Half Yearly Report

RNS Number : 9322Z

Artemis Alpha Trust PLC

16 December 2014

 



ARTEMIS ALPHA TRUST PLC (the "Company")

Half-Yearly Financial Report for the six months ended 31 October 2014

This announcement contains regulated information

Chairman's Statement

I am pleased to present my first half-yearly report to shareholders, following my appointment as Chairman on 2 October 2014. Simon Miller retired at this time, and my fellow directors and I would like to thank him for his outstanding stewardship of, and contribution to, the Company over his eleven year tenure as chairman and director.

Performance

Although markets had been quiet for much of the summer, concerns over deflation in Europe, coupled with the end of quantitative easing in the US and slowing growth in China, took hold in mid-September, prompting a rise in volatility. Geopolitical issues didn't help either. The market initially fell by about 10 per cent but recovered much of the loss before the end of the review period. The Company continues to have a significant part of its portfolio invested in small-cap and AIM-listed companies. These areas of the market performed particularly poorly, with the FTSE Small Cap Index falling by 6.0 per cent and the FTSE AIM All-Share Index falling by 11.9 per cent. Against this background, the Company's net asset value per ordinary share increased by 1.8 per cent. This compares favourably with a 1.6 per cent fall in the FTSE All-Share Index.

Performance benefitted from positive contributions from two of our unquoted investments: Lynton Holding Asia, which sold its investment in an aviation business, and The Hut Group, where part of the Company's investment was sold to a private equity group. It is expected that Lynton will return proceeds from its sale to shareholders in the near future, so we can look forward to a significant cash inflow. The proceeds from The Hut Group, meanwhile, were used to reduce the Company's gearing level. Borrowings were reduced from £26.5 million at 30 April to £12.5 million as at 31 October.

More details on performance are included in the Investment Manager's Review.

Earnings & dividends

Revenue earnings for the six months to 31 October 2014 were 1.87p (2013: 2.29p). The Board has declared a first interim dividend of 1.25p per ordinary share. This is an increase of 4.1 per cent over the equivalent dividend last year (2013: 1.20p). This will be paid on 30 January 2015 to shareholders on the register as at 5 January 2015.

Share capital

During the period, the Company bought back 118,200 ordinary shares at an average discount of 12.4 per cent. 1,258 subscription shares were exercised and the same number of ordinary shares issued in respect of these.

Regulatory changes

The Company became subject to the Alternative Investment Fund Managers Directive ("AIFMD") on 21 July 2014. As indicated in the Annual Report, Artemis Fund Managers Limited was appointed as Investment Manager and Alternative Investment Fund Manager to the Company, while J.P. Morgan Europe Limited was appointed as depositary.

Outlook

The UK continues to be one of the better performing economies in the developed world. The wider global environment, however, is mixed, with increasing tensions in Ukraine and Syria. Combine this with the forthcoming general election in the UK and the associated uncertainty over the UK's future relationship with the European Union, and the backdrop for investing is challenging. That said, where there is uncertainty there is opportunity. I expect that the Investment Manager's stock-picking approach will identify investment opportunities and thereby continue to produce long-term returns for the Company's shareholders.

Communication with shareholders

The Board is always interested to hear the views of shareholders, and it was pleasing to see many of you at the annual general meeting in October 2014. The Company's contact details are set out in the Half-Yearly Financial Report, and further information can be found on the website of the Investment Manager - artemis.co.uk - which is updated monthly.

Duncan Budge

Chairman

16 December 2014

Investment Manager's Review

Performance 

During the reporting period, investors braced themselves for an end to quantitative easing in the US and for a slowdown in some of the world's largest economies. In the UK, meanwhile, fears that Scotland might break away from the United Kingdom led to a brief period of uncertainty, sending share prices - and sterling - lower. It was, then, a challenging six months for equity markets. Despite this, the Company's net asset value rose by 1.8 per cent on a total-return basis. This compares favourably with a loss of 1.6 per cent from the FTSE All-Share Index.

Review

The diversity of the Company's portfolio reflects its bottom-up, stock-picking style. At the same time, however, it retains some concentration in two core themes: online businesses and other financials. As we noted in the annual report, we took a decision some months ago to reduce our exposure to the oil & gas sector substantially; it now represents just 11.9 per cent of the Company's portfolio. In hindsight, this decision was well-timed. The sector has subsequently struggled as the oil price weakened.

The main positive contributor to returns was an unquoted holding in The Hut Group. After a period of strong trading, it attracted private equity group KKR as a new investor. This enabled some of the company's existing shareholders to realise part of their investments. We realised 60 per cent of the Company's shareholding at roughly double its previous carrying value and three times its cost. This added 4.9 per cent to the Company's NAV and brought in £9 million of cash.

