TIDMATS TIDMATSS
RNS Number : 6820L
Artemis Alpha Trust PLC
20 July 2017
Artemis Alpha Trust plc (the "Company")
Annual Financial Report for the year ended 30 April 2017
This announcement contains regulated information
Financial Highlights
Objective & Investment Policy
The objective of the Company is to achieve above average rates
of total return over the longer term and to achieve a growing
dividend stream. In pursuit of this objective, the Company's
portfolio is actively managed by the Investment Manager and
comprises largely UK equities, with selected overseas investments.
The Investment Manager takes a stock-specific approach in managing
the portfolio and, therefore, sector weightings are of secondary
consideration. As a result of this approach the portfolio will not
track any stock market index. There is no restriction on the number
of investments that can be held in the portfolio.
The Company also invests in unquoted companies. The Investment
Management Agreement provides that at the time of investment the
aggregate value of these investments shall represent no more than
30% of net assets. For the purpose of measuring this, unquoted
investments will be measured by the lower of their cost or current
valuation.
In addition, the Company can invest up to 30% of its net assets
in hedge funds and/or other unregulated collective investment
schemes. The Company had no investments in hedge funds or
unregulated collective investment schemes during the year. The
Company will not invest more than 15% of its gross assets in other
investment companies listed on the main market of the London Stock
Exchange.
Returns for the year ended 30 April 2017
Year ended Year ended
30 April 30 April
Total returns 2017 2016
Net asset value (diluted) 20.9% (6.1)%
Share price 26.7% (13.2)%
FTSE All-Share Index 20.1% (5.7)%
Revenue and dividends
Revenue earnings per ordinary share (diluted) 6.31p 4.75p
Dividends per share
Ordinary 4.30p 3.90p
Special 2.00p -
Ongoing charges (excluding performance fees) 0.9% 0.9%
As at As at
30 April 30 April
Capital 2017 2016
Net asset value (diluted) 361.90p 303.43p
Share price 293.50p 235.50p
Gearing 6.0% 5.4%
Since
Total returns to 30 April 2017 3 years 5 years 10 years 1 June 2003*
Net asset value (diluted) 12.1% 24.1% 70.6% 488.1%
Share price 2.4% 10.3% 38.9% 393.8%
FTSE All-Share Index 21.8% 58.6% 68.9% 226.4%
* The date when Artemis was appointed as Investment Manager -
Source: Artemis/Datastream
Strategic Report - Chairman's Statement
Performance
In the year to 30 April your Company's net asset value per share
rose by 20.9% and its share price by 26.7% compared with an
increase in the FTSE All-Share Index of 20.1% (on a total return
basis). The performance during the second half of the year was
particularly strong with an increase of 17.6% in the net asset
value.
Both the unquoted and quoted portions of the portfolio added
value over the year, the unquoted holdings increasing by 10.9%
while the quoted holdings increased by 22.8%.
I am pleased to be able to report this improvement in recent
performance. After a period of outstanding returns achieved when
Artemis was originally appointed as Investment Manager, the
performance over the last three and five years in particular has
been disappointing for reasons that have been well documented. The
Board is acutely aware of the need for performance markedly and
consistently to be improved in order to regain the confidence of
our shareholders, many of whom have been long-term and patient
supporters of the fund managers and their distinctive approach.
Discount and share buybacks
Despite a slight narrowing of the discount from 22.4% at the
start of the year to 18.5% at the end, we remain concerned at the
absolute level of the discount. Although the planned reduction in
the level of unquoted investments should contribute to a narrowing
of the discount, we believe that only improved performance
ultimately will reduce this significantly. As I explained last
year, for a company of our size, a formal and concerted programme
of buying back shares disadvantages shareholders by reducing the
size of the Company and the liquidity of its shares, and by
increasing the proportion of the assets held in unquoted
investments.
We will, however, continue to buy back shares on a tactical
basis to address any imbalances between supply and demand. During
the year the Company bought back just over a million shares,
representing 2.5% of those in issue at the start of the year, at an
average discount of 24.3% and a cost of GBP2.4m. There have been
occasions this year when price-sensitive developments affecting our
larger unquoted investments have prevented us from buying back
shares.
Continuation vote
The Board and Investment Manager are highly aware of the
continuation vote which is to be put to shareholders at next year's
AGM, in the autumn of 2018. We recognise our responsibilities to
shareholders and will be consulting them over the course of the
next few months, as we did last year.
Quoted investments
As I reported in October, the Company's quoted holdings in real
estate and financial companies underperformed following the Brexit
vote. In the last six months of the year, however, they recovered
strongly.
Our largest exposure to any particular sector is to financial
companies which account for 37.5% of the portfolio. These are
mainly fund management companies and specialist lenders (rather
than banks) which are mostly quoted but also include some unquoted
companies. The performance of Liontrust Asset Management and Polar
Capital, two of our largest holdings, made a positive contribution
to our returns during the year. This is an area where our fund
managers have particular insights and experience resulting from
their involvement in Artemis' highly successful fund management
business. Our fund managers are able to draw on the expertise of
the other investment teams at Artemis in this as well as other
areas and sectors.
A quarter of the portfolio is now invested in large or medium
cap companies which our fund managers believe represent sound
investment opportunities as individual stocks, mostly as a result
of perceived undervaluation. Although these choices are not driven
by the desire for income they have been partly responsible for an
increase in income over the year.
Unquoted investments
In last year's annual report, we stated our intention to reduce
the Company's exposure to unquoted investments to below 10% before
the continuation vote due to be held in the autumn of 2018. As at
30 April 2017, on a valuation basis, the Company's exposure to
unquoted investments stood at 25.2%, down from 27.3% at the
previous year end. The overall value of these holdings increased
from GBP36.7m to GBP38.3m, as positive developments prompted upward
revisions to the valuations of URICA, Metapack, Gundaline, Retail
Money Market, N+1 Singer and Oxford Sciences Innovation. There was,
however, a fall in the valuation of Starcount, following a
fundraising at a price lower than the Company's carrying value.
