Half Yearly Report

RNS Number : 2623U

Artemis Alpha Trust PLC

19 December 2011

 

ARTEMIS ALPHA TRUST PLC (the "Company")

Half-Yearly Financial Report for the six months ended 31 October 2011

This announcement contains regulated information

Chairman's Statement

Performance

The six months to 31 October 2011 have been challenging for investors. With stock markets focused on macro issues, particularly the continuing sovereign debt problems in Europe, the reporting period has been characterised by highly volatile markets amid continuing uncertainty over how this situation will be addressed. Against this background your Company's performance has been disappointing, with the net asset value falling by 16.2 per cent, and the share price by 19.2 per cent over the period. The FTSE All-Share Index was down by 7.8 per cent over the same period.

Investments

As shareholders are aware, the Company has a sizeable exposure to unquoted companies, which at the end of October represented 29.9 per cent of the portfolio. Not surprisingly, the difficult market conditions have affected some of the companies in the unquoted portfolio, as a number of planned IPOs have had to be delayed. This has led to a number of investee companies having to raise additional funds for working capital purposes ahead of their IPOs, with these funding rounds being completed at lower prices than the previous values of these investments in the portfolio. As a result they have been written down in value, in line with your Board's valuation policy.

Despite the disappointing reduction in valuation, the investment manager remains optimistic about the unquoted portfolio overall, and believes that it will continue to be a source of positive returns for shareholders over the longer term.

Further information on the portfolio and investment approach over the last six months is set out in the investment manager's review which follows.

Dividends

Your Board has declared a first interim dividend for the year ending 30 April 2012 of 1.20p per share (2011: 1.20p). This dividend will be paid on 3 February 2012 to those shareholders on the register as at 30 December 2011.

Part of the Company's objective is to pay a growing dividend, but in view of the challenging conditions faced by investee companies currently, your Board believes that it is prudent to maintain the first interim dividend at last year's rate. The Board will review the second interim dividend following the year-end.

Share capital

The Company continues to buy back its shares as appropriate, to seek to ensure that the Company's shares trade at a consistently low discount to net asset value. During the period it bought back 150,000 ordinary shares at a discount of 3.7 per cent to the prevailing net asset value.

A total of 15,439 subscription shares were exercised at 30 June 2011 and converted into an equivalent number of ordinary shares.

Shareholder initiatives

I am pleased to advise you of several shareholder initiatives that have recently been completed.

Firstly, the Company is introducing a dividend reinvestment plan ("DRIP") and the registrar, Capita Registrars, wrote to shareholders on 12 December 2011 with full details of the DRIP. The DRIP is a straightforward and efficient way for shareholders to increase their holdings in the Company.

The second initiative is the introduction of an Artemis Alpha Trust ISA (the "ISA"). The ISA will enable investors to make an annual investment (up to £10,680 for the 2011/12 tax year) in the Company, with all capital gains and income from such an investment being free from tax. The ISA will complement the Company's existing Investment Plan.

Both products will be operated by the investment manager, Artemis Investment Management LLP ("Artemis"), and will enable investors to acquire shares in the Company either through regular monthly investments or lump sums. Investments from £50 per month for regular savers, or from £1,000 for lump sums can be made and there are no charges for acquiring shares through either of these products (only broker's commission and stamp duty). If you would like to invest in the Company through the ISA or the Investment Plan, please call Artemis on 0800 092 2051 or visit the website, artemisonline.co.uk.

Outlook

Stock markets continue to await a credible proposal from European leaders on how the debt issues will be resolved and thereby seek to avoid a default on sovereign debt. Until such a plan is put forward, fears of contagion from a default are likely to be uppermost in investors' minds. In the UK, the government continues to try to cut the budget deficit, but this is proving more difficult, with fears that without some form of fiscal stimulus the country will slip back into recession. Strong political leadership is needed to lift Europe and the UK out of the current situation and back to a path of sustainable economic growth.

While the macro picture remains quite gloomy, at the portfolio level our investment manager is still seeing many companies which are in good financial health, with growing businesses, and continues to believe that equities remain attractive as an asset class. Both your Board and investment manager believe that such companies' valuations will be recognised by stock markets in due course.

At the time of writing, the Company's net asset value stood at 262.55p per ordinary share and the share price was 246.50p per ordinary share, representing a discount of 6.1 per cent.

