Final Results
MAJEDIE INVESTMENTS PLC
FINAL RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2008
The full Annual Report and Accounts can be accessed via the
Company's website at www.majedie.co.uk or by contacting the Company Secretary
on telephone 01392 412122.
The Directors present the results of the Company for the year ended
30 September 2008.
OVERVIEW
Majedie Investments PLC is a self-managed investment trust with
total portfolio assets under management of over £187 million as at 30
September 2008.
Our Objective is to maximise total shareholder return over the long
term whilst increasing dividends by more than the rate of inflation.
Our Benchmark is 70% FTSE All-Share Index and 30% FTSE World ex UK
Index (Sterling) on a total return basis.
INVESTMENT OBJECTIVE
The Company's objective is to maximise total shareholder return over the long
term whilst increasing dividends by more than the rate of inflation.
INVESTMENT POLICY
The Company invests principally in securities of publicly quoted companies
worldwide, though it may invest in unquoted securities up to levels set
periodically by the Board.
The overall approach is based on analysis of global economies and 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's benchmark comprises 70% FTSE All-Share Index and 30% FTSE World
ex-UK Index (Sterling) on a total return basis. It is used to assess the
performance and risk of the Company and investment portfolio. Whilst
performance is measured against the benchmark, 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.
Although, exceptionally, derivative instruments may be employed, usually for
hedging purposes and with specific prior approval of the Board, generally the
Company is a long only investor and would be unlikely to use such instruments.
The Company will not invest in any holding that would, at the time of
investment, represent more than 15% of the value of its gross assets.
The Company uses gearing to enhance the long term returns to shareholders. The
Articles of Association give the Board the ability to borrow up to 100% of
adjusted capital and reserves. The Board also reviews the level of net gearing
(borrowings less cash) on an 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%, and any additional indebtedness is not to exceed 20%, of
adjusted capital and reserves.
HIGHLIGHTS FOR 2008
Total shareholder return: (36.9%)
Net asset value total return: (36.2%)
Benchmark total return: (19.9%)
Special dividend (per share): 2.25p
Final dividend (per share): 6.30p
Total dividends (per share): 12.75p
Directors' valuation of
investment in Majedie Asset
Management Limited £22.5m
PERFORMANCE year ended 30 September
2008 2007
Investment portfolio return (total assets) (31.1%) 23.2%
Net asset value total return (36.2%) 23.6%
Total shareholder return (36.9%) 25.2%
Benchmark total return (19.9%) 12.6%
CHAIRMAN'S STATEMENT
The financial year ended 30 September saw a significant
deterioration in the global economic and financial environment and substantial
falls in world equity markets, a trend which has been exacerbated since the
year end. The Company has not been immune from this turbulence and has fared
badly. As such I regret to report that the Company's Net Asset Value (NAV)
total return and Share Price total return have fallen by 36.2% and 36.9% which
compares to the benchmark total return which fell by 19.9%. Over the longer
term the three year NAV total return and Share Price total return were -4.8%
and -9.5% which compares to the benchmark total return of 1.8%.
The Board remains focussed on ensuring that the portfolio, whilst
it may be subject to severe volatility in the short term, is positioned to
provide performance over the longer term in-line with our stated objective. To
this end the investment strategy and portfolio structure will be subject to a
review over the coming months to ensure that the income and growth needs of
shareholders are met over the longer term.
Results and dividends
The group's net profit before tax for the year was £6.5m compared
to £7.1m for the restated prior year. Group income for the year of £8.9m
compares with the prior year of £9.1m. This result is a combination of the
reduction in special dividend income from Majedie Asset Management (MAM), as
there was only one special dividend this year compared to two in 2007, being
substantially offset by an increase in dividend income over the year.
Consolidated costs for the group have increased to £3.3m from £2.9m primarily
due to costs relating to the restructuring during the year. The full effect of
this restructuring will be felt from 2009 onwards with an expected reduction
in core costs.
Previously in the 2008 Half-Yearly Financial Report I stated that
we would be reviewing whether we would be paying a second special dividend
after taking account of the final special dividend from MAM. Whilst this was
substantial, in the light of the current economic environment the Board has
decided that it would be prudent not to distribute the entire amount, but to
retain some of this income within the business.
The Board has therefore decided to propose that a special dividend
of 2.25p per share be included with this year's final dividend. Additionally a
normal core final dividend of 6.3p per share is recommended, which, when
combined with the interim dividend of 4.2p results in a total core dividend of
10.5p per share, an increase of 5.0% over last year's dividend of 10.0p. A
diagram in the full Annual Report will illustrate the increases over the
previous ten years in comparison with the Retail Prices Index and will
demonstrate that Majedie dividends have been increasing by more than the rate
of inflation in-line with our policy. The Board however will be reviewing this
objective in the coming months and will report to shareholders in 2009.
Investment Performance
2008 has been a year of huge turmoil in global stock markets as the
credit crunch has wrought havoc. Against this very difficult background the
fund's investment performance including MAM has fallen by 31.1% compared to a
fall in the benchmark of 19.9%, an underperformance of 11.2%. Over three, five
and ten years investment performance relative to the benchmark was -1.5%, 0.9%
and 4.8% respectively.
However whilst the performance this year is disappointing, the
performance of the portfolio itself has not met the Board's expectations. This
year's underperformance has led to the medium and longer term performance
comparisons which were favourable a year ago becoming less favourable as the
impact of this year's performance has had a significant effect on the longer
term comparisons.
There were two main aspects which negatively impacted the
performance. First, our long term debentures, which can benefit the portfolio
in rising markets but have a negative effect when markets fall. Second,
however, the greatest adverse impact came from poor stock selection. In
particular, a number of stocks which contributed positively in previous years,
performed poorly over the period. The Board will be considering what actions
to take with these holdings as part of its review which I refer to later.
We have felt it prudent to write down the value of certain of our
unlisted investments to reflect the difficult circumstances faced by a number
of these companies, which has been a contributor to our poor performance this
year. In contrast, our investment in MAM continues to bring rewards as the
company has continued to perform well in difficult markets and has achieved
higher profitability year on year. However the Board is of the view that
current market conditions mean that it is not prudent to amend our valuation
and as such our 30% investment in MAM remains at its current value of £22.5m.
In the final quarter global equities as with many other asset
classes were sold as widespread panic took hold. The effect of this panic has
proved difficult even now to quantify. Share prices have been driven down to
levels that in many cases do not reflect fundamental valuations. This panic
reaction has been accentuated by forced sellers, who often have to sell their
highest quality and most liquid assets to meet their immediate cash
requirements. We expect that more soundly based fundamental approaches will
return at some stage although the timing of this is difficult to predict.
Despite the poor capital performance of the underlying portfolio I
am happy to report that it was able to produce an increased income,
facilitating a dividend above the rate of inflation.
Management Changes
As was announced in the 2008 Half-Yearly Financial Report the Board
now comprises solely non-executive directors with no Chief Executive. Gill
Leates stood down from the Board but continued as Investment Director to have
full responsibility for the management of the Company's portfolio. In the
light of recent events in global markets, the Board has decided that the
management of the investment portfolio should be changed and in these
circumstances Gill Leates has agreed to step down. I would like to take the
opportunity of thanking Gill for all her past efforts. Bill Baker has been
appointed and has taken over the supervision of the portfolio. Bill is a
highly experienced investment manager, having built his reputation at both
Mercury Asset Management and Schroders where he occupied senior positions and
had responsibility for a wide range of clients and portfolios. Initially he
will assist the Board with a review of the investment policy, the portfolio
and the fund's objectives.
Additionally we have reviewed the structure of the group and have
decided to simplify this by reducing the number of companies within the group.
The Board will continue to ensure that the group structure is configured
appropriately to deal with its operations.
Strategy
During 2008 we had significant exposure to smaller companies, the
relative valuations of which have fallen, especially those that are expected
to require additional finance in the future. We have ensured however that the
fund is positioned to meet the income expectations of shareholders.
As the global credit crisis deepened, the portfolio's exposure to
the banking and consumer oriented sectors was reduced. The funds raised have
either been retained as an increased cash balance, or reinvested in other
larger companies with greater defensive qualities and revenue visibility.
There remains a focus within the portfolio on well capitalised companies with
large asset backing, strong management and additionally companies with
intellectual property relating to new technology in large world markets.
Geographically the portfolio remains overweight relative to the
benchmark in the UK, largely because of its high dividend. However over 40% of
the FTSE All Share Index's earnings come from overseas giving rise to an
implicit geographic diversification. This helps reduce currency risk and
offsets the underweighting in the US and Europe since large companies like BP,
Royal Dutch Shell, RTZ, BHP Billiton and GlaxoSmithKline all source the
majority of their sales from overseas. The portfolio remains market weighted
in resources, as the long term demand for oil and other commodities remains
good as the emerging economies of China and India in particular continue to
industrialise. Although the GDP growth rate in these countries has slowed, it
remains at healthy levels.
Business Development
The Board has been committed to searching out and providing capital
for new businesses. This commitment has been intensified and a number of new
possibilities are being actively considered. With the considerable changes
that extreme markets provoke, the Board expects to be able to consider a
higher number of possibilities and be able to report progress in 2009. We
continue to believe that by pursuing business opportunities we will enhance
returns for shareholders.
Companies Act 2006 and New Articles of Association
The Companies Act 2006 is being brought into force in stages, with full
implementation scheduled by October 2009. At this year's Annual General
Meeting the Company proposes to adopt new articles which reflect changes in
the law brought into force so far, including, notice periods for meetings,
proxy voting, directors' conflicts of interest, and also to adopt other
provisions in line with best market practice (the 'New Articles').