There were two full realisations over the period, of Equus
Petroleum and Infusion 2002. As reported at the interim stage,
there was also one significant partial realisation: Oxford Nanopore
Technologies. In total, these realisations raised GBP4.3m, in line
with the carrying value and compared to a cost of GBP1.9m.
The Board and Investment Manager remain committed to reducing
the Company's exposure to unquoted investments and will actively
seek realisations at valuations the Investment Manager considers
fair and in the best interests of shareholders.
Earnings and dividends
Revenue earnings for the year were 6.31p per share, an increase
of 32% on the previous year (2016: 4.75p). This significant jump
was due to the higher level of income from the portfolio and, in
particular, large increases from some of the financial holdings.
The Company's policy is to seek to increase the dividend by around
10% each year. In line with this target, a second interim dividend
of 2.75p (2016: 2.50p) per share has been declared by the Board.
The Company's interim dividends for the year total 4.30p per share
(2016: 3.90p), an increase of 10%.
Given the substantial increase in net revenue from last year,
the Board has decided to declare a special dividend of 2.00p per
share. This is due to the exceptional level of income received this
year from a number of investments and is also required to satisfy
the investment trust rules. This means that total dividends for the
year will be 6.30p per share, an increase of 62% over the 2016
payment.
Both the second interim and special dividends will be paid on
Friday 25 August 2017 to shareholders on the register as at Friday
28 July 2017, with an ex-dividend date of Thursday 27 July
2017.
Board changes
I am very pleased to welcome Jamie Korner as a non-executive
director with effect from 6 April 2017. He has extensive experience
of markets and investment management having managed funds at both
M&G and Newton and he will be a valuable addition to the
Board.
Annual General Meeting
The Company's AGM will take place on Thursday, 5 October 2017 at
12.30 pm at a different venue this year, due to renovations at the
office of the Investment Manager. It will be held at The Science
Room, The Royal Society of Chemistry, Burlington House, Piccadilly,
London W1J 0BA. The fund managers, John Dodd and Adrian Paterson,
will make a short presentation at the meeting. The Board would
welcome your attendance as it provides shareholders with an
opportunity to learn more about the Company and to question both
the Board and the fund managers. Light refreshments will follow the
meeting. For those shareholders who are unable to attend, I would
encourage you to make use of your proxy votes by completing and
returning the form enclosed with this report.
Outlook
During the period under review, stock markets have had to cope
with an extraordinary succession of unexpected events: Britain's
decision to leave the EU, the election of President Trump and the
U.K. general election. Inevitably these events have had
implications for your Company and its investee companies, as well
as for currencies and markets generally. However, we follow a
stock-specific investment policy which, while having regard to
markets, does not claim to derive returns from predicting economic
or political events.
The uncertainty surrounding the Brexit negotiations and the
results of the general election are likely to contribute to
unsettled conditions for at least the next couple of years. Against
this background the Board and the Investment Manager will
concentrate on continuing to deliver improved returns for
shareholders by seeking out opportunities which offer the prospect
of good returns despite those uncertainties.
Duncan Budge
Chairman
20 July 2017
Investment Manager's Review
As shareholders know, the Company has a very broad investment
remit and is not restricted by sector or market cap limits. This
suits the fund managers' investment approach which is to invest on
a stock specific bottom-up basis. In recent years it has
principally focused on UK companies and had significant exposure to
small cap including AIM and unquoted investments. These are areas
which are well suited to the closed-end structure of the Company
which allows the Investment Manager to invest over the longer term.
Whilst investments in these areas will continue to feature in the
portfolio, the unconstrained remit will inevitably see investments
being made in other areas where we have identified good
opportunities. This does mean that the portfolio bears little
resemblance to the stock and sector weightings of the FTSE
All-Share Index. As indicated in the Chairman's Statement we have
increased our exposure to large caps during the year.
We continue to believe that this investment flexibility
differentiates the Company from other trusts and will produce good
returns for investors over time. It is pleasing to report an
improvement in performance for the period under review.
Performance
During the year under review, the Company's net asset value rose
by 20.9% on a total return basis, versus a rise of 20.1% in the
FTSE All-Share Index.
There was a significant improvement in performance in the second
half of the Company's financial year. That was particularly the
case in the listed portfolio, where share prices recovered from the
post Brexit uncertainty. As discussed in the Chairman's statement,
the unquoted part of the portfolio also made a positive
contribution.
The Company's share price rose by more than its net asset value
over the year. We believe this reflects both the improvement in
performance of the portfolio and a general narrowing of discounts
across the investment trust sector as markets have risen.
The contribution from listed investments and unquoted
investments can be seen below.
Contribution
%
Listed 19.0
Unquoted 3.3
Net income/(expenses) (1.4)
Portfolio Review
The five largest stock contributors and detractors, along with
an industry contribution analysis, are summarised in the tables
below.
Five largest stock contributors
Contribution
Company Market %
Hurricane Energy AIM 4.6
Liontrust Asset Management LSE 2.8
URICA Unquoted 2.5
Avation LSE 1.3
Gresham Technologies LSE 1.0
Five largest stock detractors
Contribution
Company Market %
Starcount Group Unquoted (1.3)
Gaming Realms AIM (0.6)
Redcentric AIM (0.6)
Vectura Group LSE (0.6)
GLI Finance AIM (0.5)
Industry contribution
Contribution
Industry %
Financials 10.8
Oil & Gas 6.3
Consumer Goods 2.7
Industrials 2.6
Technology 1.0
Basic Materials 0.3
Telecommunications 0.2
Utilities -
Health Care (0.5)
Consumer Services (1.1)
By industry, the largest contribution came from the Company's
holdings in the financial services sector. There was also a strong
recovery in some of the oil and gas holdings. Weakness at a sector
level tended to be as a result of stock-specific issues.
Listed investments
In the listed portfolio, the biggest positive contribution came
from Hurricane Energy. This has been a longstanding investment for
the Company. Initially bought as an unquoted investment, it floated
on AIM in February 2014. After struggling for several years to
raise the capital it needed to drill test wells to the west of
Shetland, it finally raised sufficient money (primarily from a
specialist oil investor) earlier in the financial year. The result
was a highly successful drilling campaign that enabled Hurricane
substantially to increase its estimated reserves to more than one
billion barrels of oil to bring the field into production.
