Annual Financial Report

RNS Number : 7924S

Artemis Alpha Trust PLC

10 July 2015

 



Artemis Alpha Trust plc (the "Company")

Annual Financial Report for the year ended 30 April 2015

This announcement contains regulated information

Financial Highlights

Returns for the year ended 30 April 2015

	Year ended 30 April 2015	Year ended 30 April 2014
Total returns
Net asset value per ordinary share	(0.9)%	13.3%
Ordinary share price	(6.9)%	3.1%
FTSE All-Share Index	7.5%	10.5%
Revenue and dividends
Revenue earnings per ordinary share	4.12p	6.16p
Dividends per ordinary share	3.55p	3.20p
Ongoing charges (excluding performance fees)	0.9%	1.0%
Capital	As at 30 April 2015	As at 30 April 2014
Net asset value per ordinary share	326.28p	332.55p
Ordinary share price	275.00p	298.75p
Gearing	9.1%	17.4%

Total returns to 30 April 2015	3 years	5 years	Since 1 June 2003*
Net asset value per ordinary share	9.2%	28.5%	417.0%
Ordinary share price	0.3%	13.1%	348.7%
FTSE All-Share Index	40.0%	55.9%	188.1%

* The date when Artemis was appointed as Investment Manager. - Source: Artemis/Datastream

Strategic Report

This Strategic Report has been prepared in accordance with the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013.

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 policy outlined below.

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 these investments shall represent no more than 30 per cent 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 per cent of its net assets in hedge funds and/or other unregulated collective investment schemes. The Company will not invest more than 15 per cent of its gross assets in other investment companies listed on the main market of the London Stock Exchange.

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 per cent 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 utilise borrowings of up to 20 per cent of net assets. The Company has a £30 million borrowing facility with The Royal Bank of Scotland plc, of which £14.5 million 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 for the year ended 30 April 2014 and future periods, 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 Group 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 2015, together with its prospects for the future, is set out in the Chairman's Statement and Investment Manager's Review. The Board's principal focus is the delivery of positive long-term returns for shareholders. This will be dependent on the success of the investment strategy, in the context of both economic and stock market conditions. The investment strategy, and factors that may have an influence on it, 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.

Strategic Report - Chairman's Statement

Performance

The Company's net asset value per share declined by 0.9 per cent during the year ended 30 April 2015, on a total return basis. This compares with an increase of 7.5 per cent in the FTSE All-Share Index over the same period.

It is disappointing to have underperformed in this way and the reasons for the fall in the Company's NAV are examined in greater detail in the Investment Manager's Review. In summary, however, the largest factor was a sharp fall in the price of oil. This had a material adverse effect on the Company's oil and gas investments and reduced the net asset value by 9.6 per cent. While the Company's exposure to this sector had been reduced significantly from the levels seen in previous years, the remaining holdings, on average, fell in value by more than 50 per cent during the year. There was also a disappointment in the unquoted portfolio, where Gift-Library.com, an online retailer of luxury gifts, was put into administration. The valuation of the Company's stake was written down to nil which reduced the net asset value by 3.3 per cent.

On a more positive note, the unquoted investments added value overall. The Company realised its investment in The Hut Group for nearly £15 million in cash - equivalent to just over three times its cost. Lynton Holding Asia was another positive contributor, following the sale of its main asset, an aviation business. The Company will receive its share of the sale proceeds shortly and this should amount to a further £7 million, which also represents over three times the cost of the investment. It is hoped further realisations of unquoted investments can be achieved in the near future and we expect that unquoted investments will form a smaller component of the portfolio going forward.

Whilst there is no denying that the Company has had a period of poor performance, particularly when compared with the FTSE All-Share Index, it may be worth reminding shareholders that the Company's broad investment remit and management approach means that it is unlikely that the Company's performance will track this index. Nevertheless, our aim remains to outperform this index over the long term.

Dividends

As shareholders are aware, part of the Company's objective is to "achieve a growing dividend stream". In line with this, the dividend has increased in each of the last 11 years. The Board and Investment Manager are cognisant of the value that investors place on income, particularly in view of the low yields available elsewhere. We have, therefore, discussed the prospect of the Company paying a higher dividend and adopting a more progressive dividend-growth policy.

The Investment Manager expects the exposure to non or low yielding unquoted investments to reduce and the portfolio to move towards listed investments with greater dividend paying potential, which should increase the natural level of income generated from the portfolio in future. Given this background and the Company's sizeable revenue reserves of 6.6p per share, the Board believes that there is scope to pay a higher level of dividend this year and to target an annual rate of growth of 10 per cent.

