Annual Financial Report

RNS Number : 2362E

Artemis Alpha Trust PLC

06 July 2021

 

Artemis Alpha Trust plc (the 'Company')

LEI: 549300MQXY2QXEIL3756

Annual Financial Report for the year ended 30 April 2021

Financial Highlights

 

 

Returns for the year ended 30 April 2021
				Year ended		Year ended
Total returns				30 April 2021		30 April 2020
Net asset value per ordinary share*				56.0%		(11.3)%
Ordinary share price*				80.8%		(12.5)%
FTSE All-Share Index				26.0%		(16.7)%
Revenue and dividends
Revenue earnings per ordinary share*				5.92p		4.90p
Dividends per share
	Ordinary			5.30p		5.20p
Ongoing charges*				0.9%		0.9%
				As at		As at
Capital				30 April 2021		30 April 2020
Net Assets (£000)				181,828		122,454
Net asset value per ordinary share				476.17p		309.38p
Ordinary share price				442.50p		249.00p
Net gearing*				10.2%		5.3%
						Since
Total returns to 30 April 2021		3 years	5 years		10 years	1 June 2003**
Net asset value per ordinary share*		26.5%	69.7%		66.2%	725.7%
Ordinary share price*		44.1%	107.2%		55.3%	707.7%
FTSE All-Share Index		7.7%	39.9%		81.0%	280.2%

Source:Artemis/Datastream

*Alternative Performance Measure

** The date when Artemis was appointed as Investment Adviser

 

 

 

Chairman's Statement

Performance

The year under review has been one of extraordinary market volatility: deep pessimism and uncertainty were met with unprecedented stimulus measures and replaced by euphoria on the news of vaccines. The valuation of sectors and companies oscillated dramatically as "winners" or "losers" were identified.

I am pleased to report that, during this difficult period, your Company comfortably outperformed its benchmark, the FTSE All-Share Index, with a total return of 56% and 80.9% in terms of NAV and share price respectively. The Index increased by 26.0%.

Earnings and dividends

The Board has declared a final dividend of 3.19p (2020: 3.10p) per share, which will be subject to approval by shareholders at the Company's Annual General Meeting. The final dividend, if approved by shareholders, will be paid on 22 October 2021 to those shareholders on the register as at 17 September 2021, with an ex-dividend date of 16 September 2021.

Total dividends declared for the year will therefore amount to 5.30p per share (2020: 5.20p), an increase of 1.9% on the previous year and ahead of the increase in the Consumer Prices Index of 1.5%, in line with our target.

As a result of the pandemic, dividend receipts from the investment portfolio were significantly lower than the previous year, reducing our earnings and the ability to pay dividends to our own shareholders. One of the advantages of the investment trust structure is that dividends can be supported in such challenging times by revenue reserves, which currently amount to 12.23p per share (including subsidiary reserves).

In addition, we have the ability to support our earnings by the payment of dividends from our subsidiary (to its parent) company. Earnings this year were supported by the payment of a £725,000 dividend from the subsidiary. After allowing for this, earnings per share increased by 20.8% to 5.92p from 4.9p last year.

Share buy backs/discount

A welcome improvement in the Company's rating has taken place over the year, with the discount to the underlying asset value reducing from 19.5% to 7.0%.

During the year, the Company bought back 1,395,000 ordinary shares for cancellation at a cost of £5.4 million and an average discount of 10.4%, adding approximately 1.75p to the net asset value per share. We believe that this, in combination with the excellent recent performance, has contributed to the narrowing of the discount. We intend to continue for the foreseeable future this policy of buying back shares when we believe that it is in shareholders' interests and, in particular, to address any imbalance in the supply and demand for our shares.

Triennial tender offer

Under the arrangements approved by shareholders two years ago, a tender offer for up to 25% of the Company's shares is due to take place later this year, subject to the level of the discount prevailing at that time as well as shareholder approval. We will be writing to shareholders nearer the time to outline our plans.

Environmental, social and governance factors ('ESG')

ESG considerations arise mainly from our underlying investments and form an integral part of the investment process. The Manager is responsible for ensuring that high standards are maintained in terms of its selection of investments as well as through engagement with investee companies.

We believe that close attention should be paid to ESG considerations in support of our principal objective of maximising returns for our shareholders.

Further information about our ESG approach can be found in the Annual Financial Report.

Annual General Meeting

The Company's Annual General Meeting ('AGM') will take place on Thursday, 14 October 2021 at 12.30 p.m. at the London offices of Artemis Fund Managers Limited, Cassini House, 57 St. James's Street, London, SW1A 1LD. The Board recognises the continued risks associated with the pandemic arising from public gatherings and notes the Government guidance and measures restricting such gatherings, travel and attendances at workplaces. At the time of writing therefore, the Board intends to limit physical attendance at the AGM only to Directors or their proxies and representatives from the Investment Manager. A recorded presentation by the Investment Manager will be available on the Company's website in the weeks leading up to the AGM. Should shareholders have questions for the Board or Investment Manager in advance of the AGM, these may be submitted by email as set out below. Full details are included in the Notice of Annual General Meeting in the Annual Financial Report.

Shareholders will find enclosed a form of proxy for use in connection with the AGM and are requested to complete, sign and return the form of proxy as soon as possible, in accordance with the instructions printed on it. The Board would encourage all shareholders to exercise their votes in respect of the AGM.

We would invite you to email [e-mail] with any questions you wish to raise.

Should the Government guidance change, and the current restrictions on group gatherings be relaxed by the time of the AGM, the Board will advise shareholders by an announcement to the London Stock Exchange and via the Company's website.

This year we have proposed, as a special resolution, an amendment to the Articles of Association  which will allow for virtual-only general meetings. Special Resolution 14, detailed in the Notice of Annual General Meeting, seeks shareholder approval to adopt new Articles of Association and further information on the amendment can be found in the appendix to the Notice of Annual General Meeting. This update will facilitate shareholder attendance in situations where they are prevented, through laws or regulations, from attending at a physical location. The Board intends to use this option only when absolutely necessary due to Government regulations or guidance.

Outlook

The uncertainties of the last year have been replaced by different challenges: massive reflationary initiatives funded by increased government debt, the reappearance of inflation and the remaining threat from the coronavirus around the world. It remains to be seen whether governments and central banks can manage these stimulus measures successfully.

 

Duncan Budge

Chairman

5 July 2021

Investment Manager's Review

 

Background

2020 was an extraordinary year in stock markets, characterised by immense volatility. Asset prices declined sharply in March when the proliferation of coronavirus became clear. Markets bottomed on 17 March, which happened to be the day that the UK entered its first lockdown. This was as good a reminder as any that the economy does not predict the market; the market predicts the economy.

Central bank commitments to low interest rates and creating liquidity, combined with widespread fiscal support to incomes impacted by stay-at-home restrictions, provided a very positive environment for stocks. November's positive vaccine trial results offered a welcome signal that the duration of the pandemic would be limited. In recent months, the rapid roll-out of vaccination programmes across many developed countries has improved sentiment further, creating expectations for a strong recovery as excess savings start to be channelled back in to the economy.

Sir John Templeton once remarked that "bull markets are born in pessimism, grow on scepticism, mature on optimism and die in euphoria". Perhaps the most unusual feature of the last 12 months was to see these phases of a full market cycle occur within such a short time. Whilst there is evidence of speculative behaviour and euphoric sentiment in narrow segments of the market, overall we regard the current phase as one of optimism as the economy recovers and corporate profitability rebuilds. 