Over the course of the next year the Company intends to conduct a further
review of the New Articles in order to identify any additional amendments that
might be necessary following the full implementation of the Companies Act 2006
in October 2009. It is the Board's intention that any further amendments will
be put to shareholders at the Annual General Meeting in 2010. Further
information about the changes is shown in the Directors' Report and in the
Appendix to the notice of the Annual General Meeting, both of which are
contained within the full Annual Report.
E-communication
Another aspect of the Companies Act 2006 allows for shareholders to
elect to receive communications from the Company in electronic form. This idea
has considerable merit and we are looking to take advantage of the savings it
provides. A letter to shareholders in which they may elect for
e-communications as a method of receiving information from the Company will
accompany the Annual Report. I urge you to elect to make use of this service,
but please note that if you wish you can still receive information in paper
form.
Annual General Meeting
The AGM will be held on 20 January 2009 at 11:30am at the Novotel
London Tower Bridge. Details are set out in the full Annual Report. As in
prior years there will be presentations and an opportunity to ask questions. I
do hope you will be able to attend.
Outlook
The outlook for investors is uncertain in the short term and your
Board is acutely conscious that we need to produce more consistent returns,
reducing volatility as far as can be possible. At the same time we wish to
continue to produce higher income than our competitors in a world where income
is in ever decreasing supply. The global factors giving rise to our concern
recently have destroyed immense value already, as we have seen as markets have
tumbled.
The events of recent months are unprecedented, with the crisis in
the banking sector requiring a coordinated global response by all major
governments. One of the results of the severity of the contraction in
interbank lending is that important basic working capital and investment loans
to the real economy are being delayed, letters of credit for shipping are not
being accepted, and the availability of mortgages continues to decline.
This lack of finance is having a direct impact on economic activity
and is pushing the developed world into recession. As the fourth quarter
progresses, the credit freeze should begin to ease as the effect of the stakes
taken in banks by governments across the world, the buying of toxic loans by
the TARP fund and government guarantees for interbank lending begin to take
effect. The first elements of this are beginning to show with interbank
lending premiums starting to fall from unprecedented peaks.
Interest rates have already been cut worldwide with further major
cuts expected as the priority of central banks has shifted from tackling
inflation to stimulating growth. The Bank of England has recently cut interest
rates by 1.5% to 3.0%, signalling the importance of stimulation to the
economy. In the USA there are likely to be more fiscal packages to boost
consumer spending and further measures by the authorities to ring-fence
problem assets.
The length and severity of recession in the developed world may be
influenced by the strength of economies in emerging markets, especially China.
There is currently concern about whether Chinese growth may slow
significantly. However, the Chinese government has made clear its intentions
to raise public spending and domestic demand to prevent overall growth falling
below 8%. It has the tools to achieve this through fiscal and monetary
policies and enormous wealth held in national reserves.
In the short term the macro-economic environment is likely to
deteriorate further before beginning to improve. Nonetheless, much of this has
already been discounted by the steep falls in equities globally. History shows
that stock markets generally rise prior to a trough in the cycle, in
anticipation of a recovery, albeit economic activity may still be slowing.
Although the movement of the markets in the immediate future is impossible to
predict, on fundamental valuations, equities appear oversold and should
perform positively over time. The fund has been structured to benefit under
the scenario of recovery over the medium term and the Board in its forthcoming
review of investment objectives will ensure a consistency of policy to reflect
the investment climate.
In what has been a very difficult year I would like to place on
record my appreciation of our office staff and equally pay tribute to the
support I have received from my fellow non-executive directors. As a result of
the change to a completely non-executive Board, with no Chief Executive, which
took place early in 2008, a significantly heavier load has fallen on them.
They have shouldered these extra commitments with enthusiasm and goodwill
which has rendered a difficult situation significantly easier.
Henry Barlow
Chairman
26 November 2008
TWENTY LARGEST UK INVESTMENTS as at 30 September 2008
Market Value
Company £000 % of Fund
Majedie Asset Management 22,500 12.0
HSBC 7,929 4.2
Vodafone 6,272 3.3
Barclays 5,564 3.0
Accsys Technologies 5,348 2.9
BT 5,187 2.8
United Utilities 4,488 2.4
First Quantum 3,620 2.0
Hydrodec 3,477 1.9
Rio Tinto 3,232 1.7
Royal Dutch Shell 'B' 2,905 1.6
BHP Billiton 2,682 1.4
Vostok Energy 2,569 1.4
GlaxoSmithKline 2,537 1.4
Majedie Asset Management UK Opportunities `A' 2,447 1.3
BP 2,431 1.3
BAE Systems 2,413 1.3
London Capital 2,277 1.2
Standard Chartered 1,870 1.0
2 Ergo Group 1,796 0.9
91,544 49.0
TEN LARGEST OVERSEAS INVESTMENTS as at 30 September 2008
Market Value
Company £000 % of Fund
Phorm (USA) 3,507 1.9
HIPCricket (USA) 2,748 1.5
Capital Lease Aviation (Asia) 2,344 1.3
International Ferro Metals (South Africa) 1,713 0.9
Eservglobal (Australia) 1,544 0.8
Oilexco (Canada) 1,495 0.8
KSK Power Venture (Australia) 1,355 0.7
Mantra Resources (Australia) 1,139 0.6
MEO Australia (Australia) 1,071 0.5
L&G Japan Index Trust (Japan) 877 0.5
17,793 9.5
EXTRACTS FROM THE REPORT OF THE DIRECTORS
Introduction
A review of developments during the year and of future prospects is
contained in the Chairman's Statement above.
Principal Activity
The Company operates as an investment trust company engaged
primarily in investment in listed securities.
Results and Dividend
Consolidated net revenue return before taxation amounted to
£6,462,000 (2007: £7,095,000). The directors recommend a final ordinary
dividend of 6.3p per ordinary share and a special dividend of 2.25p per
ordinary share, payable on 28 January 2009 to shareholders on the register at
the close of business on 9 January 2009. Together with the interim dividend of
4.2p per share paid on 30 June 2008, this makes a total distribution of 12.75p
per share (2007: 14.5p per share).
Business Review
Introduction
This Business Review provides shareholders with an insight into the
nature and structure of the Company and its operations during the year. In
particular, it gives information on:
- the regulatory and competitive environment within which the
Company operates;
- the internal environment relating to the Company, including the
framework of governance implemented by the Board to ensure as far as possible
that the Company's objectives are achieved with minimum risk;
- the management of the investment portfolio;
- the Company's performance in the year measured against Key
Performance Indicators (KPIs);and
- the development of the overall business.
Regulatory and Competitive Environment
The Company is a self-managed investment trust and is listed on the
London Stock Exchange. It is subject to UK company law, International
Financial Reporting Standards, Listing, Prospectus and Disclosure Rules,
taxation law and the Company's own Articles of Association. The appointment of
the Board is approved by shareholders and the directors are charged with
ensuring that the Company complies with its objectives as well as these
regulations. The majority of investment trusts outsource the management of
their investment portfolios to external fund management companies. Majedie
Investments PLC is a self-managed investment trust where the investment
portfolio is managed by an internal investment team led by the Investment
Director. The Directors remain committed is seeking new business development
opportunities which can contribute to the strategic objective of generating
superior returns for shareholders.
Under the Companies Act 2006, Section 833, the Company is defined
as an investment company. As such, it analyses its income between profits
available for distribution by way of dividends, revenue profits and capital
profits. The financial statements, below 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 (SORP). The principal
accounting policies of the Company are set out in note 1 to the accounts. The
Auditors' opinion on the Financial Statements, which is unqualified, appears
in the full Annual Report.
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 news service. The
Company also reports to shareholders on performance against benchmark,
corporate governance and investment activities.
At least one shareholders' meeting is held in each year in January
to allow shareholders to vote on the appointment of directors and the
Auditors, the payment of dividends, authority for share buybacks and any other
special business. The business of the next such Annual General Meeting,
scheduled for 20 January 2009 is set out in the Full Annual Report.
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 Section 842 of the Income and Corporation Taxes Act
1988. Section 842 requires, broadly that:
- the Company's revenue (including dividend and interest receipts
but excluding profits on sale of shares and securities) should be derived
wholly or mainly from shares and securities;
- the Company must not retain in respect of any accounting period
more than 15% of its income from shares and securities;
- 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 without
any action having been taken; and
- realised profits on sale of shares and securities may not be
distributed by way of dividend.
Compliance with these rules is proved annually in retrospect to HM
Revenue and Customs (HMRC). HMRC approval of the Company as an investment
trust is granted `subject to there being no subsequent enquiry under
corporation tax self-assessment'. Such approval has been received in respect
of all relevant years up to and including the year ended 30 September 2006,
and the Company continues to comply with these rules.
Governance
The Company's Board of directors is responsible for the overall
stewardship of the Company, including corporate strategy, corporate
governance, risk and controls assessment, overall investment policy, asset
allocation and gearing limits. There are five non executive members of the
Board of whom three are considered to be independent. This Board structure
satisfies the Combined Code recommendations for smaller listed companies.
Nonetheless the Board considers that all its directors exercise their
judgement in an independent manner. Further information regarding the Combined
Code, Corporate Governance and the three main committees of the Board: Audit,
Remuneration and Nomination is contained in the full Annual Report.
Investment performance is measured primarily against a benchmark
comprising 70% FTSE All-Share Index and 30% FTSE World ex UK Index (Sterling)
on a total return basis.
In the process of its governance of the Company, the Board
regularly reviews internally generated reports and reports from other
independent sources such as The WM Company to assess the on-going investment
performance of the Company. Income and cost forecasts are reviewed to enable
costs to be controlled within budget and to ensure that the Company is able to
pursue a progressive dividend policy while remaining in compliance with the
relevant tax rules. Other regularly reviewed reports include those covering
the list of investments, the level of gearing, the discount to net asset value
and the shareholder register. The Board's assessment of the major risks faced
by the Company, together with the principal controls in place to mitigate the
risks, is set out later in this review.