The Board has therefore declared a second interim dividend of 2.30p (2014: 2.00p) per ordinary share, bringing the total for the year ended 30 April 2015 to 3.55p (2014: 3.20p). This represents a 15 per cent increase in the second interim dividend and a 10 per cent increase in total dividends over the 2014 payments. The dividend will be paid on 14 August 2015 to shareholders on the register as at 24 July 2015. Any shareholders wishing to re-invest their dividends can do so using the dividend re-investment plan, details of which are set out in the Annual Financial Report.

Share price and discount

Your Board regularly reviews with the Investment Manager and the Company's broker, Cantor Fitzgerald, the discount to net asset value at which the Company's shares have traded and the means available to address this.

To this end, the Company bought back 368,200 of its shares during the year, at a cost of approximately £1 million and an average discount of 13 per cent. However, the discount has widened during the year and stood at 15.7 per cent at the year end. A concerted and substantial programme of share buy-backs would not be sustainable for the Company at its current size and might reduce the liquidity of its shares. In addition, it would increase the proportion of the portfolio held in unquoted investments. We believe that shareholders' interests are best served by the judicious use of buy-backs to help control the discount. We also recognise that the most important factor in reducing the discount is good performance.

We give a high priority to stimulating interest in the Company's shares through a combination of marketing presentations by the Investment Manager and broker to both existing and prospective investors. In recent meetings with shareholders we have sought their views on the subject of the discount and, although there are inevitably varying responses to the question, these have generally been supportive of the current policy. This policy will be subject to regular review in the light of prevailing market conditions.

Board changes

I am pleased to report that John Ayton has been appointed as a non-executive director of the Company with effect from 25 June 2015. John is an accomplished entrepreneur with particular expertise in retail, luxury and e-commerce businesses.

I am also pleased to welcome Blathnaid Bergin as a non-executive director with effect from 9 July 2015 with the intention of her becoming Chairman of the Audit Committee in due course. She is currently Group Financial Controller of RSA Insurance, having previously spent 11 years at General Electric in a number of finance roles in both the capital and industrial businesses.

Further information on John and Blathnaid is set out in the Annual Financial Report.

Having served as a director since April 2004, Andrew Dalrymple will retire at the Annual General Meeting ("AGM"). The Board would like to record their thanks for all his valuable insights into markets and significant contribution over a number of years.

Annual General Meeting

The Company's AGM will take place on Thursday, 1 October 2015 at 12.30 pm in the offices of Artemis Fund Managers Limited, Cassini House, 57 St James's Street, London SW1A 1LD. The Notice of Meeting, containing full details of the business to be conducted at the meeting, is set out in the Annual Financial Report.

The Directors look forward to welcoming you to the AGM. The fund managers, John Dodd and Adrian Paterson, will make a short presentation and there will be light refreshments following the meeting, at which shareholders will have an opportunity to meet the Directors and fund managers. Should you be unable to attend the AGM in person, the Board would encourage you to use your proxy votes.

Outlook

On a number of levels your Board believes that the Company is well-placed to deliver value for shareholders. We have a talented and experienced management team who are able to draw on the extensive resources of the Artemis fund management group. I am pleased that John Dodd and Adrian Paterson have recently increased their holdings in the Company and now between them own some 10% of the shares. I welcome the confidence shown by them and the resulting alignment of their interests with those of the other shareholders.

The closed-end structure of an investment trust is tailor-made for investing for the long-term in a blend of asset classes, including some illiquid holdings where these justify inclusion by the prospect of superior returns. Within this structure it is possible to create a portfolio of investments, many of which would otherwise be difficult for most investors to access, and to deploy gearing when appropriate to boost returns. As a result of this investment flexibility we have a portfolio which is very different from almost any other investment trust and bears little resemblance to the constituents of the benchmark index.

In addition, the portfolio has changed and will continue to do so: the exposure to relatively small oil and gas companies has been much reduced, the proportion in unquoted investments will continue to decline and the amount in listed, dividend-paying companies will increase, enabling the Company to continue, and improve upon, its record of increasing dividend payments to shareholders.

Corporate activity has increased over the last year, offering a more favourable climate for the realisation of unquoted investments. This seems likely to continue. The portfolio has already seen some benefit from this trend and we hope to do so again in the coming year.

Although the Company has endured a period of poor performance, the Board and Investment Manager are determined to bring improved returns to shareholders.

Duncan Budge

Chairman

10 July 2015

Strategic Report - Investment Manager's Review

Performance

Over the year under review, the Company's net asset value fell by 0.9 per cent on a total return basis compared with a rise of 7.5 per cent in the FTSE All-Share Index.