Over the last year, the company's NAV increased by 56% compared to a 26% increase in the FTSE All-Share. One pleasing feature of the year was to see the portfolio perform well ahead of the tailwind provided by the advent of an effective vaccine. In the first half (May-October), NAV increased by 15% compared to a 2% decline for the market. In the second half (November-April), it increased by 36% against a 28% increase for the equity market. 

Our activity was elevated in response to volatility as we judged declines in asset prices to be far in excess of the likely impact to intrinsic values. The most significant decision was to increase our overall equity exposure from an ungeared position before the crisis to c.10%. We added to cyclical positions such as housebuilders, banks and airlines at times of distress and high uncertainty. We found opportunities to increase existing holdings (Dignity/ Just Eat/ Nintendo) and to start a handful of new holdings (Bellway/ Alibaba/ EssilorLuxottica). We allocated c.3.0% of NAV to acquiring our own shares, reflecting our confidence in the prospects for NAV return against the opportunity presented by a share price discount. A number of holdings were disposed of entirely (Rocket Internet/Tesco/Capital & Counties/Polar Capital) as we perceived the potential return on our capital to be better if invested elsewhere.

Despite reasonable absolute performance and strong relative performance, we look back at 2020 with some regret. We were monitoring events closely from the onset of the virus - but did not foresee the scale of its impact. We should have reduced our exposures to cyclical sectors at the onset of the pandemic. While we compensated for this by taking advantage of some of the wonderful value opportunities presented by the market, we would have been positioned to create even more value if we had demonstrated greater malleability in our initial thinking. This said, we have learned lessons from which we hope to benefit from in the future.

Looking back three years…

April marked the third anniversary of our revised strategy for Artemis Alpha in which we have sought to apply a research-driven, concentrated approach to modern value investing. Since the implementation of this strategy, the company's NAV has increased by 27%, compared to an 8% rise in the FTSE All-Share, despite a c.7% drag from the initial disposal of unquoted positions in 2018.

There are two points that we think worth highlighting:

First, the restructuring to the underlying portfolio has been significant. Three years ago, we had a broad portfolio of small-cap equities and a large proportion in unlisted securities. We cut the number of holdings from 83 to 29 to concentrate our capital in areas of highest conviction. We now have 81% of the portfolio invested in mid and large cap equities compared to 29% before. This restructuring has transformed the portfolio's underlying liquidity, enabling us to be more responsive in navigating uncertainty and capitalising on opportunity.

Second, we are growing increasingly confident in the process we are applying; and have demonstrated that it can succeed in volatile markets. In the last three years, we had to navigate political uncertainty in the UK caused by Brexit and more recently the pandemic. Mistakes and successes have provided us with an opportunity to refine and adapt our investment approach. We believe we have shown that our temperament and deep focus on fundamentals provide us with the conviction required to create value in a range of market conditions.

Our investment approach is fundamentally long-term; and so we would not expect to make any meaningful conclusions based on a three-year period. The optimism we have in the future of the trust is based on the conviction we have in the high return potential of our current holdings and our confidence in being able to take advantage of future opportunities we cannot see today. We hope the openness and detail in which we communicate to you provides some insight in to this, but also look forward to providing you with a further update at our AGM in October.

Portfolio developments

Key sectoral exposures
Sector	2021	2020	Companies
Online food delivery	12.7%	11.3%	Delivery Hero, Just Eat
UK housebuilding	12.1%	5.1%	Redrow, Bellway, Springfield
European airlines	12.0%	7.9%	easyJet, Ryanair
General retail	10.2%	9.2%	Frasers Group, Dixons
Banking	10.0%	8.4%	Barclays, Lloyd's
Video games & hobbies	9.5%	6.7%	Nintendo, Hornby
Funeral services	8.7%	3.2%	Dignity
Serviced offices	5.9%	5.3%	IWG
China technology	5.8%	2.9%	Prosus, Alibaba
Trading platform	5.5%	6.7%	Plus500
Pharmaceuticals	5.3%	3.0%	GlaxoSmithKline
Consumer staples	5.0%	3.0%	EssilorLuxottica, Fevertree
Defence & aerospace	2.8%	4.2%	Reaction Engines
Financial services	1.9%	5.2%	Singer Capital Markets (previously N+1 Singer)
Media	1.3%	2.9%	Facebook

 

Online food delivery remains our largest sectoral investment (12.7% of NAV) as we see great potential for digitalisation to drive changes over coming years in the way we eat. The pandemic had a very positive short-term impact on the sector as restrictions on eating-out lead to an increase in frequency and average order values. However, we see many long-term benefits from the pandemic-accelerated adoption amongst both consumers and restaurants. Unlike other virus beneficiaries, such as video-streaming services, the penetration of food delivery remains very low, similar to where e-commerce was a decade ago. Due to local network effects, the impact of more restaurants and customers will drive a permanent increase in the value proposition to customers as platforms benefit from greater choice and higher density in logistics networks.

Delivery Hero grew revenues by 133% in 2020 and its share price responded well (+73%) to the company's strategy of consolidating market positions and broadening platform uses. In just the past year, the company has built out over 600 "DMARTs", or dark grocery stores, to serve a growing demand for immediate grocery services. Just Eat grew revenues by 54% in 2020 but saw its share price fall (-7%) due to concerns over its acquisition of US platform Grubhub and competition in its dominant markets. We increased our position in Just Eat significantly. We feel that the business is uniquely profitable relative to its peers; and we can see the measures that its energised founder-led management team are taking to address competitive threats.

Our investment in UK Housebuilding (12.1% of NAV) has become a much larger feature of the portfolio following additions made and the subsequent strong recovery in prices. We invested 4.4% of NAV between May and September, nearly doubling our existing holding in Redrow and starting a new position in Bellway.

From a top-down perspective, we find UK housebuilders attractive as an accumulated deficit in supply of c.1m homes exists due to over a decade of underbuilding relative to household formation. House prices in the UK are also usually more resilient in periods of turmoil than most predict. This is because demand for housing is inelastic and so what impacts pricing is mortgage affordability. Mortgages have remained very affordable on all historic measures - and the decline in interest rates during the crisis only served to improve this.

From a bottom-up perspective, we regarded the opportunity to buy housebuilders on 1x NAV with close to ungeared balance sheets as a low-risk and asymmetric bet. At these levels, even if house prices were to have fallen by 20%, the cash generation from building out existing land banks would account for the businesses' market capitalisation. The pandemic has in fact led to house prices rising, as the importance attached to housing has risen, and as have savings. Share prices have recovered strongly but still fail to reflect the sector's very significant prospects for generating cash.

Our higher weighting in the airline sector (12.0% of NAV) reflects additions and performance. We increased our position in easyJet by 70% through the year at an average price of 554p that we felt effectively represented buying Airbus planes at a discount, and a franchise that is the second largest carrier in Europe for free. Our other position is in Ryanair, meaning we have no exposure to wide-body aircraft and minimal exposure to business travel.

It is difficult to quantify the earnings potential of an operationally geared sector where supply is reduced and demand will return strongly. Leisure travel has been growing as a proportion of GDP for the last 100 years; and there is widespread evidence that demand is pent-up and growing. IATA estimates that the global airline industry will have burnt over $200bn in 2020/21. Estimates suggest that European short-haul capacity has contracted by 15-20%, prompting Ryanair's CEO Michael O'Leary to say that "I have never in my 30 years in the industry seen such a clear out." We feel that market share and consolidation should enable pricing power and lead to a strong earnings recovery for our investments.

