Final Results
MAJEDIE INVESTMENTS PLC
21 November 2002
PRELIMINARY ANNOUNCEMENT OF RESULTS
for the year ended 30 September 2002
Financial Highlights (per ordinary share)
Year ended Year ended % change
30 September 30 September
2002 2001
Net asset value 238.1p 310.7p -23.4
Share price 187.5p 242.5p -22.7
Dividends 8.15p 7.90p +3.2
Earnings 9.97p 7.73p +29.0
Performance (total return per ordinary share)
Year ended Year ended
30 September 30 September
2002 2001
Investment portfolio
return (gross) -14.5% -23.0%
Net asset value -21.4% -29.0%
Share price -20.3% -30.8%
Benchmark -21.5% -23.1%
Sources: AITC & The WM Company; benchmark is 70% FTSE All-Share Index + 30%
FTSE World ex UK Index.
Dividend
The proposed final dividend of 4.95p will be paid on 31 January 2003 to
shareholders on the register at the close of business on 17 January 2003.
CHAIRMAN'S STATEMENT
Over the last financial year stockmarkets have been very volatile and have
fallen significantly. The UK stock market by 23%; the US by 22%. The events of
September 11 last year were always going to lead to some economic dislocation
and despite concerted actions by central banks to sustain economic growth,
uncertainty has been compounded by the further unwinding of the technology
`bubble', the questioning of corporate accounts following the scandals of
Enron, WorldCom, and elsewhere, and now anxieties about possible war in Iraq.
The result has been a worldwide collapse in stockmarket confidence on a scale
not seen since 1973/74.
Performance
Over the year Majedie's net assets fell by 23.7% and by 21.4% on a total return
basis. This compares with a fall in our benchmark index of -21.5% but the
comparison hardly does justice to the results achieved by the investment
managers. Our long term borrowings have been a significant handicap in these
falling markets because they have the effect of magnifying the fall in net
asset value as compared with the fall in valuation of the investment portfolio.
In order to offset this, cash balances were increased from £7.7m to £16.5m over
the course of the year, and have subsequently been increased further to £26m.
Although we are acutely aware that the shareholders have experienced a
significant reduction in the value of the Company's shares, the underlying
relative investment performance of the portfolio during the year was very
encouraging. On a gross basis the portfolio's return of -14.5% was 7.0% greater
than the return of the benchmark of -21.5%. The gross basis records the
performance of Majedie's total assets taking into account the relevant dividend
income received whereas the net asset value basis also takes account of costs,
debenture interest and the balance sheet gearing effect of the debentures.
This strong relative performance was achieved through decisive action being
taken to position the portfolio rather differently from the benchmark
weightings in certain key areas. These included:
• an underweighting in US holdings throughout the year but which from the end
of July was significant;
• a progressive underweighting of Europe in favour of the UK.
Income
In these uncertain times we are investing to a greater extent in companies
where there is a more reliable and higher than average level of distribution.
Many of these companies have also not been so badly affected by the stock
market falls. Total income from the portfolio of £7.2m was 20.5% higher than
the previous year. This approach as well as our significant revenue reserves of
£27.0m underpin our policy of increasing the Majedie dividend by more than the
rate of inflation. The Board is recommending a final dividend of 4.95p per
share giving a total of 8.15p for the year representing an increase on last
year of 3.2%. Not only is Majedie one of the higher yielding shares in the
global growth investment trust sector but also this is the fourteenth year in
which our dividend has increased ahead of inflation.
Business Development
In July we announced that we had signed an agreement to establish a new
specialist fund management company. Majedie Asset Management Limited will
manage UK equities for pension funds and charities. The Board of Majedie
Investments has been looking for suitable opportunities to expand its fund
management interests for some time and we are delighted that a team of such
quality has joined us to exploit a very exciting opportunity in the UK
institutional market place.
The four fund managers have worked together at Merrill Lynch Investment
Managers for the last seven years. Over that time they established strong
performance records and managed over £5bn of UK equities for pension funds and
unit trusts. The pension fund market is currently experiencing pressure for
change due to several major factors, not least of which is the move away from
balanced funds to a more specialist approach. There is therefore a tremendous
opportunity for this tried and tested team to start a new business with our
financial and operational support. Indeed the initial reaction from the pension
consulting community has been positive. This is an important development for
Majedie as it will, we believe, add significant value for shareholders over the
long term.
