ARTEMIS ALPHA TRUST PLC (the 'Company')
Interim Results for the six months ended 31st October 2008
Chairman's Statement
Performance - Testing times . . .
As the full effect of the credit crisis reached further and further afield, the six months to 31st October 2008 have seen a level of financial turmoil in world markets unprecedented since the 1930s. Such was the destabilising impact on financial markets, in particular the credit markets, that it led to governments around the world taking extreme and co-ordinated action. A series of financial rescue packages was provided in an attempt to restore some stability and confidence in markets.
Against this background it is not surprising that the falls in stock markets have been severe. The broader UK stock market, as represented by the FTSE All-Share Index, fell by 28.2 per cent over the period. At the smaller company end of the market, an area to which your Company has a sizable exposure, the FTSE Small Cap (ex IT) Index fell by 38.9 per cent. Your Company's diluted net asset value per share fell by 32.2 per cent per cent over the reporting period to stand at 170.75p per share as at 31st October 2008.
During the reporting period the significant investment transaction was the disposal of the holding in Artemis Asset Management. This resulted in an uplift of £1.6 million over the value of the holding at the Company's year end, equivalent to 5p per share, and a total gain on the investment of £10.9 million. Other investment activity in the period saw a limited number of new investments being made, together with a number of follow-on investments in existing portfolio companies. The majority of the investment activity was focussed on disposals as your Investment Manager realised cash to reduce the Company's gearing. At 31st October 2008 the Company had no gearing and net cash of £4.7 million.
Unquoted investments
At 31st October 2008 33% of the Company's net assets were held in unquoted investments. The largest of these is Vostok Energy, which is principally a gas exploration and production company operating in Russia, and represented 17.2% of net assets. The valuation reflects the price at which funds were raised by the company in May 2008 and is supported by revised gas values and the likelihood of near term production.
A review of the unquoted investments by the Board has taken place every six months, but in future will take place quarterly. As a result of the latest review, three companies have been written down completely and two in part, resulting in a reduction in net assets of £4.6 million, equivalent to 12.17p per share.
Dividends
Your Board has declared a first interim dividend for the year ending 30th April 2009 of 1.10p per share (2007: 1.05p). This is a 4.7 per cent increase over the equivalent dividend last year. It is in line with the Board's intention to seek to provide shareholders with a growing income from their investment in the Company. This dividend will be paid to shareholders on 2nd February 2009 to those shareholders on the share register as at 5th January 2009.
Share buy-backs
In the period under review, the Company bought back 1,012,000 ordinary shares at a cost of £1.9 million. These shares were bought at an average discount of 10.7 per cent and added approximately 0.7p per share for continuing shareholders. The shares are presently held in treasury.
Investment Plan
The Company's shares can be acquired through an Investment Plan, operated by Artemis, which provides a low cost and convenient way of investing in the Company. Investments can be made via a regular monthly contribution or by one-off lump sum investment. Details of the Investment Plan may be obtained from the Investment Manager by calling 0800 092 2051 or directly from the web site www.artemisonline.co.uk.
Outlook - Value emerging . . .
At the time of writing, stock markets remain very volatile. The issue concerning markets is how severe and how prolonged the global recession will be. Most forecast corporate earnings are being revised down aggressively. As illustrated in the performance section above, the value of many companies' shares has fallen dramatically over recent months.
In some cases, this would appear to be overdone and reflects the fear that has gripped investors. This has led to the emergence of real value in certain areas of the market. It is hoped that the proven stock-picking approach employed by your Investment Manager will identify sound investment opportunities that will produce positive returns for shareholders over the medium and longer term.
At the time of writing, the Company's diluted net asset value stood at 163.5p per share and the share price was 140.0p per share, representing a discount of 14.4%.
I look forward to reporting to you again following the Company's year end at 30th April 2009. By then, we all hope, markets will be more stable and the outlook clearer.
Simon Miller
Chairman
19th December 2008
Investment Manager's Review
Review of the period
World stock markets have continued to fall and remain volatile as the adjustment is made to the lower availability of credit following the financial write downs caused by the excessive lending practices of recent years. The de-leveraging firstly impacted financial companies but the contagion has now spread to much broader parts of the economy.
