Annual Financial Report

Majedie Investments PLC Annual Financial Report for the year ended 30 September 2012 The full Annual Report and Accounts will shortly be available via the Company's website at www.majedie.co.uk or by contacting the Company Secretary on telephone number 020 7954 9527. The Directors present the results of the Company for the year ended 30 September 2012. 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 Javelin Capital LLP, though it may invest in unquoted securities up to levels set periodically by the Board, including its investment in Majedie Asset Management Limited. Investments in unquoted securities, other than those managed by Javelin Capital, (measured by reference to the Company's cost of investment) will not exceed 10 per cent. of the Company's gross assets. Risk diversification Whilst the Company will at 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 investment 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 per cent. of the value of its gross assets save that the Company may invest up to 25 per cent. of its gross assets in any single fund managed by Javelin Capital. The Company will only invest in funds managed by Javelin Capital 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 are split into four major groups. These are the Core Portfolio, funds managed by Javelin Capital LLP, and the Company's investments in Majedie Asset Management Limited and Javelin Capital LLP. Benchmark The Company does not have one overall benchmark, rather each distinct group of assets is viewed independently. For the actively managed Core Portfolio the benchmark comprises 70 per cent. FTSE All-Share Index and 30 per cent. FTSE World ex-UK Index (Sterling) on a total return basis. Any investments made into Javelin Capital LLP products are measured against the relevant fund benchmark as contained in the fund's prospectus. 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 per cent. 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 per cent. and any additional indebtedness is not to exceed 20 per cent. of adjusted capital and reserves. Highlights for 2012 Total shareholder return: 19.6% Net asset value total return: 5.5% Final dividend (per share): 6.3p Total dividends (per share): 10.5p Directors' valuation of investment in Majedie Asset Management Limited: Â£39m Investment in Javelin Capital LLP of: Â£8m Group Summary Total assets* Â£146.1m Shareholders' funds Â£112.2m Market capitalisation Â£81.8m Capital structure 10p ordinary shares 52,528,000 Â£13.5m 9.5% debenture stock Debt 2020 Â£20.7m 7.25% debenture stock 2025 Up to Â£11,280 for 2012/13 tax ISA Status year. * Represents total assets less current liabilities as at 30 September 2012. Year's Summary Financial* 2012 2011 % as at 30 September Total assets less current liabilities Â£146.1m Â£145.7m 0.3 Shareholders' funds Â£112.2m Â£111.6m 0.5 Net asset value per share 215.6p 214.5p 0.5 Share price 155.8p 139.5p 11.7 Discount to net assets (debt at par value) 27.8% 35.0% Discount to net assets (debt at fair value) 20.0% 29.8% Revenue return before tax Â£2.7m Â£2.6m 3.8 Earnings per share 4.9p 4.6p 6.5 Core dividends per share** 10.5p 10.5p Group costs (administrative expenses) Â£3.2m Â£4.8m (33.3) Company ongoing chargesâ€ 1.8% 1.9% Gearing/(Net cash) 9.2% (1.7%) Maximum potential gearing 30.1% 30.3% Company gearing 11.1% 15.8% â€ Excludes performance fees and one off costs, but includes estimated running costs of pooled fund investments. * Financial information is disclosed in respect of the consolidated accounts unless otherwise stated. ** Core dividends per share represent dividends that relate to the Company's financial year. However under IFRS dividends are not accrued until paid or approved. Year's high/low 2012 2011 Share price high 168.5p 203.5p low 139.5p 133.8p Net asset value high 226.5p 214.8p low 202.7p 196.3p Discount (debt at par) high 29.8% 32.3% low 16.9% 13.1% Discount (debt at fair value) high 35.0% 26.3% low 20.0% 8.8% Chairman's Statement Following a strong recovery in world equity markets in the first half of the year volatility returned in the 3rd quarter as fears about the Eurozone returned before unprecedented action by Central Banks caused markets to recover and move ahead in the 4th quarter. During the year to 30 September 2012, the NAV and share price, both on a total return basis, returned 5.5% and 19.6% respectively, with the latter reflecting a fall in the Company's discount over the year. I highlight various aspects of performance for the year below which is further detailed and explained in the Investment Manager's report. Results and Dividends The Group results for the year ended 30 September 2012 include the consolidation of the investments made in the Javelin funds, the Javelin Capital Global Equity Strategies Fund (QIF) and the Javelin Capital Emerging Markets Alpha Fund (UCITS), under a new classification of Assets held for sale, both in accordance with IFRS. This requirement, due to the Company's controlling interest in the funds, results in various large presentational and disclosure impacts, but has had no material effect on the results for the year. The Group's net revenue return before tax for the year to 30 September 2012 was Â£2.7m compared to Â£2.6m for the prior year period. Group income for the period was Â£5.2m which overall is Â£0.3m less than last year. However income from Majedie Asset Management Limited (MAM) was Â£2.2m compared to Â£1.9m in the prior year period, reflecting a change in the allocation between interim and final dividends. Group income for the period was reduced by a decrease in dividend income from the QIF. Additionally, Core Portfolio dividend income decreased as a result of the Â£15.0m of cash raised for investment into the lower income UCITS fund during the year. Finally, with the introduction of third party client assets during the year, Group income was modestly improved by external fee income from Javelin Capital. Total group costs were Â£3.2m for the period compared to Â£4.8m in the prior year period. This decrease reflects cost reductions across the group but primarily reflects the substantial cost reduction efforts made last year at Javelin Capital. Additionally, normalised Company costs continued to reduce during the year which is reflected in the Company's ongoing charges percentage (which replaces previous TER figures as from May 2012) falling to 1.8% from 1.9%. Cost control remains a key focus of the Board. The Board has decided that the final dividend is to be maintained at 6.3 pence per share which is consistent with previous years. The final dividend will be paid on 23 January 2013 to shareholders on the register on 11 January 2013. The investment in MAM is held at fair value in both the Company and Group accounts and its valuation is reviewed by the Board regularly. The Board have determined that the carrying value of our holding will remain at Â£39.0m as at 30 September 2012 as I explain in the investment portfolio section below. In contrast the investment in Javelin Capital is consolidated in the Group accounts at net asset value (and is included at this value in the weekly NAVs released to the market) as required under IFRS, but is held in the Company accounts at cost in accordance with our policy for unquoted investments. The Board has reviewed the valuation of Javelin Capital, which includes the additional Â£1.0m of capital provided in September 2012, and has determined that as at 30 September 2012 the valuation of Javelin Capital will be kept at cost, being Â£8.0m, in the Company accounts. Investment Portfolio The Investment Manager's Report below provides the detailed commentary on the Company's investment activity and performance. However I would like to provide an overview of the key issues affecting the outturn for the year. Firstly the Core Portfolio outperformed its benchmark by 1.2%. This is especially creditable in a strong year for equities given the bias of the portfolio towards defensive income generating stocks. I am pleased to report this performance following the considerable restructuring undertaken by the portfolio manager in the previous two years and in particular the successful broadening of the company's exposure to markets outside the UK, Europe and the United States which utilised the expertise of the Global Team. Furthermore the performance of the Core Portfolio compares favourably not only with the benchmark but also with other successful managers in the income category. Secondly I would like to turn to the absolute return Funds managed by Javelin Capital. These are now concentrated on the UCITS fund following the General Meeting to which I refer later. The fund aims to produce an absolute return irrespective of the direction of the stock market and so in a strong year for equity markets it would be expected to underperform equities. Conversely in a poor year for equities, the fund would be expected to outperform this asset class as was the case last year. Whilst the Board had taken the decision by investing part of the portfolio in an absolute return product, to create a lower overall risk return profile for its assets, it is nevertheless disappointing the return was negative. One of the underlying reasons for the rise in stock markets during the period was monetary intervention on an unprecedented scale. This resulted in extreme market moves that the fund's particular strategy found difficult to turn to its advantage. Looking forward, the extreme policy of recent years should diminish and have less effect on markets and the Board remains confident the strategy will perform. In the longer term, exposure to the Javelin funds should reduce the volatility of the overall portfolio owing to a lower correlation with stock markets and therefore improve the risk/return characteristics of the Company. Thirdly I would draw attention to MAM which has had a successful year with solid investment performance and good financial performance. The Board of Majedie Investments has decided to maintain its valuation of the investment at Â£39.0m, on a basis consistent with prior years. Javelin Capital Following the General Meeting and the consolidation of the Company's funds into the UCITS product, Javelin Capital has been able to simplify its structure and close its Irish entities. This has beneficial cost implications for both Javelin Capital and the Company. Also throughout the year Javelin Capital has made further operational and staff savings beyond those which I reported on at the half year stage. The extent of these savings is approximately 23% on an annualised basis and compares with a 37% reduction a year ago and it has been achieved whilst retaining key partners and staff. Overall it has reduced the breakeven level of external third party assets under management to circa Â£70m from Â£300m at June 2011 and Â£100m at the date of last year's report. The environment for fund raising remains difficult and good performance will be a prerequisite for successful marketing. The UCITS fund is part of the Goldman Sachs International Serviced Platform in Luxembourg which has strong credibility with investors. As performance improves and a track record is built the Board believes the fund will attract further assets under management. Board Composition Hubert Reid will retire from the Board after the AGM on 16th January 2013. Hubert has served as a non executive Director for 14 years having been appointed in 1999. He has been both Deputy Chairman and Chairman of the Audit Committee and his wise counsel will be greatly missed. I wish him a long and happy retirement and along with my co directors would like to thank him for his contribution to the Company. Looking forward it has been decided not to appoint a new non executive director as the Board believes the remaining directors provide the necessary breadth of skills and experience to run the Company. Change in Investment Trust Rules From the 1st January 2012 the tax rules governing Investment Trusts changed. The Company has received approval to operate under the new regime from 1 October 2012. The main details are that income can be paid from realised capital gains and that the Company can invest more than 15% in a single holding. To this end I wrote to you in September to seek permission to allow the Company to invest up to 25% in a single investment, specifically in a Javelin Capital fund. I am pleased to report that this was supported strongly. At the AGM it is proposed to put a resolution to shareholders asking for permission to amend the Company's Articles of Association so as enable us to pay dividends from realised capital gains. As you know the Company currently has substantial revenue reserves and hence would not need to take advantage of the change. However shareholder support for such a resolution would provide flexibility for the future to manage a greater range of eventualities. As I have said previously these new rules represent a good outcome for your Company. Regulation In addition to the changes in tax rules mentioned above, other regulations are proposed which will have an impact on investment trust companies. These include the UK Retail Distribution Review (RDR), the EU Alternative Investment Fund Managers Directive (AIFMD) and the US Foreign Account Tax Compliance Act (FATCA). Whilst the rationale behind the introduction of each of these new regulations is different they will potentially increase operational and regulatory risk for the Company. The RDR is due to take effect from 31 December 2012 with the aim of reducing conflicts of interest for advisors, clarity in terms of cost of advice and providing a more consistent level of advice across the retail investment sector. The Company's savings plan products are within the scope of RDR however as we are not advisors the RDR will not apply to those plans. We continue to monitor these regulations carefully and I will report on relevant developments as and if they impact on the Company in my future statements. Annual General Meeting The AGM will be held on 16 January 2013 at 12.00 noon at the City of London Club, 19 Old Broad Street London EC2N 1DS. Details are set out in the Annual Report. As in prior years there will be presentations and an opportunity to ask questions. I do hope that you will be able to attend. Summary There are a number of regulatory uncertainties facing the investment industry at present and I have outlined the most significant. On the other hand the tax changes affecting Investment Trusts have been beneficial as I stated earlier. Overarching the above has been the lacklustre recovery in financial markets since 2008. I hope we will begin to see a steady, if seemingly muted, recovery from here, which will create a healthier base for the investment industry. Andrew J Adcock Chairman 4 December 2012 Investment Manager's Report The Company's assets are managed in four separate major groups which the Board continues to believe provide the correct balance in order to achieve the Investment Objective of maximising shareholder return whilst looking to increase dividends by more than the rate of inflation over the long term. The chart on page 10 in the Annual Report demonstrates the impact that each investment group and the other characteristics of the Company have had on the Net Assets Performance during the year. Note that the reports below are based on the aggregate value of the total assets of the Company. Core Portfolio The Core Portfolio comprises holdings in large-cap UK and international stocks and a small number of carefully selected mid-cap companies, managed under an equity income investment mandate. The portfolio is benchmarked to perform against an index of 70% in UK listed companies and 30% overseas. Markets proved volatile during the last quarter of 2011 but rallied strongly during the late winter and early spring of 2012. The second calendar quarter of 2012 was, however, particularly disappointing for equity markets as fears of a slowdown in Chinese growth combined with renewed problems in the peripheral Eurozone dominated investor sentiment. However, action by both the Federal Reserve and the European Central Bank in the summer, in tandem with the election of a Greek government not set on a path of immediate withdrawal from the Eurozone reassured global markets and a substantial rally developed from the end of June. Some evidence of a pickup in the US housing market and better employment data were also helpful factors. One of the key elements of some underperformance over the past couple of years had been the area of the portfolio invested outside UK, Europe and the United States. Measures were taken in the early months of 2012 with the help of the Global Team to broaden and diversify the portfolio. It is pleasing to report that this exercise has proved successful and that performance of the portion of the portfolio allocated to these two areas has been in line with benchmark over the second half of the financial year. Given the troubles of countries within the Eurozone, a decision was taken to reduce some exposure to companies within the Eurozone and rebalance European exposure to companies operating in Switzerland and Norway. In the United States, where some evidence emerged of renewed growth in the summer of 2012, new positions were taken in Mosaic Corp, a major agrochemical company, QualComm, a key supplier of semiconductors to the telecommunications industry, Southern Company, a major supplier of electricity to the growing part of the sunbelt area, and Kellogg Corp, a well regarded consumer goods company. Within the existing portfolio, Home Depot was a star performer, rising by nearly 75% over the year. Illinois Tool Works and Coca Cola were also good performers over the twelve month period and, overall, a policy of gradually increasing the exposure of the portfolio to America over the year proved beneficial, as the US was by some margin the best performing of the major developed markets. In Europe, Bayer, Sanofi, Nestle and Telenor performed pleasingly over the year whilst Vivendi rallied strongly later in the summer after a torrid period in the earlier part of 2012. In the UK, economic data was distorted by both the Jubilee holidays and the Olympic Games in August. Although it appeared the economy was entering a secondary recession, unemployment data continued to improve during the period and inflation continued to fall. The FTSE 100 index rallied strongly from the doldrums of the summer and by the early autumn was again challenging the highs of March. Within the portfolio, new holdings of WH Smith, ITV and Smiths Group performed pleasingly whilst financial stocks such as Aviva and Barclays, which had sold off particularly sharply over the summer, rallied well in the third quarter of the year. Existing holdings in the UK portion of the portfolio such as UBM, the UK media group, Legal and General, Babcock, the outsourcing specialist and Beazley, the Lloyds insurer, performed notably well over the year, whilst mining stocks such as Rio