Half Yearly Report

RNS Number : 4045Y

Artemis Alpha Trust PLC

21 December 2010

 



ARTEMIS ALPHA TRUST PLC (the "Company")

Half-Yearly Financial Report for the six months ended 31 October 2010

This announcement contains regulated information

Chairman's Statement

Performance

The UK market, represented by the FTSE All-Share Index, fell sharply in both May and June. But, a strong recovery distinguished the rest of the reporting period, and in the end the market was up by 4.2 per cent. Your Company had another satisfactory period, with the diluted net asset value returning 11.5 per cent on a total return basis for the six months ended 31 October 2010.

Unquoted investments

Our largest holdings are Vostok, Hurricane Exploration and Lynton Holding Asia. As it continues to prepare for an IPO next year, there has been little significant news from Vostok. As for Hurricane Exploration, we are waiting for further information from the company following its drilling in the west of Shetland basin. Oil has been discovered, and the company has reported that the results of the further drilling tests are encouraging. We also await an independent appraisal of these results to determine the commercial potential of the prospect, and what value may be attributed to the potential reserves. Lynton Holding Asia has been written up in value following a corporate transaction.  Details of this are in the investment manager's review which follows.

Dividends

The directors announced on 11 November 2010 the first interim dividend of 1.20p per share for the year ended 30 April 2011. It was announced earlier than normal as a result of the merger with Gartmore Growth Opportunities plc, in order to ensure that this dividend is paid to the existing shareholders of the Company. This dividend will be payable to shareholders on the register on 26 November 2010 and represents an increase of 4.3 per cent over the equivalent payment last year. It will be paid, in accordance with the Company's normal payment cycle, on 4 February 2011.

Merger with Gartmore Growth Opportunities plc

As shareholders will know, your Board announced on 11 November 2010 proposals for a merger with Gartmore Growth Opportunities plc ("GGO"). I am pleased to report that shareholders of both companies approved the proposals and the merger became effective on 10 December 2010. As part of these proposals, a number of changes to the capital structure of the Company have taken place. A full summary is set out in the notes which follow the financial statements. But I set out below a short summary of the changes arising from the merger:

-        The Company has issued in aggregate a further 18,274,563 new ordinary shares to the manager warrantholders and the GGO shareholders who elected to roll over into the Company.

-        The Company has also issued 6,894,338 subscription shares by way of a bonus issue, on a one-for-seven basis. These will expire on 31 December 2017 and be convertible into ordinary shares on a one-for-one basis, on 30 June and 31 December each year at a price of 345.0p. These shares are listed on the London Stock Exchange.

-        The investment management fee arrangements have been revised to include a performance fee element. This fee will be calculated as 15% of the outperformance of the FTSE All-Share Index + 2% per annum on a rolling, three-year basis (except for the periods up to 30 April 2013,) as measured in relation to the Company's share price total return. There will be an annual cap applied to the fee, equivalent to 2.5% of the average market capitalisation, and any excess outperformance will be carried forward to the next period. The fee will also be subject to a high water mark.

The Company has entered into a new £15 million borrowing facility with The Royal Bank of Scotland plc ("RBS").Taken together with the existing RBS facility of £11.5 million, this will provide potential borrowings of up to £26.5 million, thereby enabling the Company to maintain its gearing levels in its enlarged state.

The effective date of the merger was 10 December 2010, and following completion, the Company had 48,265,766 ordinary shares (excluding treasury shares) and 6,894,338 subscription shares in issue. The net assets and market capitalisation of the Company were £151.0 million and £147.9 million respectively.

Board changes

Charles Peel has resigned from the Board. Charles has served as a director since the appointment of Artemis Investment Management as investment manager in 2003. During this time he has proved to be a highly effective member of the Board and has made a tremendous contribution to the success of your Company. I, and my fellow directors, would like to record our thanks for his work over the years.

On completion of the merger with GGO, Ian Dighé, formerly a director of GGO joined the Board.

Share capital

Apart from the changes in the share capital arising specifically from the merger, during the reporting period the Company made a number of market purchases of its own shares. A total of 137,000 shares were bought back and held in treasury. In addition, following the exercise of 35,000 manager warrants, the Company issued an equivalent number of new ordinary shares.

The discount to the diluted net asset value was 8.8 per cent at 31 October 2010, having averaged 6.4 per cent during the reporting period.