The regulatory application has been lodged with the Financial Services
Authority and we will keep shareholders informed as to progress. Once
authorisation has been received the business will launch its products and
services. Further details regarding the new business and the implications for
Majedie will be set out in the Annual Report and Accounts.
Our current priority is to establish Majedie Asset Management Limited in
business and to ensure that the management team has the resources it needs for
a successful launch. Nevertheless we will continue to be receptive to other
development opportunities which would be complementary to our existing
investment trust management and specialist pension fund management businesses.
Costs
Total costs in the year were £2.5m. These include bonuses paid to directors and
staff. They also include business set-up costs of £231,000 incurred by the new
business. Comparing this year's costs on a like-for-like basis with last year's
after stripping out bonuses for both years and the new business costs there has
been an underlying increase of 5.5%.
Advisers' costs relating to the investment in Majedie Asset Management Limited
of £458,000 were incurred in respect of an introduction/search fee, legal, tax,
accounting and regulatory advice. This is a significant figure and should be
viewed in the context of Majedie possibly investing up to £5m in the business
over the next three years or so. Since these costs relate directly to the
investment in the new business they have been added to the cost of the
investment as recommended by the Statement of Recommended Practice on
accounting for investment trusts.
Share Buy-backs
In the first half of the year we bought back a total of 192,000 ordinary shares
at a cost of £546,000. On each occasion when we repurchased shares it was
judged that not only would net asset value be enhanced but that taking into
account stock market conditions at the time the action would help to reduce the
discount volatility of the Company's shares. We made no repurchases in the
second half of the year taking the view that they would be ineffective given
the very considerable turbulence in the market and the volatility of our share
price.
Investment Approach
Before considering the outlook for markets it is appropriate to comment about
our overall investment strategy and approach to gearing. Majedie's objective is
to maximise total shareholder return over the long term whilst increasing
dividends by more than the rate of inflation. Over the last few years we have
seen the worst stock market conditions in over 25 years. Nevertheless we still
believe that equities represent the best way of investing for the long term.
Our all equity 70/30 benchmark follows that philosophy and provides a
UK-centric investor with a certain amount of geographical diversification. As
explained earlier we are presently deviating from the benchmark weightings more
than we have done since its adoption. This is because we believe that the UK
offers better value than other markets at present and because there are some UK
sectors which afford greater protection from turbulence. Over the medium term
we would expect to return to weightings which are more closely aligned to those
of the benchmark.
Debentures
Our fixed rate long term debentures were launched in 1994 and 2000 against the
background of economic and stock market conditions which were quite different
to those of today. This is particularly the case with regard to interest rates
which have since fallen significantly. On both occasions the Board judged that
over the 25 year term the enhanced value to be generated by the gearing would
more than cover the cost of the debentures.
We are currently restricting the full gearing effect by holding substantial
cash balances of about £26m. A full or partial redemption of the debt is not
considered attractive due to the heavy penalties which are written into such
instruments. Over the long term - in this case the remaining 18 and 23 years of
the respective terms of our debentures - equity markets, we believe, will
progress and the portfolio of investments will perform so that the gearing will
be a positive contributor to overall performance. The Board in conjunction with
the management team adjusts the level of gearing from time to time according to
the Company's assessment of the outlook for markets.
Outlook
Over the past year we have undoubtedly seen a worldwide crisis in confidence in
equity market investing and the immediate outlook is being questioned as seldom
before. However, we believe this will be a temporary phase and confidence will
eventually return to world markets. Nevertheless the excessive optimism of
recent times will be confined to the past and there will be a greater realism
on likely stock market returns in an era of lower growth and lower inflation.