Tinto and BHP Billiton proved a little disappointing. The Board took out some portfolio insurance to protect the portfolio in late 2011 which impacted performance. During the year, however, the Core Portfolio Total Return was 18.6%, an outperformance of its investment benchmark of 1.2%. Outperformance was particularly noticeable in the UK portion of the portfolio, but both the European and North American parts of the portfolio outperformed their respective benchmarks. The Far East, Japan and other parts of the world underperformed somewhat, but it was noticeable that this underperformance occurred in the first half of the financial year before the portfolio was restructured and broadened. Thereafter, performance tended to be in line. There has been little change in the overall strategy of the Core Portfolio, which continues to seek out well financed dividend paying companies throughout the world. Cash has been invested where possible throughout the year and on an asset allocation basis some priority has been given to opportunities outside the UK where growth prospects seem somewhat brighter. Nevertheless, it has been pleasing to note the resilience of world equity markets against a background of indifferent macroeconomic and political news. Within the corporate sector, company balance sheets have continued to strengthen and overall dividend payments have risen substantially. With the continuing global policy of particularly loose monetary policy and historically low interest rates, it appears that bond markets are remaining remarkably complacent in the light of prospective inflation in the future. Against this backdrop, it appears that well financed, solid dividend paying companies will retain their attraction for investors and thus the policy of the Core Portfolio to seek out and invest in such companies will remain unchanged. Turnover within the portfolio remains at relatively low levels although there has been some movement towards consumer orientated stocks after a period of underexposure to this area. The banking sector still appears to be mired in problems, particularly in mainland Europe, and thus the fund has no exposure in this geographical area, whilst globally the portfolio remains underexposed to banking stocks, to stocks orientated towards domestic consumers and also towards the technology sector where dividend yields generally tend to be low. Overweight positions continue to be held in industrial stocks, utilities and the oil and gas sector. At current levels, equity markets have rallied well from the low point of the summer but key uncertainties remain concerning the future of the Eurozone and the sluggish levels of economic growth in the developed world. However, there is some evidence beginning to emerge of a recovery in the key American housing market and, in the UK, the end of the 'double dip' recessionary pattern that has dogged economic recovery for the past year. Against this background, equities may remain relatively well supported into 2013. Finally, we continue to manage a small non-core realisation portfolio, consisting of small-cap and early stage investments that were initiated between 2005 and 2008. The objective is to maximise the return available by exiting from these stocks, although by their very nature all of them tend to be illiquid. The value of the non-core realisation portfolio was Â£3.1m, representing less than 3% of the Group's total assets. Javelin Capital Funds The Funds both follow an identical strategy but with different domiciles. The Javelin Capital Global Equity Strategies Fund (JCGES), an Irish QIF, was seeded in September 2010 and the Javelin Capital Emerging Markets Alpha Fund (JCEMA), a UCITS Fund on the Goldman Sachs International Platform, was seeded in February 2012. Following the General Meeting in October 2012 the QIF was closed, the Company having withdrawn its capital in September 2012. The capital was redeployed into the UCITS Fund in November 2012. The combination into one fund will have benefits both in terms of cost savings and marketability. The strategy utilises a range of proprietary long/short models with an emphasis on Emerging Markets. The objective of the Fund is to deliver absolute returns that are uncorrelated to the direction of the Core Portfolio and therefore lessening the overall market risk of the combined assets of the Company. After a promising 2010/11 against the background of the initial Eurozone crisis this year has proved more difficult to navigate. The QIF returned a disappointing -7.9% and the UCITS -4.9%. The strategies struggled against a backdrop of unprecedented intervention by Central Banks particularly the ECB. This caused the market to be volatile over the short term as pronouncements were made, but trendless over the medium term. It meant that the strategies found it difficult to capture market movements, but looking ahead past experience suggests that market trends will reassert themselves and the strategies are well placed to benefit from less random market movements. At 30 September 2012 the value of the JCEMA was Â£14.1 m representing 9.7% of the Group's total assets whilst the proceeds from the closure of JCGES, which are held in cash awaiting reinvestment, was Â£18.2m representing 12.5% of the Group's total assets. Majedie Asset Management (MAM) MAM was launched in 2002 using finance provided by the Company, which retains a near 30% interest. The business has grown to approximately Â£6.5bn in assets under management, predominantly long-only equity mandates for institutional clients. Its market leading investment performance has been recognised by the loyalty of its clients and the outside world having recently won an award for European Fund Manager of the year. During the year Â£2.2m was received in dividend income from MAM. Taking account of, inter alia, MAM's current and forecasted financial performance the Board has decided to retain its valuation of the Company's holding at Â£39.0m, representing some 26.8% of the Group's total assets. Javelin Capital LLP The Company launched Javelin Capital LLP on 1 September 2010. An initial Â£4.5m was invested by the Company to finance the start-up, initial operating costs and regulatory capital. However, in the difficult market environment of 2011, it became apparent that it would take appreciably longer to gain traction within third party and outsourced funds for its initial investment product and thus further investment would be necessary to grow the investment proposition. A restructuring of the business was completed and further funding was secured of up to Â£3.5m, of which Â£2.5m was provided in June 2011. A further Â£1.0m was provided in September 2012 comprising the total funding allocation. Javelin Capital is now focussed on gaining assets under management in accordance with its revised business plan. The Company holds an equity participation of 75% with 25% held by the individual partners. The performance of the two funds has been discussed earlier. As at 30 September 2012, the net assets in Javelin Capital LLP have been included in the Consolidated Report & Accounts at Â£2.6m, representing 1.8% of the Group's total assets. This represents the original investment less start-up costs and losses incurred to date and is in accordance with consolidation accounting rules. In the Company accounts the value of the investment in Javelin Capital LLP has been valued at cost, being Â£8.0m. Development of Net Asset Value (NAV) The chart in the Annual Report demonstrates the NAV of the Company during the year to 30 September 2012. In aggregate, the NAV attributable to the Company has increased by Â£0.6m, having incurred net administration and finance costs of Â£5.4m, and having paid out Â£5.5m in dividends. The core portfolio rose by Â£11.6m including the receipt of dividends, whilst MAM provided a contribution of Â£2.5m, being dividends of Â£2.2m and a capital increase of Â£0.3m. JCGES and JCEMA together contributed a reduction in value of Â£2.5m. Investment Outlook The long standing problems within the peripheral parts of the Eurozone remain relatively intractable despite a variety of initiatives launched by both domestic and supra-national financial institutions. Growth in China has notably slowed during the year and this has impacted somewhat on the patterns of economic development of other Far Eastern countries. On a brighter note, however, there do appear to be some encouraging signs of life in the American housing and employment markets, although the looming 'fiscal cliff' of automatic tax rises and spending reductions remains a key problem to be resolved in early 2013. Nevertheless, the outlook for equity markets remains reasonable given the very substantial amounts of cash earning little return in both money market funds and corporate balance sheets worldwide. At least a part of this cash may be expected to be deployed in capital markets over the coming year. Nick Rundle Investment Director Javelin Capital LLP 4 December 2012 Twenty Largest UK Investments at 30 September 2012 2012 2011 Market Value % of Market Value % of Company Â£000 Fund Â£000 Fund Majedie Asset ManagementÂ¹ 39,000 26.8 39,000 26.8 Royal Dutch Shell 'B' 4,176 2.9 4,426 3.0 BP 3,164 2.2 3,302 2.3 HSBC 3,010 2.1 3,727 2.6 Vodafone 2,856 2.0 3,533 2.4 GlaxoSmithKline 2,712 1.9 3,199 2.2 Rio Tinto 2,020 1.4 1,878 1.3 Vostok EnergyÂ¹ 1,858 1.3 1,926 1.3 BHP Billiton 1,732 1.2 1,912 1.3 Antofagasta 1,578 1.1 1,158 0.8 Centrica 1,475 1.0 1,191 0.8 Barclays 1,397 0.9 1,049 0.7 BAE Systems 1,203 0.8 989 0.7 BG Group 1,125 0.8 1,117 0.8 SSE 1,044 0.7 842 0.6 Sainsbury (J) 1,042 0.7 962 0.7 Aviva 1,036 0.7 1,145 0.7 Smiths GroupÂ² 933 0.6 Legal & General 923 0.6 1,256 0.9 British Land 914 0.6 833 0.6 73,198 50.3 73,445 50.5 Ten Largest Overseas Investments at 30 September 2012 2012 2011 Market Market Value % of Value % of Company Â£000 Fund Â£000 Fund Javelin Capital Emerging Markets Alpha Fund (Lux)Â² 14,144 9.7 Altria (USA) 827 0.6 774 0.5 McDonalds (USA) 824 0.6 817 0.6 AT&T (USA) 817 0.6 769 0.5 Roche (Switzerland) 810 0.6 831 0.6 Johnson & Johnson (USA) 810 0.6 777 0.5 Schlumberger (USA) 806 0.5 575 0.4 Statoil (Europe)Â² 800 0.5 Southern Copper (USA)Â² 799 0.5 Telenor (Norway) 785 0.5 498 0.3 21,422 14.7 5,041 3.4 Â¹ Unlisted Â² There is no comparative information for the investments listed as they represent new holdings. Board of Directors Andrew J Adcock* MA Chairman Hubert V Reid* Deputy Chairman J William M Barlow BA Paul D Gadd* R David C Henderson* FCA * Non-executive Extracts from the Directors' Report The directors submit their report and the accounts for the year ended 30 September 2012. Introduction The Directors' Report includes the Business Review, the Corporate Governance Statement and the Report on Directors' Remuneration which can be found in the Annual Report. A review of the developments during the year is contained in 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 received written confirmation from HM Revenue & Customs that it was an approved investment trust for taxation purposes under Sections 1158/59 of the Corporation Tax Act 2010 in respect of the year ended 30 September 2011. In the opinion of the directors the Company has subsequently directed its affairs so as to enable it to continue to qualify for such approval for the year ended 30 September 2012 and will request formal confirmation of this in due course. Due to the change in the investment trust tax rules for accounting periods commencing on or after 1 January 2012, the annual retrospective compliance process, as above, is replaced by an initial single pre-approval upon joining the new regime. The Company, in July 2012, received written approval from HM Revenue & Customs that it will be an approved investment trust under the new regime commencing from 1 October 2012. Results and Dividend Consolidated net revenue return before taxation amounted to Â£2,681,000 (2011: Â£ 2,624,000). The directors recommend a final ordinary dividend of 6.3p per ordinary share, payable on 23 January 2013 to shareholders on the register at the close of business on 11 January 2013. Together with the interim dividend of 4.2p per share paid on 27 June 2012, this makes a total distribution of 10.5p per share in respect of the financial year (2011: 10.5p per share). Business Review Introduction The purpose of the Business Review is to provide a review of the business of the Company by: â€¢ analysing development and performance using appropriate Key Performance Indicators ("KPIs"); â€¢ outlining the principal risks and uncertainties affecting the Company; â€¢ describing how the Company manages these risks; â€¢ setting out the Company's environmental, social and ethical policy; â€¢ providing information about persons with whom the Company has contractual or other arrangements which are essential to the business of the Company; â€¢ outlining the main trends and factors likely to affect the future development, performance and position of the Company's business; and â€¢ explaining the future business plans of the Company. 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, International Financial Reporting Standards, Listing, Prospectus and Disclosure 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 such, it analyses its Statement of Comprehensive Income between profits available for distribution by way of dividends and capital profits. The financial statements report on these 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 International Financial Reporting Standards, supplemented by the Revised Statement of Recommended Practice for Investment Trust Companies and Venture Capital Trusts (SORP) issued in January 2009. The principal accounting policies of the Company are set out in note 1 to the accounts. The Auditor's opinion on the financial statements, which is unqualified, appears in the Report of the Independent Auditor. In addition to the annual and half-yearly results and Interim Management Statements, the Company makes weekly net asset value (NAV) announcements via an authorised Stock Exchange regulatory information service. The Company also reports to shareholders on performance against benchmark, corporate governance and investment activities. The directors meet with larger shareholders outside the Annual General Meeting as appropriate. Meetings are also held with investment trust analysts and stockbroking firms. The Company has three investor savings schemes which provide shareholders with cost effective and convenient ways of investing. Communication of up-to-date information is provided through the website at www.majedie.co.uk. At least one shareholders' meeting is held in each year in January to allow shareholders to vote on the appointment of directors and the Auditor, the payment of dividends, authority for share buybacks and any other special business. The business of the next such shareholders' meeting, being the Annual General Meeting, scheduled for 16 January 2013 is set out in the Annual Report and Accounts. A General Meeting was held on 9 October 2012 at which proposed modifications to the Company's investment policy were approved. The Company is subject to corporation tax on its net revenue profits but is exempt from corporation tax on capital gains, provided it complies at all times with Sections 1158 to 1162 of the Corporation Tax Act 2010. For the year ended 30 September 2012 these sections broadly require that: â€¢ the Company's revenue (including dividend and interest receipts but excluding profits on the sale of shares and securities) should be derived wholly or mainly from shares and securities; â€¢ the Company must not retain in respect of any accounting period more than 15% of its income from shares and securities; â€¢ no holding in a company should represent more than 15% by value of the Company's investments in shares and securities unless the holding was acquired previously and the value has risen to exceed the 15% limit; and â€¢ realised profits on the sale of shares and securities may not be distributed by way of dividend. Amendments to the Investment Trust regulations were approved by Parliament on 6 December 2011 and adopted for accounting periods beginning on or after 1 January 2012. This will amend the existing requirements to gain approval annually under S1158/59 of the Corporation Taxes Act 2010. Additionally in order to align company law with tax legislation, Section 833 of the Companies Act 2006 was amended with effect for accounting periods beginning on or after 6 April 2012. These amendments will be adopted for the year ending 30 September 2013 and include: â€¢ The previous requirement to derive a minimum of 70% of income from shares and securities has been replaced by a more general requirement that the business must consist of "investing in shares, land or other assets with the aim of spreading investment risk and giving members of the Company the benefit of the results." â€¢ The 15% distribution requirement has been maintained but now incorporates all income not just income from shares and securities. â€¢ The previous 15% holding test has been omitted from the new regulations. Instead a similar spread of risk test is incorporated within the new definition of an investment trust: the "aim of spreading investment risk and giving members the benefit of the results." The Company has submitted its original and revised investment policy to HMRC as required under the new regime. â€¢ The requirement for the Articles to prohibit the distribution of realised gains on the sale of investments has now been removed. Capital Structure As part of its corporate governance the Board keeps under review the capital structure of the Company. At 30 September 2012 the Company had a nominal issued share capital of Â£5,252,800, comprising 52,528,000 ordinary shares of 10p each, carrying one vote each. The Board seeks each year to renew the authority of the Company to make market purchases of its own shares. However, the Board is only likely to use such authority in special circumstances. In general the directors believe that the discount to net assets will be reduced sustainably over the long term by the creation of value through the development of the business. In 1994 and 2000 the Company issued two long term debentures: Â£15m 9.5% debenture stock 2020 and Â£25m 7.25% debenture stock 2025 respectively. In 2004 the Company redeemed Â£1.5m of the 2020 issue and Â£4.3m of the 2025 issue as an opportunity arose to redeem at an attractive price. As noted above gearing is via two long term debentures. The limits on the ability to borrow are described in the investment policy above. The Board is responsible for setting the overall gearing range in which the Investment Manager may operate. Group gearing (borrowings less cash and equivalents) as at 30 September 2012 was 9.2% (2011: net cash of 1.2%) which reflects the cash held, primarily due to proceeds held from the redemption of the Company's holding in the QIF held pending reinvestment in the Javelin UCITS fund (2011: cash held for initial investment into the UCITS fund plus large cash balances held in the QIF fund). At the Company level, gearing as at 30 September 2012 was 11.1% (2011: gearing of 15.8%). This also reflects the cash held from the QIF held pending reinvestment in the UCITS fund (2011: cash held last year for the initial investment into the UCITS fund). 