Our holdings in the retail sector (10.2% of NAV) performed well with the price of Frasers Group increasing by 100% in the period. The crisis provided an unusual experiment whereby retailers were forced to operate without stores. In our view, the strong performance of stores when restrictions lifted demonstrated the value of an 'omni-channel' offering to consumers. Dixons is making impressive operational improvements under new CEO Alex Baldock, which make us hopeful that the business can pursue a similar path to that forged so successfully by Best Buy in the US. Frasers Group has benefitted from high demand for sportswear as Sports Direct has continued to trade resiliently. The demand for luxury goods has also been buoyant, which seems in part due to demographic-driven change. We continue to believe that Frasers' ability to serve that demand through its growing Flannels platform is underappreciated.

The initial share price response of banks (10.0% of NAV) to the pandemic was drastic, with both Barclays and Lloyd's halving in value. In our view, this failed to recognise the entirely different capital position in which banks entered this downturn compared to 2008/9. For example, aggregate capital ratios for UK banks remains more than three times higher than it was before the financial crisis. We used share price weakness to increase our holdings.

Looking forward, we believe that forecasts for loan impairments continue to underestimate the positive impact of government support as macroeconomic models have never been calibrated for a global pandemic. The crisis also demonstrated that consumers of all ages can bank without branches. This, combined with cost savings from changing ways of working (e.g. lower office costs/automation), should provide a long-term cost opportunity.  We also remain mindful that banks would, to a degree, be beneficiaries of higher interest rates.

Our holdings in video games and hobbies (9.5% of NAV) performed well as demand has risen due to stay-at-home trends, and business economics have improved from serving customers directly through online channels. Hornby reported a strong acceleration in revenue growth and made progress at selling directly to consumers. The future opportunity remains substantial with less than 15% of its revenue coming through this channel.

Nintendo has reported an 82% increase in profitability compared to pre-pandemic levels as the installed base for its popular switch console has increased significantly. Penetration of digital software sales has increased; but at 57%, Nintendo continues to lag its peers. Greater penetration over time seems logical and this should result in higher revenues (as retailers are bypassed) and margins (as digital distribution has close to zero marginal costs).

Dignity (8.7% of NAV) was highly volatile during the year, falling 64% before recovering losses fully as the overhang of a CMA investigation was lifted. We increased our position by 40% at an average price of 278p per share. The subsequent weighting reflects price increases and our confidence in the opportunity.

We have been supportive of recent management changes, as we felt that decisive change was required to address strategic mistakes made over the last decade. Dignity operates a national network of 795 funeral directors and 46 crematoria. It should be uniquely positioned to pursue a strategy that embraces changes in consumers' behaviour towards online channels and lower-cost options in this sector. We estimate that the value of the company's crematoria alone exceeds its current enterprise value. In positive scenarios, we see scope for Dignity to be a wonderful investment with the greatest upside potential in the portfolio. We will provide you with further detail on our thinking at the AGM.

IWG (5.9%), the operator of serviced offices, faced a challenging year as demand from tenants declined. We see the business as well placed to serve the likely permanent shift towards hybrid working by large corporates, with its network of 3,300 centres across 110 countries. The business strengthened its balance sheet through the crisis with an equity and convertible bond raise. This leaves it in a strong position to act as a consolidator in the sector. We continue to see significant upside if the company's strategy to pursue a more capital light model in franchising is successful.

Our weighting in Chinese internet companies (5.8%) increased as we started a holding in Alibaba in December to augment our existing position in Prosus, whose primary asset is its equity stake in Tencent. The forced postponement of Ant Financial's IPO led to a substantial decline in the value of Alibaba. Alibaba's core retail operation is one of the largest and most profitable e-commerce operations globally. Alibaba's cloud business occupies a leading position in the nascent Chinese industry. We felt that that short term uncertainties created a long-term value opportunity in a high quality business, in similar circumstances those in 2018 when the Cambridge Analytica scandal allowed us to initiate an investment in Facebook.

Plus500 (5.5%), the financial trading platform, was a clear beneficiary of volatility with revenues and profits growing by 146% and 170% in 2020. We regard the position partly as a volatility hedge in the portfolio and so were pleased to see it perform as expected. The business continues to trade on a low multiple of earnings despite being well-financed with c$600m of net cash and a reinvigorated strategy for expansion.

GlaxoSmithKline (5.3%) had a disappointing year, despite having many resilient business lines and being the world's largest vaccine maker by revenue. We increased the position significantly in 2021 as its share price declined on weak results with sales of the company's leading shingles vaccine (Shingrix) disrupted due to the roll-out of COVID-19 vaccines. Demand for Shingrix is likely to be deferred rather than lost; and hence the long-term impact seems limited. More broadly, we see scope for GSK to be materially undervalued because the investments made since 2018 in its pipeline are not yet apparent in the revenue of its in-market portfolio of drugs today.

EssilorLuxottica (3.4%) is a new position that was started in July. The company is the only vertically integrated participant (lens and frames) in the eyewear market with unrivalled scale. Demographics indicate that the incidence of myopia will rise materially in coming years. We built a position as the company's share price declined because of the closure of opticians during initial lockdowns. The majority of revenues are derived from prescription lenses, and so in recent quarters the business has recovered strongly. Looking forward, the business has significant innovation opportunities (myopia-reducing lenses and augmented reality) on top of the scope to consolidate the market, given its modest c.15% market share of the global industry.

The holding in Fevertree was sold shortly after the year-end at a profit of c.80% during our 14-month holding period.  We continue to think that the company has strong prospects, but the share price recovery meant that we had greater confidence in other stocks.

Our position in unlisted equities now accounts for just 5.8% of NAV. We have two material holdings, ReactionEngines (2.8%) and Singer Capital Markets (1.9%). Reaction Engines successful raised £22m from Rolls Royce and Baillie Gifford at a premium to our carrying value, leaving the business well placed to accelerate commercialisation of its intellectual property in a broad range of applications. Singer Capital Markets grew revenues and profits by over 20% in 2020 and has a strong balance sheet from which to continue growing market share. The holding was written-up following increases in its book value.

Strategy and Outlook

The past year has demonstrated the frailties of trying to time the market or predict the future. Given inherent complexity and uncertainties, we continue to believe that the only consistent guide to prospective returns is a stock's price relative to our judgement of intrinsic worth.

In this context, we are encouraged to see strong return potential across a wide range of our holdings and do not anticipate a major change in positioning. Rising share prices have in part discounted the more optimistic prospects for economically cyclical sectors. We set our stall out during periods of dislocation last year and given our existing weightings, do not see the need to chase performance.

Companies once considered "Covid beneficiaries" are increasingly being seen as "re-opening losers".

It is unlikely that the market's perceptions are related to any material change in business value; and so we are increasingly finding opportunities in these areas.

Overall, we feel that our portfolio is well-positioned for the world we that is emerging. Many of the companies we hold have seen their competition weakened by the crisis, leaving them in a strong position as economies re-open. We have a balance of exposures to companies addressing significant growth opportunities and to those in more cyclical areas of the market that can benefit from a stronger economy. On this front, the near term outlook appears robust as we reach the end phase of the pandemic and some proportion of the c.$2tn in estimated excess savings filters back in to the economy.  We see a potential risk of this causing an unexpected rise in inflation and interest rates, and are seeking ways to protect the portfolio from such a scenario.

Despite continuing to operate with gearing, we feel well placed to navigate uncertainty and capitalise on future opportunities. On an underlying level, 58% of NAV is invested in companies with a net cash position and 89% of NAV is invested in liquid stocks.