Finally, I look forward to updating you on the Company and its portfolio in the Annual Report in July 2012. More information is contained on dedicated pages on the investment manager's website, artemisonline.co.uk, which is updated monthly. Your Board is always interested to hear the views of shareholders and you can  contact me at [e-mail].

Simon Miller

Chairman

19 December 2011

Investment Manager's Review

Performance - Confident, despite disappointment...

Performance over the six months to 31 October 2011 saw the net asset value fall by 16.2 per cent. While always disappointing to report performance such as this, our long term record remains good and we remain confident that performance will get back to form in the coming months.

Review - The demands of debt...

The period under review has been all about the woes in the Eurozone, as the debt crisis in a number of peripheral countries has led to fears of default by them and the prospect of contagion across the entire European core. This led to extreme volatility in markets, with the FTSE All-Share Index firm in the first three months of the period under review, only to fall back sharply in the summer as the Greek crisis took centre stage.

As the summer wore on, it became clear that a radical overhaul of the entire European project was required, including much closer fiscal union alongside the existing monetary one. It was clear too that many countries' debts would be difficult to repay in full and that most European banks' balance sheets would have to be strengthened to counteract the prospect of write-downs in their loan books.

At the time of writing the fundamental, and as yet unanswered, question is: will Germany sanction the printing of money by the European Central Bank to prevent a debt deflationary spiral that would create a severe depression in the Eurozone - and the consequent collapse of many banks?

For the optimists there is always China. Inflation has started falling for the first time in a while, which should mean that consumption there can take up the slack of sluggish growth in the West. It is clear that much depends on Chinese demand being able to pull the rest of the world out of a long period of stagnation.

Portfolio - Sound stocks...

Whilst mindful of the above, and therefore being wary of buying stocks which are over reliant on continental European or domestic demand, the portfolio has continued to maintain an exposure to investee companies operating in other geographic regions, particularly the Far East, where we believe there are far greater prospects for growth. The Company still favours a stock-picking approach, investing in sound businesses with strong management teams.

The number of holdings in the portfolio has been reduced dramatically following the merger with Gartmore Growth Opportunities, with the total number of holdings now standing at 129 at 31 October 2011, down from 160 at the year-end. We have also reduced the level of gearing in the portfolio, reflecting the greater levels of uncertainty in the markets.

Our main investment themes remain oil & gas, palm oil and other financials - all areas in which we believe we have an edge in knowledge and understanding.

The star performer in the oil & gas sector was Lansdowne Oil & Gas, which began its highly promising drilling campaign. In palm oil, Asian Plantations performed well following a further acquisition of land in Malaysia. It was a tougher environment for other financials, but we continue to view favourably our investments in the emerging market asset managers, City of London Investment Group and Ashmore. We made a new investment in Polar Capital, a fast growing boutique fund management company with a range of top performing funds.

The best individual stock performer over the period was Cupid, an online dating company, which has experienced explosive growth as it expands its overseas network.

In terms of transactions, major purchases included Regus, the serviced office group, Mulberry, the luxury brand, whose sales are taking off in Asia, and Vitec, a leading manufacturer of camera equipment. On the sales side much effort was taken to sell some of the smaller holdings, as well as withdrawing cash from some of the more disappointing stocks such as Betfair and Supergroup.

In the unquoted portfolio, there were two notable revaluations. The first was The Hut Group, where we wrote down the value of our holding as a result of a provision having to be taken by the company against the value of stock in its 2010 financial statements. This led to a need for a small cash injection into the company at a lower price than our carrying value. We remain optimistic about the prospects for this business as it enters its key trading months.

The second was Vostok Energy. The company had hoped to complete an IPO in 2011, but market conditions prevented it from doing so. The postponement of an IPO meant that it had to raise some additional money to provide it with working capital to cover operational commitments. The fund raising was supported by existing shareholders, with the company's directors also investing. It was, however, completed at a lower price than our previous carrying value. As a business it continues to progress, with increasing revenues from the sale of gas to Gazprom at prices which will move upwards as the Russian gas price is moved up towards the global price. This should provide the company with sufficient cash flows for it to remain operational until it can raise funds at IPO to provide it with capital to fund a number of larger capital expenditure projects it has planned.