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 following a takeover bid. 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 26 to the accounts. The Company has a range of equity investments including substantial investments in two unlisted asset management businesses, large cap global equities and an investment in an emerging market equities absolute return fund. The major risk for the Company remains, investment risk, primarily market risk, however it is recognised that the investments in the two unlisted asset management businesses, and in particular the investment in Majedie Asset Management, represent a degree of concentration risk for 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. Under the terms of the Management Agreement the Investment Manager manages the Company's assets. The Core Portfolio is managed with various specific limits for individual stocks and market sectors which are employed to restrict risk levels. The level of portfolio risk in the Core Portfolio is assessed in relation to the benchmark utilising various portfolio risk management tools. It should be noted that whilst we have a benchmark in the Core Portfolio, the portfolio is constructed independently and can be significantly different. Therefore the Core Portfolio can experience periods of volatility over the short term. 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: i. Strategy Risk: an inappropriate investment strategy could result in poor returns for shareholders and a widening of the discount of the share price to the NAV per share. The Board regularly reviews strategy with the Investment Manager in relation to a range of issues including the allocation of assets between geographic regions and industrial sectors, level and effect of gearing and currency exposure; ii. Business Risk: inappropriate management or controls in either Majedie Asset Management and/or Javelin Capital LLP could result in financial loss, reputational risk and regulatory censure. The Board has representation on both entities' governing boards to monitor business financial performance and operations; iii. Compliance Risk: failure to comply with regulations could result in the Company losing its listing and/or being subjected to corporation tax on its capital gains. The Board receives and reviews regular reports from the fund administrator on its 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 Sections 1158 to 1162 of the Corporation Tax Act 2010; and iv. Operational Risk: inadequate financial controls and failure by an outsourced supplier to perform to the required standard could result in misappropriation of assets, loss of income and debtor receipts and mis-reporting of NAVs. The Board regularly reviews statements on internal controls and procedures and subjects the books and records of the Company to an external annual audit. The Board has representation on the governing board of Javelin Capital LLP who will also monitor the performance of other outsourced service providers. The systems in place to manage the Company's internal controls are described further in the Corporate Governance Statement in the Annual Report. Management of Assets and Shareholder Value The Company invests around the world in markets, sectors and companies that the Board and Investment Manager believe will generate long term growth in capital and income for shareholders. The Company manages its assets by allocating resources to the following major groups: â€¢ Core Portfolio; â€¢ Funds managed by Javelin Capital LLP; â€¢ MAM; and â€¢ Javelin Capital LLP. The Board believes that the groups will enable a spread of risk and deliver a higher quality of earnings. The Investment Manager manages the Core Portfolio by analysing potential and current investments against a range of parameters. Many potential investments are considered each year. Investment risks are spread through holding a range of securities across a range of sectors and countries. The Company has invested seed capital in two funds managed by Javelin Capital LLP. In September 2010, the Company invested Â£20 million in the Javelin Capital Global Equity Strategies Fund, an Irish QIF. In February 2012, the Company invested Â£15 million in the Javelin Capital Emerging Markets Alpha Fund, a sub-fund of the Serviced Platform SICAV (UCITS). Both Javelin Capital Funds were emerging market equity funds with an absolute return objective which they aim to achieve through a market-neutral investment strategy. At the time Javelin Capital launched the Javelin Capital Global Equity Strategies Fund, it considered an Irish QIF to be the best structure to adopt for the fund. Since then and following a review by Javelin Capital, it has become apparent that UCITS-compliant funds have become increasingly attractive to investors. As at 30 September 2012 the Company had redeemed the vast majority of its investment in the QIF which will be held in cash pending re-investment in the UCITS. The QIF will be wound down and de-registered with the Irish Central Bank and be placed into voluntary liquidation. This is expected to be complete in early 2013. Finally the Company has significant investments in Majedie Asset Management Limited (MAM) and Javelin Capital LLP, both asset management businesses. The Board believes that these investments provide or will provide a valuable source of future return. The Board has representation on both entities' governing boards in order to monitor strategy and financial performance. The Board reviews the investment performance of the Company against a range of measures relevant to each investment group. Performance Highlights The Board uses the following Key Performance Indicators (KPIs) to help assess progress against the Company's objectives. The KPIs are commented on within the Chairman's Statement and Investment Manager's Report above. â€¢ NAV total return and total shareholder return: as above and in the Annual Report. â€¢ Investment group portfolio return: see the chart in the Investment Manager's Report in the Annual Report. Both of these are discussed in detail in the Chairman's Statement and the Investment Manager's Report. â€¢ Share price discount: The level of the discount at the end of the financial year calculated with debt at par was 27.8%, as compared to 35.0% in 2011. The prior year discount was distorted due to revisions to investments, primarily MAM, which were not reflected in the share price at year end. â€¢ Ongoing Charges From May 2012 a new measure of investment trust operating costs was introduced to the sector called ongoing charges, which replaced the previous Total Expense Ratio. Ongoing charges shows the annual normal or ongoing costs of an Investment Trust excluding performance fees, one off expenses and investment dealing costs as a percentage of average shareholder's funds. Where investments have been made into pooled funds estimated ongoing fund costs have been included in the Company's ongoing charges percentage. The ongoing charges of the Company for the year ended 30 September 2012 was 1.8% (2011: 1.9%). Dividend growth: Dividend growth over the long term (as recognised for this purpose as from 1985 when the Company became an investment trust), has been at 4.9%, 5.5% including special dividends, which is ahead of inflation over the same period. Further details regarding the results and dividends can be found in the Chairman's Statement above. 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 Company has a comparatively high level of revenue reserves for the investment trust sector. At Â£23.7m, the revenue reserves represent more than four times the current annual core dividend distribution. The strength of these reserves will from time to time assist in underpinning our progressive dividend policy in years when the income from the portfolio is insufficient to cover completely the annual distribution. The policy aim is to increase dividends by more than the rate of inflation over the long term. Employees, Social, Environmental and Ethical policy The Company has no employees and the Board consists entirely of non-executive Directors and as a result the Group has limited impact on the environment. When considering its day to day operations, the Company aims to conduct itself responsibly, ethically and fairly. The Company has appointed Javelin Capital LLP to manage its portfolio of investments. Javelin has been tasked with managing the portfolio, and its operations, with a view to achieving the Company's investment objective and in doing so takes account of social, environmental and ethical factors, where appropriate. Costs The Company's ongoing charges percentage over net assets is 1.8%. Company operating costs continued to decrease this year, even excluding the impact of the increased investment made into the Javelin Capital pooled funds but the ratio reflects the lower average asset base and the allocation to emerging markets via the Javelin Funds. The Board pays close attention to cost control and the current situation is referred to further in the Chairman's Statement above. Material Contracts â€¢ Javelin Capital LLP i. LLP Agreement The investment in Javelin Capital LLP is in accordance with the terms of a Limited Liability Partnership Agreement dated 31 August 2010, which was subsequently amended and restated on 29 June 2011. The revised terms include: â€¢ The Company will provide Â£4.5m initial capital and a further capital contribution of Â£3.5m. Both will attract interest at a commercial rate, until it is repaid from future Javelin Capital LLP profits. This repayment has priority over other distributions from residual profits. On 29 June 2011 Â£2.5m was provided with the remainder at the Board's discretion. This was obtained and the remaining Â£1m was provided on 25 September 2012. â€¢ The Company has a 75% interest in Javelin Capital LLP with the other partners holding the remaining 25%. On achieving certain pre-set financial targets, which were revised in conjunction with the restructuring in June 2011, the Company will reduce its interest to ultimately 55%. â€¢ The agreement provides for various types of profit share including performance fee, bonus and residual profit share. Under the agreement the Company is to receive an entitlement to profits equal to its capital contribution plus accumulated interest first before other partners are entitled to bonus or residual profit shares. â€¢The Board has representation on the Javelin Capital Management Board (Javelin governance is outlined in the Corporate Governance Statement in the Annual Report), including the appointment of the Chairman. This includes various control, meeting and voting rights. The agreement also provides for the requirement to obtain Majedie approval in a variety of areas including anything considered a restricted matter. The Board can appoint or remove the Managing Partner/Chief Executive who has day to day operational control and also must approve his remuneration. â€¢ In the event of a sale proposed by the Company the agreement includes drag along provisions including certain pre-emption rights to the other partners. There are also two side letters that relate to the LLP Agreement which provide for a possible change in control rights and provide for the liability of partners in respect of their capital and current account balances. ii. Management and Administration Services Agreements The Board has appointed Javelin Capital LLP as its investment manager and general administrator. The terms of the appointment are defined under a Management Agreement and Administration Services Agreement dated 31 August 2010. The agreement divides the Company's investments into distinct portfolios which are the Core Portfolio, non-core portfolio, MAM, Javelin Capital Funds and the Treasury account. The fees payable under the Management Agreement are detailed below: Fund/Portfolio Management Performance Fee Fee Core Portfolio*** 0.70% p.a. * 10%â€ Treasury Account 0.70% p.a. NIL MAM NIL** NIL** Javelin Capital Global Equity Strategies Fund# 1.25% p.a. 20%â€¡ Javelin Capital Emerging Markets Alpha Fund^ 1-1.25% p.a. 10-20%# * The management fee is on a sliding scale ranging from 0.7% p.a. to 0.4% p.a. based on the combined value of the core and non-core portfolios. â€ The performance fee is based on outperformance against the benchmark on a rolling three year basis. # The Javelin Capital Global Equity Strategies Fund is a sub-fund of Javelin Capital Strategies plc, which is an Irish Qualifying Investment Fund (QIF) listed on the Irish Stock Exchange. The QIF closed and holding redeemed in September 2012. ** The agreements provide for a fee of Â£60,000 per annum in respect of MAM duties. â€¡ The fees are as set in the supplement to the funds documentation. The performance fee entitlement only occurs once the hurdle has been exceeded and is calculated on a high water mark basis (using an equalisation method in respect of the QIF). *** The non-core portfolio attracts a management fee as per the Core Portfolio but has no performance fee. ^ The Javelin Capital Emerging Markets Alpha Fund is a sub-fund of the Serviced Platform SICAV, which is a Luxembourg based UCITS. The Management Agreement entitles either party to terminate the arrangement with six months' notice after an initial period of three years. Additionally the Company can terminate the Manager's appointment in respect of a distinct portfolio if the performance of that portfolio falls below a nominated benchmark. The Administration Services Agreement delegated, to Javelin Capital LLP, various rights to enable it to act as general administrator. Fees payable under the Administration Services Agreement are capped at Â£265,000 per annum with fees agreed on a cost only basis. The Administration Services Agreement may be terminated on three months' notice. iii. Intra Group Asset Lease Agreement The asset lease agreement with Javelin Capital Services Limited identifies certain assets to be leased to and used by Javelin. Javelin will pay a lease charge equal to the depreciation suffered by the Company on those assets. The agreement provides for these assets to be transferred to Javelin at a future date at net book value. â€¢ Capita Sinclair Henderson Ltd The Board has appointed Capita Sinclair Henderson Ltd (trading as Capita Financial Group - Specialist Fund Services) in November 2000 to act as Company Secretary and undertake certain administration services. The terms of Capita Sinclair Henderson Ltd's appointment are defined under a secretarial and administration services agreement dated 6 February 2012. The agreement entitles either party to terminate the arrangement with twelve months' notice. Policy on Payment of Suppliers It is the Company's policy to settle all investment transactions in accordance with the terms and conditions of the relevant market in which it operates. All other expenses are paid on a timely basis in the ordinary course of business. At 30 September 2012 the Group and the Company had nine and eight days respectively of suppliers' invoices outstanding in respect of trade creditors (2011: Group and Company four days). Majedie Asset Management Limited Majedie Asset Management is an investment management boutique specialising in UK equities which launched in 2003. Having started with a 70% shareholding the Company now retains a 29.8% interest. The relevant developments during the year are referred to in the Investment Manager's report and further referred to in note 13 below. Javelin Capital LLP Javelin Capital LLP commenced operations on 1 September 2010. On that date Javelin Capital LLP assumed responsibility for managing the Company's investments and the provision of general administration services. All previous Majedie employees transferred to Javelin Capital LLP under the new arrangements. The Company initially provided Â£4.5m in operational and regulatory capital for Javelin Capital LLP. At a General Meeting on 29 June 2011, the shareholders approved a further investment of up to Â£3.5m in Javelin Capital LLP to provide additional operational and regulatory capital, of which Â£2.5m was paid on 29 June 2011 and the remainder on 25 September 2012. The Company has an initial 75% ownership. This will fall to 55% if the partnership achieves certain preset financial targets. The Chairman's Statement above and additionally the notes to the accounts below provide further information on developments. On 20 September 2010 the Company invested Â£20m into the Javelin Capital Global Equity Strategies Fund (QIF) which was followed on 16 February 2012 by Â£15m being invested into the second Javelin Capital fund, the Javelin Capital Emerging Markets Alpha Fund (UCITS). Following a review by Javelin Capital in 2012, it became apparent that the UCITS fund was more attractive to investors, the QIF was closed with all remaining investor funds being redeemed in September 2012. It was proposed that the Company's investment in the QIF would be redeployed into the UCITS fund. After the Company's shareholders approved a change to the Company's investment policy on 9 October 2012 to permit this the funds were invested in November 2012. The characteristics and performance of these two fund investments are detailed in the Investment Manager's Report section. Continued Appointment of the Manager The Board has concluded that it is in shareholders' interests that Javelin Capital LLP should continue as Manager of the Company on the existing terms. The Board considers the arrangements for the provision of investment management and other services to the Company on an annual basis. The principal terms of the agreement with the Investment Manager have been set out above. 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 International Financial Reporting Standards 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: â— select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently; â— present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; â— provide additional disclosures when compliance with the specific requirements in IFRSs 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; â— state that the Group has complied with IFRSs, subject to any material departures disclosed and explained in the financial statements; and â— make judgements and estimates that are reasonable and prudent. 