John Dodd and Kartik Kumar  

Fund managers

Artemis Fund Managers Limited

5 July 2021

Top 15 holdings

Name	Sector	Shares	Price	Valuation (£)	% NAV
Dignity	Funeral services	2,250,000	£7.05	15,862,500	8.7
easyJet	European airlines	1,425,000	£10.36	14,763,000	8.1
Frasers Group	General retail	2,575,000	£5.16	13,274,125	7.3
Delivery Hero	Online food delivery	105,000	€132.70	12,114,512	6.7
Redrow	UK housebuilding	1,725,000	£6.91	11,923,200	6.6
Just Eat Takeaway.com	Online food delivery	145,000	€74.95	10,867,750	6.0
IWG	Serviced offices	2,953,842	£3.67	10,831,739	6.0
Plus500	Trading platform	700,000	£14.20	9,940,000	5.5
GlaxoSmithKline	Pharmaceuticals	725,000	£13.40	9,712,100	5.3
Barclays	Banking	5,350,000	£1.76	9,389,250	5.2
Lloyds Banking Group	Banking	19,500,000	£0.45	8,859,825	4.9
Nintendo	Video games & hobbies	168,000	$71.89	8,723,066	4.8
Hornby	Video games & hobbies	16,146,078	£0.53	8,476,691	4.7
Bellway	UK housebuilding	200,000	£36.12	7,224,000	4.0
Ryanair	European airlines	490,000	€16.79	7,153,070	3.9

Top 10 transactions
Purchases	% of NAV		Sales	% of NAV

GlaxoSmithKline	3.7	Rocket Internet	(3.6)
Alibaba	3.1	Polar Capital	(2.8)
EssilorLuxottica	2.8	Tesco	(2.6)
Just Eat Takeaway.com	2.7	Capital & Counties	(2.2)
Bellway	2.6	Fevertree Drinks	(1.2)
Nintendo	2.5	Anglo American	(1.2)
Redrow	1.8	Facebook	(1.2)
easyJet	1.7	Hiscox	(1.0)
Dignity	1.2	Frasers Group	(0.7)
Lloyds Banking Group	0.7	JD Wetherspoon	(0.6)

Top five contributors/detractors

Contributors			Detractors
Company	Return %	Contribution %	Company	Return %	Contribution %
Dignity	188.7	8.6	Hurricane Energy	(72.7)	(1.6)
Frasers Group	98.2	6.0	GlaxoSmithKline	(15.8)	(0.6)
Delivery Hero	72.5	4.6	Capital & Counties	(0.9)	(0.5)
easyJet	71.4	4.6	Alibaba	(15.6)	(0.4)
Barclays	66.5	3.3	Rocket Internet	(3.4)	(0.3)

Strategy and Business Review

Culture, Purpose & Value

The Directors have considered the culture, purpose and values of Artemis Alpha Trust plc ("the Company"). By undergoing this exercise, the Directors seek to ensure that these three elements help drive forward the strategy.

Culture

The Company is an externally managed investment trust and as such its culture is created by the Board of Directors and the Manager, Artemis Fund Managers Limited.

Purpose

Our purpose is to provide our shareholders, large or small, with a diversified and cost-effective investment opportunity to achieve long-term growth.

Values

The Company provides access to a portfolio of investments which the Board expects to be managed with integrity, transparency and accountability and  with  appropriate due diligence to environmental, social and governance matters. The constructive and openly discursive nature of the relationship between the Board and the Manager helps ensure their respective values are aligned and focused on delivering the strategy for our shareholders.

The core values that contribute to the Board culture include:

· Integrity: the Board seeks to comply with all applicable laws and regulations, both to the letter and in spirit.

·     Accountability: the Board recognises the need to explain the Company's performance to investors and to highlight the risks in a clear and open manner. The Board has a key role to encourage and challenge the performance of its Manager and its other service providers to help ensure the Company continues to provide shareholder value.

· Respect & Transparency: the Board seeks to communicate clearly and openly with shareholders and service providers respecting individual opinions and expectations. Contact by shareholders via the Chairman's email address is welcomed.

· Environmental, Social and Governance ("ESG") issues: We are stewards of our shareholders' capital; both the Board and Manager recognise that this comes with responsibilities. ESG considerations are integrated within the investment process.

An overview of the Manager's culture, values and stewardship activities can be found on the website at www.artemisfunds.com.

 

Corporate strategy & policy

The Company is incorporated in England as a public company limited by shares. 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 set out in the Annual Financial Report.

Gearing

The Company uses gearing (i.e borrowing) as part of its investment strategy. The Company's Articles  of  Association  limit  borrowing to 50 per cent of the Company's net assets. However, the investment policy limits this to 25 per cent of net assets. 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 per cent of net assets. During the prior year, the Company's borrowing facility with The Royal Bank of Scotland plc ended. 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. At the year end, net gearing was 10.2 per cent.

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 has entered into an agreement with JP Morgan to utilise contracts for difference as a form of leverage. A result of 100 per cent indicates that no leverage has been used. The Company is permitted by its Articles to borrow up to 50 per cent; however the Company's investment policy restricts this to 25 per cent. 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. 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 2021, the Company's leverage was 122.7 per cent as determined using the gross method and 110.6 per cent 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 investments; or

(iii)  create any charges over any of the Company's investments.

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 2021, together with its prospects for the future, is set out in the Chairman's Statement and Investment Manager's Review included in the Annual Financial Report. 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
			FTSE
	Net asset	Share	All-Share
Year ended 30 April	value	price	Index
2016	(6.1)%	(13.2)%	(5.7)%
2017	20.9%	26.7%	20.1%
2018	11.0%	13.2%	8.2%
2019	(8.6)%	(8.9)%	2.6%
2020	(11.3)%	(12.5)%	(16.7)
2021	56.0%	80.8%	26.0%

Source: Artemis/Datastream

Dividends per ordinary share
			Total
			pence per		Total
Year ended			ordinary	Ordinary	increase/
30 April	Ordinary	Special	share	increase	(decrease)
2016	3.90p	-	3.90p	9.9%	9.9%
2017	4.30p	2.00p	6.30p	10.4%	61.5%
2018	4.75p	1.60p	6.35p	10.4%	0.8%
2019	5.00p	0.50p	5.50p	5.3%	(13.4)%
2020	5.20p	-	5.20p	4.0%	(5.5)%
2021	5.30p	-	5.30p	1.9%	1.9%

Ongoing charges as a proportion of shareholders' funds
As at 30 April	Ongoing charges
2016	0.9%
2017	0.9%
2018	0.9%
2019	0.9%
2020	0.9%
2021	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 share buy-back 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 or at times where we believe this the best use of available capital to increase NAV per share. 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. The Company will now also provide tender offers every three years commencing in 2021, for 25 per cent of the ordinary shares then in issue.

Principal risks and risk management

As required by the 2018 UK Code of Corporate Governance, the Board has carried out a robust assessment of the principal and emerging risks facing the Company.

