Appointment of Majedie Asset Management

RNS Number : 4999X

Majedie Investments PLC

13 January 2014

 



For release on 13 January 2014

Majedie Investments PLC

Appointment of Majedie Asset Management to manage the Company's assets and the closure of Javelin Capital

Introduction

The Board of Majedie Investments PLC ("Majedie", the "Company" or the "Group") is pleased to announce that it has appointed Majedie Asset Management Limited ("MAM") with immediate effect to manage the Company's assets. 

At the same time, the Board of Majedie has taken the decision to close Javelin Capital LLP ("Javelin") and to rebase the Company's dividend policy.

The Board of Majedie believes that the appointment of MAM and the consequent changes will be beneficial for Majedie shareholders.

Background

Javelin was launched by Majedie in September 2010 as a new asset management business, with the aims of both managing the Company's assets and developing into a profitable business in its own right through managing third party funds.  The market for attracting third party funds and the conditions for achieving the required performance have, however, proved to be very challenging since Javelin's launch.  Consequently the Board does not now believe that Javelin is likely to attract material third party assets under management in the foreseeable future.  The Board has therefore decided to wind down Javelin's operations and the Company will realise its investment in the Javelin Capital Emerging Markets Alpha Fund. 

At the same time, MAM has grown its business significantly, through market-leading investment performance, an expansion of its absolute return fund, the Tortoise Fund, an extension of its flagship UK Equity Fund into global equities, and the launch of its UK Income Fund.

The Board of Majedie has decided therefore that it is in the best interests of Majedie shareholders to appoint MAM to manage the Company's assets and to close Javelin.  In deciding to appoint MAM, the Board has had particular regard to:

·     MAM's consistent market-leading performance;

·     The suite of funds which MAM manages, including the absolute return Tortoise Fund, which will enable Majedie to maintain its balanced investment portfolio; and

·     The ability of both MAM's UK Equity Fund and the UK Income Fund to invest up to 20% of their assets in non-London listed equities.

At the same time, MAM has agreed to repurchase 10% of its share capital from Majedie.  Majedie currently holds a 26.2% interest in MAM; following the repurchase and cancellation, its interest will reduce to approximately 18.0%.  The repurchase price, of approximately £18 million, represents £900,000 more than the carrying value of those shares being sold in the Company's accounts.  The repurchase will be completed by 31 March 2014.  Following the completion of this repurchase, the Company intends to invest the £18 million sale proceeds in MAM's UK Income Fund. Majedie has also agreed progressively to reduce its stake in MAM by up to 2.5% per annum over each of the following four years.  Further details are set out below.

Proposed investment policy

The Board believes that it is in the best interests of shareholders to maintain a diversified investment policy, with similar levels of exposure to equity markets and absolute return funds as Majedie currently has.

As at 31 December 2013, the Group's total assets amounted to £164.5 million comprised as follows:

                                                                                                           £m                                  %

Core Portfolio                                                                            86.5                              52.6

Javelin Capital Emerging Markets Alpha Fund             29.5                              17.9

MAM                                                                                              45.0                              27.3

Other assets                                                                                  3.5                                2.2

Total                                                                                            164.5                           100.0

The Core Portfolio comprises holdings in large cap UK and international stocks, a small number of mid cap companies and cash.  Other assets include the Company's investment in Javelin and the Company's non-core realisation portfolio, valued at £0.9 million at 31 December 2013; these will not form part of the assets managed by MAM.

Following the appointment of MAM, the Company will transfer the Core Portfolio to MAM to be managed as a separate portfolio under a mandate intended to replicate the performance of MAM's UK Equity Fund.

The Company intends to realise its investment in the Javelin Capital Emerging Markets Alpha Fund as soon as practicable and to use the proceeds by investing approximately £30 million into MAM's Tortoise Fund, so retaining the Company's current absolute return allocation.  Such investment requires an amendment to the Company's current investment policy.

In addition, the Company's current investment policy provides that the assets of the Company are split into four major groups, being the Core Portfolio, funds managed by Javelin Capital, the Company's investments in MAM and the Company's investment in Javelin Capital.  It also restricts the Company's investments in unquoted securities other than those managed by Javelin Capital to 10% of its net assets.  To allow the target investments in the Tortoise Fund and the UK Income Fund proposed by the Board, and to reflect the change in investment manager generally, it will be necessary to change the Company's investment policy.  In accordance with the Listing Rules, any material amendments to the Company's investment policy require the approval of the Company's shareholders.  Accordingly, a shareholder circular setting out the proposed changes to the investment policy and containing a notice of an Extraordinary General Meeting to approve such changes will be published in due course.

The Company's investment objective, to maximise total shareholder return whilst increasing dividends by more than the rate of inflation over the long term, will not change.

Change in future dividend policy

In recent years, a significant proportion of the Company's annual dividends has been funded from revenue reserves rather than from current income.  The Board had hoped that a successful development of Javelin would allow Majedie to maintain and grow its dividend with the benefit of income from Javelin.  With the closure of Javelin, the Board has resolved to rebase the annual Majedie dividend with a view to moving to a sustainable and progressive distribution policy, paying dividends out of current year income rather than from revenue reserves.

Based on Majedie's income projections for the current year, the Board expects to declare underlying dividends of in aggregate 7.5p per share in respect of the financial year ending 30 September 2014. This should not be taken as an indication of the Company's expected future performance or results over any period and does not constitute a profit forecast.