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. By order of the Board Andrew J Adcock Chairman 4 December 2012 NON-STATUTORY ACCOUNTS The financial information set out below does not constitute the Company's statutory accounts for the years ended 30 September 2012 and 2011 but is derived from those accounts. Statutory accounts for 2011 have been delivered to the Registrar of Companies, and those for 2012 will be delivered in due course. The Auditor has reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditor 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 Auditor's report can be found in the Company's Annual Report and Accounts at www.majedie.co.uk. Consolidated Statement of Comprehensive Income for the year ended 30 September 2012 2012 2011 Revenue Capital Revenue Capital return return Total return return Total Notes Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Investments Gains on investments at fair value through profit or loss 13 7,832 7,832 2,233 2,233 Exchange loss on disposal of foreign subsidiary (840) (840) Net investment result 6,992 6,992 2,233 2,233 Income Income from investments 3 5,100 5,100 5,434 5,434 Other income 3 63 63 106 106 Total income 5,163 5,163 5,540 5,540 Expenses Administrative expenses 5 (1,777) (1,442) (3,219) (2,195) (2,633) (4,828) Return/(loss) before finance costs and taxation 3,386 5,550 8,936 3,345 (400) 2,945 Finance costs 8 (705) (2,115) (2,820) (721) (2,165) (2,886) Net return/(loss) before taxation 2,681 3,435 6,116 2,624 (2,565) 59 Taxation 9 (132) (132) (200) (200) Net return/(loss) after taxation for the year 2,549 3,435 5,984 2,424 (2,565) (141) Other comprehensive income - exchange differences on translation of foreign operations (37) (37) Attributable to: Equity holders of the company 37 37 (37) (37) Non-controlling interest 37 37 (37) (37) 37 37 Total comprehensive income for the year 2,549 3,472 6,021 2,424 (2,602) (178) Net return/(loss) after taxation attributable to: Equity holders of the Company 2,552 3,445 5,997 2,427 (2,568) (141) Non-controlling interest (3) (10) (13) (3) 3 2,549 3,435 5,984 2,424 (2,565) (141) Return/(loss) per ordinary share: pence pence pence pence pence pence Basic and diluted 11 4.9 6.6 11.5 4.6 (4.9) (0.3) The total column of this statement is the Consolidated Statement of Comprehensive Income of the Group prepared in accordance with International Financial Reporting Standards (IFRS). The supplementary revenue return and capital return columns are prepared under guidance published by the Association of Investment Companies (AIC). All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year. The notes below form part of these accounts. Company Statement of Comprehensive Income for the year ended 30 September 2012 2012 2011 Revenue Capital Revenue Capital return return Total return return Total Notes Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Investments Gains on investments at fair value through profit or loss 13 6,258 6,258 1,547 1,547 Net investment result 6,258 6,258 1,547 1,547 Income Income from investments 3 5,132 5,132 5,382 5,382 Other income 3 34 34 19 19 Total income 5,166 5,166 5,401 5,401 Expenses Management fees 4 (382) (412) (794) (418) (519) (937) Administration expenses 5 (568) (237) (805) (730) (320) (1,050) Return before finance costs and taxation 4,216 5,609 9,825 4,253 708 4,961 Finance costs 8 (701) (2,104) (2,805) (701) (2,102) (2,803) Net return/loss before taxation 3,515 3,505 7,020 3,552 (1,394) 2,158 Taxation 9 (113) (113) (121) (121) Net return/loss after taxation for the year 3,402 3,505 6,907 3,431 (1,394) 2,037 Return/loss per ordinary share: pence pence pence pence pence pence Basic and diluted 11 6.6 6.7 13.3 6.5 (2.6) 3.9 The total column of this statement is the Statement of Comprehensive Income of the Company prepared under IFRS. The supplementary revenue return and capital return columns are prepared under guidance published by the AIC. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year. The notes below form part of these accounts. Consolidated Statement of Changes in Equity for the year ended 30 September 2012 Capital Share Own Currency Non- Share Share redemption options Capital Revenue shares translation controlling l capital premium reserve reserve reserve reserve reserve reserve interest Total Notes Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Year ended 30 September 2012 As at 1 October 2011 5,253 785 56 (178) 84,377 23,006 (1,628) (37) 248 111,882 Net gain for the year 3,445 2,552 (13) 5,984 Other comprehensive income - exchange differences on translation of foreign subsidiary 37 37 Share options expense 25 31 31 Dividends declared and paid in year 10 (5,465) (5,465) Cessation of Non Controlling interest 15 (235) (235) As at 30 September 2012 5,253 785 56 (147) 87,822 20,093 (1,628) 112,234 Year ended 30 September 2011 As at 1 October 2010 5,253 785 56 (220) 86,945 26,042 (1,702) 117,159 Net loss for the year (2,568) 2,427 (141) Other comprehensive income -exchange differences on translation of foreign subsidiary (37) (37) Share options expense 25 116 116 Dividends declared and paid in year 10 (5,463) (5,463) Consolidation of subsidiary 15 248 248 Own shares (sold)/ purchased by Employee Incentive Trust (EIT) (74) 74 As at 30 September 2011 5,253 785 56 (178) 84,377 23,006 (1,628) (37) 248 111,882 The notes below form part of these accounts. Company Statement of Changes in Equity for the year ended 30 September 2012 Capital Share Own Share Share redemption options Capital Revenue shares capital premium reserve reserve reserve reserve reserve Total Notes Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Year ended 30 September 2012 As at 1 October 2011 5,253 785 56 (178) 86,067 25,811 (1,628) 116,166 Net profit for the year 3,505 3,402 6,907 Share options expense 25 31 31 Dividends declared and paid in year 10 (5,465) (5,465) As at 30 September 2012 5,253 785 56 (147) 89,572 23,748 (1,628) 117,639 Year ended 30 September 2011 As at 1 October 2010 5,253 785 56 (220) 87,461 27,843 (1,702) 119,476 Net profit for the year (1,394) 3,431 2,037 Share options expense 25 116 116 Dividends declared and paid in year 10 (5,463) (5,463) Own shares (sold)/ purchased by Employee Incentive Trust (EIT) (74) 74 As at 30 September 2011 5,253 785 56 (178) 86,067 25,811 (1,628) 116,166 The notes below form part of these accounts. Consolidated Balance Sheet as at 30 September 2012 2012 2011 Notes Â£000 Â£000 Non-current assets Property and equipment 12 247 410 Investments held at fair value through profit or loss 13 108,217 112,822 108,464 113,232 Current assets Derivative instruments held at fair value through profit or loss 14 136 Trade and other receivables 16 1,418 5,817 Cash and cash equivalents 17 23,287 37,553 24,705 43,506 Assets classified as held for sale 13 14,199 Total current assets 38,904 43,506 Total assets 147,368 156,738 Current liabilities Financial liabilities held at fair value through profit or loss 12 (3,311) Derivative instruments held at fair value through profit or loss 14 (99) Trade and other payables 18 (1,256) (7,645) (1,256) (11,055) Liabilities directly associated with the assets classified as held for sale 13 (55) Total current liabilities (1,311) (11,055) Total assets less current liabilities 146,057 145,683 Non-current liabilities Debentures 18 (33,823) (33,801) Total liabilities (35,134) (44,856) Net assets 112,234 111,882 Represented by: Ordinary share capital 19 5,253 5,253 Share premium 785 785 Capital redemption reserve 56 56 Share options reserve (147) (178) Capital reserve 87,822 84,377 Revenue reserve 20,093 23,006 Own shares reserve 20 (1,628) (1,628) Currency translation reserve (37) Equity Shareholders' Funds 112,234 111,634 Non-controlling interest 15 248 Total equity 112,234 111,882 Net asset value per share pence pence Basic and fully diluted 21 215.6 214.5 Approved by the Board of Majedie Investments PLC (Company no.109305) and authorised for issue on 4 December 2012. Andrew J Adcock J William M Barlow Directors The notes below form part of these accounts. Company Balance Sheet as at 30 September 2012 Notes 2012 2011 Non-current assets Â£000 Â£000 Property and equipment 12 133 178 Investments held at fair value through profit or loss 13 122,361 127,176 Investments in subsidiaries held at fair value through profit or loss 13 8,021 7,000 Investments in subsidiaries held at cost 13 171 171 130,686 134,525 Current assets Trade and other receivables 16 855 1,180 Cash and cash equivalents 17 20,922 15,245 21,777 16,425 Total Current Assets 21,777 16,425 Total assets 152,463 150,950 Current liabilities Trade and other payables 18 (1,001) (983) Total current liabilities (1,001) (983) Total assets less current liabilities 151,462 149,967 Non-current liabilities Debentures 18 (33,823) (33,801) Total liabilities (34,879) (34,784) Net assets 117,639 116,166 Represented by: Ordinary share capital 19 5,253 5,253 Share premium 785 785 Capital redemption reserve 56 56 Share options reserve (147) (178) Capital reserve 89,572 86,067 Revenue reserve 23,748 25,811 Own shares reserve 20 (1,628) (1,628) Equity Shareholders' Funds 117,639 116,166 Approved by the Board of Majedie Investments PLC (Company no. 109305) and authorised for issue on 4 December 2012. Andrew J Adcock J William M Barlow Directors The notes below form part of these accounts. Consolidated Cash Flow Statement for the year ended 30 September 2012 2012 2011 Notes Â£000 Â£000 Net cash flow from operating activities Consolidated net return before taxation 6,116 59 Adjustments for: Gains on investments 13 (7,832) (2,233) Dividends reinvested (5) Share based remuneration 31 116 Depreciation 166 208 Purchases of investments (116,131) (1,300,122) Sales of investments 125,175 1,319,735 Adjustment to non-current asset investments on consolidation 20,000 Proceeds from derivative contracts (911) 483 Exchange gains on translation of foreign investments 10 (109) Increase in non-controlling interest 248 6,624 38,380 Finance costs 2,820 2,886 Operating cashflows before movements in working capital 9,444 41,266 (Decrease)/increase in trade and other payables (528) 139 Decrease/(increase) in trade and other receivables 204 (758) Net cash inflow from operating activities before tax 9,120 40,647 Tax recovered 37 29 Tax on unfranked income (158) (245) Net cash inflow from operating activities 8,999 40,431 Investing activities Purchases of tangible assets (3) (87) Investment in Javelin UCITS Fund classified as Asset held for sale (14,990) Net cash outflow from investing activities (14,993) (87) Financing activities Interest paid (2,797) (2,866) Dividends paid (5,465) (5,463) Net cash outflow from financing activities (8,262) (8,329) (Decrease)/increase in cash and cash equivalents for year 22 (14,266) 32,015 Cash and cash equivalents at start of year 37,553 5,538 Cash and cash equivalents at end of year 23,287 37,553 The notes below form part of these accounts. Company Cash Flow Statement for the year ended 30 September 2012 2012 2011 Notes Â£'000 Â£000 Net cash flow from operating activities Company net return before taxation 7,020 2,158 Adjustments for: Gains on investments 13 (6,258) (1,547) Dividends reinvested (5) Share based remuneration 31 116 Depreciation 45 47 Purchases of investments (32,901) (15,692) Sales of investments 43,944 35,546 Proceeds from derivative contracts 183 12,064 20,623 Finance costs 2,805 2,803 Operating cashflows before movements in working capital 14,869 23,426 Increase/(decrease)in trade and other payables 18 (210) Decrease/(increase) in trade and other receivables 135 (141) Net cash inflow from operating activities before tax 15,022 23,075 Tax recovered 37 29 Tax on unfranked income (134) (166) Net cash inflow from operating activities 14,925 22,938 Investing activities Purchases of tangible assets (4) Investment in subsidiaries (1,000) (2,500) Net cash outflow from investing activities (1,000) (2,504) Financing activities Interest paid (2,783) (2,783) Dividends paid (5,465) (5,463) Net cash outflow from financing activities (8,248) (8,246) Increase in cash and cash equivalents for year 22 5,677 12,188 Cash and cash equivalents at start of year 15,245 3,057 Cash and cash equivalents at end of year 20,922 15,245 The notes below form part of these accounts. Notes to the Accounts General Information Majedie Investments PLC is a company incorporated 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 in the Annual Report. The nature of the Group's operations and its principal activities are set out in the Business Review. 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. 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 in the Annual Report. The inputs into the valuation methodologies adopted include observable historical data such as earnings or cash flow as well as more subjective data such as earnings forecasts or discount rates. As a result of this, the determination of fair value requires significant management judgement. At the year end, unquoted investments (including MAM) represent 37.4% of consolidated shareholders' funds. Share-based payments The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 25 in the Annual Report. 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 subsidiaries for the year ended 30 September 2012, 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 operational existence for the foreseeable future. Accordingly the Financial Statements have been prepared on a going concern basis. Basis of Accounting The accounts of the Group and the Company have been prepared in accordance with International Financial Reporting Standards (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 Statement of Recommended Practice (SORP) regarding the Financial Statements of Investment Trust Companies and Venture Capital Trusts issued by the Association of Investment Companies in January 2009 is not inconsistent with the requirements of IFRSs, the directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. All the Group's activities are continuing except as indicated in note 15. It is considered that the relevant sections of IFRS 5 in respect of discontinued operations do not apply. Basis of Consolidation The Consolidated Accounts incorporate the accounts of the Company and entities controlled by the Company (its subsidiaries) made up to 30 September each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during this year are included in the Consolidated Statement of Comprehensive Income from the effective date of acquisition or disposal as appropriate. When the group ceases to have control any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. All Group entities have the same year end date except for the Javelin Capital Emerging Markets Alpha Fund which has a 31 December year end. Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling's interest share of changes in equity since the date of combination. Losses applicable to the non-controlling's interest in excess of the non-controlling's interest in the subsidiary's equity are allocated against the interest of the Group except to the extent that the non-controlling interest has a binding obligation and is able to make an additional investment to cover losses. Where necessary, adjustments are made to the financial statements of subsidiaries 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. 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: Standards Issued But Not Yet Effective International Accounting Standards (IAS/IFRSs) Effective date IFRS 9 Financial Instruments: Classification & Measurement 1 January 2013 IFRS 10 Consolidated Financial Statements 1 January 2013 IFRS 12 Disclosure of Interests in Other Entities 1 January 2013 IFRS 13 Fair Value Measurement 1 January 2013 Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) 1 January 2014 Management anticipates that all of the relevant pronouncements will be adopted in the next accounting period, subject to the results of the detailed review as outlined below. Information on new standards, amendments and interpretations that are expected to be relevant to the Group's financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Group's financial statements. The Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the financial statements in the period of initial application, except for IFRS 10. A detailed review will be performed by the Board to quantify any potential impact on the subsequent application of IFRS 10. IFRS 10 supersedes IAS 27 'Consolidated and Separate Financial Statements' (IAS 27) and SIC 12 'Consolidation - Special Purpose Entities'. IFRS 10 revises the definition of control and provides extensive new guidance on its application. These new requirements have the potential to affect which of the Group's investees are considered to be subsidiaries and therefore change the scope of consolidation. On 31 October 2012 the IASB issued Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27). The amendment gives entities that meet the criteria of an investment entity the ability to measure particular subsidiaries at fair value through profit or loss, rather than consolidate them. However, the requirements on consolidation procedures, accounting for changes in non-controlling interests and accounting for loss of control of a subsidiary remain the same. Management's provisional analysis is that IFRS 10 and the Investment Entities amendment, which can be early adopted, will change the classification (as subsidiary or otherwise) of the JCEMA investee entity as at 1 October 2012. This change will have no material effect on the Group's overall results, but will provide a much simpler view of its activities. 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. Up until 6 April 2012 in accordance with the Company's status as a UK investment company under Section 833 of the Companies Act 2006, net capital returns may not be distributed by way of dividend. 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. 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. Gains and losses arising on retranslation are included in net profit or loss for the year in respect of those investments which are classified as fair value through profit or loss. All foreign exchange gains and losses, except those arising from the translation of foreign subsidiaries, are recognised in the consolidated statement of comprehensive income. In accordance with IAS 21, a foreign currency translation reserve has been established in respect of the exchange movements arising on consolidation since 30 September 2011. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in profit or loss. Segmental Reporting A segment is a distinguishable component of the Group that is engaged in business activities from which it may earn revenues and incur expenses (including intra-group revenues and expenses), for which discrete financial information is available and whose operating results are regularly renewed by the entity's chief decision maker who can make decisions on resource allocation and performance assessment. An operating segment could engage in business activities in order to earn potential future revenues. Income Dividend income from investments is taken to the revenue account on an ex-dividend basis. Divided expense relating to equity securities sold short is recognised when the Shareholders' right to receive payment is established. 