The Board, in conjunction with the Investment Manager, has developed a risk map which sets out the principal risks faced by the Company and the controls established to mitigate these risks and is reviewed every six months. Further information on the Company's internal controls is set out in the governance section 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:

Principal risk	Mitigation/control
Strategic risk 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. Views expressed by the Company's shareholders are also taken into account.
Investment risk 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). Whilst the focus is on large cap companies the Company also invests in small cap (listed), AIM traded and unquoted investments which can be subject to a higher degree of risk than that of larger quoted investments. From time to time, the Company may also have significant exposure to particular industry sectors. The Investment Manager's high conviction approach leads to a concentrated portfolio, typically containing between 25 and 60 stocks. A concentrated portfolio carries a higher degree of stock-specific risk than a more diversified portfolio as a material decline in a single investment may have a significant adverse effect on the Company's overall performance, financial condition and prospects. The Company's functional and reporting currency is Sterling. However, the investment objective and policy may result in a proportion of the Company's portfolio being invested in overseas equities denominated in currencies other than Sterling and in Sterling-denominated securities of companies which may conduct all or much of their businesses in currencies other than Sterling. As a result, movements in exchange rates may affect the Sterling value of these investments and their returns and the Company's overall performance, favourably or unfavourably. Foreign exchange rate risk may also increase the volatility of the NAV per Ordinary Share. The Company may borrow money for investment purposes or use derivatives to similarly increase exposure. If the investments fall in value, any borrowings/use of derivatives will magnify the extent of the losses. If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings.	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. Risks are diversified through having a range of investments in the portfolio covering various sectors (see Investment Manager's Report for details). The Board discusses the investment portfolio with the Investment Manager at each Board meeting, and at each month end between Board meetings, and part of this discussion includes a detailed review of the Company's unquoted investments, their valuations and future prospects together with their portfolio weighting. The Board receives management information concerning the geographical sector split of the portfolio. The Company is not materially exposed to foreign currency risk. All borrowing arrangements entered into require the prior approval of the Board and gearing levels are regularly discussed and reviewed by the Board and Investment Manager.
Legal and regulatory risk A breach of s1158 Corporation Tax Act 2010 could lead to a loss of investment trust status and the resultant taxation of realised capital gains. The principal laws and regulations the Company is required to comply with are the Companies Act 2006, the Alternative Investment Fund Managers' Directive, the Market Abuse Regulation, the UK Listing Rules and the Disclosure Guidance and Transparency Rules. A breach of the FCA listing rules could lead to suspension of the Company's shares. A breach of the Companies Act 2006 could lead to criminal proceedings and reputational and financial damage.	The Manager provides investment, company secretarial, administration and accounting services through the use of qualified professionals. The Board receives internal control reports from the Manager confirming compliance with regulations. These reports also highlight any matter that the Compliance team feel should be brought to the Board's attention along with any items discussed during internal audit review. The Board meets each year with the Risk and Compliance team to discuss the areas of risk appropriate to the Company and the control environment.
Operational risk 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. During the COVID-19 pandemic, all of the Investment Manager's staff worked from home with no significant impact to operations.
Cyber risk Failure or disruption of the Investment Manager's and/ or any other third party service providers' systems as a result of a cyber attack, data theft, service disruption, etc. Whilst the risk of a direct financial loss by the Company is low, the risk of reputational damage and the risk of loss of control of sensitive information is more significant. The Company's service providers and the Board often have sensitive information regarding transactions or pricing and information regarded as inside information in regulatory terms.	The Board receives regular updates from the Manager and its service providers which describe the protective measures taken to enhance security.
Brexit The transition period ended on 31 December 2020 with the UK leaving the common market.	As the Company's shares are not marketed in Europe, investee companies are predominantly listed in the UK and key counterparties of and service providers to the Company are UK domiciled with suitable contingency arrangements available as necessary, the Company has not experienced any material effect on performance in the short term. The Board does not expect the Company's operations or performance over the longer term to be materially affected by Brexit.
Climate change Globally, climate change effects are already emerging in the form of changing weather patterns. Extreme weather events could potentially impair the operations of individual investee companies, potential investee companies, their supply chains and their customers.	The Investment Manager takes such risks into account, along with the downside risk to any company (whether in the form of its business prospects or market valuation or sustainability of dividends) that is perceived to be making a detrimental contribution to climate change. The Company invests in a broad portfolio of businesses with operations spread geographically, which should limit the impact of location-specific weather events.
Pandemic (COVID-19) The rapid spread of COVID-19 has caused governments to implement policies to restrict the gathering, interaction or movement of people. These policies have inevitably changed the nature of the operations of some aspects of the Company, its key service providers and the companies in which it invests. Share prices respond to assessments of future economic activity as well as their own forecast performance and the Pandemic has had a materially negative impact on the economy and will continue do so for a period of time.	The Board and its Investment Manager have regular discussions to assess this impact on both the investment portfolio, the related change in consumer behaviour and on its ability to generate income for shareholders.

Further information on risks and the management of them are set out in the notes to the financial statements included in the Annual Financial Report.

Other Matters

Viability Statement

In accordance with the UK Corporate Governance Code, the Board has considered the longer term prospects for the Company beyond the twelve months required by the going concern basis of accounting. The period assessed is for five years to 30 April 2026. The Board has concluded that this period is appropriate, carefully taking into account the inherent risk with equities and the long term investor outlook.

As part of its assessment of the viability of the Company, the Board has discussed and considered each of the principal risks, including matters relating to COVID-19 and the UK's departure from the European Union, as stated in the Annual Financial Report, and the impact on the Company's portfolio of longer-lasting damage to the economy, of the withdrawal of liquidity by the financial authorities, of a significant fall in markets and changes in regulation. 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. They have concluded, given the realisable nature of the majority of the investments, the level of ongoing expenses and the availability of gearing that the Company will continue to be in a position to cover its liabilities.

The Directors do not expect there to be any significant change in the current principal risks and the associated mitigating controls. The Directors also do not envisage any change in strategy or objectives that would prevent the Company from continuing to operate over the five year period. The Company's assets are liquid, its commitments limited and it intends to continue as an investment trust. The revenue streams have been impacted by reduced dividends from investee companies as a result of the COVID-19 pandemic. The Board however believes that revenue streams will return within a relatively short period and are comfortable that the Company has sufficient income reserves to fund the shortfall. The Board does not believe that this will have a long- term effect on the viability of the Company.

The possibility of a tender offer of up to 25% of the share capital has been taken into account by the Board when assessing the continuing viability of the Company.

Taking into account the results of the above review, 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 2026.

Life of the Company

The Company operates a triennial liquidity event for shareholders. The tender offers may be made every three years, commencing in 2021, with each tender offer being for up to 25 per cent of the ordinary shares then in issue (excluding Treasury Shares), save that the Board may, at its sole discretion, decide not to proceed with a tender offer if the ordinary shares are trading at a premium to the estimated tender price.

Share Capital

Shareholders authorised the Company to buy back up to 14.99 per cent of the shares in issue at the 2020 AGM.

During the year the Company bought back 1,395,000 ordinary shares. As at 30 April 2021, all ordinary shares bought back during the year have been cancelled.

A resolution to renew the Company's buy back authority will be put to shareholders at the AGM on 14 October 2021.

No ordinary shares were issued during the year.

How the Directors discharge their duties under s172 of the Companies Act

Under section 172 of the Companies Act 2006, the directors have a duty to act in a way they consider, in good faith, would be likely to promote the success of the Company for the benefit of its shareholders as a whole, and in doing so have regard to:

a.)  the likely consequences of any decision in the long term,

b.)  the interests of the company's employees,

c.)  the need to foster the company's business relationships with suppliers, customers and others,

d.)  the impact of the company's operations on the community and the environment,

e.)  the desirability of the company maintaining a reputation for high standards of business conduct, and

f.)  the need to act fairly as between members of the company.

As an externally managed investment trust, the Company has no employees or physical assets, our stakeholders include our shareholders and service providers, such as the Investment Manager.