Investment plan

The investment manager operates an Investment Plan which enables investors to acquire shares in the Company either through lump sum investments or regular monthly investments. Investors can invest from £50 per month or lump sums of £1,000 and above, and there are no plan charges for acquiring shares through the Investment Plan (only broker's commission and stamp duty). If you would like to invest in the Company through the Investment Plan, please call the investment manager on 0800 092 2051 or visit the website, artemisonline.co.uk/pdf/brochures/alphatrustinvestmentplan.pdf.

Outlook

As the investment manager's report which follows explains, the outlook for equities is finely balanced. The principal positive of robust corporate health must face the negative of an uncertain macro-economic environment, in particular ratios of debt to GDP in the mature economies that are clearly unsustainable.

This remains a stock-picking trust, however; and I am confident that the investment managers' proven ability will continue to meet our shareholders' expectations in the newly enlarged Company.

Simon Miller

Chairman

21 December 2010

 

Investment Manager's Review

Review of the period

Performance - Steady as she goes …

Over the reporting period the Company outperformed the FTSE All-Share Index by 7.3 percentage points. The diluted net asset value was up 11.5 per cent compared to 4.2 per cent for the market (FTSE All-Share Index). Our longer term performance remains good, with the diluted net asset value total return for three years and five years increasing 29.1 per cent and 81.5 per cent respectively. By comparison the market was down 4.8 per cent over the last three years and up 31.6 per cent over the last five.

Review - Issues of antithesis …

Sometimes encouraged by signs of economic recovery and then discouraged by the continued consequences of the credit crisis, equity markets remained volatile. For example global equity markets were up 10 per cent in July, then down 7 per cent in August, then up 10 per cent in September. Rising by just under 7 per cent, the FTSE 100 Index had its best September since 1997. So on balance there were enough positives to move the market higher in the period under review.

The largest overall, if paradoxical, positive for equities and, indeed, for all assets was more quantitative easing. The US Federal Reserve announced a further $600 billion of it just after this reporting period. Running up colossal levels of debt, issuing huge quantities of government bonds and finally printing money to purchase these bonds is not a cure for the world's problems. In our view this is currency debasement, a form of monetary alchemy, and it is unlikely to end well. A second anomaly throughout the period has been the strength of government bonds, most of whose yields are at record lows.

Meanwhile, the issues of sovereign debt have returned to the fore. Some say that just as investors 'got over' Greece in the summer, present travails are just a short-term top to be overcome as soon as markets have digested Ireland. If Herr Weber, president of the Bundesbank, says the €750 billion package of this summer "will have to be increased," then against the taxes of those yet unborn, increased it will be.

On the other hand, Spain's economy is double that of Ireland, Portugal and Greece combined. Some 100,000 houses and apartments owned by banks are already on the market. Yet as new accounting rules prompt lenders to dump depreciating assets, the number of foreclosed homes for sale in Spain may triple next year. Spanish lenders already have a declared total of €181 billion in "troubled" construction and real estate loans. Greece, Portugal and Ireland may be manageable. Perhaps Spain won't be?

Portfolio - Selecting stocks …

Over the reporting period we have continued with our main portfolio themes: oil and gas, financials and food producers, which together represent around 54 per cent of the portfolio.

In the oil and gas portfolio, there was positive news from Cove Energy, which announced a discovery of hydrocarbons in its east coast Tanzanian block. Strong share price performance followed and this made it the second largest contributor to performance over the period. On the back of the rising share price, we took the opportunity to take some profits on this investment.

Elsewhere in this section of the portfolio, we took considerable profits on Zhaikmunai, with a full disposal, and made new investments in Exillon Energy, DEO Petroleum and President Petroleum. Unfortunately, our worst performing stock over the period was also in this sector. Providence Resources, an Irish explorer and gas storage business, which failed to sell assets to Petronas. The market took this badly.

The recovery, and subsequent rise, in the value of palm oil has boosted the share prices of New Britain Palm Oil, REA Holdings and Asian Plantations, all making positive contributions to performance over the period. We believe that these shares still offer good value.

In the financial sector our main purchase was Evolution Group. We also bought Jupiter Fund Management at its IPO, but sold out again, booking profits.

The other main investment activity included purchases of Betfair, TT Electronics, Halfords and Blacks Leisure on attractive valuations. As for sales, we disposed of Weir Group, which has been an outstanding investment since we bought it and is now a FTSE 100 company.

In the unquoted portfolio, the Chairman has commented in his statement on the largest of these. The main event in this section of the portfolio was with Lynton Holding Asia. The company is a holding company which has a single investment, a significant stake in an aviation business, Hawker Pacific. The valuation of Hawker Pacific has been validated through a significant new investment by Seacor, a US-listed transportation business, acquiring around 30 per cent of Hawker's equity. This external valuation has been reflected in Lynton and this has resulted in the Company's holding being written up in value. The uplift has added around 9p per share to the Company's net asset value.