The main reason for this disappointing performance was the sharp drop in the oil price in the final quarter of 2014 which in turn led to severe falls in the valuations of a number of the portfolio's oil and gas holdings.

The last 12 months have, in general, been positive for equity markets around the world as policymakers kept interest rates at negligible levels and continued, in some regions, to deploy quantitative easing. This, combined with recovering economies, has led to continued rises in equities and most other asset classes.

Total returns	3 years	5 years	Since 1 June 2003*
Net asset value	9.2%	28.5%	417.0%
Ordinary share price	0.3%	13.1%	348.7%
FTSE All-Share Index	40.0%	55.9%	188.1%

Source: Artemis/Datastream

* The date when Artemis was appointed as Investment Manager. All figures are total returns to 30 April 2015.

Review

While the overall performance was disappointing over the year, there was an unusually wide dispersion between the winners and losers, as the following attribution analysis shows.

Five largest stock contributors

Company		Market	Contribution %
The Hut Group		Unquoted	5.1
Lynton Holding Asia		Unquoted	2.8
Ashcourt Rowan		AIM	2.0
Emis Group		AIM	1.3
Skyepharma		LSE	0.9

Five largest stock detractors

Company		Market	Contribution %
Gift Library.com		Unquoted	(3.3)
Africa Oil		TSX	(2.0)
Providence Resources		AIM	(1.6)
Eland Oil & Gas		AIM	(1.2)
Igas Energy		AIM	(1.1)

Industry attribution

Industry			Contribution %
Financials			2.3
Consumer Services			2.3
Industrials			1.9
Basic Materials			0.5
Technology			0.3
Consumer Goods			0.3
Utilities			0.0
Telecommunications			(0.2)
Oil & Gas			(9.6)

As noted above, a major negative for the portfolio was its exposure to companies in the oil and gas sector which were hit when the oil price slumped unexpectedly from over US$100 per barrel to US$45 per barrel. Although the portfolio's overall oil and gas exposure has been substantially reduced over the last three years, its holdings in Africa Oil, Providence Resources, Eland Oil & Gas and Igas Energy saw significant falls. The Company's exposure to this sector is now below 10 per cent and, given the recovery in the oil price seen in recent months, we are cautiously optimistic that some of the losses incurred on these holdings will be recouped.

Unquoted investments

The biggest individual negative contributor was Gift-Library.com, which had to be written off in its entirety. Its failure to repay a debenture forced the business into administration and then liquidation. This was an online business that had strong potential due to the high margin structure and low returns rate for gift products. However, the failure of its management team to integrate an acquisition resulted in negative synergies and placed a severe strain on cash, meaning the company was unable to honour its obligations.

On a more positive note, we had two substantial events in the unquoted portfolio, both of which took place at higher valuations than our carrying values. We sold our holding in The Hut Group, a specialist online retailer, to a new private equity investor, reflecting a period of strong trading. This had proven to be a good investment over the five years we owned it, and we made 3.2 times our investment. The second notable development among the unquoteds was in relation to our long-standing investment in Lynton Holding Asia, which sold its stake in an aviation business, Hawker Pacific. It remains in the portfolio but is now a cash shell which is in the process of being wound up. We expect to receive the cash shortly. Together, these events added 7.9 per cent to the net asset value.

Listed investments

The portfolio made decent gains from its holdings in other financials, notably wealth manager Ashcourt Rowan. This was taken over by Towry Law at nearly double the pre-bid share price. The wealth management industry is undergoing consolidation. The cost of regulation is increasing but significant synergies can be extracted from putting these businesses together. Furthermore, recurring revenues generated remain high. With this in mind we invested some of the proceeds from the Ashcourt Rowan sale into Charles Stanley. The portfolio also retains a holding in Brewin Dolphin, albeit after taking some profits during the year.

Among the asset managers, we retain stakes in Polar Capital, Liontrust Asset Management and in emerging market specialists: Charlemagne Capital and City of London Investment Group. The performance of the funds that these businesses run is strong and although cash flows into them have been fairly muted recently, we expect that to pick up in the coming months. Another attraction of these cash-generative businesses is that they pay regular dividends and offer decent yields, even when growth is a bit sluggish.

Other investments that performed well over the year included Skyepharma, an oral and inhalation drug delivery company. It works in partnership with major pharmaceutical companies and receives royalties from a portfolio of products. Its lead product, Flutiform, has been approved for sale in several countries and royalty payments are starting to increase quite rapidly.