Henry S Barlow Chairman
20 November 2002
For further information please contact Robert Clarke on 020 7626 1243; E-mail:
rec@majedie.co.uk
CONSOLIDATED STATEMENT OF TOTAL RETURN
for the year ended 30 September 2002
Year ended 30 September Year ended 30 September
2002 2001
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Net realised (losses)/ (12,987) (12,987) 10,801 10,801
gains on sales
Increase in unrealised (22,473) (22,473) (78,923) (78,923)
depreciation
Total capital return on (35,460) (35,460) (68,122) (68,122)
investments
Dividends and interest 7,180 7,180 5,937 5,937
Other income 25 25 41 41
Gross revenue and capital 7,205 (35,460) (28,255) 5,978 (68,122) (62,144)
return
Administrative expenses (1,143) (1,340) (2,483) (800) (1,120) (1,920)
Return on ordinary
activities before finance
costs and taxation:
Continuing operations 6,293 (36,800) (30,507) 5,178 (69,242) (64,064)
New business (231) (231)
Total Return on ordinary 6,062 (36,800) (30,738) 5,178 (69,242) (64,064)
activities before finance
costs and taxation
Finance costs (812) (2,437) (3,249) (812) (2,435) (3,247)
Return on ordinary 5,250 (39,237) (33,987) 4,366 (71,677) (67,311)
activities before
taxation
Taxation on ordinary (102) (102) (297) 200 (97)
activities
Return on ordinary 5,148 (39,237) (34,089) 4,069 (71,477) (67,408)
activities after taxation
Minority interest 69 69
Return attributable to 5,217 (39,237) (34,020) 4,069 (71,477) (67,408)
equity shareholders
Dividends* (4,250) (4,250) (4,152) (4,152)
Transfer to/(from) 967 (39,237) (38,270) (83) (71,477) (71,560)
reserves
Basic and diluted return 9.97p (74.55)p (64.58)p 7.73p (135.57) (127.84)
per ordinary share** p p
The revenue column of this statement is the consolidated profit and loss
account of the Group.
All revenue and capital items in the above statement derive from continuing
operations. Majedie Asset Management Limited was set up as a new subsidiary
company during the year. No operations were discontinued in the year.
* see note 1.
** see note 2.
CONSOLIDATED BALANCE SHEET
30 30 September
September
2001
2002
£000 £000
Fixed assets:
Intangible assets 458 -
Tangible assets 378 86
Investments * 147,474 196,550
148,310 196,636
Current assets:
Debtors 3,505 2,627
Cash at bank and on 16,530 7,680
deposit
20,035 10,307
Creditors: Amounts 4,001 3,876
falling due
within one year
Net current assets 16,034 6,431
Total assets less 164,344 203,067
current
liabilities
Creditors: Amounts 39,370 39,358
falling due
after more than one
year
Net assets 124,974 163,709
Called up share capital 5,253 5,272
**
Share premium account 785 785
Capital reserve - 86,600 103,364
realised
Capital reserve - 6,136 28,609
unrealised
Capital redemption 56 37
reserve **
Revenue reserve** 26,063 25,642
Equity shareholders' 124,893 163,709
funds
Minority interest 81 -
124,974 163,709
Net asset value per 238.1p 310.7p
share ***
* see note 3.
** see note 4.
*** see note 5.
SUMMARISED CONSOLIDATED
CASH FLOW STATEMENT
30 September 30 September
2002
2001
£000 £000
Net cash inflow from operating 4,676 3,501
activities
Servicing of finance
Interest paid (3,237) (4,580)
Debenture issue costs - (3)
Net cash outflow from servicing of (3,237) (4,583)
finance
Taxation
Tax recovered 76 48
Capital expenditure and financial
investment
Purchases of investments (71,807) (77,341)
Sales of investments 84,074 87,254
Purchases of tangible assets (348) (29)
Sales of tangible assets - 22
Net cash inflow from capital 11,919 9,906
expenditure and financial investment
Equity dividends paid (4,188) (4,028)
Cash inflow before financing 9,246 4,844
Financing
Ordinary shares purchased for (546) -
cancellation
Minority interest purchase of shares 150 -
in subsidiary
Net cash outflow from financing (396) -
Increase in cash in the year 8,850 4,844
NOTES
1 Dividends
Following the granting of further share options to directors and employees on
23 November 2001 under the Discretionary Share Option Scheme, the Company's
employee incentive trust acquired 132,258 shares in the Company on 27 November
2001. The total holding of the trust is now 301,409 ordinary shares, of which
272,028 ordinary shares are held by the trust under option and 29,381 ordinary
shares are held by the trust to cover future liabilities in respect of National
Insurance Contributions. The shares will be held by the trust until the
relevant options are exercised and are included on the balance sheet as an
asset of the Company according to UITF 13. The trust has waived its rights to
receive dividends from the Company and therefore the total dividend included in
the Statement of Total Return has been reduced accordingly.