Subsequent to the year end the company raised $520m to fund the
next stage of the development of its Lancaster field.
Amid generally strong performance from the Company's financial
holdings, the standout performer was Liontrust. Its funds continue
to perform well which, coupled with helpful stock markets and its
strong distribution capabilities, meant it was able to increase its
funds under management. Its acquisition of Alliance Trust
Investments brought GBP2.3bn of assets and a highly regarded
investment team with a long-term pedigree. The acquisition
increased the group's assets under management to GBP8bn; by the end
of March 2017 this had grown to GBP9bn. It has also had the effect
of diversifying Liontrust's product range and improving the quality
of its earnings. Despite the strong performance in Liontrust's
shares since the deal was announced, it still trades at a discount
to its peers. We feel this is unjustified and so retain a
holding.
Another longstanding holding in the fund management sector was
Polar Capital Holdings. After a couple of lean years, the
successful launch of a new UK equity product and the announcement
of a new chief executive with a formidable reputation, Gavin
Rachussen (formerly of J O Hambro), saw its shares make a strong
recovery. Polar Capital has been suffering from net outflows over
the last couple of years but we are hopeful that Mr Rachussen will
turn the business around.
Elsewhere, aircraft-leasing business Avation performed strongly.
It sold a number of its aircraft at a premium to book value at a
time when the stock market was valuing its portfolio at a discount
to net asset value. The sale of these aircraft has helped to narrow
the discount between Avation's share price and its value on a
sum-of-parts basis. We believe this re-rating can continue.
Meanwhile, many of the UK domestic shares that performed poorly
following the Brexit referendum - such as Helical, St. Modwen
Properties and Telford Homes - recovered strongly in the second
half of the Company's financial year. In many cases, the shares
have rebounded to levels that are higher than they were before the
referendum. The portfolio also benefited from a bid for Market Tech
Holdings, the Camden-based property developer, from its founder
Teddy Sagi.
On the negative side, Gaming Realms, a mobile gaming company,
continued to struggle. We have been reducing our holding.
Redcentric was hit by accounting irregularities although we had
largely exited our position before the problem was discovered.
Elsewhere, GLI Finance, the owner of a number of online lending
platforms, continued to perform poorly. The shares are trading at a
substantial discount to the net asset value so we are inclined to
hold on at this time. Another disappointment was Vectura Group.
After completing the takeover of Skyepharma, there were a number of
disappointments in its drug pipeline. That we were already selling
down the position, however, helped to mitigate the impact.
Unquoted investments
Overall, the performance from the Company's unquoted holdings
was much stronger compared to the previous year. Their overall
value increased by almost 11%, with total realisations exceeding
GBP4m.
The strongest performance came from URICA, which provides SMEs
with early settlement of their invoices in real time through its
online platform. Following initial funding from the UK Government
(via the Business Finance Partnership) in collaboration with other
credit providers it has now expanded its business from the UK to
include France. To fund this growth, URICA raised further capital
in April, a small part of which the Company provided. The resulting
uplift in valuation added around 2.5% to the Company's net asset
value.
Elsewhere, Metapack, the dominant provider of fulfilment
software services to online retailers in the UK and Europe,
continued to perform strongly: its sales grew by 20%. The business
is forecast to become increasingly profitable in the financial year
to March 2018. Other strong performers included Gundaline, an
Australian farming business, the value of whose water rights has
increased and N+1 Singer, a small-cap London broker.
Two other investments raised new equity at valuations above the
Company's previous carrying values. The first was Oxford Sciences
Innovation, a business created to work with Oxford University to
commercialise its intellectual property assets. The second was
Retail Money Market, one of the UK's leading peer-to-peer lenders.
Both businesses are now well funded and their carrying values
reflect the uplifts achieved in these recent funding rounds.
On the negative side, we had to write down the carrying value of
the Company's holding in Starcount Group after a heavily discounted
fundraising. The underlying position and momentum in the business,
however, is improving. It has been engaged by two new major
blue-chip clients and these contracts are generating revenues as
planned.
We continued our efforts to reduce the Company's overall
exposure to unquoted holdings by selling out of Equus Petroleum and
Infusion 2002. There was also a partial realisation of our holding
in Oxford Nanopore Technologies.
Portfolio themes and transactions
The Company's largest sector exposure remains financials, which
account for 37.5% of its total assets. We do not invest, however,
in banks, preferring fund managers, wealth managers and specialist
lenders. Although these investments have, in general, been made for
stock-specific reasons, rising equity markets and a stronger than
expected economy have certainly been helpful. Nonetheless, we
continue to see value in this part of the market.
One aspect that we should highlight is that a quarter of the
portfolio is now invested in large- and mid-caps. These holdings
are all interesting on a stock level but they also help to increase
the liquidity and flexibility of the portfolio. We have, meanwhile,
drawn on the knowledge of Artemis' other investment teams to make a
selected number of investments. Examples include Rocket Internet, a
German 'incubator' of internet businesses, and Nintendo, a Japanese
manufacturer of games consoles.
New investments over the year included Bovis Homes. A profits
warning and the subsequent departure of its chief executive allowed
us to pick up its shares at a substantial discount to its peers.
This came in addition to other holdings in the sector including M J
Gleeson, a house-builder focused on northern England, and Telford
Homes (although we sold this down following a strong run). We
continued to add to our property holdings in the weakness that
followed the Brexit vote, particularly St. Modwen Properties and
Helical.
We also participated in the IPO market, buying shares in
Ramsdens Holdings, a Middlesbrough-based pawnbroker and travel
money broker now expanding nationwide. We also subscribed to an
offering by FreeAgent Holdings, which provides (cloud-based)
accounting software to small businesses. Shares in both have
performed well since their listings.