Disappointments included Mopowered, a mobile commerce software provider, whose sales did not match its increased cost base. It had to be refinanced under a new management team. Elsewhere, following a stellar performance in 2013, Polar Capital suffered outflows from its flagship Japanese fund following a period of poor performance. This fund has recently returned to the top quartile of the performance tables and, given that Polar has several other scalable funds, we have high hopes for it over the coming months.

Elsewhere in the listed portfolio, we raised cash from partial sales in Brewin Dolphin, Skyepharma, Emis Group and Telford Homes and through complete disposals of Salamander Energy and Genel Energy.

Portfolio themes

At the broader portfolio level, the two most significant themes remain other financials and internet-related businesses. Two long-standing themes, oil and gas and palm oil, are no longer as significant as they once were. As noted above, the Company's oil and gas exposure has been much reduced over recent years and two of its palm oil stocks, New Britain Palm Oil and Asian Plantations, were taken over, leaving minimal exposure to this area.

The portfolio's other financials investments are split between boutique fund management companies, traditional wealth managers and a newer business area: peer-to-peer lending. This sector has emerged as a consequence of the reluctance of banks to lend to consumers and smaller businesses following the banking crisis. Several platforms have been set up to take advantage of this fast-growing market and GLI Finance, a quoted company in which we have invested, has bought stakes in a number of these fledgling businesses.

Another investment that the Company has made in this area is in Ratesetter (Retail Money Market). It is the fastest growing peer-to-peer lender to consumers in the UK, having lent more than £600 million in the first five months of 2015. An important aspect of Ratesetter's business model is that it has set up a provision fund into which every borrower pays a small amount and which is intended to cover bad debts when default rates rise. We made this investment when the company raised fresh equity to scale up its business and increase spending on marketing. Although unquoted at present, we fully expect the company to float within the next three years when it is of a size to merit a listing.

Within the internet-related investments, Starcount has made significant progress under the new management of Edwina Dunn, the co-founder of Dunnhumby, a world leading retail intelligence business. Starcount is a data analytics business focused on social media. The business is developing a strong pipeline of customers and is now applying its capabilities to data applications for financial services, a large and exciting opportunity. Our second largest investment in this area is Metapack, a software business that manages carrier and postal solutions for online retailers. Metapack has continued its push into Europe to complement its dominant position in the UK. It remains the only company that provides a single point of integration for all UK and European couriers and has never lost a significant customer. We expect the company to benefit from the continued growth of online retail.

Gearing

Over the year we reduced the Company's gearing significantly. At the start of the year it stood at £26.5 million and at 30 April 2015 had fallen to £14.5 million. This trend continued after the year end, with £6 million from the Ashcourt Rowan takeover received in early May. When taking account of £7 million due from Lynton Holding Asia (as noted above), the Company is effectively ungeared at the time of writing. We do not expect this to remain the case over the long term and will look to use the borrowing facility selectively as good investment opportunities arise.

Future investment

Under Artemis' management the Company has taken advantage of its closed-end structure to invest in a number of unquoted investments. The primary objective of this has been to gain exposure to businesses which have exceptional growth potential in areas that often cannot be accessed through listed companies. Clearly there can be higher risks attached to investment in such companies and, like all businesses, their development does not always go to plan. That said, potential, when realised, can result in significant returns. We have experienced both sides of unquoted investing. Our objective over time, is to add value through unquoted investments and, whilst we would have liked to have provided greater returns, we feel we have achieved this to date. Overall, the Company has invested £78 million in unquoted investments and achieved realisations of £66 million to date. The remaining value of our unquoted investments is £48 million.

When making an investment in an unquoted company we look for an achievable pathway to a realisation within a three to five year horizon. In practice there are many reasons why this may not be possible and we have been frustrated that some of our unquoted companies have taken longer to develop their businesses than we expected when we invested. Over the last 12 months we have made a concerted effort to realise cash and reduce the Company's total exposure to these investments. Lynton Holding Asia and The Hut Group are examples of our efforts, The Hut Group returned almost £15 million during the year and £7 million is due from Lynton.

It is our intention to continue to reduce the overall level of unquoted exposure in the portfolio. This is not to say we are abandoning unquoted investments but rather we want to reduce the overall exposure to them over time. Where realisations are achieved we aim to recycle the cash into listed investments, and where appropriate, into dividend-paying companies.

A consequence of this strategy is that as cash is recycled from non or low yielding unquoted companies into dividend-paying companies, the overall yield of the portfolio should rise, and support a more progressive dividend as highlighted in the Chairman's Statement.