Some long term positive trends reversed sharply during the period as the price of oil and other commodities fell. The greatest negative impact on the portfolio has been caused by the falling palm oil price which has impacted New Britain Palm Oil and R.E.A. Both companies have well established operations in the Far East and operationally have met expectations. In the short term we expect prices to stabilise before longer term positive trends start to come in to play for this essential food source.
Our focus on oil exploration and services did well up until the summer. We had the benefit of two corporate events, the takeovers of Expro International and Solana Resources at significant premiums. However, the fall to $50 per barrel has caused a significant de-rating of our holding in Salamander Energy. We believe at current levels it has been overdone and that OPEC will take a more aggressive stance in terms of production with the price of oil below $50 per barrel. More recently we have accepted a cash bid for our holding in Revus Energy, the Norwegian based explorer, which will result in a considerable gain over the cost of this investment.
As set out in the Chairman's Statement, the Board has reviewed, with the Investment Manager, the carrying values of our unquoted investments and as a result a number of these investments have been written down in value. The two largest investments, Vostok Energy and Hurricane Exploration, are being held at their current levels, due to recent fund raisings at these prices which are supported by each company's stated assets. Vostok Energy has 1tcf (a trillion cubic feet) of gas in the Saratov region of Russia and, unlike the oil price, the price of Russian gas has been very stable. Given the shortages of gas we anticipate, we believe, along with the other major shareholders in the company, that with the recent funding taking place only six months ago our carrying value remains appropriate. Hurricane Exploration is focused on exploration on fractured basement reservoirs in the west of Shetland basin where it has a strong position. The company is raising money, which is being driven by investor demand, at the same level as our carrying value and again this is supported by potential assets.
New purchases during the period include Booker - the food services business. We have started to increase our engineering exposure with purchases of Spirax-Sarco, Rotork and Weir Group. Our buying strategy is to take advantage of weakening prices, but calling any bottom is impossible. Smiths Group is a recent purchase with an excellent spread of companies focused on such sectors as contraband detection and medical devices.
Within our financials exposure the Artemis Asset Management share sale was the most significant event and this has been covered within the Chairman's Statement. We also received a bid for our holding in Hichens Harrison at a reasonable premium. Our remaining fund management holdings in Bluebay Asset Management and F&C Asset Management will remain under pressure and will react according to stock market levels. Over the long term we expect these businesses will recover.
Outlook
The world is a very different place at the time of writing. Within our UK universe we have seen the UK stock market bottom out at just below 4,000, as measured by the FTSE 100 Index. The exact impact of the financial de-leveraging on the real economy will take some time to work through and clearly there remains much uncertainty. The portfolio is not currently geared and has cash which we will drip feed into buying a broad range of high quality companies. We wish we could provide a more positive outlook, but there are too many unknowns. We as investment managers have much at stake also and we believe that as the US recovers the UK economy will also start to improve and hope by the year end we will have a clearer idea of what is happening in the real world.