The below tables describes the impact of engagement with our stakeholders that has taken place during the year:

Engagement with key stakeholders

Stakeholders	Engagement	Impact
Shareholders and potential investors	The Board is responsible for promoting the long-term sustainable success and strategic direction of the Company for the benefit of the Company's shareholders. Whilst certain responsibilities are delegated, directors' responsibilities are set out in the schedule of matters reserved for the Board and the terms of reference of its committees, both of which are reviewed regularly by the Board. To help the Board in its aim to act fairly as between the  Company's  members, it encourages communications with all shareholders. The Annual and Interim reports are issued to shareholders and are available on the Investment Managers' website together with other relevant information including monthly factsheets. The Board receives regular feedback on shareholder meetings from the Company's broker and any shareholder communications are reviewed and discussed by the Board at Board meetings to ensure that shareholder views are taken into consideration as part of any decisions taken by the Board. The Chairman is available to contact via email: [e-mail]. The Board considers communication with shareholders an important function and Directors are always available to respond to shareholder queries.	Through the publication of the Annual Financial Report and the Interim Report and Accounts, monthly factsheets and Fund Manager updates to the Company's website, shareholders are kept informed of Company performance and portfolio activities. Shareholders are encouraged to raise questions and communicate with the Chairman and the Fund Manager.
Artemis as Manager · Fund management · Company secretarial · Financial reporting · Sales & marketing · Compliance and internal control functions · Internal audit · I nvestment administration (outsourced to JP Morgan)	The Board has set the parameters within which the Investment Manager operates and these are set out in the Investment Management Agreement and agreed by the Board The Board receives regular updates from the Investment Manager and other service providers and ensures that information pertaining to its stakeholders is provided, as required, as part of the information presented in regular Board meetings. During the period, additional monthly performance updates were held between the Board and Investment Manager to discuss the impact of the pandemic on the Company and its performance. The Board, with the support of its Management Engagement Committee, regularly reviews the performance of the Investment Manager and other service  providers to ensure that services provided to the Company are managed efficiently and effectively for the benefit of the Company's shareholders. The Board has reviewed and discussed plans for the future marketing and development of the Company with the Investment Manager during the year.	During the year the Company performed well against its benchmark. The discount of the share price to net asset value narrowed and the liquidity in the market for the Company's shares increased. See the Chairman's Statement and Investment Manager Review for detail. The Fund Manager worked on a number of initiatives to raise the profile of the Company and generate interest with new investors.
Other third party service providers ·   JP Morgan as Depositary and Custodian · Singer Capital Markets as Broker ·   Link Group as Registrar ·   Johnston Carmichael LLP as Auditor	As an investment company, all services are outsourced to third party service providers. The Board considers the Depositary, the Custodian, the Broker, the Registrar and Auditor to be key stakeholders. The Board relies on the Manager to work alongside these key stakeholders to meet the requirements of the Company. The Management Engagement Committee reviews the performance of these service providers, along with their fee levels, and provides recommendations to the Board as required. The Manager has constant interaction with the service providers and provides feedback to and from the Board as required. Annual assurance reports are received to assist the review of the internal control environments of the Depositary and Custodian. The FRC performs audit quality reviews on a sample of audit firms and audits. Findings are published annually.	The performance of  the  third  party service providers is continually monitored throughout the year. As and when appropriate, third party providers present to the Board. Following formal review by the Management Engagement Committee and Board at the year end, it was concluded that the service providers were operating effectively and provided a good level of service.

Board discussions and decisions

The following are the key discussions and decisions made by the Board during the year ending 30 April 2021:

Topic	Background & discussion	Decision
Triennial tender offer	As agreed by shareholder vote in 2018, the Company will undergo a tender offer every three years unless the ordinary shares are trading at a premium to the estimated tender price. Discussions were held to plan any steps required to complete this corporate action such as potential costs of third parties, timetable and the movement in the share price discount during the year.	The Company broker was approached to discuss actions required. Discussions on this are on-going.
Share buy backs	A discussion was held on the pace and deployment of the share buy back process and the expected impact on the share price discount.	It was decided to continue the buy back process. This arrangement is kept under continual review.
Strategic review of the subsidiary, Alpha Trading Securities Limited	Historically, the subsidiary was set up to allow short-term trading.  Dividend income received by the subsidiary may supplement dividend income within the parent company. Given the ability for companies to pay dividends out of capital it may be thought that the subsidiary structure is no longer necessary. Discussions were held which looked at the growth of the subsidiary, the accumulated revenue reserves and the ability of the parent Company to pay dividends out of capital.	It was decided that the subsidiary structure still had a role to play and that a dividend should be paid from the subsidiary up to the parent company to ensure the dividend policy of growth in excess of the CPI index would continue.
Environmental, social and governance matters ('ESG')	The Board discussed its responsibilities for ESG and how Artemis, as Manager, undertook the required steps to ensure ESG was incorporated within the investment process. Discussions were held with the Artemis Chief Investment Risk Officer on the steps taken within ESG risk.	It was decided that ESG was appropriately incorporated within the Artemis investment process and the Board would continue to discuss and monitor on an on-going basis
Change of Auditor	The ongoing service provided by the existing auditor, and value for money were discussed in detail.	The Board decided that, whilst the service of PwC was deemed to be good, the Audit Committee should undertake a tender process to confirm value for money was being achieved for shareholders. Following this, recommendations were provided to the Board. Johnston Carmichael LLP were engaged as independent auditor of the Company in December 2020.
Annual General Meeting ('AGM') arrangements	The Board discussed the AGM arrangements for October 2021 given the changing COVID-19 environment.	Recognising the continuing risks with the COVID-19 pandemic, it was decided physical attendance at the AGM should continue to be restricted in line with Government guidance.  Shareholders will be asked to complete the proxy forms in advance of the AGM.  The Investment Manager will record a presentation in advance of the AGM date and questions submitted to the Chairman are encouraged. Shareholders will be advised if the restrictions on group gatherings are sufficiently relaxed to enable a change in format.

The Directors also considered the impact of the Company's decisions on the environment and the community. The Board met with representatives from Artemis' Environmental, Social and Governance ('ESG') team during the year to discuss how ESG factors are taken into account when selecting and retaining investments for the Company and engaging with investee companies on matters of concern.

The Board has given discretion to the Investment Manager to exercise the Company's voting rights. During the year, the Board met with representatives of Artemis' Stewardship team to discuss Artemis' approach to stewardship of the Company's investments. The Board has also sought to meet directly with representatives of some of the Company's portfolio investments. Further information on stewardship and voting policy is provided in the Annual Financial Report.

The Board's primary focus is to promote the long term success of the Company for the benefit of the Company's shareholders. In doing so the Board has regard to the impact of its actions on other stakeholders as described above.

 

Directors & Diversity

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, social and ethnic backgrounds, and cognitive and personal strengths. The Board 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, based on merit and objective criteria. The Board is currently comprised of three male directors and two female directors.

Modern Slavery Act 2015

The Company does not fall within the scope of the Modern Slavery Act 2015 as its turnover is less than £36m. Therefore no slavery and human trafficking statement is included in the Annual Financial Report.

Sustainability and Environmental, social and governance  ('ESG') matters

The Board recognises that the most material way in which the Company can have an impact on ESG is through responsible ownership of its investments. The Board has appointed Artemis as Manager, who engages actively with investee companies undertaking extensive evaluation and engagement 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. The ESG and stewardship engagement of Artemis is detailed below.

Financial Statements

The financial statements of the Company are included in the Annual Financial Report.

For and on behalf of the Board

Duncan Budge

Chairman

5 July 2021

ESG & Stewardship at Artemis

Our ESG approach

ESG considerations are entrenched in the Artemis investment process particularly in the monitoring of key risk factors, valuation process and focus on strong management capital allocation.

Risk factors

We judge there to be a range of distinct factors that creates risks to a permanent loss of capital, such as business obsolescence (competition/ innovation), fraud (accounting/misrepresentation), excessive leverage, management (value destructive M&A), and other idiosyncratic factors (perception/ regulation). Environmental and social factors have clear scope to create risks through obsolescence, regulation, and changes in perception. For this reason, consideration of ESG factors is entrenched in the monitoring of risks to our investments.