Capital Structure
As part of its corporate governance the Board keeps under review
the capital structure of the Company. At 30 September 2008 the Company had an
issued share capital of £5,252,800, comprising 52,528,000 ordinary shares of
10p each. The Board seeks each year to renew 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: £15m
9.5% debenture stock 2020 and £25m 7.25% debenture stock 2025 respectively. In
2004 the Company redeemed £1.5m of the 2020 issue and £4.3m of the 2025 issue
as an opportunity arose to redeem at an attractive price.
The Board is responsible for setting the overall gearing range
within which the Investment Director may operate.
Principal Risks
The principal risks and the Company's policies for managing these
risks and policy and practices with regards to financial instruments are
summarised in note 25 to the accounts.
The Company's assets consist mainly of quoted equity securities and
its principal risks are therefore market-related. 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.
The portfolio has various specific limits for individual stocks and
market sectors are employed to restrict risk levels. The level of portfolio
risk is assessed in relation to the benchmark utilising various portfolio risk
management tools. It should be noted that whilst we have a benchmark, the
portfolio is constructed independently and can be significantly different.
Therefore the 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. 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 in relation to a range
of issues including the allocation of assets between geographic regions and
industrial sectors; and gearing;
ii. 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 noncompliance 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
Section 842;
iii. inadequate financial controls 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 annual audit. The
financial risks are set out in more detail in note 25 below.
iv. loss of key staff could affect investment returns. The quality
of the management team and contingency planning is a crucial factor in
delivering good performance. The Company develops its recruitment and
remuneration packages in order to retain key staff and undertakes succession
planning.
The systems in place to manage the Company's internal controls are
described further in the full Annual Report.
Management of Assets and Shareholder Value
The Company invests around the world in markets, sectors and
companies that the Board and Investment Director believe will generate long
term growth in capital and income for shareholders. Many potential investments
are considered each year. The Investment Director meets a large number of
management teams from potential corporate investments. Assessing the quality
of management is a key input into the investment process. Extensive work is
also done on analysing potential investments for their market
positioning/competitive advantage, financial strength and cashflow
characteristics. Various valuation parameters are used to provide an
indication of the potential attractiveness of the investment opportunity in
relation to other potential investments in the area/sector and in relation to
similar investments within the portfolio.
The Board measures the overall investment performance of the
Company against the benchmark. Investment risks are spread through holding a
range of securities in different industrial sectors.
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.
Performance Highlights
The Board uses the following Key Performance Indicators (KPIs) to
help assess progress against the Company's objectives:
- NAV total return.
- total shareholder return.
both measured against benchmark total return.
The above KPIs are commented on within the Chairman's Statement
above. The following KPIs are commented on in this Business Review:
- investment portfolio return (total assets): see Investment
Performance below.
- share price discount: the level of the discount at the end of the
financial year calculated with debt at par was 15.7% and was similar to that
at the start of the year.
- total expense ratio: Costs are referred to in the Chairman's
Statement and below.
- annual dividend growth: See Total Return Philosophy & Dividend
Policy below.
Investment Performance
The following table summarises the relative investment performance
comparing the returns from total assets with those of the benchmark:
Arithmetic
Period ended Return from Return from Outperformance/
30 September Total Assets Benchmark (underperformance)
1 year (31.10%) (19.90%) (11.20%)
3 years 0.33% 1.83% (1.50%)
5 years 44.64% 43.76% 0.88%
10 years 53.34% 48.57% 4.77%
Following the review of the treatment of MAM, which resulted in its
inclusion in the group NAV and accounts, in line with the other unlisted
investments it is considered appropriate to include it within the investment
performance record. Prior period returns have been restated to reflect the
change. As at 30 September 2008 the Total Assets portfolio totalled £187.2m
and included investments of £179.0m (inclusive of MAM at £22.5m) and cash
balances of £8.1m. Total shareholder return for the year was (36.9)%. The
level of net gearing during the year ranged between 10.7% and 16.7%.
A detailed Attribution Analysis is included in the full Annual
Report.
Costs
The Company's expense ratio over net assets is 1.6% which compares
with the investment trust sector average of 1.6%. The Board pays close
attention to cost control and the current situation is referred to further 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 team pursues the best
opportunities irrespective of the associated dividend yield. The Company has a
comparatively high level of revenue reserves for the investment trust sector.
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 Board is currently committed to a progressive dividend policy
where the dividend is increased each year by more than the rate of inflation
and this has been achieved in each of the last eighteen years. However, as
mentioned in the Chairman's Statement the Company's dividend policy is under
review. At £28.8m, the revenue reserves represent more than five times the
current annual core dividend distribution. Over the last ten years the average
annual growth of the dividend has been 3.8%.
Majedie Asset Management Limited
In 2002 the Company established a new fund management subsidiary
specialising in UK equities: Majedie Asset Management, which was launched in
March 2003. Having started with a 70% shareholding, the Company now retains a
30% interest. The relevant developments during the year are referred to in the
Chairman's Statement above and further referred to in note 12 below.
Business Development
We continue to seek other business development opportunities in
areas of specialisation which have strong prospects of generating superior
investment returns - particularly where such opportunities would be
complementary to, and would generate synergies with the existing business.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable United Kingdom law and
those International Financial Reporting Standards adopted by the European
Union.
Company law requires the Directors to prepare financial statements for each
financial year which present fairly the financial position of the Company and
of the Group and the financial performance and cash flows of the Company and
of the Group for that period. In preparing these financial statements, the
Directors are required to:
- select suitable accounting policies and then apply them
consistently;
- make judgments and estimates that are reasonable and prudent;
- present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable information;
- state whether applicable International Financial Reporting
Standards have been followed, subject to any material departures disclosed and
explained in the financial statements; and
- provide additional disclosures when compliance with the specific
requirements in IFRS is insufficient to enable users to understand the impact
of particular transactions, other events and conditions on the entity's
financial position and financial performance.
The Directors are responsible for keeping proper accounting records that
disclose with reasonable accuracy, at any time, the financial position of the
Company and of the Group and to enable them to ensure that the financial
statements comply with the Companies Act 1985 and Article 4 of the IAS
Regulations. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors, to the best of their knowledge, state that:
- the financial statements, prepared in accordance with
International Financial Reporting Standards as adopted by the European Union,
give a true and fair view of the assets, liabilities, financial position and
results of the Company and the Group; and
- the Chairman's Statement and Directors' Report include a fair
review of the development and performance of the business and the position of
the Company and the Group together with a description of the principal risks
and uncertainties that they face.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
On behalf of the Board of Directors
Henry S. Barlow
Chairman
26 November 2008
CONSOLIDATED INCOME STATEMENT for the year ended 30 September 2008
2008 2007
As
restated*
Revenue Capital Revenue Capital
Return Return Total Return Return Total
Note £'000 £'000 £'000 £'000 £'000 £'000
Investments
(Losses)/gains on
investments at fair
value through profit
or loss 12 (95,341) (95,341) 46,748 46,748
Net investment
result (95,341) (95,341) 46,748 46,748
Income
Dividends and
interest 2 8,790 8,790 8,963 8,963
Other income 75 75 120 120
Total operating
income 8,865 8,865 9,083 9,083
Expenses
Administration
expenses 3 (1,702) (1,571) (3,273) (1,288) (1,568) (2,856)
Return before
finance costs and
taxation 7,163 (96,912) (89,749) 7,795 45,180 52,975
Finance costs 6 (701) (2,099) (2,800) (700) (2,098) (2,798)
Net return before
taxation 6,462 (99,011) (92,549) 7,095 43,082 50,177
Taxation 7 (51) (51) (51) (51)
Net return after
taxation for the
year 6,411 (99,011) (92,600) 7,044 43,082 50,126
Return per ordinary
share: Pence Pence Pence Pence Pence Pence
Basic and diluted 10 12.5 (192.3) (179.8) 13.6 83.2 96.8
The total column of this statement is the Consolidated Profit and
Loss Account of the Group prepared under International Financial Reporting
Standards (IFRS). The supplementary revenue and capital return columns are
prepared under guidance published by the Association of Investment Companies.
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.
These accounts have been prepared in compliance with the
recognition and measurement criteria of IFRS.
* Comparative figures have been restated for the review of the
treatment of the investment in Majedie Asset Management Limited (MAM) as
disclosed in note 12 below.
COMPANY INCOME STATEMENT for the year ended 30 September 2008
2008 2007
Revenue Capital Revenue Capital
Return Return Total Return Return Total
Note £'000 £'000 £'000 £'000 £'000 £'000
Investments
(Losses)/gains on
investments at fair
value through profit
or loss 12 (95,341) (95,341) 46,748 46,748
Net investment
result (95,341) (95,341) 46,748 46,748
Income
Dividends and
interest 2 8,790 8,790 8,963 8,963
Other income 75 75 120 120
Total operating
income 8,865 8,865 9,083 9,083
Expenses
Administration
expenses 3 (1,702) (1,571) (3,273) (1,288) (1,568) (2,856)
Return before
finance costs and
taxation 7,163 (96,912) (89,749) 7,795 45,180 52,975
Finance costs 6 (701) (2,099) (2,800) (700) (2,098) (2,798)
Net return before
taxation 6,462 (99,011) (92,549) 7,095 43,082 50,177
Taxation 7 (51) (51) (51) (51)
Net return after
taxation for the
year 6,411 (99,011) (92,600) 7,044 43,082 50,126
Return per ordinary
share: Pence Pence Pence Pence Pence Pence
Basic and diluted 10 12.5 (192.3) (179.8) 13.6 83.2 96.8
The total column of this statement is the Consolidated Profit and
Loss Account of the Group prepared under International Financial Reporting
Standards (IFRS). The supplementary revenue and capital return columns are
prepared under guidance published by the Association of Investment Companies.