John Dodd
Investment Manager
Artemis Investment Management Limited
19th December 2008
Consolidated Income Statement
For the six months ended 31st October 2008
|
|
Six months ended |
Six months ended |
Year ended |
||||||
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
Note |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
Investment income |
|
|
|
|
|
|
|
|
|
|
Other income |
|
(129) |
-- |
(129) |
198 |
-- |
198 |
308 |
-- |
308 |
|
|
|||||||||
Total revenue |
|
149 |
-- |
149 |
892 |
-- |
892 |
1,388 |
-- |
1,388 |
|
|
|||||||||
(Losses)/gains on investments |
|
-- |
|
|
|
|
|
|
|
|
Gains/(losses) on current asset investments |
|
|
|
|
|
|
|
|
|
|
Currency gains/(losses) |
|
-- |
17 |
17 |
-- |
(21) |
(21) |
1 |
(1) |
-- |
|
|
|||||||||
Total income |
|
319 |
(31,217) |
(30,898) |
704 |
890 |
1,594 |
1,107 |
7,790 |
8,897 |
|
|
|||||||||
Expenses |
|
|
|
|
|
|
|
|
|
|
Investment management fees |
|
(25) |
(224) |
(249) |
(28) |
(272) |
(300) |
(55) |
(493) |
(548) |
Other expenses |
|
(174) |
-- |
(174) |
(143) |
-- |
(143) |
(272) |
-- |
(272) |
|
|
|||||||||
Profit/(loss) before finance costs and tax |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Finance costs |
|
(30) |
(268) |
(298) |
(39) |
(355) |
(394) |
(79) |
(711) |
(790) |
|
|
|||||||||
Profit/(loss) before tax |
|
90 |
(31,709) |
(31,619) |
494 |
263 |
757 |
701 |
6,586 |
7,287 |
|
|
|||||||||
Tax |
|
-- |
-- |
-- |
-- |
-- |
-- |
(7) |
6 |
(1) |
|
|
|||||||||
Profit/(loss) for the period |
|
90 |
(31,709) |
(31,619) |
494 |
263 |
757 |
694 |
6,592 |
7,286 |
|
|
|||||||||
Earnings per ordinary share (basic) |
|
|
|
|
|
|
|
|
|
|
Earnings per ordinary share (diluted) |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet
As at 31st October 2008
|
|
31st October 2008 |
31st October 2007 |
30th April 2008 |
Non-current assets |
|
|
|
|
Investments |
|
52,911 |
97,146 |
102,067 |
|
|
|||
Current assets |
|
|
|
|
Investments held by subsidiary |
|
1 |
372 |
629 |
Other receivables |
|
212 |
202 |
385 |
Cash and cash equivalents |
|
4,740 |
1,293 |
496 |
|
|
|||
|
|
4,953 |
1,867 |
1,510 |
|
|
|||
Total assets |
|
57,864 |
99,013 |
103,577 |
|
|
|||
Current liabilities |
|
|
|
|
Other payables |
|
(244) |
(856) |
(452) |
Bank loan |
|
-- |
(11,500) |
(11,500) |
|
|
|||
|
|
(244) |
(12,356) |
(11,952) |
|
|
|
||
Net assets |
|
57,620 |
86,657 |
91,625 |
|
|
|||
Equity attributable to equity holders |
|
|
|
|
Share capital |
|
334 |
334 |
334 |
Share premium |
|
23,984 |
23,984 |
23,984 |
Special reserve |
|
4,833 |
7,974 |
6,762 |
Warrant reserve |
|
1,299 |
1,299 |
1,299 |
Capital redemption reserve |
|
2 |
2 |
2 |
Retained earnings -- revenue |
|
1,521 |
2,037 |
1,888 |
Retained earnings -- capital |
5 |
25,647 |
51,027 |
57,356 |
|
|
|||
Total equity |
|
57,620 |
86,657 |
91,625 |
|
|
|||
Net asset value per ordinary share (basic) |
|
|
|
|
Net asset value per ordinary share (diluted) |
|
|
237.50p |
|
|
|
Consolidated Statement of Changes in Equity
For the six months ended 31st October 2008
|
Six months ended 31st October 2008 (unaudited) |
|||||||
|
|
|
|
|
Capital |
|
|
|
|
Share |
Share |
Special |
Warrant |
redemption |
Retained earnings |
|
|
|
capital |
premium |
reserve |
reserve |
reserve |
Revenue |
Capital |
Total |
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
|
|
At 1st May 2008 |
|
|
|
|
|
|
|
|
Profit/(loss) for the period |
|
|
|
|
|
|
|
|
Repurchase of own shares |
-- |
-- |
(1,929) |
-- |
-- |
-- |
-- |
(1,929) |
Dividends paid |
|
|
|
|
|
(457) |
|
|
|
|
|
|
|
|
|
|
|
At 31st October 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended 31st October 2007 (unaudited) |