Other deals we participated in included the restructuring of
IGas Energy, an onshore oil and gas company. The company has
substantial fracking coverage that is ascribed no value by the
stock market despite much of the company's costs being carried by
Total and INEOS on its substantial work programme. Lastly we bought
Attraqt, which provides search and merchandising solutions to
online retailers in the UK and US.
On the sell side, we sold our holdings in BP and Dalata Hotel
Group. We also took profits in a number of long-term holdings such
as Brewin Dolphin, Telford Homes and Vectura Group. We locked in
profits made on Booker Group after Tesco announced its intention to
buy it (subject to approval from the competition authorities).
We sold a number of smaller holdings from the tail of the
portfolio during the year, predominately those that had become very
small in size. No new investments were made in unquoted other than
some small follow-on investments into existing holdings.
Investment strategy
The strategy remains the same. On the Company's behalf, we
invest in a range of companies, predominantly in the UK but also
drawing on the global expertise of Artemis' wider investment team
where necessary. We have made progress in reducing the overall
percentage of the portfolio accounted for by unquoted holdings.
Although we are committed to making further disposals in this area
in the year ahead, we still believe that the potential of many of
these investments is exciting and will look to exit where these
meet our valuation assessment.
Outlook
As investors have attempted to anticipate what the recent
general election and its aftermath might mean for Brexit and, by
extension, the UK economy, politics is exercising a greater
influence than usual over the UK market. As the prospect of a
comfortable majority for the Conservatives faded and vanished,
Sterling fell. Dovish comments from the Bank of England's Mark
Carney added to the downward pressure on the pound. As overseas
earners, the mega caps of the FTSE 100 Index have been
beneficiaries of this weakness. But returns from small- and
mid-caps, which tend to be domestic earners - and which dominate
the Company's portfolio - have been more modest.
In broad terms, the election has made it more likely that there
will be some form of 'transitional' deal for the UK after the
two-year negotiating period with the EU comes to an end in March
2019. This reduces the risk of a 'no deal' or 'hard' Brexit. A
further positive for the economy is that inflation should start to
drop, helped by progressively easier year-on-year comparisons for
the oil price. This, in turn, should reduce the squeeze on the real
incomes of consumers. That ought to help stocks with a domestic
focus. At the same time, the UK market's overseas earners, most of
which are large caps, have benefited from strong earnings momentum
because of Sterling's fall since the referendum. A weak pound has,
in some cases, masked weak underlying performance. These companies
could be exposed once support from the currency fades. There are
reasons to hope that the Company's bias to small caps - and away
from mega caps - won't remain a handicap for much longer.
We are, however, stock-pickers rather than political
commentators or currency traders. That politics and other macro
matters continue to exercise so much influence over the market is
frustrating. But history suggests that it won't last: in time,
underlying company fundamentals always prevail. So our focus
remains on monitoring the Company's existing holdings and seeking
new opportunities.
John Dodd and Adrian Paterson
Fund managers
Artemis Fund Managers Limited
20 July 2017
Corporate strategy & policy
The Company is incorporated in England. Its business as an
investment trust is to buy and sell investments with the aim of
achieving the objective and in accordance with the policy outlined
above.
Gearing
The Company uses gearing as part of its investment strategy. The
Articles of Association (the "Articles") permit the Company to
borrow up to 25% of its adjusted capital and reserves. Subject to
this being complied with, the level of borrowing is a matter for
the Board, whilst the utilisation of borrowings is delegated to the
Investment Manager. This utilisation may be subject to specific
guidelines established by the Board from time to time. The current
guidelines permit the Investment Manager to employ borrowings of up
to 20% of net assets. The Company has a GBP30.0m borrowing facility
with The Royal Bank of Scotland plc, of which GBP13.0m (2016:
GBP8.5m) was drawn down at the year end. The use of gearing by the
Investment Manager will vary from time to time, reflecting its
views on the potential returns from stock markets. The Company's
gearing is reviewed by the Board and Investment Manager on an
ongoing basis.
Operating environment
The Company operates as an investment trust company and is an
investment company within the meaning of section 833 of the
Companies Act 2006 (the "Act").
The Company has been approved as an investment trust in
accordance with the requirements of section 1158 of the Corporation
Taxes Act 2010 which remains subject to the Company continuing to
meet the eligibility conditions and ongoing requirements of the
regulations. The Board will manage the Company so as to continue to
meet these conditions.
The Company has no employees and delegates most of its
operational functions to service providers.
Current & future developments
A summary of the Company's developments during the year ended 30
April 2017, together with its prospects for the future, is set out
in the Chairman's Statement and Investment Manager's Review above.
The Board's principal focus is the delivery of positive long-term
returns for shareholders and this will be dependent on the success
of the investment strategy. The investment strategy, and factors
that may have an influence on it, such as economic and stock market
conditions, are discussed regularly by the Board and the Investment
Manager. The Board regularly considers the ongoing development and
strategic direction of the Company, including its promotion and the
effectiveness of communication with shareholders.
Key Performance Indicators ("KPIs")
The performance of the Company is reviewed regularly by the
Board and it uses a number of KPIs to assess the Company's success
in meeting its objective. The KPIs which have been established for
this purpose are:
Discrete annual total returns
Diluted FTSE
Net asset Share All-Share
Year ended 30 April value price Index
2013 (2.8)% 4.5% 17.8%
2014 13.3% 3.1% 10.5%
2015 (0.9)% (6.9)% 7.5%
2016 (6.1)% (13.2)% (5.7)%
2017 20.9% 26.7% 20.1%
Source: Artemis/Datastream
Dividends per ordinary share
Pence per
ordinary
Year ended 30 April share Increase
2013 3.05p 3.4%
2014 3.20p 4.9%
2015 3.55p 10.9%
2016 3.90p 9.9%
2017* 6.30p 61.5%
* Includes special dividend of 2.00p
Ongoing charges as a proportion of shareholders' funds
(excluding performance fees)
Ongoing
As at 30 April charges
2013 0.9%
2014 1.0%
2015 0.9%
2016 0.9%
2017 0.9%
In addition to the above KPIs, the Board monitors the discount
to the underlying net asset value at which the shares trade. No
specific discount target has been set, but the Board sets the
policy and has given the Investment Manager discretion to exercise
the Company's authority to buy-back its own shares from time to
time to address any imbalances between the supply and demand in the
Company's shares. This is reviewed regularly by the Board. The
Board will also use its authority to issue new ordinary shares from
time to time should there be excess demand for the Company's
shares.