Further information on MAM

MAM was launched in 2002 using finance provided by Majedie.  MAM specialises in equity investment, primarily for institutional clients.  It currently has four funds, the UK Equity Fund and the UK Focus Fund, both established in 2003, the Tortoise Fund, established in 2007, and the UK Income Fund established in 2011.  As at 31 December 2013, MAM had approximately £9 billion of assets under management, comprising predominantly long only equity mandates for institutional clients.

Majedie currently owns 26.2% of MAM.  During the year ended 30 September 2013, the Company received £2.3 million in dividend income from MAM and the Company realised £5.9 million from sales of shares in MAM.  As at 30 September 2013, the value of MAM in the Group accounts was £46.0 million, representing 28.9 per cent. of the Group's total assets. 

Whilst the Company's investment in MAM has been extremely successful, the shareholding is by its nature very illiquid and its size represents an asset concentration risk to Majedie.  The Board of Majedie has therefore agreed to reduce progressively its interest in MAM over the next five years, as outlined above.  The Company will sell, initially, shares representing 10% of MAM for cancellation for a total consideration of approximately £18 million, on or before 31 March 2014.  Thereafter, following publication of the MAM audited accounts for the financial years ended 30 September 2014, 2015, 2016 and 2017, Majedie has agreed to sell shares representing up to 2.5% of MAM's then issued share capital either for cancellation or for sale to the MAM employee benefit trust, in each case at the then prevailing prescribed price and subject to MAM's board and shareholder approval.  Majedie has today entered into a revised shareholder agreement reflecting these arrangements.

Under the investment agreement entered into with MAM, the Company intends to invest approximately £30 million in the Tortoise Fund, £18 million in the UK Income Fund and some £81 million in a segregated portfolio to be managed by MAM in line with the UK Equity Fund.  The UK Income Fund and the segregated portfolio have annual management charges of 0.75%; the Tortoise Fund is subject to an annual management fee of 1.5% and a 20% performance fee (over a hurdle of 5%).  In addition, Majedie intends to invest £10 million into MAM global equity funds in due course. 

The investment agreement is terminable on 6 months' notice by Majedie or MAM, expiring at any time on or after 31 December 2015.

Further information on the MAM Funds

The Company intends to invest in the Tortoise and UK Income Funds, and for MAM to manage the assets currently comprised in the Core Portfolio on a basis intended to replicate the UK Equity Fund, as set out above.  Summary details of these funds are set out below:

UK Equity Fund - MAM's flagship long only UK equity fund which has the flexibility to invest up to 20% of net asset value in shares listed outside London. The Fund is managed by James de Uphaugh, Chris Field, Matthew Smith and Adam Parker. Since inception in March 2003 to 31 December 2013, the UK Equity Fund has achieved an annualised return of 16.0%, outperforming the FTSE All-Share index by 5.5% per annum. In cumulative terms, the Fund has returned 394.7% since inception in March 2003, versus the FTSE All-Share index return of 191.7%. The Fund is broadly diversified and incorporates a dedicated allocation to smaller companies.

UK Income Fund - a focused, high conviction UK equity income fund which has the flexibility to invest up to 20% of net asset value in shares listed outside London.  The Fund is managed by Chris Reid and Yuri Khodjamirian and aims to maintain an attractive yield, whilst outperforming the FTSE All-Share index over the long term.  Since inception in December 2011 to 31 December 2013, the UK Income Fund has achieved an annualised return of 29.3% net of fees, outperforming the FTSE All-Share index by 11.3% per annum while at the same time generating an income well in excess of its benchmark.  In cumulative terms, the Fund has returned 68.7% net of fees since inception, versus the FTSE All-Share Index return of 40.0%.   The 2013 historic yield on the UK Income Fund was approximately 3.6%.

The Tortoise Fund - a long/short equity fund which has no geographic restrictions. The Fund is managed by Matthew Smith and Tom Morris and aims to generate steady capital growth, maximising long term total returns whilst preserving capital.  Since inception in August 2007 to 31 December 2013, the Fund has achieved an annualised return of 14.9% during a period in which the MSCI World (£) index returned 6.5% per annum.  In cumulative terms, the Fund has returned 140.6% since inception compared to the MSCI World (£) index return of 48.6%.  In 2013 the Tortoise Fund did not pay a dividend.

Closure of Javelin

The Company has resolved to wind up Javelin, and the investment management agreement with Javelin has been terminated with immediate effect.  As at 30 September 2013, the Company's 75% investment in Javelin was valued in the Group accounts at £2.5 million. 

The Company's holding in the Javelin Capital Emerging Markets Alpha Fund will be realised as soon as practicable.

Appointment of financial adviser and broker

Majedie is also pleased to announce the appointment of Westhouse Securities Limited as its financial adviser and broker with immediate effect.

Andrew Adcock, Chairman of Majedie, commented "This is an exciting opportunity for Majedie Investments. Our relationship with MAM has been very positive since we made our initial investment. MAM have grown their business most successfully based, significantly, on first rate investment performance. Critically, they have expanded their asset management capabilities into new areas such as overseas equities, income funds and absolute return. Consequently this provides the opportunity for Majedie Investments to benefit from MAM's proven asset management skills whilst still maintaining the Company's exposure to an appropriate range of investment specialisations.

The fact that we have been able to structure the agreement in a manner that provides Majedie Investments and MAM with a manageable strategy for realising our investment stake in MAM will benefit both organisations".

Enquiries:

Majedie Investments PLC

William Barlow                                                                                                                                  020 7626 1243

Westhouse Securities Limited                                                                                                    020 7601 6118

Alastair Moreton/Hannah Young                                                                                                                          

 

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