barlow

Chief Executive
For and on behalf of the Board

26 May 2020

Fund Analysis

at 31 March 2020

Geographic and Sector Analysis at 31 March 2020

Notes:

The assets analysed above are the net exposure of the UK Equity Segregated Portfolio, UK Income Fund, Global Equity Fund, International Equity Fund, the US Equity Fund and Tortoise Fund. The Tortoise Fund, as an absolute return fund, invests through CFDs and the net exposure of the fund is shown in the table. The aggregate of the funds represents a total of 70.4% of the Company's total assets.

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

Twenty Largest Portfolio Holdings 

at 31 March 2020

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

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, giving proper consideration to financial and cashflow forecasts, including any COVID-19 impacts, 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 2019, as set out in the Business Review section of the Strategic Report (pages 20 to 21). COVID-19 has introduced heightened uncertainty in global equity markets, both economically and politically, and the impact on the Company is set out in the Chief Executive's Report. The Company and its service providers have implemented Business Continuity Plans and operations and service levels have been maintained. Risks faced by the Company include, but are not limited to, market risk, discount volatility, compliance risk (including non-compliance with Section 1158 of the Corporation Tax Act 2010), operational risk and financial risk.

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 2019 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

26 May 2020