Principal risks and risk management
The Board, in conjunction with the Investment Manager, has
developed a risk map which sets out the principal risks faced by
the Company. It is used to monitor these risks and to review the
effectiveness of the controls established to mitigate them. Further
information on the Company's internal controls is set out in the
corporate governance section of the Annual Report. As an investment
company the main risks relate to the nature of the individual
investments and the investment activities generally. These include
market price risk, foreign currency risk, interest rate risk,
credit risk and liquidity risk.
A summary of the key areas of risk is set out below:
-- Strategic: investment objective and policy are not
appropriate in the current market and not favoured by
investors.
The investment objective and policy of the Company is set by the
Board and is subject to ongoing review and monitoring in
conjunction with the Investment Manager. This includes the views
expressed by the Company's shareholders.
-- Investment: the Company's investments are selected on their
individual merits and the performance of the portfolio is not
likely to track the wider UK market (FTSE All-Share Index). The
Company invests in small cap (listed), AIM traded and unquoted
investments which can be subject to a higher degree of risk than
larger quoted investments. The Company may also have significant
exposure to particular industry sectors from time to time.
The Board considers that this risk is justified by the longer
term nature of the investment objective and the Company's
closed-ended structure, and that such investments should be a
source of positive returns for shareholders. Risk will be
diversified through having a broad range of investments in the
portfolio. The Board discusses the investment portfolio with the
Investment Manager at each Board meeting and part of this
discussion includes a detailed review of the Company's unquoted
investments, their valuations and future prospects.
The Company may borrow money for investment purposes. If the
investments fall in value, any borrowings will magnify the extent
of the losses. If borrowing facilities are not renewed, the Company
may have to sell investments to repay borrowings.
All borrowing arrangements entered into require the prior
approval of the Board and gearing levels are regularly discussed by
the Board and Investment Manager.
-- Regulatory: failure to comply with the requirements of a
framework of regulation and legislation, within which the Company
operates.
The Company relies on the services of the Company Secretary and
Investment Manager to monitor ongoing compliance with relevant
regulations and legislation.
-- Operational: disruption to, or failure of, the Investment
Manager's and/or any other third party service providers' systems
which could result in an inability to report accurately and monitor
the Company's financial position.
Both the Investment Manager and the Administrator have
established business continuity plans to facilitate continued
operation in the event of a major service disruption or
disaster.
Other matters
Viability Statement
In accordance with the UK Corporate Governance Code, the Board
has considered the longer term prospects for the Company. The
period assessed is the five years to 30 April 2022. During this
period the Board is required to put forward an ordinary resolution
for the continuation of the Company for a further five years, with
the next vote due to take place at the annual general meeting to be
held in October 2018. The Board believes that a review to this date
would be too short to be meaningful for shareholders and has
considered a five year period to be appropriate.
As part of its assessment of the viability of the Company, the
Board has considered each of the principal risks and the impact on
the Company's portfolio of a significant fall in UK markets. The
Board has also considered the liquidity of the Company's portfolio
to ensure that it will be able to meet its liabilities as they fall
due.
The conclusion of this review is that the Board has a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the period to 30
April 2022, subject to shareholders approving the continuation of
the Company at the annual general meeting in 2018.
Life of the Company
The Company's Articles provide that, at the AGM to be held in
2018 and at every fifth AGM thereafter, a vote on whether the
Company should continue in existence as an investment trust will be
proposed as an ordinary resolution.
Share capital
Shareholders authorised the Company to buy back up to 14.99% of
the shares in issue at last year's AGM. This has been used to
manage the balance between supply and demand for the Company's
shares in the market.
During the year the Company repurchased a total of 1,040,706
ordinary shares, representing 2.5% of the issued share capital as
at 1 May 2016 (2016: 676,000). The Company has repurchased a
further 152,500 ordinary shares since the year end.
A resolution to renew the Company's buy-back authority will be
put to shareholders at the AGM on 5 October 2017.
3,539 ordinary shares were issued during the year as a result of
the exercise of subscription shares (2016: 265).
Directors
The Directors of the Company and their biographical details are
set out in the Annual Financial Report.
No Director has a contract of service with the Company.
The Board supports the principles of diversity in the boardroom
and acknowledges the benefits of having greater diversity,
including gender, and considers this in seeking to ensure that the
overall balance of skills and knowledge that the Board has remains
appropriate so that it can continue to operate effectively. The
Board's director selection policy will, first and foremost, seek to
identify the person best qualified to become a director of the
Company, but in so doing, consideration will be given to diversity,
including gender. The Board is currently comprised of four male
directors and one female director.
Modern Slavery Act 2015
The Company does not fall within the scope of the Modern Slavery
Act 2015 as its turnover is less than GBP35.0m. Therefore no
slavery and human trafficking statement is included in the Annual
Financial Report.
Social and environmental matters
The Company has no employees and has delegated the management of
the Company's investments to Artemis which, in its capacity as
Investment Manager, has a Corporate Governance and Shareholder
Engagement document which sets out a number of principles that are
intended to be considered in the context of its responsibility to
manage investments in the financial interests of shareholders.
Artemis undertakes extensive evaluation and engagement with company
managements on a variety of matters such as strategy, performance,
risk, dividend policy, governance and remuneration. All risks and
opportunities are considered as part of the investment process in
the context of enhancing the long-term value of shareholders'
investments. This will include matters relating to material
environmental, human rights and social considerations that will
ultimately impact the profitability of a company or its stock
market rating and hence these matters are an integral part of
Artemis' thinking as investors.
As the Company has delegated the investment management and
administration of the Company to third party service providers, and
has no fixed premises, there are no greenhouse gas emissions to
report from its operations, nor does it have responsibility for any
other emissions producing sources under the Companies Act 2006
(Strategic Report and Directors' Reports) Regulations 2013,
including those within the underlying investment portfolio.