We are mindful of the difficulties all private businesses have had in raising fresh capital to execute their business plans this year. It has been a matter of disappointment that two or three of our unquoted companies have not been able to float. But this has more to do with the state of financial markets than the prospects for the businesses themselves.

Set out below is the attribution analysis showing the stocks which have had the greatest effect, positive and negative, on the performance of the Company.

Five largest stock contributors

	Contribution %
Cupid	0.6
Lansdowne Oil & Gas	0.5
Asian Plantations	0.2
Continental Farmers Group	0.2
Leed Petroleum	0.2

Five largest stock detractors

	Contribution %
The Hut Group	(3.2)
Vostok Energy	(2.8)
Salamander Energy	(1.1)
Providence Resources	(0.8)
Oxford Catalysts	(0.6)

Outlook - Equities relatively attractive...

In spite of the obvious issues in the world economy and particularly Europe, we continue to find excellent value at the stock level. Company balance sheets are far more robust than they were in 2008. With interest rates at record low levels and governments printing money, equities look as attractive an asset class as any other - especially when compared with bonds.

John Dodd and Adrian Paterson

Fund managers

Artemis Investment Management LLP

19 December 2011

Responsibility Statement of the Directors in respect of the Half-Yearly Financial Report

We confirm that to the best of our knowledge, in respect of the Half-Yearly Financial Report for the six months ended 31 October 2011:

-        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)  Disclosure and Transparency Rule 4.2.7R (indication of important events during the first six months; and a description of the principal risks and uncertainties for the remaining six months of the year); and

(b)  Disclosure and Transparency Rule 4.2.8R (related party transactions).

For and on behalf of the Board

Simon Miller

Chairman

19 December 2011

Condensed Income Statement

For the six months ended 31 October 2011

		Six months ended 31 October 2011 (unaudited)			Six months ended 31 October 2010 (unaudited)			Year ended 30 April 2011 (audited)
		Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Investment income		1,200	--	1,200	454	--	454	1,426	--	1,426
Other income		65	--	65	118	--	118	352	--	352
Total revenue		1,265	--	1,265	572	--	572	1,778	--	1,778
(Losses)/gains on investments		--	(25,400)	(25,400)	--	10,999	10,999	--	24,044	24,044
(Losses)/gains on current asset investments		(601)	--	(601)	--	--	--	72	--	72
Currency (losses)/gains		--	(50)	(50)	--	13	13	--	31	31
Total income		664	(25,450)	(24,786)	572	11,012	11,584	1,850	24,075	25,925
Expenses
Investment management fee		(56)	(502)	(558)	(28)	(250)	(278)	(80)	(722)	(802)
Performance fee		40	363	403	--	--	--	(40)	(363)	(403)
Other expenses		(210)	(10)	(220)	(127)	--	(127)	(284)	(25)	(309)
Profit/(loss) before finance costs and tax		438	(25,599)	(25,161)	417	10,762	11,179	1,446	22,965	24,411
Finance costs		(41)	(370)	(411)	(19)	(170)	(189)	(53)	(474)	(527)
Profit/(loss) before tax		397	(25,969)	(25,572)	398	10,592	10,990	1,393	22,491	23,884
Tax		(29)	15	(14)	(8)	--	(8)	(39)	30	(9)
Profit/(loss) for the period		368	(25,954)	(25,586)	390	10,592	10,982	1,354	22,521	23,875
Earnings per ordinary share (basic)	2	0.75p	(53.29)p	(52.54)p	1.30p	35.29p	36.59p	3.64p	60.56p	64.20p
Earnings per ordinary share (diluted)	2	0.75p	(53.29)p	(52.54)p	1.17p	31.80p	32.97p	3.64p	60.56p	64.20p

 