Outlook

Markets moved sharply higher in the first few months of 2015. In the UK small and mid cap market, to which the portfolio has a significant level of exposure, companies have started to perform better than they have done for some time.

We have continued to take advantage of this strength to realise a number of unquoted investments and use the cash to bring the overall level of gearing down. That said, we will look to deploy cash back into the market as we identify suitable investment opportunities that meet our valuation expectations.

With the uncertainty around the general election behind us, business confidence has increased. We therefore remain optimistic about the prospects for the UK economy and for your Company in the year ahead.

John Dodd and Adrian Paterson

Fund managers

Artemis Fund Managers Limited

10 July 2015

Strategic Report - 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

Year ended 30 April	Net asset value	Share price	FTSE All-Share Index
2011	23.4%	31.0%	13.7%
2012	(4.6)%	(13.9)%	(2.0)%
2013	(2.8)%	4.5%	17.8%
2014	13.3%	3.1%	10.5%
2015	(0.9)%	(6.9)%	7.5%

Source: Artemis/Datastream

Dividends per ordinary share

Year ended 30 April	Rate per ordinary share	% increase
2011	2.85p	3.6%
2012	2.95p	3.5%
2013	3.05p	3.4%
2014	3.20p	4.9%
2015	3.55p	10.9%

Ongoing charges as a proportion of shareholders' funds (excluding performance fees)

As at 30 April	Ongoing charges
2011	0.9%
2012	1.0%
2013	0.9%
2014	1.0%
2015	0.9%

In addition to the above KPIs, the Board monitors the discount at which the shares trade at against the underlying net asset value. Whilst no specific discount target has been set, 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 of the Company's shares. This is regularly reviewed 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 on pages 20 to 23 of the Annual Financial 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 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 of the Company's larger 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 Board believes this approach will generate good long-term returns for shareholders. The Company holds smaller listed, AIM traded and unquoted investments which can be subject to a higher degree of risk than larger quoted investments. 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 will continue to be a source of positive returns for shareholders. The Company may also have significant exposure to particular industry sectors from time to time. 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 had no investments in hedge funds or unregulated collective investment schemes during the year.

·      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.

·      Gearing: 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 discussed by the Board and Investment Manager at every meeting.

Other matters

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 management

Shareholders authorised the Company to buy back up to 14.99 per cent of the shares in issue at last year's AGM. This can be 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 368,200 ordinary shares, representing 0.9 per cent of the issued share capital as at 1 May 2014. The Company has not repurchased any further 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 1 October 2015.

2,292 ordinary shares were issued during the year as a result the exercise of subscription shares (2014: 382).

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. It 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 five male directors and one female director.

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 management 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 per cent of its net assets (determined as 125 per cent under the commitment and gross ratios in the AIFMD). The Company is permitted to have additional leverage of up to 100 per cent of its net assets, which results in permitted total leverage of 225 per cent under both ratios. 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 since the adoption of the requirements of the AIFMD. At 30 April 2015, the Company's leverage was 108.3 per cent as determined using both the commitment and gross methods.

The Investment Manager is not able to enter into any stocklending agreements, to borrow money against the security of the Company's investments, or create any charges over any of the Company's investments, unless prior approval has been received from the Board.

For and on behalf of the Board

Duncan Budge

Chairman

10 July 2015

Statement of Directors' responsibilities in respect of the Annual Financial Report

The Directors are responsible for preparing the Annual Financial Report and the group and parent company financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare group and parent company financial statements for each financial year. Under that law they are required to prepare the group financial statements in accordance with IFRS as adopted by the EU and applicable law and have elected to prepare the parent company financial statements on the same basis.

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 group and parent company and of their profit or loss for that period. In preparing each of the group and parent company 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 group and the parent company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company's transactions and disclose with reasonable accuracy at any time the financial position of the parent 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 group 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. The maintenance and integrity of the corporate and financial information relating to the Company is the responsibility of the Investment Manager. 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 and the Group as at 30 April 2015, and of the profit or loss of the Group 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 and the Group, together with a description of the principal risks and uncertainties that it faces.