The other major positive among the Company's unquoted holdings was Lynton Holding Asia, which became a cash shell following the sale of its stake in Hawker Pacific. This added 2.5 per cent to the Company's NAV and will, in due course, lead to a sizeable cash realisation.

Five largest stock contributors

	Contribution %
The Hut Group	4.9
Lynton Holding Asia	2.5
Skyepharma	1.5
Telford Homes	0.8
New Britain Palm Oil	0.8

Five largest stock detractors

	Contribution %
Africa Oil	(1.7)
Gresham Computing	(1.0)
Providence Resources	(1.0)
Eland Oil & Gas	(0.7)
Liontrust Asset Management	(0.6)

Successes in the quoted portfolio included Skyepharma, which successfully raised equity to pay off expensive debt, and New Britain Palm Oil, which was bought by Sime Darby at a substantial premium. After a period of prolonged weakness in the underlying commodity price, the palm oil sector has seen a spate of consolidation. Another of our palm-oil holdings, Asian Plantations, was also acquired during the review period. Elsewhere, Gaming Realms, an online bingo business, performed particularly well as it continued its strategy of selective acquisitions.

As mentioned above, the oil & gas sector struggled and the main negatives for the Company were the holdings in Africa Oil, Providence Resources and Eland Oil & Gas. The declines in the share prices of all three companies can, at least in part, be explained by the weakness in the oil price. In two of these cases, however (Africa Oil and Providence Resources), there is a need for new funding to take forward their substantial exploration programmes. Hurricane Energy also needs further funding following the success of test drilling off the west coast of Scotland. All three companies have made large discoveries but are struggling to access capital to exploit them due to the depressed price of crude oil.

The Company's other strugglers were Gresham Computing and Liontrust Asset Management. Gresham, which supplies software to financial services companies, issued a profit warning following contract delays. Liontrust, meanwhile, succumbed to profit-taking following a strong run. We remain supportive of both businesses.

In terms of transactions, our largest purchase was Booker Group, an operator of cash-and-carry outlets and an internet-enabled grocery wholesaler to independent retailers. This is a business we have known for a long time and it is managed by the excellent Charles Wilson, formerly of Marks & Spencer. In a highly fragmented market there is huge potential for Booker to grow. Other new investments over the period included Fox Marble, the owner of a number of marble quarries, and Essenden, which operates a number of ten-pin bowling centres in the UK.

We sold the entirety of our holdings in Salamander Energy, an oil & gas company, and Real Estate Investors, a Midlands-based property company. There were partial sales in City of London Investment Group and Summit Corp, following strong share price appreciation.

Outlook

Given that there has been a great deal for markets to worry about, and that any pockets of cheer have been isolated, the resilience of most equities over the period was welcome. Will that continue? From geopolitical concerns to the end of quantitative easing in the US, worries are plentiful. Moreover, on the whole the valuations of equities have risen more rapidly than their cashflows, and so could be especially vulnerable to any sudden shock.

Yet investors may take comfort from the fact that interest rates look set to remain low for the foreseeable future. In general, corporate results have been positive, and in the last few weeks there has been a pick up in takeover activity.

In any case, this remains a stock-picking Company. We feel confident that the two main themes we are investing in - online businesses and other financials - have enormous potential over the medium and longer term, even if there are short-term set-backs. And so we continue to concentrate on stock selection, believing that this, rather than analysing macro-economic or geopolitical issues, will reward our shareholders.

John Dodd & Adrian Paterson

Fund managers

Artemis Fund Managers Limited

16 December 2014

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 thesix months ended 31 October 2014:

·              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

Duncan Budge

Chairman

16 December 2014

Condensed Consolidated Income Statement

For the six months ended 31 October 2014

		Six months ended 31 October 2014 (unaudited)			Six months ended 31 October 2013 (unaudited)			Year ended 30 April 2014 (audited)
	Note	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Investment income		1,174	-	1,174	935	-	935	2,280	-	2,280
Other income		(109)	-	(109)	12	-	12	710	-	710
Total revenue		1,065	-	1,065	947	-	947	2,990	-	2,990
Gains on investments		-	3,126	3,126	-	15,897	15,897	-	15,054	15,054
Gains on current asset investments		28	-	28	366	-	366	392	-	392
Currency (losses)/gains		-	(2)	(2)	-	2	2	(4)	(3)	(7)
Total income		1,093	3,124	4,217	1,313	15,899	17,212	3,378	15,051	18,429
Expenses
Investment management fee		(49)	(436)	(485)	(47)	(426)	(473)	(96)	(864)	(960)
Other expenses		(207)	(10)	(217)	(206)	(6)	(212)	(403)	(29)	(432)
Profit before finance costs and tax		837	2,678	3,515	1,060	15,467	16,527	2,879	14,158	17,037
Finance costs		(28)	(252)	(280)	(26)	(220)	(246)	(59)	(511)	(570)
Profit before tax		809	2,426	3,235	1,034	15,247	16,281	2,820	13,647	16,467
Tax		(3)	-	(3)	(7)	-	(7)	(98)	-	(98)
Profit for the period		806	2,426	3,232	1,027	15,247	16,274	2,722	13,647	16,369
Earnings per ordinary share (pence)	2	1.87p	5.62p	7.49p	2.29p	34.10p	36.39p	6.16p	30.90p	37.06p

The total column of this statement represents the Statement of Comprehensive Income of the Group, prepared in accordance with International Financial Reporting Standards. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations.

All income is attributable to the equity shareholders of Artemis Alpha Trust plc. There are no minority interests.

Condensed Consolidated Balance Sheet

As at 31 October 2014

	Note	31 October 2014 (unaudited) £'000	31 October 2013 (unaudited) £'000	30 April 2014 (audited) £'000
Non-current assets
Investments		156,492	168,508	167,207
Current assets
Investments held by subsidiary		813	1,014	1,263
Other receivables		286	287	551
Cash and cash equivalents		1,050	3,044	1,437
		2,149	4,345	3,251
Total assets		158,641	172,853	170,458
Current liabilities
Other payables		(444)	(543)	(274)
Bank loan		(12,500)	(26,500)	(26,500)
		(12,944)	(27,043)	(26,774)
Net assets		145,697	145,810	143,684
Equity attributable to equity holders
Share capital		520	543	539
Share premium		640	636	636
Special reserve		55,290	57,345	55,649
Capital redemption reserve		70	47	51
Retained earnings - revenue		2,936	1,824	2,994
Retained earnings - capital	5	86,241	85,415	83,815
Total equity		145,697	145,810	143,684
Net asset value per ordinary share (pence)	3	338.12p	333.16p	332.55p

 

Condensed Consolidated Statement of Changes in Equity

For the six months ended 31 October 2014

Six months ended 31 October 2014 (unaudited)
				Capital
	Share	Share	Special	redemption	Retained earnings
	capital	premium	reserve	reserve	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 May 2014	539	636	55,649	51	2,994	83,815	143,684
Total comprehensive income:
Profit for the period	-	-	-	-	806	2,426	3,232
Transactions with owners recorded directly to equity:
Repurchase of ordinary shares into treasury	-	-	(359)	-	-	-	(359)
Cancellation of ordinary shares from  treasury	(19)	-	-	19	-	-	-
Conversion of subscription shares	-	4	-	-	-	-	4
Dividends paid	-	-	-	-	(864)	-	(864)
At 31 October 2014	520	640	55,290	70	2,936	86,241	145,697

Six months ended 31 October 2013 (unaudited)
				Capital
	Share	Share	Special	redemption	Retained earnings
	capital	premium	reserve	reserve	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 May 2013	554	635	65,334	36	1,621	70,168	138,348
Total comprehensive income:
Profit  for the period	-	-	-	-	1,027	15,247	16,274
Transactions with owners recorded directly to equity:
Repurchase of ordinary shares into treasury	-	-	(7,989)	-	-	-	(7,989)
Cancellation of ordinary shares from treasury	(11)	-	-	11	-	-	-
Conversion of subscription shares	-	1	-	-	-	-	1
Dividends paid	-	-	-	-	(824)	-	(824)
At 31 October 2013	543	636	57,345	47	1,824	85,415	145,810

Year ended 30 April 2014 (audited)
				Capital
	Share	Share	Special	redemption	Retained earnings
	capital	premium	reserve	reserve	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 May 2013	554	635	65,334	36	1,621	70,168	138,348
Total comprehensive income:
Profit for the year	-	-	-	-	2,722	13,647	16,369
Transactions with owners recorded directly to equity:
Repurchase of ordinary shares into treasury	-	-	(9,685)	-	-	-	(9,685)
Cancellation of ordinary shares from treasury	(15)	-	-	15	-	-	-
Conversion of subscription shares	-	1	-	-	-	-	1
Dividends paid	-	-	-	-	(1,349)	-	(1,349)
At 30 April 2014	539	636	55,649	51	2,994	83,815	143,684