2 Calculation of returns per ordinary share
Basic return per ordinary share is based on 52,347,057 ordinary shares, being
the weighted average number of shares in issue having adjusted for the shares
held by the employee incentive trust referred to above (2001: 52,634,266).
Basic returns per ordinary share are based on the return on ordinary activities
after taxation attributable to equity shareholders, excluding any increase in
unrealised depreciation in respect of own shares held in the employee incentive
trust referred to above.
There is no dilution to the basic return per ordinary share shown for the years
ended 30 September 2001 and 2002 since the share options referred to above
would, if exercised, be satisfied by the shares already held by the employee
incentive trust.
3 Fixed Asset Investments
Listed fixed asset investments are stated at market value except for the own
shares held in the employee incentive trust as referred to in note 2. The
shares held by the trust under option are stated at the lower of market value
and exercise price and the shares held to cover future liabilities in respect
of National Insurance Contributions are stated at market value. The value of
these shares included within the fixed asset investments amounts to £565,000
(year ended 30 September 2001: £410,000).
4 Share Buybacks
During the period a total of 192,000 ordinary shares have been purchased by the
Company for cancellation. There are now 52,528,000 ordinary shares in issue.
The cost of these share repurchases of £546,000 has been accounted for through
the Revenue Reserve.
5 Net Asset Value per ordinary share
The net asset value per share has been calculated in accordance with the
principles of FRS 14: Earnings per Share, i.e. after deducting the carrying
value of the shares held by the employee incentive trust from net assets and
the number of shares in question from the shares in issue at the year end.
6 Financial Information for the years ended 30 September 2002 and 2001
The preliminary figures for the year ended 30 September 2002 are an extract
from the Company's latest accounts, prepared under the same accounting
standards and policies, consistently applied, as the audited financial
statements for the year ended 30 September 2001, except for taxation.
On 1 October 2001 the Company changed its method of allocation of tax relief on
expenses charged to Capital Reserve from the proportional method to the
marginal method. This is in line with the expected guidance to be given in the
revised Statement of Recommended Practice ('SORP') which is due to be issued
later this year. The change in method results in no tax relief to Capital
Reserve as there are adequate revenue expenses to cover taxable income.
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 30 September 2002 or 2001 but is derived
from those accounts. Statutory accounts for 2001 have been delivered to the
Registrar of Companies, and those for 2002 will be delivered following the
Annual General Meeting. The auditors have reported on the accounts for 2001;
their report was unqualified and did not contain statements under Section 237
(2) or Section 237(3) of the Companies Act 1985.
ANNUAL REPORT
The annual report and accounts will be sent to shareholders on 6 December 2002
from which time copies will be available to the public at the Company's
registered office: 1 Minster Court, Mincing Lane, London EC3R 7ZZ.
ANNUAL GENERAL MEETING
The Annual General Meeting will be held at 12.15pm on Wednesday 15 January 2003
at the London Underwriting Centre, 3 Minster Court, Mincing Lane, London EC3R
7DD.
DIVIDEND
The proposed final dividend of 4.95p per share will be paid on 31 January 2003
to shareholders on the register at the close of business on 17 January 2003.
NOTES FOR EDITORS
Majedie Investments PLC is a self managed investment trust with total assets
under management of over £160 million. The Company's objective is to maximise
total shareholder return over the long term whilst increasing dividends by more
than the rate of inflation. The Company's benchmark is 70% FTSE All-Share Index
and 30% FTSE World ex UK Index (sterling) on a total return basis.
The Majedie Share Plan is a straightforward and low cost way of investing in
Majedie shares with a minimum lump sum of £250, or on a regular monthly basis
with £25 or more. The Majedie Corporate ISA provides a tax efficient way of
investing or saving in Majedie shares at extremely low cost. There is no
initial or annual management fee. Both maxi and mini ISAs are available with a
minimum lump sum investment of £500 or £50 per month for direct debit
subscribers.
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