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.
These accounts have been prepared in compliance with the
recognition and measurement criteria of IFRS.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 30 September
2008
Capital
reserve
Capital Share Capital - investment Own
Share Share redemption options reserve holding Revenue shares
capital premium reserve reserve - realised gains reserve reserve Total
Notes £'000 £'000 £'000 £'000 £000 £'000 £'000 £'000 £'000
Year ended 30
September 2008
As at 30 September
2007 as restated 5,253 785 56 262 133,083 86,534 30,296 (3,053) 253,216
Net return after tax
for the year 6,411 6,411
Investments at fair
value through profit
or loss
Decrease in
unrealised
appreciation (87,499) (87,499)
Net loss on
realisation of
investments (7,842) (7,842)
Costs charged to
capital (3,670) (3,670)
Total recognised
income and
expenditure (11,512) (87,499) 6,411 (92,600)
Share options
expense 24 516 516
Dividends declared
and paid in year 9 (7,660) (7,660)
Own shares (sold)/
purchased by
Employee Incentive
Trust (EIT) 18 (487) 480 (7)
As at 30 September
2008 5,253 785 56 291 121,571 (965) 29,047 (2,573) 153,465
Capital
reserve
Capital Share Capital - Own
investment
Share Share redemption options reserve holding Revenue shares
capital premium reserve reserve - realised gains reserve reserve Total
Notes £'000 £'000 £'000 £'000 £000 £'000 £'000 £'000 £'000
Year ended 30
September 2007
As at 30 September
2006 as previously
stated 5,253 785 56 85 118,723 47,502 28,723 (1,908) 199,219
Prior year
adjustment 10,310 (340) 9,970
As at 30 September
2006 5,253 785 56 85 118,723 57,812 28,383 (1,908) 209,189
Net return after tax
for the year 7,044 7,044
Investment at fair
value through profit
or loss
Increase in
unrealised
appreciation 28,722 28,722
Net gain on
realisation of
investments 18,026 18,026
Costs charged to
capital (3,666) (3,666)
Total recognised
income and
expenditure 14,360 28,722 7,044 50,126
Share options
expense 24 177 177
Dividends declared
and paid in year 9 (5,131) (5,131)
Own shares purchased
by Employee
Incentive Trust
(EIT) (1,145) (1,145)
As at 30 September
2007 5,253 785 56 262 133,083 86,534 30,296 (3,053) 253,216
The notes below form part of these accounts.
These accounts have been prepared in compliance with the recognition and
measurement criteria of IFRS.
* Comparative figures have been restated for the review of the treatment of
the investment in Majedie Asset Management Limited (MAM) as disclosed in note
12 below.
COMPANY STATEMENT OF CHANGES IN EQUITY for the year ended 30 September 2008
Capital
reserve
Capital Share Capital - investment Revenue Own
Share Share redemption options reserve holding reserve shares
capital premium reserve reserve realised gains held reserve Total
Notes £'000 £'000 £'000 £'000 £000 £'000 £'000 £'000 £'000
Year ended 30
September 2008
As at 30 September
2007 5,253 785 56 262 134,121 85,774 30,016 (3,053) 253,214
Net return after tax
for the year 6,411 6,411
Investments at fair
value through profit
or loss
Decrease in
unrealised
appreciation (93,814) (93,814)
Net loss on
realisation of
investments (7,842) (7,842)
Revaluation of
investment in
Majedie Asset
Management 6,315 6,315
Costs charged to
capital (3,670) (3,670)
Total recognised
income and
expenditure (11,512) (87,499) 6,411 (92,600)
Share options
expense 24 516 516
Dividends declared
and paid in year 9 (7,660) (7,660)
Own shares purchased
by Employee
Incentive Trust
(EIT) 18 (487) 480 (7)
As at 30 September
2008 5,253 785 56 291 122,609 (1,725) 28,767 (2,573) 153,463
Capital
reserve
Capital Share Capital - investment Revenue Own
Share Share redemption options reserve holding reserve shares
capital premium reserve reserve realised gains held reserve Total
Notes £'000 £'000 £'000 £'000 £000 £'000 £'000 £'000 £'000
Year ended 30
September 2007
As at 30 September
2006 5,253 785 56 85 119,758 57,055 28,103 (1,908) 209,187
Net return after tax
for the year 7,044 7,044
Investments at fair
value through profit
or loss
Increase in
unrealised
appreciation 24,054 24,054
Movement between
reserves 3 (3)
Net gain on
realisation of
investments 18,026 18,026
Revaluation of
investment in
Majedie Asset
Management 4,668 4,668
Costs charged to
capital (3,666) (3,666)
Total recognised
income and
expenditure 14,363 28,719 7,044 50,126
Share options
expense 24 177 177
Dividends declared
and paid in year 9 (5,131) (5,131)
Own shares purchased
by Employee
Incentive Trust
(EIT) (1,145) (1,145)
As at 30 September
2007 5,253 785 56 262 134,121 85,774 30,016 (3,053) 253,214
The notes below form part of these accounts.
These accounts have been prepared in compliance with the
recognition and measurement criteria of IFRS.
CONSOLIDATED BALANCE SHEET as at 30 September 2008
2008 2007 as
restated*
Note £'000 £'000
Non-current assets
Property and equipment 11 48 69
Investments at fair value 12 178,981 278,338
through profit or loss
179,029 278,407
Current assets
Trade and other receivables 14 2,340 3,221
Cash and cash equivalents 15 8,135 6,764
10,475 9,985
Total assets 189,504 288,392
Current liabilities
Trade and other payables 16 (2,295) (1,448)
Total assets less current
liabilities 187,209 286,944
Non-current liabilities
Debentures 16 (33,744) (33,728)
Total liabilities (36,039) (35,176)
Net assets 153,465 253,216
Represented by:
Ordinary share capital 17 5,253 5,253
Share premium 785 785
Capital redemption reserve 56 56
Share options reserve 291 262
Capital reserve 120,606 219,617
Revenue reserve 29,047 30,296
Own shares reserve 18 (2,573) (3,053)
Equity Shareholders Fund 153,465 253,216
Net asset value per share pence Pence
Basic and fully diluted 19 296.5 490.7
Approved by the Board and authorised for issue on 26 November 2008.
Henry S Barlow
Andrew J Adcock
Directors
The notes below form part of these accounts.
These accounts have been prepared in compliance with the recognition and
measurement criteria of IFRS
* Comparative figures have been restated for the review of the treatment of
the investment in Majedie Asset Management Limited (MAM) as disclosed in note
12 below.
COMPANY BALANCE SHEET as at 30 September 2008
2008 2007
Notes £'000 £'000
Non-current assets
Investments at fair value
through profit or loss 12 178,981 278,338
Investment in subsidiaries 13 194 194
179,175 278,532
Current assets
Trade and other receivables 14 2,413 3,092
Cash and cash equivalents 15 7,718 6,434
10,131 9,526
Total assets 189,306 288,058
Current liabilities
Trade and other payables 16 (2,099) (1,116)
Total assets less current
liabilities 187,207 286,942
Non-current liabilities
Debentures 16 (33,744) (33,728)
Total liabilities (35,843) (34,844)
Net assets 153,463 253,214
Represented by:
Ordinary share capital 17 5,253 5,253
Share premium 785 785
Capital redemption reserve 56 56
Share options reserve 291 262
Capital reserve 120,884 219,895
Revenue reserve 28,767 30,016
Own shares reserve 18 (2,573) (3,053)
Equity Shareholders Funds 153,463 253,214
Approved by the Board and authorised for issue on 26 November 2008.
Henry S Barlow
Andrew J Adcock
Directors
The notes below form part of these accounts.
These accounts have been prepared in compliance with the recognition and
measurement criteria of IFRS.
CONSOLIDATED CASH FLOW STATEMENT for the year ended 30 September 2008
2007 as
2008 restated*
Notes £'000 £'000
Cash flows from operating activities
Consolidated net return before
taxation (92,549) 50,177
Adjustments for:
Losses/(gains) on investments 12 95,341 (46,748)
Dividends reinvested (171) (24)
Depreciation 25 27
Share based remuneration 516 177
Purchases of investments (51,830) (108,693)
Sales of investments 56,133 113,749
7,465 8,665
Finance costs 2,800 2,798
Operating cashflows before movements
in working capital 10,265 11,463
Increase in trade and other payables (454) 443
Increase in trade and other
receivables 2,071 (589)
Net cash inflow from operating
activities before tax 11,882 11,317
Tax recovered 20
Tax on unfranked income (56) (52)
Net cash inflow from operating
activities 11,826 11,285
Investing activities
Purchases of tangible assets (4) (7)
Net cash outflow from investing
activities (4) (7)
Financing activities
Interest paid (2,784) (2,784)
Dividends paid (7,660) (5,131)
Purchases of own shares into Employee
Incentive Trust (914) (1,145)
Exercise of options on own shares 907
Net cash outflow from financing
activities (10,451) (9,060)
Increase in cash and cash equivalents
for year 20,21 1,371 2,218
Cash and cash equivalents at start of
year 6,764 4,546
Cash and cash equivalents at end of
year 8,135 6,764
The notes below form part of these accounts.
These accounts have been prepared in compliance with the recognition and
measurement criteria of IFRS.
*Comparatives figures have been restated for the review of the treatment of
the investment in Majedie Asset Management Limited (MAM) as disclosed in note
12 below.