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. The fixed return on a debt security is recognised on a time apportionment basis so as to reflect the effective yield on the debt security. Deposit interest and other interest receivable is included on an accruals basis. Special dividends are taken to the revenue or capital account depending on their nature. Expenses All 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: â€¢ 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). â€¢ 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. â€¢ 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 at a constant rate on the carrying amount of the debt; 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. Share Based Payments The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value determined at the date of grant, which is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the number of shares that will eventually vest. Fair value is measured by use of the Black-Scholes model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. 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 written off 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. Investments Held at Fair Value Through Profit or Loss The Group classifies its investments in debt and equity securities, and derivatives, as financial assets or financial liabilities at fair value through profit or loss. This category has two sub-categories: financial assets or financial liabilities held for trading; and those designated at fair value through profit or loss at inception. (i) Financial assets and liabilities held for trading A financial asset or financial liability is classified as held for trading if it is acquired or incurred principally for the purpose of selling or repurchasing in the near term or if on initial recognition is part of a portfolio of identifiable financial investments that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking. Derivatives are also categorised as held for trading. The Group does not currently classify any derivatives as hedges in a hedging relationship. (ii) Financial assets and liabilities designated at fair value through profit or loss at inception Financial assets and financial liabilities designated at fair value through profit or loss at inception are financial instruments that are not classified as held for trading but are managed, and their performance is evaluated on a fair value basis in accordance with the Group's documented investment strategy. The Group's policy requires the Investment Manager and the Board to evaluate the information about these financial assets and liabilities on a fair value basis together with other related financial information. These financial assets and liabilities are expected to be realised within 12 months of the statement of financial position date. 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 classified as fair value through profit or loss as defined by IAS 39. 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 Guidelines. These may include recent arm's length market transactions, the current fair value of another instrument which is 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. 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. Non-current assets (or disposal groups) held-for-sale Non-current assets (or disposal groups) are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use. Investment in Subsidiaries In its separate financial statements the Company recognises its investment in subsidiaries at cost, less any impairment or if they are held and managed as investments they are valued at fair value. 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 liabilities are initially measured at fair value. Derivative Financial Instruments Derivatives financial instruments are initially recognised on trade date and are measured at fair value. After initial recognition, derivative financial instruments are measured at fair value through profit and loss. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. The Group's activities expose it primarily to the financial risks of changes in market prices, foreign currency exchange rates and interest rates. Derivative transactions which the Company may enter into comprise forward foreign exchange contracts (the purpose of which is to manage currency risks arising from the Company's investing activities), quoted options or Contracts For Difference (CFDs) on shares held within the portfolio, or on indices appropriate to sections of the portfolio (the purpose of which is to provide protection against falls in the capital values of the holdings) and futures contracts on indices appropriate to sections of the portfolio (one purpose for which may be to provide protection against falls in the capital values of the holdings). The Group does not use derivative financial instruments for speculative purposes. The use of financial derivatives is governed by the Group's policies as approved by the Board, which has set written principles for the use of financial derivatives. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the Statement of Comprehensive Income as they arise. If capital in nature, the associated change in value is presented as a capital item in the Statement of Comprehensive Income. Short sales are those in which a borrowed security is sold in anticipation of a decline in the market value of that security, or for various arbitrage transactions. Short sales are classified as financial liabilities at fair value through profit and loss. Changes in the fair value of derivative financial instruments are recognised as they arise in the Statement of Comprehensive Income. Trade Receivables Trade receivables do not carry any interest and are stated at carrying value which equates to their fair value as reduced by appropriate allowances for estimated irrecoverable amounts. Cash and Cash Equivalents Cash and cash equivalents comprise cash deposited with banks, cash balances at brokers and short-term highly liquid investments with maturities of three months or less from the date of acquisition. Prime broker cash balances are held with Goldman Sachs International and Morgan Stanley & Co International. Short and long cash positions held with these brokers can be netted off as per the prime broker agreements. Collateral Cash held at brokers Collateral cash consists of margin cash held as collateral for open derivative positions with the prime brokers, Goldman Sachs International and Morgan Stanley & Co International. Short and long cash positions held with these brokers can be netted off as per the prime broker agreements. Financial Liabilities and Equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Financial liabilities are either classified as financial liabilities at fair value through profit or loss and are recognised initially at fair value or "other financial liabilities" (including borrowings and trade and other payables that are classified and subsequently measured at amortised cost). Financial liabilities are subsequently measured at fair value and changes in fair value are recognised in the Statement of Comprehensive Income. 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 method, with the interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future payments over the expected life of the financial liabilities, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Trade Payables Trade payables are not interest bearing and are stated at carrying value which equates to their fair value. Reserves 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. The translation reserve is used to record exchange differences arising from the translation of the financial statements for the Group's foreign subsidiary. Share options reserve represents the expense of share based payments. The fair value of share options is measured at grant date and spread over the vesting period. The deemed expense is transferred to the share options reserve. Share premium account represents the excess over nominal value of consideration received for equity shares net of expenses of the share issue. Own Shares Own shares held under option are accounted for in accordance with IFRS 2: Share-based Payments. This requires that the consideration paid for own shares held be presented as a deduction from shareholders' funds, and not recognised as an asset. 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 when they are paid, or have been approved by shareholders in the case of a final dividend and become a liability of the Company. 2. Business segments For management purposes, the Group is currently organised into the following two principal activities: 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 in the Annual Report and exposure to different currencies is disclosed in note 26. Investment management services To complement this investment objective and create income and capital for the Group, Javelin Capital LLP has been launched to market a range of funds to third party investors and provide investment management and advisory services. Group Group 2012 2011 Investment Investment management management and and Investing advisory Investing advisory activities services Eliminations Total activities services Eliminations Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 External income from investment management services 18 18 1,318 (1,318) Intra-group income from investment management services 1,241 (1,241) Other operating and investment income 5,142 3 5,145 5,537 3 5,540 Intra-group finance income (25) 25 5,142 1,262 (1,241) 5,163 5,512 1,321 (1,293) 5,540 Performance shares and options fair value charge (31) (31) (116) (116) Other administrative costs (1,194) (1,716) (2,910) (1,304) (2,979) (4,283) Intra-group investment management services expenses (1,181) (60) 1,241 (1,318) 1,318 Other operating expenses (78) (200) (278) 13 (442) (429) (2,484) (1,976) 1,241 (3,219) (2,725) (3,421) 1,318 (4,828) Operating profit/(loss) 2,658 (714) 1,944 2,787 (2,100) 25 712 Finance costs (2,820) (2,820) (2,886) (2,886) Intra-group finance costs 25 (25) Gains on fair value through profit and loss 7,832 7,832 2,233 2,233 Foreign exchange loss on disposal of subsidiary (840) (840) Profit/(loss) before tax 6,832 (714) 6,116 2,134 (2,075) 59 Total assets 144,094 3,274 147,368 152,949 3,789 156,738 Total liabilities (34,911) (223) (35,134) (44,131) (725) (44,856) Intra-group assets/ (liabilities) 8,426 (426) (8,000) 7,419 (419) (7,000) Net assets 117,609 2,625 (8,000) 112,234 116,237 2,645 (7,000) 111,882 3. Income Group Group Company Company 2012 2011 2012 2011 Â£000 Â£000 Â£000 Â£000 Income from investments Franked investment incomeâ€ 4,113 4,153 4,113 4,153 UK unfranked investment income 135 138 135 138 Overseas dividends 835 1,105 867 1,053 Fixed interest and convertible bonds 17 38 17 38 5,100 5,434 5,132 5,382 Other income Deposit interest 32 68 21 6 Other interest 19 19 Sundry income 31 19 13 (6) 63 106 34 19 Total income 5,163 5,540 5,166 5,401 Total income comprises: Dividends 5,083 5,396 5,115 5,344 Interest 49 125 38 63 Other income 31 19 13 (6) 5,163 5,540 5,166 5,401 Income from investments Listed UK 2,033 2,377 2,033 2,377 Listed overseas 852 1,143 884 1,091 Unlisted 2,215 1,914 2,215 1,914 5,100 5,434 5,132 5,382 â€ Includes MAM ordinary dividend income of Â£2,215,000 (2011: Â£1,914,000). 4. Management Fees Company Company 2012 2011 Revenue Capital Revenue Capital return return Total return return Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Investment management 137 412 549 173 519 692 Administration 245 245 245 245 382 412 794 418 519 937 A summary of the terms of the Management Agreement for the Company with Javelin Capital LLP is given in the Business Review. At 30 September 2012, an amount of Â£52,000 was outstanding for payment of investment management fees when due (2011: Â£49,000) and outstanding administration fees of Â£22,000 (2011: Â£22,000). The Manager is also entitled to a performance fee from the Company in accordance with the provisions of the Management Agreement, the calculation of which is also described in the Business Review. No performance fee is due in respect of the year ended 30 September 2012 (2011: Â£nil). 5. Administrative Expenses Group Group Company Company 2012 2011 2012 2011 Â£000 Â£000 Â£000 Â£000 Staff costs - note 7 720 1,385 31 122 Other staff costs and directors' fees 304 354 233 239 Advisers' costs 569 715 322 379 Restructuring costs 265 139 Information costs 454 738 44 52 Establishment costs 121 119 Operating lease rentals - premises 124 123 Depreciation on tangible assets 166 208 45 47 Auditors' remuneration 73 110 55 55 (see below) Pre start-up costs 195 Other expenses 688 616 75 17 3,219 4,828 805 1,050 A charge of Â£1,442,000 (2011: Â£2,633,000) to capital and an equivalent credit to revenue has been made in the Group and a charge of Â£237,000 (2011: Â£320,000) in the Company has been made to recognise the accounting policy of charging 75% of direct investment management expenses to capital. Total fees charged by the Auditor for the year, all of which were charged to revenue, comprised: Group Group Company Company 2012 2011 2012 2011 Â£000 Â£000 Â£000 Â£000 Audit services - statutory audit 66 103 48 48 Other non-audit services 7 7 7 7 73 110 55 55 All fees incurred during the year were to Ernst & Young LLP (2011: All Ernst & Young LLP except for Â£18,200 to PricewaterhouseCoopers LLP in respect of the QIF). 6. Directors' Emoluments Company Company 2012 2011 Â£000 Â£000 Fees 209 207 209 207 The Report on Directors' Remuneration in the Annual Report explains the Company's policy on remuneration for directors for the year. It also provides further details of directors' remuneration. 7. Staff Costs including Executive Directors Group Group Company Company 2012 2011 2012 2011 Â£000 Â£000 Â£000 Â£000 Salaries and other payments 591 1,089 Social security costs 69 129 6 Pension contributions 29 51 Share based remuneration - note 25 31 116 31 116 720 1,385 31 122 Group Group Company Company 2012 2011 2012 2011 Number Number Number Number Average number of employees: Management and office staff 8 11 8. Finance Costs Group Group 2012 2011 Revenue Capital Revenue Capital return return Total return return Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Interest on 9.5% debenture stock 2020 321 962 1,283 321 962 1,283 Interest on 7.25% debenture stock 2025 375 1,125 1,500 375 1,125 1,500 Amortisation of expenses associated with debenture issue 5 17 22 5 15 20 Other interest payable 4 11 15 20 63 83 705 2,115 2,820 721 2,165 2,886 Company Company 2012 2011 Revenue Capital Revenue Capital return return Total return return Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Interest on 9.5% debenture stock 2020 321 962 1,283 321 962 1,283 Interest on 7.25% debenture stock 2025 375 1,125 1,500 375 1,125 1,500 Amortisation of expenses associated with debenture issue 5 17 22 5 15 20 701 2,104 2,805 701 2,102 2,803 Further details of the debenture stocks in issue are provided in note 18. 9. Taxation Analysis of tax charge Group Group Company Company 2012 2011 2012 2011 Â£000 Â£000 Â£000 Â£000 Tax on overseas dividends 132 200 113 121 Reconciliation of tax charge: The current taxation for the year is lower (2011: higher) than the standard rate of corporation tax in the UK 24% (2011: 27%). The differences are explained below: Group Group Company Company 2012 2011 2012 2011 Â£000 Â£000 Â£000 Â£000 Net return before taxation 6,116 59 7,020 2,158 Taxation at UK Corporation Tax rate of 25% (2011: 27%) 1,529 16 1,755 583 Group Group Company Company 2012 2011 2012 2011 Â£000 Â£000 Â£000 Â£000 Effects of: - UK dividends which are not taxable (1,054) (1,158) (1,054) (1,158) - foreign dividends which are not taxable (213) (278) (213) (278) -gains on investments which are not taxable (1,748) (603) (1,564) (417) - expenses not deductible for tax purposes 28 53 33 57 - excess expenses for current year 1,458 1,970 1,043 1,213 - overseas taxation which is not recoverable 132 200 113 121 Actual current tax charge 132 200 113 121 Group After claiming relief against accrued income taxable on receipt, the Group has unrelieved excess expenses of Â£67,564,000 (2011: Â£61,728,000). 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 Â£60,681,000 (2011: Â£56,597,000). It is not yet certain that the Company 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 investment trust, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments. 10. Dividends The following table summarises the amounts recognised as distributions to equity shareholders in the period: Group and Group and Company Company 2012 2011 Â£000 Â£000 2010 Final dividend of 6.30p paid on 26 January 2011 3,277 2011 Interim dividend of 4.20p paid on 29 June 2011 2,186 2011 Final dividend of 6.30p paid on 25 January 2012 3,279 2012 Interim dividend of 4.20p paid on 27 June 2012 2,186 5,465 5,463 2012 2011 Â£000 Â£000 Proposed final dividend for the year ended 30 September 2012 of 6.30p (2011: final dividend of 6.30p) per ordinary share 3,279 3,279 3,279 3,279 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. 