Leverage
Leverage is defined in the Alternative Investment Fund Manager
Directive ("AIFMD") as any method by which the Company can increase
its exposure by borrowing cash or securities, or from leverage that
is embedded in derivative positions. The Company is permitted by
its Articles to borrow up to 25% of its net assets (equivalent to
125% under the commitment and gross ratios in the AIFMD). The
Company is permitted to have additional leverage of up to 100% of
its net assets, which results in permitted total leverage of 225%
under both ratios. Artemis as the Alternative Investment Fund
Manager ("AIFM"), monitors leverage limits on a daily basis and
reviews them annually. No changes have been made to these limits
during the period. At 30 April 2017, the Company's leverage was
107.0% as determined using the gross method and 108.7% under the
commitment method.
The Investment Manager requires prior Board approval to:
(i) enter into any stocklending agreements;
(ii) to borrow money against the security of the Company's investment;, or
(iii) create any charges over any of the Company's investments.
For and on behalf of the Board,
Duncan Budge
Chairman
20 July 2017
Statement of Directors' Responsibilities in respect of the
Annual Financial Report
The Directors are responsible for preparing the Annual Financial
Report and the financial statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law they are
required to prepare the financial statements in accordance with
IFRS as adopted by the EU and applicable law.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of their profit or
loss for that period. In preparing each of the financial
statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether they have been prepared in accordance with IFRS as adopted by the EU; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
its financial statements comply with the Companies Act 2006. They
have general responsibility for taking such steps as are reasonably
open to them to safeguard the assets of the Company and to prevent
and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors' Report,
Directors' Remuneration Report and Corporate Governance Statement
that complies with that law and those regulations.
The financial statements are published on a website,
artemisalphatrust.co.uk, maintained by the Company's Investment
Manager, Artemis. Responsibility for the maintenance and integrity
of the corporate and financial information relating to the Company
on this website has been delegated to the Investment Manager by the
Directors. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
We confirm that to the best of our knowledge:
(a) the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities and financial position of the Company as
at 30 April 2017, and of the profit or loss of the Company for the
year then ended; and
(b) the Strategic Report includes a fair review of the
development and performance of the business and the position of the
Company, together with a description of the principal risks and
uncertainties that it faces.
For and on behalf of the Board
Duncan Budge
Chairman
20 July 2017
Statement of Comprehensive Income
For the year ended 30 April 2017
Year ended Year ended
30 April 2017 30 April 2016
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment income 3,184 - 3,184 2,590 - 2,590
-------- -------- -------- -------- -------- --------
Total revenue 3,184 - 3,184 2,590 - 2,590
Gains/(losses)
on investments - 24,515 24,515 - (9,577) (9,577)
Currency gains/(losses) - 7 7 - (41) (41)
-------- -------- -------- -------- -------- --------
Total income/(loss) 3,184 24,522 27,706 2,590 (9,618) (7,028)
Expenses
Investment management
fee (76) (688) (764) (80) (722) (802)
Other expenses (420) (13) (433) (429) (7) (436)
-------- -------- -------- -------- -------- --------
Profit/(loss)
before finance
costs and tax 2,688 23,821 26,509 2,081 (10,347) (8,266)
Finance costs (36) (323) (359) (41) (366) (407)
-------- -------- -------- -------- -------- --------
Profit/(loss)
before tax 2,652 23,498 26,150 2,040 (10,713) (8,673)
Tax (37) - (37) (11) - (11)
-------- -------- -------- -------- -------- --------
Profit/(loss)
for the year 2,615 23,498 26,113 2,029 (10,713) (8,684)
-------- -------- -------- -------- -------- --------
Earnings/(loss)
per ordinary
share (undiluted) 6.31p 56.70p 63.01p 4.75p (25.09)p (20.34)p
-------- -------- -------- -------- -------- --------
Earnings/(loss)
per ordinary
share (diluted) 6.31p 56.70p 63.01p 4.75p (25.09)p (20.34)p
-------- -------- -------- -------- -------- --------
The total column of this statement represents the Statement of
Comprehensive Income of the Company, prepared in accordance with
International Financial Reporting Standards. The supplementary
revenue and capital columns are both prepared under guidance
published by the Association of Investment Companies.
All items in the above statement derive from continuing
operations.
All income is attributable to the equity shareholders of Artemis
Alpha Trust plc. There are no minority interests.