COMPANY CASH FLOW STATEMENT for the year ended 30 September 2008
2008 2007
Notes £'000 £'000
Cash flows from operating activities
Company net return before taxation (92,549) 50,177
Adjustments for:
Losses/(gains) on investments 12 95,341 (46,748)
Dividends reinvested (171) (24)
Share based remuneration 516 177
Purchases of investments (51,830) (108,693)
Sales of investments 56,133 113,749
7,440 8,638
Finance costs 2,800 2,798
Operating cashflows before movements
in working capital 10,240 11,436
Increase in trade and other payables 1,869 422
Increase in trade and other
receivables (318) (629)
Net cash inflow from operating
activities before tax 11,791 11,229
Tax recovered 20
Tax on unfranked income (56) (52)
Net Cash inflow from operating
activities 11,735 11,197
Financing activities
Interest paid (2,784) (2,784)
Dividends paid (7,660) (5,131)
Purchases of own shares into Employee
Incentive Trust (914) (1,145)
Exercise of options on own shares 907
Net cash outflow from financing
activities (10,451) (9,060)
Increase in cash and cash equivalents
for year 20, 21 1,284 2,137
Cash and cash equivalents at start of
year 6,434 4,297
Cash and cash equivalents at end of
year 7,718 6,434
The notes below form part of these accounts.
These accounts have been prepared in compliance with the recognition and
measurement criteria of IFRS.
NOTES TO THE FINANCIAL STATEMENTS
General Information
Majedie Investments PLC is a company incorporated in the United Kingdom under
the Companies Act 1985. The address of the registered office is given in the
Annual Report. The nature of the Group's operations and its principal
activities are set out in the Business Review above and in note 8 below.
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:
International Accounting Standards (IAS/ IFRSs) Effective date
IFRS 2 Amendment to IFRS 2 - Vesting Conditions 1 January 2009
and Cancellations
IFRS 3 Business Combinations (revised January 1 July 2009
2008)
IFRS 8 Operating Segments 1 January 2009
IAS 1 Presentation of Financial Statements 1 January 2009
(revised September 2007)
IAS 23 Borrowing Costs (revised March 2007) 1 January 2009
IAS 27 Consolidated and Separate Financial 1 July 2009
Statements (revised January 2008)
International Financial Reporting Interpretations Effective date
Committee (IFRIC)
IFRIC 12 Service Concession Arrangements 1 January 2008
IFRIC 13 Customer Loyalty Programmes 1 July 2008
IFRIC 14 The Limit on a Defined Benefit Asset, 1 January 2008
Minimum Funding requirements and their
interactions
IFRIC 15 Agreements for the Construction of Real 1 January 2008
Estate
IFRIC 16 Hedges of a Net Investment in a Foreign 1 October 2008
Operation
The directors anticipate that the adoption of the above Standards and
Interpretations in future periods will have no material impact on the
financial statements of the Group.
1 Accounting Policies
The accounts comprise the audited results of the Company and its subsidiaries
for the year ended 30 September 2008, and are presented in pounds sterling
rounded to the nearest thousand, as this is the principal currency in which
the Group and Company transactions are undertaken.
Accounting Policies under International Financial Reporting Standards
Basis of Accounting
The accounts of the Group and the Company have been prepared in accordancewith 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, and to the extent they have been adopted by the
European Union.
Where presentational guidance set out in the Statement of Recommended Practice
(SORP) for investment trusts issued by the Association of Investment Companies
in January 2003 (as revised in December 2005) is consistent with the
requirements of IFRSs, the directors have sought to prepare the financial
statements on a basis compliant with the recommendations of the SORP.
The principal accounting policies adopted are set out as follows:
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.
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.
Foreign Currencies
The individual financial statements of each Group company are presented in the
currency of the primary economic environment in which it operates (its
functional currency). For the purpose of the consolidated financial
statements, the results and financial position of each Group company are
expressed in pound sterling, which is the functional currency of the Company,
and the presentation currency for the consolidated financial statements.
In preparing the financial statements of the individual companies,
transactions in currencies other than the entity's functional currency
(foreign currencies) are recorded at the rates of exchange prevailing on the
dates of the transactions. At each balance sheet date, monetary assets and
liabilities that are denominated in foreign currencies are retranslated at the
rates prevailing on the balance sheet date. Non-monetary items carried at fair
value that are denominated in foreign currencies are translated at the rates
prevailing at the date when the fair value was determined. Non-monetary items
that are measured in terms of historical cost in the foreign currency are not
retranslated.
Exchange differences arising on the settlement of monetary items, and on the
retranslation of monetary items, are included in profit or loss for the
period. Exchange differences arising on the retranslation of non-monetary
items carried at fair value are included in profit or loss for the period
except for differences arising on the retranslation of non-monetary items in
respect of which gains and losses are recognised directly in equity. For such
non-monetary items, any exchange component of that gain or loss is also
recognised directly in equity.
Segmental Reporting
A segment is a distinguishable component of the Group that is engaged either
in providing products or services (business segment), or in providing products
or services within a particular economic environment (geographical segment),
which is subject to risks and rewards that are different from those of other
segments.
Investment Income
Dividend income from investments is taken to the revenue account on an
ex-dividend basis and net of any associated tax credit.
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 is included on an accruals basis.
Expenses
All expenses are accounted for on an accruals basis. In respect of the
analysis between revenue and capital items presented within the income
statement, all expenses have been presented as revenue items except as
follows:
- Expenses which are incidental to the acquisition or disposal of an
investment are treated as capital costs and separately identified and
disclosed (see note 12).
- 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.
Pension Costs
Payments made to the Company's defined contribution retirement benefits scheme
are charged as an expense as they fall due.
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.
Share Based Payments
The Group has applied the requirements of IFRS 2: Share-based Payments. In
accordance with the transitional provisions IFRS 2 has been applied to all
grants of equity instruments after 7 November 2002 that were unvested as of 1
October 2004.
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 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 income statement 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 income statement 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 income statement, 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 financial 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
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 accounted at 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, 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.
Unlisted investments are normally valued on an annual basis by the Board of
Directors taking into account relevant information as appropriate including
market prices, latest dealings, accounting information, professional advice
and the guidelines issued by the International Private Equity and Venture
Capital Association.
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.
Derivative Financial Instruments
The Group does not enter into derivative contracts for the purpose of hedging
risks on its investment portfolio as it is a long term investor. The Group
does, however, receive or purchase warrants on shares which are classified as
equity instruments under IAS 32. These equity instrument derivatives are
recognised at fair value on the date the contract is entered into and are
subsequently re-valued at their fair value.
Changes in the fair value of derivative financial instruments are recognised
as they arise in the income statement.
Trade Receivables
Trade receivables do not carry any interest and are stated at their fair value
as reduced by appropriate allowances for estimated irrecoverable amounts.
Cash and Cash Equivalents
Cash comprises cash in hand and demand deposits. Cash equivalents are
short-term, highly liquid investments that are readily convertible to known
amounts of cash and that are subject to an insignificant risk of changes in
value.
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.
Debentures
All debentures are recorded at proceeds received, net of direct issue costs.
Trade Payables
Trade payables are not interest bearing and are stated at their fair value.
Reserves
Gains and losses on the realisation of investments and foreign currency are
accounted for in the capital reserve. Increases and decreases in the valuation
of investments and currency held at the year end are accounted for in the
capital reserve.
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.
Critical Accounting Judgement
In the process of applying the Company's accounting policies described above,
the directors have made critical accounting judgements regarding the fair
value of the unlisted investments (including Majedie Asset Management Limited
(MAM)) that have the most significant effect on the financial statements of
the Company. Note 12 below sets out the relevant details of the MAM valuation
including the assumptions on which the valuation is based.
2 Dividends and Interest
Group Group Company Company
2008 2007 2008 2007
£'000 £'000 £'000 £'000
Listed investments
- UK dividend income 5,438 4,458 5,438 4,458
- unfranked 457 363 457 363
Unlisted investments
- unfranked 98 98
- Special dividend income 2,484 3,808 2,484 3,808
Interest on deposits 315 340 315 340
Exchange differences on income (2) (6) (2) (6)
8,790 8,963 8,790 8,963
3 Administration Expenses
Group Group Company Company
2008 2007 2008 2007
£'000 £'000 £'000 £'000
Staff costs - note 5 1,923 1,474 1,923 1,474
Other staff costs and 155
directors' fees 150 155 150
Advisors' costs 399 461 399 461
Information costs 127 134 127 134
Establishment costs 130 153 130 153
Operating lease rentals - 146
premises 146 146 146
Depreciation on tangible assets 25 27
Auditors' remuneration
(also see below) for:
- audit 62 64 54 56
- other services to the Group 1 10 1 6
Restructuring costs 121 121
Other expenses 184 237 217 276
3,273 2,856 3,273 2,856
A charge of £1,571,000 (2007: £1,568,000) to capital and an equivalent credit
to revenue has been made in both the Group and Company to recognise the
accounting policy of charging 75% of investment management expenses to
capital.
Total fees charged by the auditors for the year, all of which were charged to
revenue, comprised:
Group Group Company Company
2008 2007 2008 2007
£'000 £'000 £'000 £'000
Audit services
- statutory audit 62 64 54 56
- audit - related regulatory
reporting 4
Tax services - advisory 6 6
Other non-audit services
- relating to Employee Share 1
Option scheme 1
63 74 55 62
4 Directors' Emoluments - Company
2008 2007
£'000 £'000
Salaries and fees 607 461
Bonuses 200 292
Pension contributions 82 65
Other benefits 60 26
949 844
The Report on Directors' Remuneration contained in the full Annual
Report explains the Company's policy on remuneration for executive directors.
It also provides further details of directors' remuneration and longer term
incentives.
5 Staff Costs including Executive Directors - Group
2008 2007
£'000 £'000
Salaries and other payments 1,100 1,079
Social security costs 180 134
Pension contributions 127 84
Share based remuneration - note 24 516 177
1,923 1,474
2008 2007
Number Number
Average number of employees:
Management and office staff 7 9
6 Finance Costs - Group and Company
2008 2007
Revenue Capital Total Revenue Capital Total
return return return return return return
£'000 £'000 £'000 £'000 £'000 £'000
Interest on 9.5% debenture
stock 2020 321 962 1,283 321 962 1,283
Interest on 7.25% debenture
stock 2025 375 1,126 1,501 375 1,126 1,501
Amortisation of expenses
associated with debenture
issue 5 11 16 4 10 14
701 2,099 2,800 700 2,098 2,798
Further details of the debenture stocks in issue are provided in note 16.