2012 2011 Â£000 Â£000 Interim dividend for the year ended 30 September 2012 of 4.20p (2011: 4.20p) per ordinary share 2,186 2,186 Proposed final dividend for the year ended 30 September 2012 of 6.30p (2011: 6.30p) per ordinary share 3,279 3,279 5,465 5,465 11. Return/(Loss) per Ordinary Share Basic return/(loss) per ordinary share is based on 52,044,613 (2011: 52,029,833) ordinary shares, being the weighted average number of shares in issue having adjusted for the shares held by the Employee Incentive Trust referred to in note 20. Basic returns per ordinary share are based on the net return after taxation attributable to equity shareholders. There is no dilution to the basic return/(loss) per ordinary share shown for the years ended 30 September 2012 and 2011 since the share options referred to in note 20 would, if exercised, be satisfied by the shares already held by the Employee Incentive Trust. Group Group 2012 2011 Â£000 Â£000 Basic and diluted revenue returns are based on net revenue after taxation of: 2,552 2,427 Basic and diluted capital returns are based on net capital return/(loss) of: 3,445 (2,568) Basic and diluted total returns are based on return/(loss) of: 5,997 (141) Company Company 2012 2011 Â£000 Â£000 Basic and diluted revenue returns are based on net revenue after taxation of: 3,402 3,431 Basic and diluted capital returns are based on net capital return/(loss) of: 3,505 (1,394) Basic and diluted total returns are based on return of: 6,907 2,037 12. Property and Equipment Group Group Leasehold Office Group Improvements Equipment Total Â£000 Â£000 Â£000 Cost: At 1 October 2011 171 581 752 Additions 3 Disposals (1) (1) At 30 September 2012 171 583 754 Depreciation: At 1 October 2011 40 302 342 Charge for year 17 149 166 Disposals (1) (1) At 30 September 2012 57 450 507 Net book value: At 30 September 2012 114 133 247 At 30 September 2011 131 279 410 Company Company Leasehold Office Company Improvements Equipment Total Â£000 Â£000 Â£000 Cost: At 1 October 2011 171 168 339 Additions Disposals At 30 September 2012 171 168 339 Depreciation: At 1 October 2011 40 121 161 Charge for year 17 28 45 Disposals At 30 September 2012 57 149 206 Net book value: At 30 September 2012 114 19 133 At 30 September 2011 131 47 178 13. Investments at Fair Value Through Profit or Loss Group Group 2012 2011 Listed Unlisted Total Listed Unlisted Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Opening cost at beginning of year 69,262 12,862 82,124 110,166 14,034 124,200 Gains /(losses ) at beginning of year (2,195) 29,582 27,387 369 20,854 21,223 Opening fair value at beginning of year 67,067 42,444 109,511 110,535 34,888 145,423 Transfer on consolidation of QIF (20,000) (20,000) Purchases at cost 110,270 110,270 1,305,385 1,305,385 Sales - proceeds (120,422) (574) (120,996) (1,322,570) (512) (1,323,082) Gains/(losses) on sales 1,500 (1,957) (457) (3,791) (660) (4,451) Increase/(decrease) in investment holding gains 7,904 2,022 9,926 (2,564) 8,728 6,164 Foreign exchange (losses)/gains on retranslation of foreign investment (37) (37) 72 72 Closing fair value at end of year 66,282 41,935 108,217 67,067 42,444 109,511 Closing cost at end of year 60,573 10,331 70,904 69,262 12,862 82,124 Gains/(losses) at end of year 5,709 31,604 37,313 (2,195) 29,582 27,387 Closing fair value at end of year 66,282 41,935 108,217 67,067 42,444 109,511 The comparative figures for the Group investments on the Balance Sheet are disclosed as investments held at fair value of Â£112,822,000 less financial liabilities held at fair value of Â£ 3,311,000. Company 2012 Related and subsidiary Listed Unlisted companies Total Â£000 Â£000 Â£000 Â£000 Opening cost at beginning of year 86,830 12,814 8,010 107,654 Losses/(gains) at beginning of year (2,098) 29,630 (839) 26,693 Opening fair value at beginning of year 84,732 42,444 7,171 134,347 Purchases at cost 32,901 1,000 33,901 Sales - proceeds (43,196) (574) (43,770) Losses on sales (973) (1,957) (2,930) Increase in investment holding gains 6,962 2,022 21 9,005 Closing fair value at end of year 80,426 41,935 8,192 130,553 Closing cost at end of year 75,562 10,283 9,010 94,855 Gains/(losses) at end of year 4,864 31,652 (818) 35,698 Closing fair value at end of year 80,426 41,935 8,192 130,553 Company 2011 Related and subsidiary Listed Unlisted companies Total Â£000 Â£000 Â£000 Â£000 Opening cost at beginning of year 110,166 13,986 5,510 129,662 Gains/(losses) at beginning of year 369 20,902 (839) 20,432 Opening fair value at beginning of year 110,535 34,888 4,671 150,094 Purchases at cost 15,094 2,500 17,594 Sales - proceeds (34,376) (512) (34,888) Losses on sales (4,054) (660) (4,714) (Decrease)/increase in investment holding gains (2,467) 8,728 6,261 Closing fair value at end of year 84,732 42,444 7,171 134,347 Closing cost at end of year 86,830 12,814 8,010 107,654 (Losses)/gains at end of year (2,098) 29,630 (839) 26,693 Closing fair value at end of year 84,732 42,444 7,171 134,347 All operating subsidiaries are held at cost, less any impairment, unless considered to be an investment fund and then held at fair value. Unlisted investments include an amount of Â£2,935,000 in 18 various companies (2011: Â£3,186,000 in 20 companies), Â£39,000,000 (2011: 39,000,000) for our investment in MAM and Â£nil (2011: Â£258,000) of loan or convertible notes that pay a fixed rate of interest. The valuation of investments includes 6 unlisted investments of over Â£100,000 (including MAM). During the year the Company incurred transaction costs amounting to Â£113,000 (2011: Â£151,000) of which Â£59,000 (2011: Â£74,000) related to the purchases of investments and Â£54,000 (2011: Â£77,000) related to the sales of investments. These amounts are included in gains/(losses) 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 Group Company Company 2012 2011 2012 2011 Â£000 Â£000 Â£000 Â£000 Net losses on sales of equity investments (457) (4,451) (2,930) (4,714) Net loss on sale Javelin UCITS investment classified as an asset held for sale (page 68 in the Annual Report) (10) Increase in holding gains on equity investments 9,926 6,164 9,005 6,261 Decrease in value of Javelin UCITS investment classified as an asset held for sale (page 68 in the Annual Report) (716) Proceeds on sale of derivative contracts (note 14) (911) 483 183 Unrealised gains on derivative contracts (note 14) 37 Net return on investments 7,832 2,233 6,258 1,547 Fair value hierarchy disclosures The Group 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: â€¢ 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 arms length basis. â€¢ 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: â€¢ quoted prices for similar (ie not identical) assets in active markets. â€¢ quoted prices for identical or similar assets or liabilities in markets that are not active. Characteristics of an inactive market include a significant decline in the volume and level of trading activity, the available prices vary significantly over time or among market participants or the prices are not current. â€¢ inputs other than quoted prices that are observable for the asset (for example, interest rates and yield curves observable at commonly quoted intervals). â€¢ inputs that are derived principally from, or corroborated by, observable market data by correlation or other means (market-corroborated inputs). â€¢ 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 the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement 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 in its entirety requires judgement, considering factors specific to the asset or liability. The determination of what constitutes 'observable' requires significant judgement by the Group. The Group considers observable data to 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 sets out fair value measurements of financial assets in accordance with the IFRS fair value hierarchy system: Group Group 2012 2011 Level Level Level Total Level Level Level Total 1 2 3 1 2 3 Financial assets Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Financial assets designated at fair value through profit or loss Equities and managed funds Listed equity securities 66,089 66,089 70,009 70,009 Unlisted equity securities 41,935 41,935 42,182 42,182 Unlisted preference shares 4 4 Listed exchange traded funds 193 193 369 369 Interest bearing securities Unlisted convertible bonds 258 258 Derivatives financial assets Contracts for difference 136 136 66,089 193 41,935 108,217 70,009 505 42,444 112,958 Financial liabilities Financial liabilities designated at fair value through profit or loss Listed equities 2,093 2.093 Listed exchange traded funds 1,218 1,218 Derivatives Contracts for difference 96 96 Index futures 3 3 3,314 96 3,410 Company Company 2012 2011 Level Level Level Total Level Level Level Total 1 2 3 1 2 3 Financial assets Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Financial assets designated at fair value through profit or loss Equities and managed funds Listed equity securities 80,233 80,233 84,732 84,732 Unlisted equity securities 50,127 50,127 49,353 49,353 Unlisted preference shares 4 4 Listed exchange traded funds 193 193 Interest bearing securities Unlisted convertible bonds 258 258 80,233 193 50,127 130,553 84,732 49,615 134,347 Investments, whose values are based on quoted market prices in active markets, and therefore classified within Level 1, include active listed equities. The Group does not adjust the quoted price for these instruments. 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 illiquidity and/or non-transferability, which are generally based on available market information. Investments classified within Level 3 have significant unobservable inputs. Level 3 instruments include private equity and corporate debt securities. As observable prices are not available for these securities, the Group 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 International Private Equity and Venture Capital ("IPEVC") Valuation Guidelines. New investments are initially carried at cost, for a limited period, being the price of the most recent investment in the investee. This is in accordance with IPEVC Guidelines as the cost of recent investments will generally provide a good indication of fair value. Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction. The following table presents the movement in level 3 instruments for the year ended 30 September 2012: Group 2012 Equity Convertible Convertible Preference Total investments bonds loan notes shares Â£000 Â£000 Â£000 Â£000 Â£000 Opening balance 42,444 42,182 258 4 Purchases Transfers from Level 1 Sales - proceeds (574) (324) (243) (7) Total gains/(losses) for the year included in the Statement of Comprehensive Income 65 77 (15) 3 41,935 41,935 Group 2011 Opening balance 34,888 34,325 260 298 5 Purchases Transfers from Level 1 Sales - proceeds (512) (217) (295) Total gains/(losses) for the year included in the Statement of Comprehensive Income 8,068 8,074 (2) (3) (1) 42,444 42,182 258 4 Company 2012 Equity Convertible Convertible Preference Total investments bonds loan notes shares Â£000 Â£000 Â£000 Â£000 Â£000 Opening balance 49,615 49,353 258 4 Purchases 1,000 1,000 Transfers from Level 1 Sales - proceeds (574) (324) (243) (7) Total gains/(losses) for the year included in the Statement of Comprehensive Income 86 98 (15) 3 50,127 50,127 Company 2011 Opening balance 39,559 38,996 260 298 5 Purchases 2,500 2,500 Transfers from Level 1 Sales - proceeds (512) (217) (295) Total gains/(losses) for the year included in the Statement of Comprehensive Income 8,068 8,074 (2) (3) (1) 49,615 49,353 258 4 Substantial Share Interests The Group has a number of investee company holdings where its investment is greater than 3% of any class of capital in those companies. Those that are considered material (excluding MAM and Javelin Funds which are disclosed separately below) in the context of these accounts are shown below: Fair Value % of Â£000 Class Held AOI Medical 152 4.76 The Group does not exercise significant influence over the operating and financial policies of the above companies which are therefore not considered to be associated companies. Javelin Capital Global Equity Strategies Fund (JCGES) The Company invested Â£20m of seed capital into the JCGES fund on 20 September 2010. During the year, after a review by Javelin Capital, it was agreed to close the fund. As such on 21 September 2012 the Company, at that time the only remaining shareholder, redeemed its participating redeemable shares for Â£17.7m and a loss of Â£2.3m (excluding a gain of Â£0.8m received from the FX hedging programme undertaken on the investment). The Company has a residual interest in the JCGEF as the only holder of subscriber shares in the umbrella company, Javelin Capital Strategies plc, and will receive any surplus assets on liquidation. Due to its controlling interest in the JCGES fund, the holding was fully consolidated into the group accounts during the year in accordance with IFRS. The results for the JCGES fund for the year are shown in note 15 of the Annual Report. Javelin Capital Emerging Markets Alpha Fund (JCEMA) The Company invested Â£15m of seed capital into the JCEMA fund on 16 January 2012 and as at 30 September 2012 has an 82.15% controlling interest. On 24 February 2012 a small holding was transferred into a different share class in the fund resulting in a loss of Â£10,000. This holding is consolidated into the group accounts in accordance with IFRS 5 under the classification of Assets held for sale. Further information is in the Annual Report. The results for the JCEMA fund for the year are shown in note 15 of the Annual Report. On 2 November 2012, the Company subscribed to an additional 194,571 Class D GBP shares in the Javelin Capital Emerging Markets Alpha Fund at a cost of Â£18.15m. Majedie Asset Management (MAM) MAM is a UK based asset management firm, which provides investment management and advisory services relating to UK equities. The carrying value of the Company's investment in MAM is included in the Consolidated Balance Sheet as part of investments at fair value through profit or loss: 2012 2011 Â£000 Â£000 Deemed cost of investment 1,197 1,207 Holding gains 37,803 37,793 Fair value at 30 September 39,000 39,000 The carrying value of MAM in the 30 September 2012 Consolidated Financial Statements is its fair value as assessed at 30 September 2012. The above valuation exercise was carried out by the Board in accordance with the Company's accounting policy for the valuation of unlisted investments. The approach adopted involved the consideration of earnings for the 2012 and the 2013 financial years, the inclusion of estimated performance fee income on a discounted basis, the application of a relevant market-based multiple to earnings and an overall marketability discount. The results of MAM for the year ended 30 September 2012 show a net profit after taxation of Â£172,296,000 (2011: Â£10,630,000) and shareholders' funds of Â£ 30,041,000 (2011: Â£25,134,000). As the Company does not exercise significant influence over the operating and financial policies of MAM it is not considered to be an associate, and their results are not consolidated in the Group's results but are incorporated into the directors' valuation of the fair value of MAM as detailed above. In accordance with the revised shareholders' agreement, the founding shareholders (including the Company) will sell a certain number of shares to the MAM Employee Benefit Trust, usually annually and at the prescribed price (as calculated in accordance with the revised shareholders' agreement). During the year on 27 October and 16 December 2011 the Company sold 590 and 431 shares to the MAM Employee Benefit Trust for an overall consideration of Â£324,000 and a gain of Â£314,000. Following these transactions the Company holds 127,550 ordinary 0.1p shares representing a 29.8% shareholding. Assets classified as held-for-sale As noted in the Annual Report and above the Company has made investments into JCEMA which result in a controlling interest. At the time of the initial investment (and which currently remains the case), the fund is thought more attractive to investors and along with active marketing it was considered that the Company's interest could become non-controlling within 12 months. The fund therefore could be consolidated in accordance with IFRS 5, which was not available to the JCGES fund, under a new classification called asset classified as held for sale. Within that timeframe if the Company's interest becomes non-controlling it will be reclassified to investments held at fair value through profit or loss, however should this not be the case the investment will be accounted for in accordance with IFRS 10 and the investment entities exemptions, as appropriate. 14. Derivative financial instruments Introduction Typically, derivative contracts serve as components of the Group's investment strategy and are utilised primarily to structure and hedge investments, to enhance performance and reduce risk to the Group (the Group does not designate any derivative as a hedging instrument for hedge accounting purposes). The derivative contracts that the Group typically holds in the portfolio include: â€¢ Futures and forward contracts relating to foreign currencies, market indices and bonds â€¢ Options relating to foreign currencies, market indices, equities and interest rates â€¢ Swaps relating to equity indices and Contracts for Difference (CFDs) â€¢ Short selling equities As explained above, the Group uses derivative financial instruments to economically hedge its risks associated primarily with interest rate and foreign currency fluctuations. Derivative financial instruments may also be used for trading purposes where the Investment Manager believes this would be more effective than investing directly in the underlying financial instruments. The notional amount of certain types of financial instruments provides a basis for comparison with instruments recognised on the balance sheet but does not necessarily indicate the amount of future cash flows involved or the current fair value of the derivatives. The derivative instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuations in market interest rates, indices, security prices or foreign exchange rates relative to the derivatives terms. The aggregate contractual or notional amount of derivative financial instruments held, the extent to which instruments are favourable or unfavourable and thus the aggregate fair values of derivative financial assets and liabilities can fluctuate significantly from time to time. Derivatives often reflect, at their inception, only a mutual exchange of promises with little or no transfer of tangible consideration. However, these instruments frequently involve a high degree of leverage and are very volatile. A relatively small movement in the underlying of a derivative contract may have a significant impact on the profit or loss of the Group. OTC derivatives may expose the Group to the risks associated with the absence of an exchange market on which to close out an open position. The Group's investment objective sets limits on investments in derivatives with high risk profile. The Investment Manager is instructed to closely monitor the Group's exposure under derivative contracts as part of the overall management of the Group's market risk (see also note 26). As mentioned in note 13, included within the composition of investment return for the year is a realised derivatives gain of Â£0.8m in relation to the FX hedging programme undertaken on the Javelin Capital Global Equity Strategies Fund (JCGES) - a US denominated Irish listed fund. Additionally, during the year, the Company purchased some FTSE 100 put options for portfolio protection purposes. These were held until expiry and expired out of the money resulting in a loss of Â£0.6m. Details of the Group and Company's unsettled derivatives are below: Group 2012 Group 2011 Assets Liabilities Net Assets Liabilities Net Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Derivatives instruments Contracts for difference 136 (96) 40 Index Futures (3) (3) 136 (99) 37 15. Investment in Subsidiaries a) Subsidiary undertakings at 30 September 2012 Company Country of Profit after Registration Number and Capital tax for the Incorporation class of Group Reserves year ended shares at Company and and Operation held by Holding 30.09.12 30.09.12 business group Â£000 Â£000 Majedie Portfolio Management Limited - Majedie share plan manager, authorised 1,000,000 and regulated Ordinary by the FSA UK shares 100% 162 Majedie Unit Trust - Unauthorised unit trust to receive Javelin 10,000 Capital income UK Units 100% (3,458) (1,852) Javelin Capital LLP - Asset Management, authorised and 75% regulated by the FSA UK interest 75% 2,625 (714) Javelin Capital Services Limited 100 - Administration Ordinary Services UK shares 75% Javelin Capital Fund Management 2 Limited# Ordinary - Not trading Ireland shares 75% Javelin Capital Strategies Plc ^ (subfund: Javelin Capital Global Equity 2 Strategies Subscriber (1,391) Fund) Ireland shares 100% 21 - Qualifying Investment Fund (QIF), supervised by the Central Bank of Ireland - Not trading Serviced Platform SICAV â€ (subfund: Javelin 140,000 Capital Emerging Class D Markets Alpha Fund) LUX GBP shares 82.2% -Undertakings for Collective Investment in 5,000 Transferable Securities Class D (UCITS), supervised by USD shares the Commission de 10,407 Surveillance du Secteur Class E Financier (CSSF) USD shares Javelin Capital Services Limited (JCS) and Javelin Capital Fund Management Limited (JCFM) are all wholly owned subsidiaries of Javelin Capital LLP. #JCFM ceased trading on 19 June 2012 and its regulatory capital was returned to Javelin Capital LLP. ^ The QIF ceased trading on 21 September 2012 with all redeemable preference shares being redeemed. The Company owns 2 subscriber shares which will receive any surplus on liquidation. â€ The Javelin Capital Emerging Markets Alpha Fund is a sub-fund of the Services Platform SICAV. The SICAV has a financial year end of December with its first accounts being in respect of the period to 31 December 2012. (b) Non-Controlling Interest Following the closure of the QIF on 21 September 2012, the non-controlling interest previously reflected in the Consolidated Statement of Comprehensive Income and Balance Sheet, and including its proportion of results for the current period of the QIF up to the date of closure, representing the other investors in the QIF has been derecognised in accordance with IFRS. In respect of the consolidation of the Javelin Capital entities into the Group accounts, in accordance with the Company's accounting policies and the income and loss recognition provisions of the Limited Liability Partnership Agreement for Javelin Capital LLP there is no Non-controlling Interest to be recognised in the Consolidated Statement of Comprehensive Income or Balance Sheet. 