Condensed Balance Sheet

As at 31 October 2011

	Notes	31 October 2011 (unaudited) £'000	31 October 2010 (unaudited) £'000	30 April 2011 (audited) £'000
Non-current assets
Investments		141,650	110,123	181,549
Current assets
Investments held by subsidiary		2,256	1,669	2,903
Other receivables		615	2,941	4,593
Cash and cash equivalents		2,986	189	--
		5,857	4,799	7,496
Total assets		147,507	114,922	189,045
Current liabilities
Other payables		(783)	(2,662)	(2,002)
Bank overdraft		--	(716)	(1,519)
Bank loan		(14,500)	(11,500)	(26,500)
		(15,283)	(14,878)	(30,021)
Net assets		132,224	100,044	159,024
Equity attributable to equity holders
Share capital		557	305	557
Share premium		594	24,157	69,136
Special reserve		70,938	1,592	2,807
Warrant reserve		--	1,270	--
Capital redemption reserve		33	32	33
Retained earnings -- revenue		2,050	1,881	2,485
Retained earnings -- capital	5	58,052	70,807	84,006
Total equity		132,224	100,044	159,024
Net asset value per ordinary share (basic)	3	271.56p	333.58p	325.70p
Net asset value per ordinary share (diluted)	3	271.56p	295.64p	325.70p

Condensed Statement of Changes in Equity

For the six months ended 31 October 2011

	Six months ended 31 October 2011 (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 1 May 2011	557	69,136	2,807	--	33	2,485	84,006	159,024
Total comprehensive income:
Profit/(loss) for the period	--	--	--	--	--	368	(25,954)	(25,586)
Transactions with owners recorded directly to equity:
Cancellation of share premium	--	(68,595)	68,595	--	--	--	--	--
Repurchase of ordinary shares into treasury	--	--	(464)	--	--	--	--	(464)
Conversion of subscription shares	--	53	--	--	--	--	--	53
Dividends paid	--	--	--	--	--	(803)	--	(803)
At 31 October 2011	557	594	70,938	--	33	2,050	58,052	132,224

	Six months ended 31 October 2010 (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 1 May 2010	305	24,116	1,910	1,278	32	1,970	60,207	89,818
Total comprehensive income:
Profit for the period	--	--	--	--	--	390	10,592	10,982
Transactions with owners recorded directly to equity:
Repurchase of ordinary shares into treasury	--	--	(318)	--	--	--	--	(318)
Exercise of manager warrants	--	41	--	(8)	--	--	8	41
Dividends paid	--	--	--	--	--	(479)	--	(479)
At 31 October 2010	305	24,157	1,592	1,270	32	1,881	70,807	100,044

	Year ended 30 April 2011 (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 1 May 2010	305	24,116	1,910	1,278	32	1,970	60,207	89,818
Total comprehensive income:
Profit for the year	--	--	--	--	--	1,354	22,521	23,875
Transactions with owners recorded directly to equity:
Issue of ordinary shares	117	37,323	--	--	--	--	--	37,440
Costs of merger	--	(772)	--	--	--	--	--	(772)
Repurchase of ordinary shares into treasury	--	--	(319)	--	--	--	--	(319)
Re-issue of ordinary shares from treasury	--	527	1,286	--	--	--	--	1,813
Exercise of manager warrants	66	7,914	--	(1,278)	--	--	1,278	7,980
Bonus issue of subscription shares	70	--	(70)	--	--	--	--	--
Cancellation of subscription shares	(1)	--	--	--	1	--	--	--
Conversion of subscription shares	--	28	--	--	--	--	--	28
Dividends paid	--	--	--	--	--	(839)	--	(839)
At 30 April 2011	557	69,136	2,807	--	33	2,485	84,006	159,024

 

Condensed Cash Flow Statement

For the six months ended 31 October 2011

	Six months ended 31 October 2011 (unaudited) £'000	Six months ended 31 October 2010 (unaudited) £'000	Year ended 30 April 2011 (audited) £'000
Operating activities
(Loss)/profit before tax	(25,572)	10,990	23,884
Interest payable	411	189	527
Losses/(gains) on investments	25,400	(10,999)	(24,044)
Currency losses/(gains)	50	(13)	(31)
Losses/(gains) on current asset investments	601	--	(72)
Increase in other receivables	(68)	(12)	(231)
(Decrease)/increase in other payables	(462)	(147)	488
Net cash inflow from operating activities before interest and tax	360	8	521
Interest paid	(411)	(189)	(527)
Irrecoverable overseas tax suffered	(14)	--	(9)
Net cash outflow from operating activities	(65)	(181)	(15)
Investing activities
Purchases of investments	(28,175)	(27,238)	(100,348)
Sales of investments	46,009	27,032	75,319
Net cash inflow/(outflow) from investing activities	17,834	(206)	(25,029)
Financing activities
Repurchase of ordinary shares into treasury	(464)	(318)	(319)
Exercise of manager warrants	--	41	7,980
Re-issue of ordinary shares from treasury	--	--	1,813
Costs of merger	--	--	(772)
Conversion of subscription shares	53	--	28
Dividends paid	(803)	(479)	(839)
Net cash (outflow)/inflow from financing activities	(1,214)	(756)	7,891
Net increase/(decrease) in cash and cash equivalents	16,555	(1,143)	(17,153)
Cash and cash equivalents at the start of the period	(28,019)	(10,897)	(10,897)
Effect of foreign exchange rate changes	(50)	13	31
Cash and cash equivalents at the end of the period	(11,514)	(12,027)	(28,019)
Bank loan	(14,500)	(11,500)	(26,500)
Bank overdraft	--	(716)	(1,519)
Cash	2,986	189	--
	(11,514)	(12,027)	(28,019)