7 Taxation
Group Group Company Company
2008 2007 2008 2007
£'000 £'000 £'000 £'000
Analysis of tax charge - Group and
Company
Foreign tax 51 51 51 51
UK corporation tax
51 51 51 51
Reconciliation of tax charge:
The current taxation for the year is higher than the standard rate
of corporation tax in the UK (29%). (2007: 30%) The differences are explained
below:
Group Group Company Company
2008 2007 2008 2007
£'000 £'000 £'000 £'000
Net return before taxation (92,549) 50,177 (92,549) 50,177
Taxation at UK Corporation Tax rate of
29% (2007:30%) (26,839) 15,053 (26,839) 15,053
Effects of:
- UK dividends which are not taxable (2,297) (2,480) (2,297) (2,480)
- other income which is not taxable (4) (10) (4) (10)
- (losses)/gains on investments which 27,649
are not taxable (14,024) 27,649 (14,024)
- expenses not deductable for tax 52
purposes 5
- excess expenses for current year 1,439 1,456 1,439 1,461
- group relief surrendered 52
- overseas taxation which is not 51
recoverable 51 51 51
Actual current tax charge 51 51 51 51
Group
After claiming relief against accrued income taxable on receipt,
the Group has unrelieved excess expenses of £43,400,000 (2007: £38,500,000).
It is unlikely 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 £43,400,000 (2007: £38,500,000).
It is unlikely 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.
8 Segment Reporting
The Group comprises the Company and its wholly owned subsidiaries.
The Group's activity as an investment trust represents the sole significant
business segment.
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 full Annual
Report and exposure to different currencies is disclosed in note 25 below.
9 Dividends - Group and Company
The following table summarises the amounts recognised as
distributions to equity shareholders in the period:
2008 2007
£'000 £'000
2006 Final dividend of 6.10p paid on 24 January 2007 3,165
2007 Interim dividend of 3.80p paid on 29 June 2007 1,966
2007 Special dividend of 4.50p paid on 23 January 2,315
2008*
2007 Final dividend of 6.20p paid on 23 January 2008* 3,189
2008 Interim dividend of 4.20p paid on 30 June 2008 2,156
7,660 5,131
2008 2007
£'000 £'000
Proposed final dividend for the year ended 30
September 2008 of 6.30p (2007: final dividend of
6.20p) per ordinary share 3,261 3,200
Proposed special dividend for the year ended 30
September 2008 of 2.25p (2007: 4.50p) per ordinary
share 1,165 2,322
4,426 5,522
Neither the proposed final dividend nor the proposed special
dividend have 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 842 of
the Income and Corporation Taxes Act 1988 are considered.
2008 2007
£'000 £'000
Interim dividend for the year ended 30 September 2008
of 4.20p (2007: 3.80p) per ordinary share 2,156 1,966
Proposed final dividend for the year ended 30
September 2008 of 6.30p (2007: 6.20p) per ordinary
share 3,261 3,200
Proposed special dividend for the year ended 30
September 2008 of 2.25p (2007: 4.50p) per ordinary
share 1,165 2,322
6,582 7,488
* The payment of the 2007 year end final and special dividend total
is £18,000 lower than shown in the 2007 comparatives due to a timing
difference on the transfer of shares to the Employee Incentive Trust referred
to in note 18.
10 Return per Ordinary Share - Group and Company
Basic return per ordinary share is based on 51,478,751 (2007:
51,791,114) 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 18. 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 per ordinary share shown for the years ended 30
September 2008 and 2007 since the share options referred to in note 18 would,
if exercised, be satisfied by the shares already held by the employee
incentive trust.
2008 2007
£'000 £'000
Basic and diluted revenue returns are based on net 6,411
revenue after taxation of: 7,044
Basic and diluted capital returns are based on net (99,011) 43,082
capital return of:
Basic and diluted total returns are based on return (92,600) 50,126
of:
11 Property and Equipment - Group
Leasehold Office
Improvements Equipment Total
£'000 £'000 £'000
Cost:
At 1 October 2007 355 262 617
Additions 4 4
At 30 September 2008 355 266 621
Depreciation:
At 1 October 2007 311 237 548
Charge for year 8 17 25
At 30 September 2008 319 254 573
Net book value:
At 30 September 2008 36 12 48
At 30 September 2007 44 25 69
12 Investments at Fair Value Through Profit or Loss - Group and Company
2008 2007
As restated*
Listed Unlisted Total Listed Unlisted Total
£'000 £'000 £'000 £'000 £'000 £'000
Opening costs at beginning
of year 179,363 12,441 191,804 172,194 8,596 180,790
Gains at beginning of year 70,450 16,084 86,534 47,210 10,602 57,812
Opening fair value at
beginning of year 249,813 28,525 278,338 219,404 19,198 238,602
Purchases at cost 51,910 1,394 53,304 71,941 33,681 105,622
Sales - proceeds (52,734) (4,584) (57,318) (112,634) - (112,634)
Sales - realised
(losses)/gains on sales (9,415) 1,571 (7,844) 18,046 (20) 18,026
(Decrease)/ increase in
unrealised appreciation (92,088) 4,589 (87,499) 23,240 5,482 28,722
Adjustment for listing of
prior year unlisted 851 (851) - 29,816 (29,816) -
Closing fair value at end
of year 148,337 30,644 178,981 249,813 28,525 278,338
Closing cost at end of year 169,975 9,971 179,946 179,363 12,441 191,804
(Losses)/gains at end of
year (21,638) 20,673 (965) 70,450 16,084 86,534
Closing fair value at end
of year 148,337 30,644 178,981 249,813 28,525 278,338
* Comparative figures have been restated for the review of the
treatment of the investment in Majedie Asset Management Limited (MAM) as
disclosed in this note.
Unlisted investments comprise an amount of £7,172,000 invested in
placings for 14 separate companies which were expected to become listed
securities after 30 September 2008 and £22,500,000 for our investment in MAM
as detailed below. The valuation of investments includes 16 unlisted
investments of over £100,000 (including MAM). Investments include £972,000
(2007: £577,000) of loan or convertible notes that pay a fixed rate of
interest.
During the year the Company incurred transaction costs amounting to
£345,000 (2007: £611,000) of which £238,000 (2007: £352,000) related to the
purchases of investments and £107,000 (2007: £259,000) related to the sales of
investments. These amounts are included in (losses)/gains on investments at
fair value through the profit or loss, as disclosed in the Consolidated and
Company Income Statement.
The composition of the investment return is analysed below:
2008 2007
£'000 £'000
Net (loss)/ gain on realisation of investments (7,844) 18,026
Realised exchange gains on settlement 2
(Decrease)/ increase in unrealised appreciation on (87,499) 28,722
investments
(95,341) 46,748
Substantial Share Interests
The Company 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 which is disclosed
separately below) in the context of these accounts are shown below:
Value % of
£'000 class held
Phorm 3,507 3.875
Hydrodec 3,477 4.043
Majedie Asset Management
Majedie Investments PLC owns a 30% equity shareholding in MAM,
which provides investment management and advisory services relating to UK
equities.
The Board has reviewed how the investment in MAM is accounted for
in the consolidated financial statements and as such MAM will be an investment
to be valued at fair value with movements taken through profit or loss in
accordance with the way in which the Company had designated and accounted for
it in the parent company's accounts at the time it became an associate.
Previously the Group had applied the equity accounting method which did not
take account of such designation. As an investment company this change results
in a more complete view of the Company's investment in MAM to the group and
aligns MAM with our other unlisted investments. It also brings conformity to
the accounting treatment of the MAM investment between the Company and the
Group. Special dividends continue to be recognised in income and there are no
changes in respect of the Company financial statements. The weekly net asset
value, released to the London Stock Exchange, includes MAM at fair value.
The carrying value of the Company's investment in MAM is now
included in the consolidated balance sheet as part of investments at fair
value through profit and loss:
2008 2007
£'000 £'000
Deemed costs of investment 1,207 1,207
Unrealised gains 21,293 14,978
Fair value at 30 September 22,500 16,185
The carrying value of MAM in the 30 September 2008 Consolidated
Financial Statements is its fair value as assessed at 30 September 2008. 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 2008 and the
2009 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 illiquidity discount.
The results of MAM for the year ended 30 September 2008 show a net
profit after taxation of £8,101,000 (2007: £3,842,000) and shareholders funds
of £16,180,000 (2007: £8,000,000). In accordance with the review of the
treatment of the investment in MAM these results are not consolidated in the
Group's results but are incorporated into the director's valuation of the fair
value of MAM as detailed above.
The effect of the change in accounting for MAM on the Consolidated
Balance Sheet is calculated as follows:
2008 2007 2006
£'000 £'000 £'000
Group net assets under previous method 136,000 239,636 199,219
Decrease in investment in associate (5,035) (2,605) (1,547)
Increase in investments at fair value 22,500 16,185 11,517
Group net assets as restated 153,465 253,216 209,189
The effect of the change in accounting for MAM on the Consolidated
Income Statement is calculated as follows:
2008 2007 2006
£'000 £'000 £'000
Group net return under previous method (96,485) 46,516 27,182
Decrease in revenue for share of net return (2,430) (1,058)
on associate (340)
Increase in capital return for investments at 6,315 4,668 9,970
fair value
Group net return as restated (92,600) 50,126 36,812
13 Investment in Subsidiaries - Company
The Company's subsidiaries at 30 September 2008 are as follows:
Barlow Service Company Limited - provides administrative services
to Group companies
Majedie Portfolio Management Limited - manager of the Majedie Share
Plan, authorised and regulated
by the Financial Services
Authority
Majedie Investment Trust Management - non trading
Limited*
Barlow Investments Limited* - non trading
Majedie Properties Limited* - non trading
Majedie Securities Limited* - non trading
All the subsidiaries are incorporated in Great Britain and are
wholly owned.