Valuation

When valuing businesses we aim to incorporate our assessment of the likely impact of environmental and social factors on demand, cost and profitability by looking at the probability of possible outcomes. In many circumstances, the uncertainty created by potential change prompts us to avoid investing in a sector entirely. We consider omission of investments as important as selection, as demonstrated by the concentrated nature of our portfolio.

Governance

We seek to invest with managers that have demonstrated core competencies, long-term thinking, and who focus carefully on the reinvestment returns of capital retained. Historical studies have demonstrated the importance of strong capital allocation in generating outsized returns for shareholders over time. Our valuation framework attempts to capture the real option value of management actions where it is present (e.g. value accretive M&A).

Engagement with companies to gain a better understanding of the management rationale and governance structure consistently forms an important source of information on which to base investment decisions. We actively engage with management and particularly on the topic of capital allocation given the importance we attach to it.

Through engagement issues can be raised with management, developments monitored and votes cast accordingly.

Case studies

We hold a variant perception that Frasers Group's delivers value for all stakeholders, and that it is should be highly scored in Social and Governance categories. Frasers was one of the first FTSE 250 companies to have an employee representative on its board, has high employee satisfaction, and a good track record of rewarding employees well during periods of business success. Furthermore Frasers provides a highly attractive value proposition for customers through its low prices and shareholders have their values closely aligned with management through Mike Ashley's (who takes no salary) 64% shareholding in the business. Through regular engagement with management and detailed monitoring we are able to ensure these social and governance features are retained.

Our Airline holdings demonstrate environmental leadership within the industry. EasyJet was the first large airline globally to offset all carbon emissions generated through customer trips and is constantly investing in improving the fuel-efficiency of its fleet. Ryanair has one of the most fuel efficient fleets globally, and minimises its customers' environmental impact by ensuring seats are rarely left empty.

Stewardship

As stewards of our clients' capital, Artemis acts in their interests to invest in companies which can create, preserve and enhance value. This involves the assessment of a broad range of factors which do, or could, have an impact on value, including those related to environmental, social and governance (ESG) drivers.

We use a number of research providers to  guide  our ESG risk and opportunity assessment including the Sustainability Accounting Standards Board (SASB), MSCI ESG, Sustainalytics and company ESG reports. These sources of information provide valuable analysis and insight but they are just one set of inputs into our own investment evaluations. They supplement our own research and engagement with companies.

We actively participate in a range of industry wide initiatives and collaborations with a view to driving positive change in the investment industry. We are a signatory to the Principles for Responsible Investment and the Climate Action 100+ initiative, a member of the Investor Forum, have a number of representatives on committees of the Investment Association and are a member of the Sustainable Accounting Standards Board.

Engagement & voting

Engagement is one of the means by which Artemis develops our understanding of companies, raise issues with management and monitor subsequent developments. Engagement activity is about relationships and gaining a better understanding of the rationale of management regarding business risks, opportunities and strategy. It can also provide insight into a board's capabilities, dynamics and values.

Engagement tactics may involve: discussions with board members, in particular the independent directors including the chairman; writing to companies; voting against management proposals; and collaborative engagement with other shareholders or through industry groups or initiatives where pooled resource can lead to a better chance of success..

Voting decisions are made by fund managers, informed by their knowledge of the company concerned, any engagement activity, Artemis' voting policy and input from external research providers, notably ISS. Voting is an important way in which we exercise our stewardship responsibilities. Details of Artemis' voting policy and reports of recent voting are included on Artemis' website www.artemisfunds.com .

The above forms part of the Strategic & Business Review.

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

Management Report

Listed companies are required by the Financial Conduct Authority's Disclosure Guidance and Transparency Rules (the "Rules") to include a management report in their annual financial statements. The information required to be in the management report for the purpose of the Rules is included in the Strategic Report. Therefore no separate management report has been included in the Annual Financial Report.

Statement of Directors' Responsibility

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 international accounting standards in conformity with the requirements of the Companies Act 2006 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 international accounting standards in conformity with the requirements of the Companies Act 2006; and
• prepare the financial statements on a 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 2021, 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

5 July 2021

 

Statement of Comprehensive Income
For the year ended 30 April 2021
	Year ended			Year ended
	30 April 2021			30 April 2020
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investment income	3,147	-	3,147	2,773	-	2,773
Total revenue	3,147	-	3,147	2,773	-	2,773
Gains/(losses) on
investments	-	59,998	59,998	-	(18,732)	(18,732)
Net gains on derivatives	-	4,767	4,767	-	822	822
Currency gains	-	609	609	-	47	47
Total income/(loss)	3,147	65,374	68,521	2,773	(17,863)	(15,090)
Expenses
Investment
management fee	(196)	(785)	(981)	(174)	(695)	(869)
Other expenses	(411)	(15)	(426)	(492)	(2)	(494)
Profit/(loss) before
finance costs and
tax	2,540	64,574	67,114	2,107	(18,560)	(16,453)
Finance costs	(7)	(28)	(35)	(3)	(14)	(17)
Profit/(loss) before
tax	2,533	64,546	67,079	2,104	(18,574)	(16,470)
Tax	(210)	-	(210)	(138)	-	(138)
Profit/(loss) and
total
comprehensive
income/(expense)
for the year	2,323	64,546	66,869	1,966	(18,574)	(16,608)
Earnings/(loss) per
ordinary share	5.92p	164.56p	170.48p	4.90p	(46.30)p	(41.40)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 2021
	2021	2020
	£'000	£'000
Non-current assets
Investments	175,991	118,086
Investments in subsidiary undertaking	3,230	3,002
	179,221	121,088
Current assets
Derivative assets	162	70
Other receivables	848	1,005
Cash and cash equivalents	6,477	5,382
Total assets	186,708	127,545
Current liabilities
Derivative liabilities	(478)	(174)
Collateral pledged	(830)	(220)
Other payables	(3,572)	(4,697)
Total liabilities	(4,880)	(5,091)
Net assets	181,828	122,454
Equity attributable to equity holders
Share capital	382	396
Share premium	676	676
Special reserve	40,738	46,181
Capital redemption reserve	208	194
Retained earnings - revenue	2,788	2,517
Retained earnings - capital	137,036	72,490
Total equity	181,828	122,454
Net asset value per ordinary share	476.17p	309.38p

These financial statements were approved by the Board of Directors and signed on its behalf on 5 July 2021:

 

Duncan Budge

Chairman

 

Statement of Changes in Equity
For the year ended 30 April 2021
					Capital
	Share	Share		Special	redemption	Retained earnings
	capital	premium		reserve	reserve	Revenue	Capital	Total
	£'000	£'000		£'000	£'000	£'000	£'000	£'000
For the year ended
30 April 2021
At 1 May 2020	396	676	46,181		194	2,517	72,490	122,454
Total comprehensive
income:
Profit for the year	-	-	-		-	2,323	64,546	66,869
Transactions with owners
recorded directly to
equity:
Repurchase and cancellation of ordinary
shares	(14)	-	(5,443)		14	-	-	(5,443)
Dividends paid	-	-	-		-	(2,052)	-	(2,052)
At 30 April 2021	382	676	40,738		208	2,788	137,036	181,828
For the year ended
30 April 2020
At 1 May 2019	410	676	50,133		180	2,803	91,064	145,266
Total comprehensive
income/(expense):
Profit/(loss) for the year	-	-	-		-	1,966	(18,574)	(16,608)
Transactions with owners
recorded directly to
equity:
Repurchase of ordinary
shares into treasury	-	-	(2,144)		-	-	-	(2,144)
Cancellation of ordinary
shares from treasury	(8)	-	-		8	-	-	-
Repurchase and cancellation of ordinary shares	(6)	-	(1,808)		6	-	-	(1,808)
Dividends paid	-	-	-		-	(2,252)	-	(2,252)
At 30 April 2020	396	676	46,181		194	2,517	72,490	122,454