Notes to the Half-Yearly Financial Report

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 Trust
Companies and Venture Capital Trusts issued by the Association of Investment Companies in
January 2009.

The Half-Yearly Financial Report has been prepared under the same accounting policies as the Annual Financial Statements for the year ended 30 April 2011.

2.  Earnings per ordinary share

	Six months ended  31 October 2011	Six months ended 31 October 2010	Year ended 30 April 2011
Earnings per ordinary share is based on:
Revenue earnings (£'000)	368	390	1,354
Capital earnings (£'000)	(25,954)	10,592	22,521
Total earnings (£'000)	(25,586)	10,982	23,875
Weighted average number of ordinary shares in issue during the period (basic)	48,704,648	30,011,861	37,189,744
Weighted average number of ordinary shares in issue during the period (diluted)	48,704,648	33,304,491	37,189,744

3.  Net asset value per ordinary share

	As at 31 October 2011	As at 31 October 2010	As at 30 April 2011
Net asset value per ordinary share is based on:
Net assets (£'000)	132,224	100,044	159,024
Number of ordinary shares in issue at the end of the period (basic)	48,690,588	29,991,203	48,825,239
Assumed exercise of manager warrants/ subscription shares at the end of the period	--	6,533,982	--
Number of ordinary shares in issue at the end of the period (diluted)	48,690,588	36,525,185	48,825,239

4.  Dividends

	Six months ended 31 October 2011 £'000	Six months ended 31 October 2010 £'000	Year ended 30 April 2011 £'000
Second interim dividend for the year ended 30 April 2010 - 1.60p	--	479	479
First interim dividend for the year ended 30 April 2011 - 1.20p	--	--	360
Second interim dividend for the year ended 30 April 2011 - 1.65p	803	--	--
	803	479	839

A first interim dividend for the year ending 30 April 2012 of £584,287 (1.20p per ordinary share) has been declared. This will be paid on 3 February 2012 to those shareholders on the register at the close of business on 30 December 2011.

5.  Analysis of retained earnings - capital

	31 October 2011 £'000	31 October 2010 £'000	30 April 2011 £'000
Retained earnings - capital (realised)	63,649	51,223	73,364
Retained earnings - capital (unrealised)	(5,597)	19,584	10,642
	58,052	70,807	84,006

6.  Comparative information

The financial information for the six months ended 31 October 2011 and 31 October 2010 has not been audited and does not constitute statutory financial statements as defined in Section 234 of the Companies Act 2006.

The information for the year ended 30 April 2011 has been extracted from the Audited Financial Statements for the year ended 30 April 2011. 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 Section 498 of the Companies Act 2006.

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 30 April 2011, and the way in which they are managed, are described in more detail in the Annual Report for the year ended 30 April 2011 which is available on the investment manager's website
at artemisonline.co.uk.

8.  Related party transactions

There were no related party transactions during the period.

Copies of the Half-Yearly Financial Report for the six months ended 31 October 2011 will be sent to shareholders shortly and will be available from the registered office at Cassini House, 57 St James's Street, London SW1A 1LD as well as on the investment manager's website at artemisonline.co.uk.

Artemis Investment Management LLP

Company Secretary

For further information, please contact:

Billy Aitken at Artemis Investment Management LLP

Telephone: [phone]

19 December 2011

 

 

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