For and on behalf of the Board

Duncan Budge

Chairman

10 July 2015

Consolidated Income Statement

For the year ended 30 April 2015

			Year ended 30 April 2015						Year ended 30 April 2014
			Revenue £'000		Capital £'000		Total £'000		Revenue £'000		Capital £'000		Total £'000
Investment income			2,415		-		2,415		2,280		-		2,280
Other income			2		-		2		710		-		710
Total revenue			2,417		-		2,417		2,990		-		2,990
(Losses)/gains on investments			-		(1,937)		(1,937)		-		15,054		15,054
(Losses)/gains on current asset investments			(63)		-		(63)		392		-		392
Currency losses			-		(4)		(4)		(4)		(3)		(7)
Total income/(loss)			2,354		(1,941)		413		3,378		15,051		18,429
Expenses
Investment management fee			(93)		(839)		(932)		(96)		(864)		(960)
Other expenses			(416)		(10)		(426)		(403)		(29)		(432)
Profit/(loss) before finance costs  and tax			1,845		(2,790)		(945)		2,879		14,158		17,037
Finance costs			(48)		(442)		(490)		(59)		(511)		(570)
Profit/(loss) before tax			1,797		(3,232)		(1,435)		2,820		13,647		16,467
Tax			(20)		-		(20)		(98)		-		(98)
Profit/(loss) for the year			1,777		(3,232)		(1,455)		2,722		13,647		16,369
Earnings/(loss) per ordinary share			4.12p		(7.50)p		(3.38)p		6.16p		30.90p		37.06p

The total column of this statement represents the Statement of Comprehensive Income of the Group, 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.

Balance Sheets

As at 30 April 2015

	Group 2015 £'000	Company 2015 £'000	Group 2014 £'000	Company 2014 £'000
Non-current assets
Investments	150,253	152,509	167,207	169,481
Current assets
Investments held by subsidiary	1,289	-	1,263	-
Other receivables	1,466	1,458	551	492
Cash and cash equivalents	1,778	1,189	1,437	1,134
	4,533	2,647	3,251	1,626
Total assets	154,786	155,156	170,458	171,107
Current liabilities
Other payables	(503)	(873)	(274)	(923)
Bank loan	(14,500)	(14,500)	(26,500)	(26,500)
	(15,003)	(15,373)	(26,774)	(27,423)
Net assets	139,783	139,783	143,684	143,684
Equity attributable to equity holders
Share capital	503	503	539	539
Share premium	644	644	636	636
Special reserve	54,598	54,598	55,649	55,649
Capital redemption reserve	87	87	51	51
Retained earnings - revenue	3,368	1,554	2,994	1,145
Retained earnings - capital	80,583	82,397	83,815	85,664
Total equity	139,783	139,783	143,684	143,684
Net asset value per ordinary share	326.28p	326.28p	332.55p	332.55p

These financial statements were approved by the Board of Directors and signed on its behalf on 10 July 2015 by:

Duncan Budge

Chairman

 

Statements of Changes in Equity

Company	Share Capital £'000			Share premium £'000		Special reserve £'000		Capital redemption reserve £'000		Retained earnings				Total £'000
										Revenue £'000		Capital £'000
For the year ended 30 April 2015
At 1 May 2014	539			636		55,649		51		2,994		83,815		143,684
Total comprehensive income:
Profit/(loss) for the year	-			-		-		-		1,777		(3,232)		(1,455)
Transactions with owners directly to equity:
Repurchase of ordinary shares into treasury	-			-		(1,051)		-		-		-		(1,051)
Cancellation of ordinary shares from treasury	(36)			-		-		36		-		-		-
Conversion of subscription shares	-			8		-		-		-		-		8
Dividends paid	-			-		-		-		(1,403)		-		(1,403)
At 30 April 2015	503			644		54,598		87		3,368		80,583		139,783
For the year ended 30 April 2014
At 1 May 2013	554			635		65,334		36		1,621		70,168		138,348
Total comprehensive income:
Profit for the year	-			-		-		-		2,722		13,647		16,369
Transactions with owners recorded directly to equity:
Repurchase of ordinary shares into treasury	-			-		(9,685)		-		-		-		(9,685)
Cancellation of ordinary shares from treasury	(15)			-		-		15		-		-		-
Conversion of subscription shares	-			1		-		-		-		-		1
Dividends paid	-			-		-		-		(1,349)		-		(1,349)
At 30 April 2014	539			636		55,649		51		2,994		83,815		143,684