16. Trade and Other Receivables Group Group Company Company 2012 2011 2012 2011 Â£000 Â£000 Â£000 Â£000 Sales for future settlement 4,179 174 Prepayments 1,111 1,256 27 193 Dividends receivable 254 298 254 298 Accrued income 3 18 3 8 Taxation recoverable 50 66 50 66 Amounts due from subsidiary undertakings 521 441 1,418 5,817 855 1,180 The directors consider that the carrying amounts of trade and other receivables approximates to their fair value. 17. Cash and Cash Equivalents Group Group Company Company 2012 2011 2012 2011 Â£000 Â£000 Â£000 Â£000 Deposits at banks 22,129 17,051 20,431 14,809 Collateral cash held with brokers 91 2,115 Cash held with brokers 17,575 Other balances 1,067 812 491 436 23,287 37,553 20,922 15,245 Cash used for collateral is restricted. 18. Trade and Other Payables Amounts falling due within one year: Group Group Company Company 2012 2011 2012 2011 Â£000 Â£000 Â£000 Â£000 Purchases for future settlement 5,861 Accrued expenses 313 285 249 276 Other creditors 943 1,499 752 707 1,256 7,645 1,001 983 The Directors consider that the carrying amounts of trade and other receivables approximates to their fair value. Amounts falling due after more than one year: Group Group Company Company 2012 2011 2012 2011 Â£000 Â£000 Â£000 Â£000 Â£13.5m (2011: Â£13.5m) 9.5% debenture stock 2020 13,401 13,392 13,401 13,392 Â£20.7m (2011: Â£20.7m) 7.25% debenture stock 2025 20,422 20,409 20,422 20,409 33,823 33,801 33,823 33,801 Both debenture stocks are secured by a floating charge over the Company's assets. Expenses associated with the issue of debenture stocks were deducted from the gross proceeds and are being amortised over the life of the debentures. Further details on interest and the amortisation of issue expenses are provided in note 8. 19. Called Up Share Capital Company Company 2012 2011 Â£000 Â£000 Allotted and fully paid at 30 September: 52,528,000 (2011: 52,528,000) ordinary shares of 10p each 5,253 5,253 There are 483,387 (2011: 483,387) ordinary shares of 10p each held by the Employee Incentive Trust. See note 20. Ordinary shares carry one vote each on a poll. 20. Own Shares The total number of options outstanding at the date of this report is 201,601 under the Long Term Incentive Plan ("LTIP") and the total shareholding of the Employee Incentive Trust is 483,387 ordinary shares. The shares will be held by the Trust until the relevant options are exercised or until they lapse. They are presented on the Balance Sheet as a deduction from shareholders' funds, in accordance with the policy detailed in note 1. Group and Company Own Shares Number of Reserve Shares Â£000 As at 1 October 2011 483,387 (1,628) Options exercised As at 30 September 2012 483,387 (1,628) 21. Net Asset Value The consolidated net asset value per share has been calculated based on equity shareholders' funds of Â£112,234,000 (2011: Â£111,634,000) and on 52,044,613 (2011: 52,044,613) ordinary shares, being the shares in issue at the year end having deducted the number of shares held by the EIT. 22. Analysis of Changes in Net Cash/(Debt) At 30 Non At 30 September Cash Cash September 2011 Flows Items 2012 Group Â£000 Â£000 Â£000 Â£000 Cash at bank and with brokers 37,553 14,266 23,287 Debt due after one year (33,801) (22) (33,823) 3,752 14,266 (22) (10,536) At 30 Non At 30 September Cash Cash September 2011 Flows Items 2012 Company Â£000 Â£000 Â£000 Â£000 Cash at bank 15,245 5,677 20,922 Debt due after one year (33,801) (22) (33,823) (18,556) 5,677 (22) (12,901) 23. Operating Lease Commitments The Group has a 10 year non-cancellable operating lease (with a break clause in 5 years) in respect of premises, including a rent free period. The rent free element has been apportioned over the lease up to the date of the break clause. The Group has an annual commitment at 30 September 2012 under the lease of Â£ 145,000 (2011: Â£145,000). This operating lease commitment is disclosed in the table below. Expiry Date Group Group 2012 2011 Â£000 Â£000 Within one year 145 145 Between one and two years 34 145 Between two and three years 32 179 322 24. Financial Commitments At 30 September 2012 the Group had no financial commitments which had not been accrued for (2011: none). 25. Share-based Payments The Group currently operates one share-based payment scheme being the 2006 LTIP which in turn has two sections relating to Total Shareholder Return (TSR) based Awards and Matching Awards. With the introduction of Javelin Capital LLP and resultant employee transfers from the Company no further awards will be made under the LTIP. Javelin Capital LLP does not operate any share-based payment schemes. Long Term Incentive Plan: TSR-based Awards Awards of restricted shares up to a maximum value of one year's salary have performance conditions based on total shareholder return in relation to two separate performance conditions over a period of five years. The performance conditions contain higher and lower thresholds that determine the extent of the vesting of the award. Long Term Incentive Plan: Matching Awards Executive directors and senior executives receive a certain percentage of their overall bonus for the year in deferred shares. The shares granted according to these matching awards only vest once the executive has completed three years' further service. There are no other performance conditions. Group 2012 TSR - based Matching Awards Awards Weighted Weighted No. Average No. Average of Exercise of Exercise Options Price (p) Options Price (p) Outstanding at 1 October 2011 178,319 0.0 10,437 0.0 During the year: Awarded Forfeited Exercised Expired Increase in awards due to dividends paid 12,134 0.0 711 0.0 Outstanding at 30 September 2012 190,453 0.0 11,148 0.0 Exercisable at 30 September 2012 11,148 0.0 Group 2011 TSR - based Matching Awards Awards Weighted Weighted No. Average No. Average of Exercise of Exercise Options Price (p) Options Price (p) Outstanding at 1 October 2010 291,268 0.0 17,812 0.0 During the year: Awarded Forfeited Exercised (13,430) 0.0 (8,673) 0.0 Expired (122,965) 0.0 Increase in awards due to dividends paid 23,446 0.0 1,298 0.0 Outstanding at 30 September 2011 178,319 0.0 10,437 0.0 Exercisable at 30 September 2011 10,437 0.0 The awards outstanding at 30 September 2012 had a weighted average remaining contractual life of 1.4 years and nil in respect of the TSR-based Awards and Matching Awards respectively (2011: 3.4 years and 0.1 years respectively). Awards and options are usually forfeited if the employee leaves employment before vesting. For the year ended 30 September 2012, the Company recognised a total share options expense of Â£31,000 (2011: Â£116,000 including a one-off vesting charge of Â£59,000) relating to share-based payment transactions in the year ended 30 September 2011. 26 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 at the start of this announcement. Accordingly it is the Board's policy that no trading in investments or other financial instruments be undertaken. The risk management processes of the Company are aligned with those of the Group as a whole and it is at the Group level that the majority of the risk management procedures are performed. Where relevant and materially different to the Group position, Company specific risk exposures are explained alongside those of the Group. The following risk and sensitivity analysis included in this note are based on the ongoing operations of the Group and Company therefore does not include disclosures in relation to the investment in the QIF (previously consolidated as a subsidiary and which closed during September 2012). Management of market risk Management of market risk is fundamental to the Group's investment objective and the investment portfolio is continually monitored to ensure an appropriate balance of risk and reward. Exposure to any one entity is monitored by the Board and senior management. The Company has complied with the requirement of the relevant tax legislation for an investment trust not to invest more than 15% of the total value of its investments in the securities of any one group at the time of the initial acquisition, or subsequent purchase. From time to time, the Group may seek to reduce or increase its exposure to stock markets and currencies by taking positions in currency forward contracts, index futures and options relating to one or more stock markets. These instruments are used for the purpose of hedging some or all of the existing exposure within the Group's investment portfolio to those currencies or particular markets or to enable increased exposure when deemed appropriate and with the specific approval of the Board. 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 and accrued income, and the debenture loans used to finance its operations. The Company is unlikely to use derivatives for hedging purposes and then only in exceptional circumstances with the specific prior approval of the Board. In pursuing 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 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 and credit risk. The Board sets the overall investment strategy and has in place various controls and limits and receives various reports in order to monitor the Company's and Group's exposure to these risks. The risk management policies identified in this note have not changed materially from the previous accounting period in respect of the Company: â€¢ a full range of financial instruments in both developed and emerging markets including equities, equity-related securities, futures, options, warrants and other access products; â€¢ other financial instruments may be used, including, but not limited to, index futures, structured products, swaps and contracts for difference ("CFDs"); â€¢ commodity futures and commodity-related exchange traded funds ("ETFs"); â€¢ spot and forward foreign currency exchange contracts, options and related instruments; and â€¢ cash on deposit or cash equivalents may be held; these deposits may, or may not, be held through the Prime Brokers and its Custodian. Market Risk The principal risk in the management of the portfolio is market risk i.e. the risk that values and future cashflows will fluctuate due to changes in market prices. This comprises: â€¢ foreign currency risk; â€¢ interest rate risk; and â€¢ other price risk i.e. movements in the value of investment holdings caused by factors other than interest rate or currency movements. These risks are taken into account when setting investment policy and making investment decisions. Foreign Currency Risk Exposure to foreign currency risk arises through investments in securities listed on overseas stock markets. A proportion of the net assets of the Group and 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 Group and Company's exposure to foreign currencies through its investments in overseas securities as at 30 September 2012 was Â£24,793,000 and Â£25,653,000 respectively (2011: Â£24,640,000 and Â£22,210,000 respectively). In respect of the Company, the Investment Manager monitors the Company's exposure to foreign currencies and the Board receives reports on a regular basis. In making investment decisions the Investment Manager is mindful of the Company's Core Portfolio benchmark allocation to foreign currencies but takes independent positions based on a long term view on the relative strengths and weaknesses of currencies. Additionally the currency of investment is not the only relevant factor considered as many portfolio investment companies are global in scope and nature. The Company does not normally hedge against foreign currency movements. The Group is able, although 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 the existing currency exposure of elements of the Group's portfolio (as a means of reducing risk) or to enable increased exposure when this is deemed appropriate. During the year, part of the Company's portfolio currency exposure in respect of its Â£20m US dollar investment in Javelin Capital Global Strategies Fund (QIF) was managed by a hedging programme until the fund was closed on 21 September 2012 (as discussed on the Annual Report). There were no other forward currency contracts undertaken during the year. The currency risk of the Group and Company's non-sterling monetary financial assets and liabilities at the Balance Sheet date was: Group 2012 Group 2011 Net Total Net Total Overseas monetary currency Overseas monetary currency investments assets exposure investments assets exposure Currency exposure Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 US Dollar 16,509 91 16,150 12,304 19,417 31,721 Euro 2,729 2,729 3,905 285 4,190 Yen 1,540 1,540 2,134 2,134 Other 4,465 4,465 6,297 (12) 6,285 non-sterling 24,793 91 24,884 24,640 19,690 44,330 Company 2012 Company 2011 Net Total Net Total Overseas monetary currency Overseas monetary currency investments assets exposure investments assets exposure Currency exposure Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 US Dollar 16,920 16,920 12,361 12,361 Euro 2,729 2,729 4,013 4,013 Yen 1,540 1,540 2,134 2,134 Other non-sterling 4,464 4,464 3,702 3,702 25,653 25,653 22,210 22,210 Sensitivity analysis If sterling had strengthened by 5% relative to all currencies on the reporting date, with all the other variables held constant, the income and the net assets attributable to equity holders of the parent would have decreased by the amounts shown below. The analysis is performed on the same basis for 2011. The revenue impact is an estimated figure for 12 months based on the relevant cash balances at the reporting date. Group Group Company Company Income Statement 2012 2011 2012 2011 Â£000 Â£000 Â£000 Â£000 Revenue return (1) Capital return (1,240) (1,232) (1,283) (1,110) Net assets (1,240) (1,233) (1,283) (1,110) A 5% weakening of sterling against the above currencies would have resulted in an equal and opposite effect on the above amounts, on the basis that all other variables remain constant. The Company's exposure has been calculated as at the year end and may no be representative of the 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 fixed rate portfolio investments and 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 however from time to time hold small investments which pay a fixed rate of interest. Derivative contracts are not used to hedge against the exposure to interest rate risk. 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 an element of gearing to the Company which is monitored within limits and reported to the Board. Cash balances are used to manage the level of gearing within a range set by the Board. The Board sets an overall investment strategy 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 company valuations. Regular reports are received by the Board in respect of the Company's investment portfolio and the respective limits. The interest rate risk profile of the financial assets and liabilities at the Balance Sheet date was: Group Group Company Company 2012 2011 2012 2011 Â£000 Â£000 Â£000 Â£000 Floating rate financial assets UK sterling 23,196 17,746 28,922 22,245 US dollars 91 19,807 Fixed rate financial assets Euros As referred to in note 13 258 258 Financial assets not carrying interest 109,882 118,927 123,541 128,447 133,169 156,738 152,463 150,950 Fixed rate financial liabilities UK sterling (33,823) (33,801) (33,823) (33,801) Financial liabilities not carrying interest (1,256) (11,055) (1,001) (983) (35,079) (44,856) (34,824) (34,784) Floating rate financial assets usually comprise collateral cash and also cash on deposit with banks and prime brokers which is repayable on demand and receive a rate of interest based on the base rates in force over the period. The Company balance includes the Â£8.0m (2011: Â£7.0m) investment in Javelin Capital LLP which receives a commercial rate of interest from 31 August 2010 until full repayment occurs in accordance with the terms of the LLP Agreement. Fixed rate financial assets comprise convertible bonds or loan notes. The fixed rate financial liabilities comprise the Group and Company's debentures totalling Â£34.2m nominal. They pay a weighted average rate of interest of 8.1% per annum and mature in 2020 (Â£13.5m) and 2025 (Â£20.7m). Sensitivity analysis Based on closing cash balances held on deposits with banks, a 0.50% decrease (2011: 0.50%) in base interest rates would have the following effect on net assets of the Group and Company: Group Group Company Company Income Statement 2012 2011 2012 2011 Â£000 Â£000 Â£000 Â£000 Revenue Return (106) (184) (95) (74) Net assets (106) (184) (95) (74) A 0.5% increase (2011: 0.5%) in interest rates would have resulted in proportionate equal and opposite effect on the above amounts on the basis that all other variables remain constant. The above analysis is based on closing balances only and is not representative of the year as a whole. 