* Subsequent to 30 September 2008 application has been made to the
Registrar of Companies to strike off these subsidiaries.
2008 2007
£'000 £'000
Company
Cost:
At beginning of year 1,002 1,002
At end of year 1,002 1,002
Unrealised depreciation (808) (808)
At end of year (808) (808)
Valuation at end of year 194 194
14 Trade and Other Receivables
Group Group Company Company
2008 2007 2008 2007
£'000 £'000 £'000 £'000
Sales for future settlement 1,437 252 1,437 252
Payments in advance 225 186 - -
Dividends receivable 647 660 647 660
Special dividends due from MAM - 2,110 - 2,110
Other amounts due from MAM 6 4 6 4
Accrued income 14 3 14 3
Taxation recoverable 11 6 11 6
Amounts due from subsidiary -
undertakings - 298 57
2,340 3,221 2,413 3,092
15 Cash and Cash Equivalents
Group Group Company Company
2008 2007 2008 2007
£'000 £'000 £'000 £'000
Deposits 7,484 5,836 7,484 5,836
Other balances 651 928 234 598
8,135 6,764 7,718 6,434
16 Trade and Other Payables Amounts falling due within one year:
Group Group Company Company
2008 2007 2008 2007
£'000 £'000 £'000 £'000
Purchases for future settlement 1,301 - 1,301 -
Accrued expenses 377 488 4 -
Other creditors 617 960 617 960
Amounts owed to subsidiary -
undertakings - 177 156
2,295 1,448 2,099 1,116
Amounts failing due after more than one year:
Group Group Company Company
2008 2007 2008 2007
£'000 £'000 £'000 £'000
£13.5m (2007: £13.5m) 9.5% debenture
stock 2020 13,369 13,363 13,369 13,363
£20.7m (2007: £20.7m) 7.25% debenture
stock 2025 20,375 20,365 20,375 20,365
33,744 33,728 33,744 33,728
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 accounted for, at a constant
rate, the effect of which is immaterially different to applying the effective
interest rate method, over the life of the debentures. Further details on
interest and the amortisation of issue expenses are provided in note 6.
17 Called Up Share Capital
2008 2007
£'000 £'000
Allotted and fully paid at 30 September
52,528,000 (2007: 52,528,000) ordinary shares of 10p 5,253 5,253
each
Authorised at 30 September
70,000,000 (2007: 70,000,000) ordinary shares of 10p 7,000 7,000
each
Details of directors' share options are set out in the Report on
Directors' Remuneration in the Full Annual Report.
There are 763,852 (2007: 927,833) ordinary shares of 10p each held
by the Employee Incentive Trust. See note 18 below.
Ordinary shares carry one vote each on a poll.
18 Own Shares - Group and Company
Following the grant of matching and TSR-based awards to directors
and employees under the Long Term Incentive Plan (LTIP), 250,197 own shares
costing £914,000 were purchased by the Majedie Investments PLC Employee
Incentive Trust (EIT) during the year ended 30 September 2008. Additionally,
following the exercise of share options during the year 414,178 shares were
sold by the EIT at a value of £907,000 resulting in a loss of £487,000. The
total number of options outstanding at the date of this report is 255,803
under the Discretionary Share Option Scheme 2000 and 582,479 under the LTIP
and the total shareholding of the Trust is 763,852 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. Further
details of the LTIP are given in the Report on Directors' Remuneration in the
full Annual Report.
Number of Own Shares
Shares reserve
£000
As at 30 September 2007 927,833 (3,053)
Net disposals (163,981) 480
As at 30 September 2008 763,852 (2,573)
19 Net Asset Value
The consolidated net asset value per share has been calculated
based on equity shareholders' funds of £153,465,000 (2007: £253,216,000) and
on 51,764,148 (2007: 51,600,167) ordinary shares, being the shares in issue at
the year end having deducted the number of shares held by the EIT.
20 Reconciliation of Net Cash Flow to Movement in Net Debt
2008 2007
Group £'000 £'000
Increase in cash in the year 1,371 2,218
Non cash items (16) (14)
Charge in net debt 1,355 2,204
Net debt at beginning of year (26,964) (29,168)
Net debt at end of year (25,609) (26,964)
2008 2007
Company £'000 £'000
Increase in cash in the year 1,284 2,137
Non cash items (16) (14)
Charge in net debt 1,268 2,123
Net debt at beginning of year (27,294) (29,417)
Net debt at end of year (26,026) (27,294)
21 Analysis of Charges in Net Debt
At 30 At 30
September Cash Non Cash September
2007 Flows Items 2008
£'000 £'000 £'000 £'000
Group
Cash at bank 6,764 1,371 - 8,135
Debt due after one year (33,728) - (16) (33,744)
(26,964) 1,371 (16) (25,609)
At 30 At 30
September Cash Non Cash September
2007 Flows Items 2008
£'000 £'000 £'000 £'000
Company
Cash at bank 6,434 1,284 - 7,718
Debt due after one year (33,728) - (16) (33,744)
(27,294) 1,284 (16) (26,026)
22 Operating Lease Commitments
A subsidiary company, Barlow Service Company Limited, had an annual
commitment at 30 September 2008 of £146,000 (2007: £146,000) under a
non-cancellable operating lease in respect of premises. The Group has
exercised its right under a break clause in the lease to leave the premises by
25 March 2009 and is currently ascertaining its future requirements in respect
of premises. This operating lease commitment is disclosed in the table below:
2008 2007
Expiry Date £'000 £'000
Within one year 70 146
Between one and two years - 146
Between two and three years - 146
Between three and four years - 146
Five years and above - 359
70 943
23 Financial Commitments
With the exception of the financial commitment detailed in note 22,
at 30 September 2008 the Group had no financial commitments which had not been
accrued for (2007: none).
24 Share-based Payments
The Group operates two share-based payment schemes: the
Discretionary Share Option Scheme 2000 and the 2006 Long Term Incentive Plan
(LTIP) which in turn has two sections relating to TSR-based Awards and
Matching Awards. The LTIP replaced the Discretionary Share Option Scheme 2000
for executive directors and senior executives, and the first awards were made
in January 2006.
Discretionary Share Option Scheme 2000
The Scheme involved the granting of share options, with an exercise
price equal to the average quoted market price of the Company's shares on the
date of grant, to executives in 2001, 2002, and 2004. Following a review of
executive directors' remuneration in 2005, it was decided that no further
awards of options would be made under the Scheme. Share options in the Scheme
have a performance condition based on a specified annualised hurdle rate
applying between the grant date and the exercise date. If the performance
condition has been achieved up to the exercise date the share options may be
exercised within a seven year period beginning three years after the date of
grant.
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. Please refer to the Report on
Directors' Remuneration in the full Annual Report for further information.
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.
2008
Discretionary
Share Option TSR- Based Matching
Scheme 2000 Awards Awards
Weighted Weighted Weighted
Average Average Average
No. of Exercise No. of Exercise No. of Exercise
Options Price(p) Options Price (p) Options Price (p)
Outstanding at 1 October
2007 655,265 260.80 207,344 0.0 122,424 0.0
During the year
- Awarded 147,072 0.0 84,245 0.0
- Forfeited
- Exercised (399,462) 216.35
- Increase in awards due
to dividends paid 14,978 6,416
Outstanding at 30
September 2008 255,803 330.09 369,394 0.0 213,085 0.0
Exercisable at 30
September 2008 28,270 0.0 101,108 0.0
2007
Discretionary
Share Option TSR- Based Matching
Scheme 2000 Awards Awards
Weighted Weighted Weighted
Average Average Average
No. of Exercise No. of Exercise No. of Exercise
Options Price(p) Options Price (p) Options Price (p)
Outstanding at 1 October
2006 655,265 260.8 99,648 0.0 37,397 0.0
During the year
- Awarded 102,679 0.0 83,737 0.0
- Forfeited
- Exercised
- Increase in awards due
to dividends paid 5,017 1,290
Outstanding at 30
September 2007 655,265 260.8 207,344 0.0 122,424 0.0
Exercisable at 30
September 2007 370,021 229.6
The aggregate estimated fair value of the 147,072 TSR-based awards
on 3 December 2007, being the date on which the awards were granted was
£213,000 (2007: £141,000 relating to the aggregate estimated fair value of
102,679 options granted on 27 November 2006).
The 84,245 matching awards granted in 2008 were made on 3 December
2007, 10 June and 19 November 2008 and had an aggregate estimated fair value
on those dates of £179,000. The 19 November awards are included here as they
relate to an overall bonus award for the 2008 financial year (2007: £224,000
relating to 83,737 matching awards made in the year). The relevant proportion
of their estimated fair value has been charged in the income statement.
On 11 July 2008, 230,784 share options were exercised at a share
price of 304p and a resultant gain to the employee of £202,000. Similarly on
22 August 2008, 168,678 share options were exercised at a share price of
296.5p and resultant gain to the employee of £136,000.
The options and awards outstanding at 30 September 2008 had a
weighted average remaining contractual life of 2.7 years, 3.3 years and 1.9
years in respect of the Discretionary Share Options Scheme 2000, TSR-based
Awards and Matching Awards respectively (2007: 5.3 years, 3.8 years and 2.6
years respectively).
Awards and options are usually forfeited if the employee leaves
employment before vesting.