Company	Share Capital £'000	Share premium £'000	Special reserve £'000	Capital redemption reserve £'000	Retained earnings		Total £'000
					Revenue £'000	Capital £'000
For the year ended 30 April 2015
At 1 May 2014	539	636	55,649	51	1,145	85,664	143,684
Total comprehensive income:
Profit/(loss) for the year	-	-	-	-	1,812	(3,267)	(1,455)
Transactions with owners directly to equity:
Repurchase of ordinary shares into treasury	-	-	(1,051)	-	-	-	(1,051)
Cancellation of ordinary shares from treasury	(36)	-	-	36	-	-	-
Conversion of subscription shares	-	8	-	-	-	-	8
Dividends paid	-	-	-	-	(1,403)	-	(1,403)
At 30 April 2015	503	644	54,598	87	1,554	82,397	139,783
For the year ended 30 April 2014
At 1 May 2013	554	635	65,334	36	870	70,919	138,348
Total comprehensive income:
Profit for the year	-	-	-	-	1,624	14,745	16,369
Transactions with owners recorded directly to equity:
Repurchase of ordinary shares into treasury	-	-	(9,685)	-	-	-	(9,685)
Cancellation of ordinary shares from treasury	(15)	-	-	15	-	-	-
Conversion of subscription shares	-	1	-	-	-	-	1
Dividends paid	-	-	-	-	(1,349)	-	(1,349)
At 30 April 2014	539	636	55,649	51	1,145	85,664	143,684

Cash Flow Statements

For the year ended 30 April 2015

	Group 2015 £'000	Company 2015 £'000	Group 2014 £'000	Company 2014 £'000
Operating activities
(Loss)/profit before tax	(1,435)	(1,435)	16,467	16,467
Interest payable	490	512	570	575
Losses/(gains) on investments	1,937	1,955	(15,054)	(16,158)
Losses/(gains) on current asset investments	63	-	(392)	-
Currency losses	4	4	3	3
Decrease/(increase) in other receivables	15	23	(136)	(136)
Increase/(decrease) in other payables	263	259	(311)	(311)
Net cash inflow from operating activities before interest and tax	1,337	1,318	1,147	440
Interest paid	(490)	(512)	(570)	(575)
Irrecoverable overseas tax suffered	(20)	(20)	(98)	(98)
Net cash inflow/(outflow) from operating activities	827	786	479	(233)
Investing activities
Purchases of investments	(31,548)	(29,473)	(39,556)	(34,349)
Sales of investments	45,610	43,501	48,922	43,553
Net cash inflow from investing activities	14,062	14,028	9,366	9,204
Financing activities
Repurchase of ordinary shares into treasury	(1,149)	(1,149)	(9,587)	(9,587)
Conversion of subscription shares	8	8	1	1
Dividends paid	(1,403)	(1,403)	(1,349)	(1,349)
(Increase)/decrease in inter-company loan	-	(211)	-	587
Net cash outflow from financing activities	(2,544)	(2,755)	(10,935)	(10,348)
Net decrease/(increase) in net debt	12,345	12,059	(1,090)	(1,377)
Net debt at the start of the year	(25,063)	(25,366)	(23,970)	(23,986)
Effect of foreign exchange rate changes	(4)	(4)	(3)	(3)
Net debt at the end of the year	(12,722)	(13,311)	(25,063)	(25,366)
Bank loans	(14,500)	(14,500)	(26,500)	(26,500)
Cash	1,778	1,189	1,437	1,134
	(12,722)	(13,311)	(25,063)	(25,366)

Notes:

1.     Accounting policies

Basis of preparation 

The Group's Financial Statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The Company's Financial Statements have also been prepared in accordance with IFRS as adopted by the EU and in accordance with the provisions of the Companies Act 2006 (the "Act"). The principal accounting policies adopted by the Group and by the Company are set out below. The Company has taken advantage of the exemption provided under Section 408 of the Act not to publish its Income Statement and related notes.

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 January 2009 is consistent with the requirements of IFRS, the financial statements have been prepared in accordance with the SORP.

The accounting policies which follow set out those policies which apply in preparing the financial statements for the year ended 30 April 2015. There are no differences between the accounting policies applied in the Group and the Company.

The Group and Company financial statements are presented in Sterling, which is the currency of the primary environment in which the Group operates. All values are rounded to the nearest thousand pounds (£'000) except when 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 30 April 2015 £'000	Year ended 30 April 2015 £'000
Investment income*
UK dividend income	1,898	1,689
UK fixed interest	104	202
Overseas dividend income	413	389
	2,415	2,280
Other income
Bank interest	6	4
Subsidiary undertaking's dealing profits/(losses)	(4)	706
	2	710
Total income	2,417	2,990
Total income comprises:
Dividends and interest from investments	2,415	2,280
Bank interest	6	4
Other income and dealing profits/(losses)	(4)	706
	2,417	2,990
Income from investments
UK quoted investments	1,508	1,479
UK unquoted investments	494	412
Overseas quoted investments	413	389
	2,415	2,280

*    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

	2015			2014
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Investment management fee	93	839	932	96	864	960

As at 30 April 2015, £288,000 was outstanding in respect of amounts due to the Investment Manager (2014: £78,000). 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 (2014: nil).