Statement of Financial Position
As at 30 April 2017
2017 2016
GBP'000 GBP'000
Non-current assets
Investments 156,756 134,647
Investments in subsidiary undertaking 2,719 2,250
-------- --------
159,475 136,897
-------- --------
Current assets
Other receivables 645 469
Cash and cash equivalents 4,012 1,587
-------- --------
Total assets 164,132 138,953
-------- --------
Current liabilities
Other payables (1,129) (2,512)
Bank loan (13,000) (8,500)
-------- --------
(14,129) (11,012)
-------- --------
Net assets 150,003 127,941
-------- --------
Equity attributable to equity holders
Share capital 492 498
Share premium 657 645
Special reserve 50,646 53,022
Capital redemption reserve 98 92
Retained earnings - revenue 2,928 2,000
Retained earnings - capital 95,182 71,684
-------- --------
Total equity 150,003 127,941
-------- --------
Net asset value per ordinary share (undiluted) 364.72p 303.43p
-------- --------
Net asset value per ordinary share (diluted) 361.90p 303.43p
-------- --------
These financial statements were approved by the Board of
Directors and signed on its behalf on 20 July 2017 by:
Duncan Budge
Chairman
Statement of Changes in Equity
For the year ended 30 April 2017
Capital Retained earnings
-------------------
Share Share Special redemption
capital premium reserve reserve Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
For the year ended
30 April 2017
At 1 May 2016 498 645 53,022 92 2,000 71,684 127,941
Total comprehensive
income:
Profit for the year - - - - 2,615 23,498 26,113
Transactions with
owners recorded
directly to equity:
Repurchase of ordinary
shares into treasury - - (2,376) - - - (2,376)
Cancellation of
ordinary shares
from treasury (6) - - 6 - - -
Conversion of subscription
shares - 12 - - - - 12
Dividends paid - - - - (1,687) - (1,687)
--------------------------- -------- -------- -------- ---------- -------- --------- --------
At 30 April 2017 492 657 50,646 98 2,928 95,182 150,003
--------------------------- -------- -------- -------- ---------- -------- --------- --------
For the year ended
30 April 2016
At 1 May 2015 503 644 54,598 87 1,554 82,397 139,783
Total comprehensive
income:
Profit/(loss) for
the year - - - - 2,029 (10,713) (8,684)
Transactions with
owners recorded
directly to equity:
Repurchase of ordinary
shares into treasury - - (1,576) - - - (1,576)
Cancellation of
ordinary shares
from treasury (5) - - 5 - - -
Conversion of subscription
shares - 1 - - - - 1
Dividends paid - - - - (1,583) - (1,583)
--------------------------- -------- -------- -------- ---------- -------- --------- --------
At 30 April 2016 498 645 53,022 92 2,000 71,684 127,941
--------------------------- -------- -------- -------- ---------- -------- --------- --------
Statement of Cash Flows
For the year ended 30 April 2017
2017 2016
GBP'000 GBP'000
Operating activities
Profit/(loss) before tax 26,150 (8,673)
Interest payable 359 407
(Gains)/losses on investments (24,515) 9,577
Currency (gains)/losses (7) 41
(Increase)/decrease in other receivables (150) 57
Decrease in other payables (144) (110)
-------- --------
Net cash inflow from operating activities before
interest and tax 1,693 1,299
Interest paid (359) (407)
Irrecoverable overseas tax suffered (37) (11)
-------- --------
Net cash inflow from operating activities 1,297 881
-------- --------
Investing activities
Purchases of investments (45,795) (37,988)
Sales of investments 46,574 46,091
-------- --------
Net cash inflow from investing activities 779 8,103
-------- --------
Financing activities
Repurchase of ordinary shares into treasury (2,593) (1,359)
Conversion of subscription shares 12 1
Dividends paid (1,687) (1,583)
Increase in inter-company loan 110 396
-------- --------
Net cash outflow from financing activities (4,158) (2,545)
-------- --------
Net (increase)/decrease in net debt (2,082) 6,439
-------- --------
Net debt at the start of the year (6,913) (13,311)
Effect of foreign exchange rate changes 7 (41)
-------- --------
Net debt at the end of the year (8,988) (6,913)
-------- --------
Bank loans (13,000) (8,500)
Cash and cash equivalents 4,012 1,587
-------- --------
(8,988) (6,913)
-------- --------
Notes to the Financial Statements
1. Accounting policies
(a) Basis of preparation. The financial statements have been
prepared in accordance with International Financial Reporting
Standards ("IFRS") as adopted by the European Union. The principal
accounting policies adopted by the Company are set out below.
Where presentational guidance set out in the Statement of
Recommended Practice ("SORP") for investment trusts and venture
capital trusts issued by the Association of Investment Companies
("AIC") in November 2014 and updated in January 2017 is consistent
with the requirements of IFRS, the financial statements have been
prepared in accordance with the SORP.
The financial statements have been prepared applying the
Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IFRS
28) which was adopted by the European Union for account periods
commencing on or after 1 January 2016.
This amendment removes the requirement to consolidate
subsidiaries, where these subsidiaries can themselves be classified
as investment entities in their own right and instead the
subsidiary is treated as an investment at fair value through profit
or loss. As the Company's dealing subsidiary, Alpha Securities
Trading Limited, meets the criteria to be treated as an investment
entity, the Company is now required to prepare its financial
statements on a stand alone basis.
There is no impact on the net asset value per ordinary share
resulting from this change, nor on the total earnings per ordinary
share for the current or prior periods.
The accounting policies which follow set out those policies
which apply in preparing the financial statements for the year
ended 30 April 2017.
The financial statements are presented in Sterling, which is the
currency of the primary environment in which the Company operates.
All values are rounded to the nearest thousand pounds (GBP'000)
except where otherwise indicated.
A number of estimates and judgements have been made in the
preparation of the financial statements. These are reviewed
regularly by the Board and Investment Manager. The most significant
judgement is the valuation of unquoted investments.
2. Income
Year ended Year ended
30 April 30 April
2017 2016
GBP'000 GBP'000
Investment income*
UK dividend income 2,208 2,109
UK fixed interest 28 21
Overseas dividend income 942 454
---------- ----------
3,178 2,584
---------- ----------
Other income
Bank interest 6 6
---------- ----------
6 6
---------- ----------
Total income 3,184 2,590
---------- ----------
Income from investments
UK quoted investments 1,894 1,858
UK unquoted investments 342 272
Overseas quoted investments 942 454
---------- ----------
3,178 2,584
---------- ----------
* All investments are designated at fair value through profit or
loss on initial recognition, therefore all investment income arises
on investments at fair value through profit or loss.
3. Investment management and performance fees
Year ended Year ended
30 April 2017 30 April 2016
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management
fee 76 688 764 80 722 802
As at 30 April 2017, GBP69,000 was outstanding in respect of
amounts due to the Investment Manager (2016: GBP235,000). As the
performance of the Company's share price did not meet the criteria
required for the payment of a performance fee, no payment has been
made (2016: nil).
4. Dividends paid and proposed
Set out below are the total dividends recognised in respect of
the financial year ended 30 April 2017.
Year ended Year ended
30 April 30 April
2017 2016
GBP'000 GBP'000
2016 second interim dividend of 2.50p per ordinary
share (2015: 2.30p) 1,050 985
2017 first interim dividend of 1.55p per ordinary
share (2016: 1.40p) 637 598
---------- ----------
1,687 1,583
---------- ----------
Dividends are recognised in the period in which they are due to
be paid and are shown through the Statement of Changes in Equity.