|||||||
|
|
|
|
|
Capital |
|
|
|
|
Share |
Share |
Special |
Warrant |
redemption |
Retained earnings |
|
|
|
capital |
premium |
reserve |
reserve |
reserve |
Revenue |
Capital |
Total |
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
|
|
At 1st May 2007 |
334 |
23,984 |
7,974 |
1,299 |
2 |
1,975 |
50,764 |
86,332 |
Profit for the period |
-- |
-- |
-- |
-- |
-- |
494 |
263 |
757 |
Dividends paid |
-- |
-- |
-- |
-- |
-- |
(432) |
-- |
(432) |
|
|
|
|
|
|
|
|
|
At 31st October 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30th April 2008 (audited) |
|||||||
|
|
|
|
|
Capital |
|
|
|
|
Share |
Share |
Special |
Warrant |
redemption |
Retained earnings |
|
|
|
capital |
premium |
reserve |
reserve |
reserve |
Revenue |
Capital |
Total |
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
|
|
At 1st May 2007 |
334 |
23,984 |
7,974 |
1,299 |
2 |
1,975 |
50,764 |
86,332 |
Profit for the year |
-- |
-- |
-- |
-- |
-- |
694 |
6,592 |
7,286 |
Repurchase of own shares |
|
|
|
|
-- |
|
|
|
Dividends paid |
-- |
|
|
|
|
(781) |
|
(781) |
|
|
|
|
|
|
|
|
|
At 30th April 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Cash Flow Statement
For the six months ended 31st October 2008
|
Six months ended |
Six months ended |
Year ended |
Operating activities |
|
|
|
(Loss)/profit before tax |
(31,619) |
757 |
7,287 |
Interest payable |
298 |
394 |
790 |
Losses/(gains) on investments |
31,234 |
(911) |
(7,791) |
(Gain)/loss on foreign exchange |
(17) |
21 |
1 |
Net movement in current asset investments |
(170) |
188 |
282 |
Decrease/(increase) in other receivables |
61 |
26 |
(52) |
(Decrease)/increase in payables |
(55) |
38 |
(33) |
|
|||
Net cash (outflow)/inflow from operating activities before interest and tax |
(268) |
513 |
484 |
|
|||
Interest paid |
(352) |
(374) |
(774) |
Corporation tax paid |
-- |
-- |
(4) |
|
|||
Net cash (outflow)/inflow from operating activities |
(620) |
139 |
(294) |
|
|||
Investing activities |
|
|
|
Purchases of investments |
(15,735) |
(13,727) |
(22,113) |
Sales of investments |
34,468 |
14,215 |
23,776 |
|
|||
Net cash inflow from investing activities |
18,733 |
488 |
1,663 |
|
|||
Financing activities |
|
|
|
Repurchase of own shares |
(1,929) |
-- |
(1,212) |
Dividends paid |
(457) |
(432) |
(781) |
|
|||
Net cash outflow from financing activities |
(2,386) |
(432) |
(1,993) |
|
|||
Net increase/(decrease) in cash and cash equivalents |
15,727 |
195 |
(624) |
|
|||
Cash and cash equivalents at the start of the period |
(11,004) |
(10,381) |
(10,381) |
Effect of foreign exchange rate changes |
17 |
21 |
1 |
|
|||
Cash and cash equivalents at the end of the period |
4,740 |
(10,207) |
(11,004) |
|
|||
Bank Loans |
-- |
(11,500) |
(11,500) |
Cash |
4,740 |
1,293 |
496 |
|
|||
|
4,740 |
(10,207) |
(11,004) |
|
Notes
1. Accounting Policies
The Group's Half-Yearly Financial Report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', the provisions of the Companies Act 2006 and with the guidance set out in the Statement of Recommended Practice for Investment Trusts issued by the Association of Investment Companies in December 2005.
The Half-Yearly Financial Report has been prepared under the same accounting policies as the annual financial statements for the year ended 30th April 2008.
2. Earnings per ordinary share
The basic revenue earnings per ordinary share is based on the revenue profit for the period of £90,000 (30th April 2008: £694,000, 31st October 2007: £494,000) and on 31,934,315 (30th April 2008: 33,103,283; 31st October 2007: 33,233,488) ordinary shares, being the weighted average number of ordinary shares in issue during the period.