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 investments which are disclosed in note 13. The Company also has unlisted investments which are indirectly impacted by movements in listed equity prices and related variables. The Board sets an overall investment strategy 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 current strategy. The Investment Manager's policy 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. Derivative positions are marked to market and exposure to counterparties is also monitored on a daily basis by the investment manager; the Board reviews it on a quarterly basis. As mentioned earlier, the Investment Manager may use derivative instruments in order to 'hedge' the market risk, including foreign currency risk, inherent in the portfolio. The Investment Manager reviews the risk associated with individual investments and where they believe it appropriate may use derivatives to mitigate the risk of adverse market or currency movements. The Investment Manager discusses the hedging strategy with the Board at its quarterly meetings. At the year end there were no derivative contracts open. During the year, the Company entered into two Index Put Options contracts to provide a limited degree of protection from a fall in the value of the FTSE 100 index. These contracts incurred net losses of Â£0.6m and are included within the investment return in note 13. Concentration of exposure to other price risks An analysis of the Group's investment portfolio is shown in the Annual Report. This shows that the largest amount of equity investments by value is in UK companies (30.4%), with 24.8% of total investments listed or exposed to overseas countries (including listed Javelin Funds). It also shows the concentration of investments in various sectors. The following table details the exposure to market price risk on its quoted and unquoted equity investments: Group Group Company Company 2012 2011 2012 2011 Â£000 Â£000 Â£000 Â£000 Non-current Asset Investments at Fair Value through Profit or Loss Listed equity investments 66,282 70,378 80,426 84,732 Unlisted 41,935 42,444 41,935 42,444 Related and Subsidiary Companies 8,193 7,171 Unsettled derivatives contracts 136 108,217 112,958 130,553 134,347 Financial Liabilities at Fair Value through Profit and Loss Listed equity investments - sold short (3,311) Unsettled derivatives contracts (99) (3,410) Sensitivity analysis If share prices on listed equity investments had decreased by 10% at the reporting date with all other variables remaining constant, the income and the net assets attributable to the equity holders of the Group would have decreased by the amounts shown below. Group Group Company Company 2012 2011 2012 2011 Â£000 Â£000 Â£000 Â£000 Income Statement Capital return (6,628) (6,706) (8,043) (4,237) Net assets (6,628) (6,706) (8,043) (4,237) A 10% increase (2011:10%) in share prices would have resulted in a proportionate equal and opposite effect on the above amounts on the basis that all other variables remain constant. The analyses has been calculated on the investments held at the year end 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 Group financial loss. The Group's exposure to credit risk is managed by the following: â€¢ The Company's listed investments are held on its behalf by RBC Investor Services, the Company's custodian which if it became bankrupt or insolvent could cause the Company's rights with respect to securities held to be delayed. The Company receives regular internal control reports from the Custodian which are reviewed by Management and reported to the Board. â€¢ Investment transactions are undertaken by the Investment Manager with a number of approved brokers in the ordinary course of business. All new brokers are reviewed by the Investment Manager for credit worthiness and added to an approved brokers list if not considered to be a credit risk. â€¢ Cash is held at banks that are considered to be reputable and high quality. Cash balances are spread across a range of banks to reduce concentration risk. â€¢ Where the Company makes an investment in a loan or other security with credit risk, that credit risk is assessed and considered as part of the investment decision making process by the Investment Managers. The Board receives regular reports on the composition of the investment portfolio. â€¢ A credit exposure could arise in respect of derivatives contracts entered into by the Group if the counterparty were unable to fulfil its contractual obligations. Credit Risk Exposure At the reporting date the financial assets exposed to credit risk amounted to the following: Group Group Company Company 2012 2011 2012 2011 Â£000 Â£000 Â£000 Â£000 Investments in debt instruments 258 258 Cash on deposit and at banks 22,129 17,863 20,922 15,245 Collateral cash held with brokers 91 2,115 Cash held with brokers 1,067 17,575 Sales of future settlement 4,179 174 Unsettled derivatives contracts 136 Interest, dividends and other receivables 1,419 1,638 848 1,006 24,706 43,764 21,770 16,683 Minimum exposure during the year 44,524 50,099 21,777 16,683 Maximum exposure during the year 24,706 6,552 3,118 2,815 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 reporting date (2011: none). Liquidity Risk Liquidity risk is the risk that the Group or Company will encounter difficulties meeting its obligations as they fall due. The Company may periodically invest in derivatives contracts and debt securities that are traded over the counter. The Company is exposed to the daily settlement of margin calls on derivatives. Liquidity risk is not significant as the majority of the Group's assets are investments in quoted equities and other quoted securities that are readily realisable. The Board has various limits in respect of how much of the Group's resources can be invested in any one company. The unlisted investments in the portfolio are subject to liquidity risk but such investments are subject to limits set by the Board and liquidity risk is taken into account by the directors when arriving at their valuation. The Company does have exposure to concentration risk due to its two investments in MAM and Javelin Capital, primarily in relation to MAM at 26.8% (2011: 26.8%) of the Company's investment portfolio. The Company closely monitors these investments and received regular financial reports and believes that the current concentration risk is in-line with the Company's objective of diversifying its investment portfolio into four major groups. The Group maintains an appropriate level of cash balances in order to finance its operations and the Investment Manager regularly monitors the Group's cash balances to ensure all known or forecasted liabilities can be met. The Board receives regular reports on the level of the Groups's cash balances. The Group does not have any overdraft or other borrowing facilities to provide liquidity. Collateral Collateral is posted by the Group in relation to derivative transactions. These are transacted under auspices of the International Swaps and Derivatives Association and may require collateral to be posted from time to time. The Group does not hold collateral from other counterparties. At the year end there were no financial assets pledged as collateral. A maturity analysis of financial liabilities showing the remaining contractual maturities is detailed below: Group 2012 Undiscounted cash flows Due within Due between Due between Due 3 years 1 year 1 and 2 years 2 and 3 years and beyond Total Â£000 Â£000 Â£000 Â£000 Â£000 9.5% debenture stock 2020 13,500 13,500 7.25% debenture stock 2025 20,700 20,700 Interest on financial liabilities 2,783 2,783 2,783 20,029 28,378 Trade payable and other liabilities (excluding social security and sundry taxes) 1,256 1,256 4,309 2,783 2,783 54,229 63,834 Group 2011 Undiscounted cash flows Due within Due between Due between Due 3 years 1 year 1 and 2 years 2 and 3 years and beyond Total Â£000 Â£000 Â£000 Â£000 Â£000 9.5% debenture stock 2020 13,500 13,500 7.25% debenture stock 2025 20,700 20,700 Interest on financial liabilities 2,783 2,783 2,783 23,650 31,999 Listed investments sold short 3,311 3,311 Derivative instruments 99 99 Trade payable and other liabilities (excluding social security and sundry taxes) 7,645 7,645 13,838 2,783 2,783 57,850 77,254 Company 2012 Undiscounted cash flows Due within Due between Due between Due 3 years 1 year 1 and 2 years 2 and 3 years and beyond Total Â£000 Â£000 Â£000 Â£000 Â£000 9.5% debenture stock 2020 13,500 13,500 7.25% debenture stock 2025 20,700 20,700 Interest on financial liabilities 2,783 2,783 2,783 20,029 28,378 Trade payable and other liabilities (excluding social security and sundry taxes) 1,001 1,001 3,784 2,783 2,783 54,229 63,579 Company 2011 Undiscounted cash flows Due within Due between Due between Due 3 years 1 year 1 and 2 years 2 and 3 years and beyond Total Â£000 Â£000 Â£000 Â£000 Â£000 9.5% debenture stock 2020 13,500 13,500 7.25% debenture stock 2025 20,700 20,700 Interest on financial liabilities 2,783 2,783 2,783 23,650 31,999 Trade payable and other liabilities (excluding social security and sundry taxes) 983 983 3,766 2,783 2,783 57,850 67,182 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: Group Group Company Company 2012 2011 2012 2011 Financial assets Â£000 Â£000 Â£000 Â£000 Financial assets at fair value through profit or loss Equity and debt securities 108,217 112,822 130,553 134,347 Derivatives contracts 136 130,553 108,217 112,958 116,409 134,347 Other financial assetsÂ¹ 24,705 43,370 21,777 16,425 132,922 156,328 152,330 150,772 Financial liabilities Financial liabilities at fair value through profit or loss Equities 3,311 Derivatives Contracts 99 3,410 Financial liabilities measured at amortised costÂ² 35,079 41,446 34,824 34,784 35,079 41,856 34,824 34,784 Â¹ Other financial assets include: cash and cash equivalents, due from brokers, cash collateral on securities borrowed, dividend and interest receivables, other receivables and prepayments. Â² Financial liabilities measured at amortised cost include: debenture stock issued, due to brokers, 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 the fair value. The fair value of the debenture stock is calculated using Discounted Cash Flow analysis and by reference to the redemption yields of a similar companies' debt instrument, with an appropriate margin spread added. Book Book Fair Fair Value Value Value Value Group and Company 2012 2011 2012 2011 Financial liabilities Â£000 Â£000 Â£000 Â£000 Â£13.5m (2011: Â£13.5m) 9.5% debenture stock 2020 13,401 13,392 18,895 17,168 Â£20.7m (2011: Â£20.7m) 7.25% debenture stock 2025 20,422 20,409 25,815 24,790 33,823 33,801 44,710 41,958 Capital Management Policies and Procedures The Company's capital management objectives are: â€¢ to ensure that it is able to continue as a going concern; and â€¢ to maximise the revenue and capital returns to its equity shareholders through an appropriate mix of equity capital and debt. The Board sets a range for the Company's debt (comprised of debentures less cash) at any one time which is maintained by management of the Company's cash balances. As at 30 September 2012, in respect of the Group and Company this was 30.1% and 28.8% respectively (2011: Group and Company 30.3% and 29.1% respectively). Capital at 30 September comprises: Group Group Company Company 2012 2011 2012 2011 Â£000 Â£000 Â£000 Â£000 Debt/(Net Cash) Adjusted Cash and cash equivalents (23,449) (35,725) (20,776) (15,442) Debentures 33,823 33,801 33,823 33,801 Sub total 10,374 (1,924) 13,047 18,359 Equity Equity share capital 5,253 5,253 5,253 5,253 Retained earnings and other reserves 106,931 106,981 112,386 110,913 Shareholders' funds 112,234 111,634 117,639 116,166 Gearing Debt/(Net Cash) as a percentage of shareholders' funds 9.2% (1.7%) 11.1% 15.8% Maximum potential gearing represents the highest gearing percentage on the assumption that the Group or Company held no cash. The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. The review includes: â€¢ the level of net gearing, taking into account the Investment Manager's views on the market; â€¢ the level of the Company's free float of shares as the Barlow family owns approximately 55% of the share capital of the Company; and â€¢ 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 subject to various externally imposed capital requirements: â€¢ the debentures are not to exceed in aggregate 662/3% of adjusted share capital and reserves in accordance with the respective Trust Deeds; and â€¢ the Company has to comply with statutory requirements regarding minimum share capital and restriction tests relating to dividend distributions. These requirements are unchanged since last year and the Company has complied with them. 27. Related Party Transactions Javelin Capital LLP Javelin Capital LLP (Javelin Capital) is the investment manager and general administrator to the Company and is also the parent entity of Javelin Capital Fund Management Limited (JCFM) and Javelin Capital Services Limited (JCS) all of which are consolidated in the MI group accounts as part of the Javelin Capital group of entities. During the year, following a review of the Javelin Capital group structure, it was determined that JCFM was no longer required. JCFM ceased operations in June 2012 with its management company functions being undertaken by the QIF directly. As part of its closure JCFM received Central Bank of Ireland approval to cease as a regulated entity and with the resultant capital structure reorganisation, JCFM's existing regulatory share capital of Â£ 125,000 was returned to Javelin Capital. New nominal share capital of â‚¬2 was introduced and JCFM will be wound up in due course. Javelin Capital Strategies Plc is an Irish Stock Exchange listed Qualifying Investment Fund (QIF). Its one sub-fund, the Javelin Capital Global Equity Strategies Fund was closed in September 2012 with all participating redeemable preference share funds being returned to investors. The QIF will be liquidated in due course. JC and JCFM (until June 2012) acted as investment manager and manager for the QIF respectively and were entitled to receive management or advisory and performance fees. Javelin Capital Emerging Markets Alpha Fund is a sub-fund of the Serviced Platform SICAV, a Luxembourg Undertakings for Collective Investment Scheme (UCITS), as established by Goldman Sachs International. Javelin Capital acts as investment manager to the sub-fund and is entitled to receive management and performance fees. In addition to any fees received from the QIF and UCITS, Javelin Capital is also entitled to receive management, performance and administration fees from the Company in accordance with the relevant agreements. These agreements take account of any fees charged in the QIF and UCITS so that no double charging occurs. JCS provides administrative services to the group and in performing these services it incurs expenses. Additionally for administrative reasons the Company pays certain expenses on behalf of the Group. In both cases recharges and/or management fees are used such that each group entity bears its appropriate relevant portion of the group expenses incurred. The Company allows Javelin Capital group entities use of various assets to perform their respective functions for which it receives a lease fee ; however this can be waived by the Company at its discretion. Javelin Capital, as investment manager to its various funds or accounts, is required to, or chooses to do so, under certain circumstances make payments to reimburse the fund or account for expense rebates or compensation payments. The Company provided an additional Â£1.0m of partner capital to Javelin Capital on 25 September 2012. On 20 September 2010 the Company invested Â£20m into the Javelin Capital Global Equity Strategies Fund (QIF) which was followed on 16 February 2012 by Â£15m being invested into the second Javelin Capital fund, the Javelin Capital Emerging Markets Alpha Fund (UCITS). Following a review by Javelin Capital in 2012 when it became apparent that the UCITS fund was more attractive to investors the QIF was closed with all remaining investor funds being redeemed in September 2012. The Company redeemed its entire redeemable preference shares for Â£17.7m and a loss of Â£2.3m (which excludes a gain of Â£0.8m received as a result of an FX hedging programme undertaken by the Company on this investment). It was proposed that the Company's investment in the QIF would be redeployed into the UCITS fund. After the Company's shareholders approved a change to the Company's investment policy on 9 October 2012 to permit this Â£ 18.15m was invested in November 2012. These investments are subject to management and performance fees in accordance with the relevant prospectus. The Company pays certain costs on behalf of Majedie Portfolio Management Limited (MPM) for operating the Majedie Investments PLC Share Plan and additionally is charged a management fee by MPM. Any such costs paid by the Company are recharged to MPM, net of any management fees due. The table below discloses the transactions and balances between those entities: 2012 2011 Transactions during the period: Â£000 Â£000 QIF fee revenue due to JCFM 179 270 Advisory fee revenue due to Javelin Capital from JCFM 145 209 Company management fee revenue due to Javelin Capital 549 692 Company administration fee revenue due to Javelin Capital 265 265 JCS management fee income from Javelin Capital 1,878 3,033 Javelin Capital LLP payments made to funds 1 5 MPM costs recharged by the Company 35 35 Balances outstanding at the end of the period: Between JCS and the Company 426 348 Between JCS and Javelin Capital 131 133 Between JCS and JCFM 1 10 Between the Company and MPM 95 93 Between JCFM and Javelin Capital 18 55 Between the QIF and Javelin Capital 5 Between JCFM and the QIF 48 Transactions between group companies during the year were made on terms equivalent to those that occur in arm's length transactions. Majedie Asset Management (MAM) MAM is accounted for as an investment in both the Company and Group accounts and is valued at fair value through profit or loss. During the year the Company received dividends from MAM of Â£2,215,000 and proceeds of Â£324,000, as a result of the sale of shares to the MAM Employee Benefit Trust, of which none was outstanding at year end (2011: Â£1,914,000 of dividends and nil). The Company has no investments in any MAM funds. Remuneration The remuneration of the directors, who are the key management personnel of the Company, is set out below in aggregate for each of the categories specified in IAS24: Related Party Disclosures. Further information about the remuneration of individual directors is provided in the audited part of the Report on Directors' Remuneration in the Annual Report. 2012 2011 Â£'000 Â£'000 Short term employee benefits 348 244 348 244 National Storage Mechanism A copy of the Annual Report 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 Notice of Annual General Meeting will be delivered to shareholders shortly. Annual General Meeting The Company's Annual General Meeting will be held on 16 January 2013 at 12.00 noon 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.

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