The following table lists the assumptions and weighted average
inputs used in the Black Scholes Model for share awards granted in the year:
2008 2008 2007 2007
TSR-based Matching TSR -based Matching
Awards Awards Awards Awards
Weighted Average share price 350.0p 323.1p 337.6p 390.0p
Weighted Average exercise price 0.0p 0.0p 0.0p 0.0p
Expected Volatility 15.0% 19.3% 15.0% 15.0%
Expected Life 5 yrs 3 yrs 5 yrs 3 yrs
Risk Free rate 4.5% 4.8% 4.9% 5.3%
Expected dividends 2.8% 3.2% 2.8% 2.5%
Expected volatility was determined by calculating the historical
volatility of the Company's share price over the last three years. The
expected life used in the model had been adjusted, based on the management's
best estimate, for the effects of non-transferability, exercise restrictions
and behavioural considerations.
As a consequence of a director leaving the Company on 30 June 2008
future period share option charges have been recognised on that date in
accordance with the early vesting provisions of IFRS2. This results in a
one-off charge of £246,000 being included as part of the total expense of
£516,000 (2007: £177,000) relating to share-based payment transactions in the
year ended 30 September 2008.
25 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 above.
Accordingly it is the Board's policy that no trading in investments or other
financial instruments be undertaken. The Company's financial instruments
comprise its investment portfolio - see note 12, 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 the Company's net
assets which could result in both or either a reduction in the Company's 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 exposure to these risks. The risk management policies identified
in this note have not changed materially from the previous accounting period.
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:
- foreign currency risk;
- interest rate risk; and
- 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 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 Company's exposure to foreign currencies through its
investments in overseas securities as at 30 September 2008 was £22,400,000
(2007: £38,169,000).
The Investment Director monitors the Company's exposure to foreign
currencies and the Board receives reports on a regular basis. In making
investment decisions the Investment Director is mindful of the Company's
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 currency risk of the Company's financial assets and liabilities
at the balance sheet date was:
2008 2007
£'000 £'000
Monetary exposures
UK sterling 7,718 6,434
Non-monetary exposures
US dollar 9,121 6,369
Euro 8,341 11,578
Hong Kong dollar 855
Indonesian rupiah 113
Swiss franc 207 269
Singapore dollar 189
Thai baht 476 1,603
Canadian dollar 670 5,457
Australian dollar 2,617 12,704
UK sterling 159,188 243,455
181,588 281,624
Total assets 189,306 288,058
Liabilities
Monetary exposures
UK sterling (33,744) (33,728)
Non-monetary exposures
UK sterling (2,099) (1,116)
(35,843) (34,844)
Total net assets 153,463 253,214
Sensitivity analysis
A 5 per cent increase in sterling at 30 September 2008 against the
relevant foreign currencies, with all other variables held constant, would
have had the effect of reducing the Company's net assets and total return by
£1,067,000 (2007: £1,818,000). A 5 per cent decrease in sterling would have
had the equal and opposite effect.
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.
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 Company's financial assets
and liabilities at the balance sheet date was:
2008 2007
£'000 £'000
Floating rate financial assets
UK sterling 7,718 6,434
Fixed rate financial assets
As referred to in note 12 972 577
Financial assets not carrying interest 180,616 281,047
Total assets 189,306 288,058
Fixed rate financial liabilities
UK sterling (33,744) (33,728)
Financial liabilities not carrying interest
UK sterling (2,099) (1,116)
Total liabilities (35,843) (34,844)
Total net assets 153,463 253,214
Floating rate financial assets usually comprise cash on deposit
which is repayable on demand and receive a rate of interest based on the base
rates in force over the period. Fixed rate financial assets comprise
convertible bonds or loan notes. The fixed rate financial liabilities comprise
the Company's debentures totalling £34.2m nominal. They pay a weighted average
rate of interest of 8.1% per annum and mature in 2020 (£13.5m) and 2025
(£20.7m).
Sensitivity analysis
Movements in interest rates would not have had a significant direct
impact on net assets or total return but could indirectly, have a material,
but unquantifiable impact on the investments held.
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 12 above. 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. Investments are considered independently of the
Company's benchmark which may result in volatility in the short term. 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.
Sensitivity analysis
A 5% increase in listed equity valuations at 30 September 2008
would have increased total assets and total return by £7,544,000 (2007:
£12,491,000). A 5% decrease in listed equity valuations would have had the
equal but opposite effect.
Credit Risk
Credit risk is the risk of other parties failing to discharge an
obligation causing the Company financial loss. The Company's exposure to
credit risk is managed by the following:
- The Company's listed investments are held on its behalf by RBC
Dexia Investor Services Trust, the Company's custodian which if 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 and reported;
- Investment transactions are undertaken with a number of approved
brokers in the ordinary course of business. All new brokers are reviewed by a
Board committee for credit worthiness and added to an approved brokers list if
not considered to be a credit risk;
- 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;
- 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 Director. The Board
receives regular reports on the composition of the investment portfolio.
Credit Risk Exposure
As at 30 September 2008, cash balances total £7,718,000 (2007:
£6,434,000), debtors and prepayments total £2,413,000 (2007: £3,092,000). Also
included within the portfolio are a number of convertible notes or loan notes
designated at fair value through profit or loss. The total value of these
notes are £972,000 (2007: £577,000). None of these financial assets are
impaired.
Liquidity Risk
Liquidity risk is the risk that the Company will encounter
difficulties meeting its obligations as they fall due.
Liquidity risk is not significant as the majority of the Company'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
Company'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 increase
in the value of unlisted investments primarily reflects the increase in the
value of MAM during the year.
The Company maintains an appropriate level of cash balances in
order to finance its operations and the Investment Director regularly monitors
the Company's cash balances to ensure all known or forecasted liabilities can
be met. The Board receives regular reports on the level of the Company's cash
balances. The Company does not have any overdraft or other borrowing
facilities to provide liquidity
A maturity analysis of financial liabilities showing the remaining
contractual maturities is detailed below:
2008 2007
£'000 £'000
Amounts falling due after 10 years
£13.5m 9.5% debenture stock 2020 13,369 13,363
Amounts falling due after 15 years
£20.7m 7.25% debenture stock 2025 20,375 20,365
Fair value of financial assets and liabilities
The Company's financial instruments at 30 September comprised the following:
Book Book Fair Fair
Value Value Value Value
2008 2007 2008 2007
£'000 £'000 £'000 £'000
Financial assets
Investor portfolio 178,981 278,338 178,981 278,338
Cash 7,718 6,434 7,719 6,434
Financial liabilities
£13.5m (2007: £13.5m) 9.5% debenture
stock 2020 13,369 13,363 17,016 17,474
£20.7m (2007: £20.7m) 7.25% debenture
stock 2025 20,375 20,365 22,257 24,383
The investment portfolio has been valued in accordance with the
accounting policy in note 1 above. Accordingly, book value equates to fair
value. The fair value of the debenture stock is based on information provided
by FT Interactive Data as at 30 September in each year.
Capital Management Policies and Procedures
The Company's capital management objectives are:
- to ensure that it is able to continue as a going concern; and
- 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 net debt (comprised of debentures less cash) at
any one time which is maintained by management of the Company's cash balances.
The Company's capital at 30 September comprises:
2008 2007
£'000 £'000
Net Debt
Cash (7,718) (6,434)
Debentures 33,744 33,728
Sub total 26,026 27,294
Equity
Equity share capital 5,253 5,253
Retained earnings and other reserves 148,210 247,961
Sub total 153,463 253,214
Net Debt as a percentage of net assets 17.0% 10.8%
The Board monitors and reviews the broad structure of the Company's
capital on an ongoing basis. The review includes:
- the level of net gearing, taking into account the Investment
Director's views on the market;
- the level of the Company's free float of shares as the Barlow
family owns approximately 55% of the share capital of the Company.
- 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:
- the debentures are not to exceed in aggregate 66 2/3% of adjusted
share capital and reserves in accordance with the respective Trust Deeds;
- 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.
26 Derivative Financial Instruments
In the course of its investment activities the Company receives
warrants on ordinary shares which provide exposure to companies on favourable
terms. At 30 September 2008, the fair value of the Company's warrants, both
listed and unlisted was £18,000 (2007: £21,000).
Changes in the fair value of warrants amounting to £3,000 (2007:
£62,000) have been debited to the income statement in the year ended 30
September 2008.
27 Related Party Transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not disclosed
in this note.
Majedie Asset Management Limited is a related party. It is
accounted for as an investment in the portfolio valued at fair value through
profit or loss.
Details of Amounts Owed by Amounts Owed to
Transactions Related Parties Related Parties
2008 2007 2008 2007 2008 2007
£'000 £'000 £'000 £'000 £'000 £'000
Majedie Asset Management
Limited
Special dividend due to
Group 2,484 3,808 2,110
At 30 September 2008 the Company held investments in funds managed
by Majedie Asset Management Limited representing 1.5% (2007: 3.1%) of the
Company's investment portfolio as set out in the table below.
2008 2007
Market Value Market Value
Fund £'000 £'000
Majedie Asset Management UK Opportunities `A' 2,447 6,171
Majedie Asset Management UK Focus `B' 248 299
Majedie Asset Management UK Equity `B' 246 292
Majedie Asset Management UK Alpha `C' - 1,998
2,941 8,760
Distributions totalling £78,000 (2007: £117,000) from these
investments were received by the Company during the year.
The Company makes investments from time to time in companies on the
boards of which a non-executive director of the Company serves as a director.
The Company's non-executive directors are not involved in any day-to-day
investment decisions relating to the investment portfolio.
The remuneration of the directors, who are the key management
personnel of the Group, is set out below in aggregate for each of the
categories specified in IAS 24: 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 full Annual Report
2008 2007
£'000 £'000
Short-term employment benefits 949 844
Share-based payments 492 171
1,441 1,015
For further information, contact Hubert Reid, Deputy Chairman on 07976 298677.
END
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