The basic capital earnings per ordinary share is based on the capital loss for the period of £31,709,000 (30th April 2008: profit of £6,592,000; 31st October 2007: profit of £263,000) and on 31,934,315 (30th April 2008: 33,103,283; 31st October 2007: 33,233,488) ordinary shares, being the weighted average number of ordinary shares in issue during the period.
For the purposes of calculating diluted revenue and capital earnings per ordinary share, the number of ordinary shares is the weighted average used in the basic calculation plus the number of ordinary shares deemed to be issued for no consideration on exercise of all warrants by reference to the average share price of the ordinary shares during the period. The exercise of warrants would result in an increase in the weighted average number of ordinary shares of 3,346,095 (30th April 2008: 2,956,257; 31st October 2007: 3,031,690).
3. Net asset value per ordinary share
The basic net asset value per ordinary share is based on net assets of £57,620,000 (30th April 2008: £91,625,000; 31st October 2007: £86,657,000) and on 31,656,488 (30th April 2008: 32,668,488; 31st October 2007: 33,233,488) ordinary shares, being the number of ordinary shares in issue at the period end.
The diluted net asset value per ordinary share has been calculated on the assumption that 6,118,689 of the total 6,671,697 manager warrants issued (30th April 2008: 6,671,697; 31st October 2007: 6,671,697), were exercised, resulting in a total number of ordinary shares in issue at 31st October 2008 of 37,775,177 (30th April 2008: 39,340,185; 31st October 2007: 39,905,185).
4. Dividends
|
Six months ended £'000 |
Six months ended £'000 |
Year ended £'000 |
Second interim dividend for the year ended 30th April 2007 - 1.30p |
-- |
432 |
432 |
First interim dividend for the year ended 30th April 2008 - 1.05p |
-- |
-- |
349 |
Second interim dividend for the year ended 30th April 2008 - 1.40p |
457 |
-- |
-- |
|
|
|
|
|
457 |
432 |
781 |
|
|
|
|
A first interim dividend for the year ending 30th April 2009 of £348,000 (1.10p per ordinary share) has been declared. This will be paid on 2nd February 2009 to those shareholders on the register at close of business on 5th January 2009.
5. Analysis of retained earnings - capital
|
31st October £'000 |
31st October £'000 |
30th April £'000 |
Retained earnings - capital (realised) |
55,098 |
40,704 |
47,204 |
Retained earnings - capital (unrealised) |
(29,451) |
10,323 |
10,152 |
|
|
|
|
|
25,647 |
51,027 |
57,356 |
|
|
|
|
6. Comparative information
The financial information for the six months ended 31st October 2008 and 31st October 2007 has not been audited and constitutes non-statutory financial statements as defined in Section 435 of the Companies Act 2006 (31st October 2007: Section 240, Companies Act 1985).
The financial information for the year ended 30th April 2008 has been extracted from the audited financial statements for the year ended 30th April 2008. These financial statements contained an unqualified auditor's report and have been lodged with the Registrar of Companies and did not contain a statement required under Sections 237 (2) and (3) of the Companies Act 1985.
7. Principal risks and uncertainties
Pursuant to DTR 4.2.7R of the Disclosure and Transparency Rules, the principal risks faced by the Company include general market price risk, liquidity risk, regulatory and financial risks.
These risks, which have not materially changed since the annual report for the year ended 30th April 2008, and the way in which they are managed, are described in more detail in the annual report for the year ended 30th April 2008 which is available on the Investment Manager's website at www.artemisonline.co.uk.
8. Copies of the Half-Yearly Financial Report will be sent to shareholders in early January 2009 and will be available from the registered office at Cassini House, 57 St James's Street, London SW1A 1LD.
Responsibility Statement of the Directors in respect of the Half-Yearly Financial Report
We confirm that to the best of our knowledge:
• the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting issued by the International Accounting Standards Board as adopted by the EU;
• the interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of the important events that have occurred during the first six months of the financial year and their impact on the financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.
For and on behalf of the Board
Simon Miller
Chairman
19th December 2008
Artemis Investment Management Limited
Company Secretary
For further information, please contact:
Billy Aitken at Artemis Investment Management Limited
Telephone: 0131 225 7300