4.   Dividends paid and proposed

Set out below are the total dividends recognised in respect of the financial year ended 30 April 2015.

	Year ended 30 April 2015 £'000	Year ended 30 April 2014 £'000
2014 second interim dividend of 2.00p per ordinary share (2013: 1.85p)	864	824
2015 first interim dividend of 1.25p per ordinary share (2014: 1.20p)	539	525
	1,403	1,349

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 2015 reflects the second interim dividend for the year ended 30 April 2014 which was paid on 15 August 2014. For the year ended 30 April 2015, a first interim dividend of 1.25p has been paid on 30 January 2015 and a second interim dividend of 2.30p per share will be paid on 14 August 2015.

Set out below are the total dividends paid/payable in respect of the financial year ended 30 April 2015.

	Year ended 30 April 2015 £'000	Year ended 30 April 2014 £'000
First interim dividend of 1.25p per ordinary share (2014: 1.20p)	539	525
Second interim dividend of 2.30p per ordinary share (2014: 2.00p)	985	864
	1,524	1,389

5.   Earnings per ordinary share

The revenue earnings per ordinary share is based on the revenue profit for the year of £1,777,000 (2014: £2,722,000) and on the 43,086,557 (2014: 44,162,066) ordinary shares, being the weighted average number of ordinary shares in issue during the year.

The capital loss per ordinary share is based on the capital loss for the year of £3,232,000 (2014: capital return £13,647,000) and on the 43,086,557 (2014: 44,162,066) 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 2015 (2014: none).

6.     Share capital

(a)       Share capital

	2015 Number	2015 £'000	2014 Number	2014 £'000
Allotted, called up and fully paid:
Ordinary shares of 1p each	42,840,877	428	43,206,785	432
Ordinary shares of 1p each held in treasury	578,294	6	3,842,409	38
Subscription shares of 1p each	6,862,942	69	6,865,234	69
		503		539

 (b)     Ordinary shares

	Number	£'000
Movements in ordinary shares during the year:
Ordinary shares in issue on 1 May 2014	43,206,785	432
Repurchases of ordinary shares into treasury	(368,200)	(4)
Issue of ordinary shares on exercise of subscription shares	2,292	-
Ordinary shares in issue on 30 April 2015	42,840,877	428

The movements in ordinary shares held in treasury during the year are as follows:

	2015 Number	2015 £'000	2014 Number	2014 £'000
Balance brought forward	3,842,409	38	1,847,176	18
Repurchases of ordinary shares	368,200	4	3,482,409	35
Cancellation of ordinary shares	(3,632,315)	(36)	(1,487,176)	(15)
Balance carried forward	578,294	6	3,842,409	38

During the year ended 30 April 2015, a total of 368,200 ordinary shares were repurchased by the Company at a total cost, including transaction costs, of £1,051,000 for placement in treasury (2014: 3,482,409 ordinary shares were repurchased for placement in treasury for £9,685,000).

 (c)     Subscription shares

	Number	£'000
Balance brought forward	6,865,234	69
Conversion of subscription shares into ordinary shares	(2,292)	-
Balance carried forward	6,862,942	69

During the year, holders of 2,292 (2014: 382) subscription shares exercised their rights to covert those shares into ordinary shares at a price of 345.00 pence per ordinary share, giving a total consideration received of £8,000 (2014: £1,000).

Holders of the remaining subscription shares may exercise their right to convert those shares into ordinary shares at a price of 345.00 pence per ordinary share as at the close of business on the last business day in either June or December each year to 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 £139,783,000 (2014: £143,684,000) and on 42,840,877 (2014: 43,206,785) 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 nil (2014: nil) subscription shares were exercised resulting in total ordinary shares in issue of 42,840,877 (2014: 43,206,785).

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. 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 did not surrender any excess management expenses without payment to Alpha Securities Trading Limited in the current year (2014: £353,000). 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 £nil (2014: £nil). During the year the Company paid its subsidiary undertaking Alpha Securities Trading Limited, interest on the intercompany loan amounting to £22,000 (2014: £7,000).

This Annual Financial Report announcement does not constitute the Company's statutory accounts for the years ended 30 April 2015 and 30 April 2014 but is derived from those accounts. Statutory accounts for the year ended 30 April 2014 have been delivered to the Registrar of Companies.  The statutory accounts for the year ended 30 April 2014 and the year ended 30 April 2015 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 2015 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 2015 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, 1 October 2015.

For further information, please contact:

Artemis Fund Managers Limited

Company Secretary

Telephone: [phone]

10 July 2015

 

END

 

 

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