Therefore, the Statement of Changes in Equity for the year ended 30
April 2017 reflects the second interim dividend for the year ended
30 April 2016 which was paid on 19 August 2016. For the year ended
30 April 2017, a first interim dividend of 1.55p has been paid on
27 January 2017 and a second interim dividend of 2.75p together
with a special dividend of 2.00p will be paid on 25 August
2017.
Set out below are the total dividends paid/payable in respect of
the financial year ended 30 April 2017.
Year ended Year ended
30 April 30 April
2017 2016
GBP'000 GBP'000
First interim dividend of 1.55p per ordinary
share (2016: 1.40p) 637 598
Second interim dividend of 2.75p per ordinary
share (2016: 2.50p) 1,127 1,054
Special dividend of 2.00p per ordinary share
(2016: nil) 820 -
---------- ----------
2,584 1,652
---------- ----------
5. Earnings per share
The revenue earnings per ordinary share is based on the revenue
profit for the year of GBP2,615,000 (2016: GBP2,029,000) and on
41,443,082 (2016: 42,694,142) ordinary shares, being the weighted
average number of ordinary shares in issue during the year.
The capital return per ordinary share is based on the capital
return for the year of GBP23,498,000 (2016: capital loss
GBP10,713,000) and on 41,443,082 (2016: 42,694,142) ordinary
shares, being the weighted average number of ordinary shares in
issue during the year.
There was no dilution to the returns for the year ended 30 April
2017 (2016: none) relating to the Company's issued subscription
shares.
6. Share capital
(a) Share capital
2017 2017 2016 2016
Shares GBP'000 Shares GBP'000
Allotted, called up and fully
paid:
Ordinary shares of 1p each 41,127,975 411 42,165,142 422
Ordinary shares of 1p each held
in treasury 1,223,706 12 734,000 7
Subscription shares of 1p each 6,859,138 69 6,862,677 69
---------- -------- ---------- --------
49,210,819 492 49,761,819 498
---------- -------- ---------- --------
(b) Ordinary shares
Shares GBP'000
Movements in ordinary shares during the year:
Ordinary shares in issue on 1 May 2016 42,165,142 422
Repurchases of ordinary shares into treasury (1,040,706) (11)
Issue of ordinary shares upon exercise of subscription
shares 3,539 -
----------- -------
Ordinary shares in issue on 30 April 2017 41,127,975 411
----------- -------
The movements in ordinary shares held in treasury during the
year are as follows:
2017 2017 2016 2016
Shares GBP'000 Shares GBP'000
Balance brought forward 734,000 7 578,294 6
Repurchases of ordinary shares 1,040,706 11 676,000 6
Cancellation of ordinary shares (551,000) (6) (520,294) (5)
--------- -------- --------- --------
Balance carried forward 1,223,706 12 734,000 7
--------- -------- --------- --------
During the year ended 30 April 2017, a total of 1,040,706
ordinary shares were repurchased by the Company at a total cost,
including transaction costs, of GBP2,376,000 for placement in
treasury (2016: 676,000 ordinary shares were repurchased for
placement in treasury for GBP1,576,000).
(c) Subscription shares
The movements in subscription shares during the year are as
follows:
Shares GBP'000
Balance brought forward 6,862,677 69
Conversion of subscription shares into ordinary
shares (3,539) -
--------- -------
Balance carried forward 6,859,138 69
--------- -------
During the year, holders of 3,539 (2016: 265) subscription
shares exercised their rights to covert those shares into ordinary
shares at a price of 345 pence per ordinary share, giving a total
consideration received of GBP12,000 (2016: GBP1,000).
Holders of the remaining subscription shares may exercise their
right to convert those shares into ordinary shares at a price of
345 pence per ordinary share as at the close of business on 31
December 2017, whereupon rights under the subscription shares will
lapse.
7. Net asset value per ordinary share
The net asset value per share is based on the net assets of
GBP150,003,000 (2016: GBP127,941,000) and on 41,127,975 (2016:
42,165,142) ordinary shares, being the number of ordinary shares in
issue at the year end.
The diluted net asset value per share has been calculated on the
assumption that 6,859,138 (2016: nil) subscription shares were
exercised (as the undiluted asset value is higher than the exercise
price of 345 pence) resulting in a total of ordinary shares in
issue of 47,987,113 (2016: 42,165,142).
8. Transactions with the Investment Manager and related
parties
The amounts paid to the Investment Manager and amounts
outstanding at the year end are disclosed in Note 3. However, the
existence of an independent Board of Directors demonstrates that
the Company is free to pursue its own financial and operating
policies and therefore, under IAS 24: Related Party Disclosures,
the Investment Manager is not considered to be a related party.
The Company surrendered excess management expenses without
payment to Alpha Securities Trading Limited of GBP445,000 (2016:
GBPnil). All other transactions with subsidiary undertakings were
on an arms length basis. During the year transactions in securities
between the Company and its subsidiary undertakings amounted to
GBPnil (2016: GBPnil). During the year the Company paid its
subsidiary undertaking interest on the intercompany loan amounting
to GBPnil (2016: GBP7,000).
This Annual Financial Report announcement does not constitute
the Company's statutory accounts for the years ended 30 April 2017
and 30 April 2016 but is derived from those accounts. Statutory
accounts for the year ended 30 April 2016 have been delivered to
the Registrar of Companies. The statutory accounts for the year
ended 30 April 2017 and the year ended 30 April 2016 both received
an audit report which was unqualified and did not include a
reference to any matters to which the auditor drew attention by way
of emphasis without qualifying the report and did not include
statements under section 498 of the Companies Act 2006. The
statutory accounts for the year ended 30 April 2017 have not yet
been delivered to the Registrar of Companies and will be delivered
following the Annual General Meeting.
The audited Annual Financial Report for the year ended 30 April
2017 will be available to shareholders shortly. Copies may be
obtained from the Company's registered office at Cassini House, 57
St James's Street, London SW1A 1LD or at the website at
artemisalphatrust.co.uk.
The Annual General Meeting of the Company will be held on
Thursday, 5 October 2017 at 12.30 pm.
For further information, please contact:
Artemis Fund Managers Limited
Company Secretary
Telephone: 0131 225 7300
20 July 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
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