 

Statement of Cash Flows 

For the year ended 30 April 2021

	2021 £'000	2020 £'000
Operating activities
Profit/(loss) before tax	67,079	(16,470)
Interest payable	35	17
(Gains)/losses on investments	(59,998)	18,732
Net gains on derivatives	(4,767)	(822)
Currency gains	(609)	(47)
(Increase)/decrease in other receivables	(307)	279
Increase in accrued expenses	81	14
Net cash inflow from operating activities before interest and tax	1,514	1,703
Interest paid	(35)	(17)
Irrecoverable overseas tax suffered	(210)	(138)
Net cash inflow from operating activities	1,269	1,548
Investing activities
Purchase of investments	(51,278)	(56,462)
Sale of investments	51,912	60,733
Sale of derivatives	5,057	1,054
Collateral pledged	610	220
Net cash inflow from investing activities	6,301	5,545
Financing activities
Repurchase of ordinary shares into treasury	-	(2,144)
Repurchase and cancellation of ordinary shares	(5,443)	(1,808)
Dividends paid	(2,052)	(2,252)
Increase/(decrease) in intercompany loan	411	(110)
Net cash outflow from financing activities	(7,084)	(6,314)
Net decrease in net debt	486	779
Net funds at the start of the year	5,382	4,556
Effect of foreign exchange rate changes	609	47
Net funds at the end of the year	6,477	5,382
Cash and cash equivalents	6,477	5,382

 

Notes to the Financial Statements

1.  Accounting policies

The financial statements have been prepared on a going concern basis under the historical cost convention modified by the revaluation of financial assets and liabilities held at fair value through profit or lost, in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The principal accounting policies adopted by the Company are set out within the Notes to the Annual Financial Report.

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 October 2019 is consistent with the requirements of IFRS, the financial statements have been prepared in accordance with the SORP.

The accounting policies which apply in preparing the financial statements for the year ended 30 April 2021 have been applied consistently, other than where new policies have been adopted.

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 (£'000) except where otherwise indicated.  

2.  Income

	Year ended	Year ended
	30 April 2021	30 April 2020
	£'000	£'000
Investment income*
UK dividend income	1,691	2,226
UK fixed interest	-	18
Overseas dividend income	1,107	509
	2,798	2,753
Other income
Bank interest	19	20
Derivative income	330	-
	349	20
Total income	3,147	2,773

*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.

A number of UK quoted investments are domiciled in other countries for tax purposes.

3.  Dividends paid and proposed

Set out below are the total dividends recognised in respect of the financial year ended 30 April 2021.

	Year ended	Year ended
	30 April	30 April
	2021	2020
	£'000	£'000
2020 final dividend of 3.10p per ordinary share (2019: 3.00p)	1,229	1,215
2021 interim dividend of 2.11p per ordinary share (2020: 2.10p)	823	834
Special dividend of nilp per ordinary share (2019: 0.5p)	-	203
	2,052	2,252

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 2021 reflects the final dividend for the year ended 30 April 2020 which was paid on 16 October 2020. For the year ended 30 April 2021, a first interim dividend of 2.11p has been paid on 21 January 2021 and a final dividend of 3.19p has been proposed for payment on 22 October 2021. The final dividend is proposed for approval by shareholders at the forthcoming AGM.

Set out below are the total dividends paid/proposed in respect of the financial year ended 30 April 2021.

	Year ended	Year ended
	30 April	30 April
	2021	2020
	£'000	£'000
Interim dividend of 2.11p per ordinary share (2020: 2.10p)	823	834
Final dividend of 3.19p per ordinary share (2020: 3.10p)	1,218	1,227
	2,041	2,061

5. Earnings per share

The revenue earnings per ordinary share is based on the revenue profit for the year of £2,323,000 (2020: £1,966,000) and on 39,224,610 (2020: 40,111,037) ordinary shares, being the weighted average number of ordinary shares in issue during the year.

The capital profit per ordinary share is based on the capital profit for the year of £64,546,000 (2020: capital loss £18,574,000) and on 39,224,610 (2020: 40,111,037) ordinary shares, being the weighted average number of ordinary shares in issue during the year.

6.  Share capital

(a) Share capital

	2021	2021	2020	2020
	Shares	£'000	Shares	£'000
Allotted, called up and fully paid:
Ordinary shares of 1p each	38,185,474	382	39,580,474	396
	38,185,474	382	39,580,474	396

 

(b) Ordinary shares

	Shares	£'000
Movements in ordinary shares during the year:
Ordinary shares in issue on 1 May 2020	39,580,474	396
Repurchase of ordinary shares for cancellation	(1,395,000)	(14)
Ordinary shares in issue on 30 April 2021	38,185,474	382

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

	2021	2021	2020	2020
	Shares	£'000	Shares	£'000
Balance brought forward	-	-	-	-
Repurchases of ordinary shares	-	-	771,000	8
Cancellation of ordinary shares	-	-	(771,000)	(8)
Balance carried forward	-	-	-	-

During the year ended 30 April 2021, the Company had no movements in ordinary shares held in treasury (2020: repurchased and cancelled 771,000 shares from treasury).

There were no subscription shares in issue at 30 April 2021 (2020: nil).

7. Net asset value per ordinary share

The net asset value per share is based on the net assets of £181,828,000 (2020: £122,454,000) and on 38,185,474 (2020: 39,580,474) ordinary shares, being the number of ordinary shares in issue at the year end.

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 notes to the Annual Financial Report. 

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.

Fees payable during the year to the Directors and their interest in shares of the Company are considered to be related party transactions and are disclosed within the Directors' Remuneration Report included in the Annual Financial Report.

All transactions with subsidiary undertakings were on an arms length basis. During the year transactions in securities between the Company and its subsidiary undertaking amounted to £nil (2020: £nil). The subsidiary paid a dividend to Artemis Alpha Trust plc of £725,000 (2020: £nil).

9. Events after the reporting period

As a consequence of company activities, the Company's investment in Singer Capital Markets was written up by 9% to £3,784,000 and the investment in Reaction Engines was written up by 25% to £6,434,000.

As at 30 June 2021, a further 294,000 ordinary shares had been bought back and cancelled at a cost of £1,296,000.

10. Annual Financial Report

This Annual Financial Report announcement does not constitute the Company's statutory accounts for the years ended 30 April 2021 and 30 April 2020 but is derived from those accounts. Statutory accounts for the year ended 30 April 2020 have been delivered to the Registrar of Companies.  The statutory accounts for the year ended 30 April 2021 and the year ended 30 April 2020 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 2021 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 2021 will be available to shareholders shortly. Copies may be obtained from the Company's registered office at Cassini House, 57-59 St James's Street, London SW1A 1LD or at the website at artemisalphatrust.co.uk.

A copy of the Annual Financial Report will also be submitted to the FCA's National Storage Mechanism and will soon be available for inspection at:

https://data.fca.org.uk/#/nsm/nationalstoragemechanism

The Annual General Meeting of the Company will be held on Thursday, 14 October 2021 at 12.30 p.m.

For further information, please contact:

Artemis Fund Managers Limited

Company Secretary

Telephone: [phone]

6 July 2021

[END]

 

END

 

 

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