 

Condensed Consolidated Cash Flow Statement

For the six months ended 31 October 2014

	Six months ended 31 October 2014 (unaudited) £'000	Six months ended 31 October 2013 (unaudited) £'000	Year ended 30 April 2014 (audited) £'000
Operating activities
Profit before tax	3,235	16,281	16,467
Interest payable	280	246	705
Gains on investments	(3,126)	(15,897)	(15,054)
Gains on current asset investments	(28)	(366)	(392)
Currency losses/(gains)	2	(2)	3
Decrease/(increase) in other receivables	14	55	(136)
Increase/(decrease) in other payables	268	(29)	(311)
Net cash inflow from operating activities before interest and tax	645	288	1,282
Interest paid	(280)	(246)	(705)
Irrecoverable overseas tax suffered	(3)	(7)	(98)
Net cash inflow from operating activities	362	35	479
Investing activities
Purchases of investments	(12,580)	(16,518)	(39,556)
Sales of investments	27,150	25,807	48,922
Net cash inflow from investing activities	14,570	9,289	9,366
Financing activities
Repurchase of ordinary shares into treasury	(457)	(7,989)	(9,587)
Conversion of subscription shares	4	1	1
Dividends paid	(864)	(824)	(1,349)
Net cash outflow from financing activities	(1,317)	(8,812)	(10,935)
Net increase/(decrease) in cash and cash equivalents	13,615	512	(1,090)
Cash and cash equivalents at the start of the period	(25,063)	(23,970)	(23,970)
Effect of foreign exchange rate changes	(2)	2	(3)
Cash and cash equivalents at the end of the period	(11,450)	(23,456)	(25,063)
Bank loan	(12,500)	(26,500)	(26,500)
Cash	1,050	3,044	1,437
	(11,450)	(23,456)	(25,063)

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 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 2014.

2.  Earnings per ordinary share

	Six months ended  31 October 2014	Six months ended 31 October 2013	Year ended 30 April 2014
Earnings per ordinary share is based on:
Revenue earnings (£'000)	806	1,027	2,722
Capital earnings (£'000)	2,426	15,247	13,647
Total earnings (£'000)	3,232	16,274	16,369
Weighted average number of ordinary shares in issue during the period (basic)	43,164,248	44,719,128	44,162,066
Weighted average number of ordinary shares in issue during the period (diluted)	43,164,248	44,719,128	44,162,066

3.  Net asset value per ordinary share

	As at 31 October 2014	As at 31 October 2013	As at 30 April 2014
Net asset value per ordinary share is based on:
Net assets (£'000)	145,697	145,810	143,684
Number of ordinary shares in issue at the end of the period (basic)	43,089,843	43,765,162	43,206,785
Number of ordinary shares in issue at the end of the period (diluted)	43,089,843	43,765,162	43,206,785

During the period the Company bought back 118,200 ordinary shares into treasury. 1,258 subscription shares were exercised and the same number of ordinary shares were issued in respect of these.

4.  Dividends

	Six months ended 31 October 2014 £'000	Six months ended 31 October 2013 £'000	Year ended 30 April 2014 £'000
Second interim dividend for the year ended 30 April 2013 - 1.85p	-	824	824
First interim dividend for the year ended 30 April 2014 - 1.20p	-	-	525
Second interim dividend for the year ended 30 April 2014 - 2.00p	864	-	-
	864	824	1,349

A first interim dividend for the year ending 30 April 2015 of £540,000 (1.25p per ordinary share) has been declared. This will be paid on 30 January 2015 to those shareholders on the register at close of business on 5 January 2015.

5.  Analysis of retained earnings - capital

	31 October 2014 £'000	31 October 2013 £'000	30 April 2014 £'000
Retained earnings - capital (realised)	76,830	65,123	68,835
Retained earnings - capital (unrealised)	9,411	20,292	14,980
	86,241	85,415	83,815

6.  Comparative information

The financial information for the six months ended 31 October 2014 and 31 October 2013 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 2014 has been extracted from the Audited Financial Statements for the year ended 30 April 2014. 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 2014, and the way in which they are managed, are described in more detail in the Annual Report for the year ended 30 April 2014 which is available on the Investment Manager's website at artemis.co.uk.

8.  Related party transactions

There were no related party transactions during the period. 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.

Copies of the Half-Yearly Financial Report for the six months ended 31 October 2014 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, artemis.co.uk.

Artemis Fund Managers Limited

Company Secretary

For further information, please contact:

Billy Aitken at Artemis Fund Managers Limited

Telephone: [phone]

16 December 2014

 

 

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