The valuation of Reaction Engines was increased, as it raised further money at a higher price than our investment cost. There were also two successful listings from the unquoted portfolio in the period. Transaction Solutions International and Central Asia Metals gained listings in Australia and on AIM, respectively.

Set out below is the attribution analysis showing the stocks which had the greatest effect, positive and negative, on performance over the six months to 31 October 2010.

Five largest stock contributors

	Contribution
Lynton Holding Asia	3.8
Cove Energy	1.4
New Britain Palm Oil	1.4
Reaction Engines	1.3
Weir Group	1.1

Five largest stock detractors

	Contribution
Providence Resources	(1.6)
IGAS Energy	(0.9)
Telford Homes	(0.9)
CVS Group	(0.9)
Salamander Energy	(0.6)

Outlook - A fine balance …

This is a stock-picking trust, rather than one which takes a view on macro-matters. Although volatility in equity markets has increased and investors remain sensitive to all economic releases and the ongoing refinancing of indebted countries, we continue to find excellent value in our equity investments.

We will also be working on the portfolio of investments the Company received as part of the GGO transaction. We look forward to reporting on this, and on the rest of the portfolio, at the year end.

John Dodd and Adrian Paterson

Fund Managers
Artemis Investment Management LLP

21 December 2010

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 2010:

-        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

21 December 2010

 

 

Condensed Income Statement

For the six months ended 31 October 2010

		Six months ended 31 October 2010 (unaudited)			Six months ended 31 October 2009 (unaudited)			Year ended 30 April 2010 (audited)
		Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	Note	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Investment income		454	--	454	635	--	635	1,085	--	1,085
Other income		118	--	118	304	--	304	560	--	560
Total revenue		572	--	572	939	--	939	1,645	--	1,645
Gains on investments		--	10,999	10,999	--	21,453	21,453	--	28,331	28,331
Gains/(losses) on current asset investments		--	--	--	(21)	--	(21)	109	--	109
Currency gains		--	13	13	--	12	12	--	20	20
Total income		572	11,012	11,584	918	21,465	22,383	1,754	28,351	30,105
Expenses
Investment management fees		(28)	(250)	(278)	(23)	(206)	(229)	(50)	(450)	(500)
Other expenses		(127)	--	(127)	(165)	--	(165)	(338)	--	(338)
Profit before finance costs and tax		417	10,762	11,179	730	21,259	21,989	1,366	27,901	29,267
Finance costs		(19)	(170)	(189)	(3)	(31)	(34)	(17)	(160)	(177)
Profit before tax		398	10,592	10,990	727	21,228	21,955	1,349	27,741	29,090
Tax		(8)	--	(8)	(71)	50	(21)	(157)	125	(32)
Profit for the period		390	10,592	10,982	656	21,278	21,934	1,192	27,866	29,058
Earnings per share (basic)	2	1.30p	35.29p	36.59p	2.16p	70.02p	72.18p	3.93p	91.83p	95.76p
Earnings per share (diluted)	2	1.17p	31.80p	32.97p	1.99p	64.62p	66.61p	3.58p	83.75p	87.33p

 

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 Balance Sheet

As at 31 October 2010

	Notes	31 October 2010 £'000 (unaudited)	31 October 2009 £'000 (unaudited)	30 April 2010 £'000 (audited)
Non-current assets
Investments		110,123	90,228	100,480
Current assets
Investments held by subsidiary		1,669	130	1,133
Other receivables		2,941	163	315
Cash		189	661	603
		4,799	954	2,051
Total assets		114,922	91,182	102,531
Current liabilities
Other payables		(2,662)	(2,299)	(1,213)
Bank overdraft		(716)	--	--
Bank loan		(11,500)	(5,000)	(11,500)
		(14,878)	(7,299)	(12,713)
Net assets		100,044	83,883	89,818
Equity attributable to equity holders
Share capital		305	328	305
Share premium		24,157	24,116	24,116
Special reserve		1,592	2,749	1,910
Warrant reserve		1,270	1,278	1,278
Capital redemption reserve		32	9	32
Retained earnings -- revenue		1,881	1,784	1,970
Retained earnings -- capital	5	70,807	53,619	60,207
Total equity		100,044	83,883	89,818
Net asset value per share (basic)	3	333.58p	275.56p	298.47p
Net asset value per share (diluted)	3	295.64p	248.22p	266.77p

Condensed Statement of Changes in Equity

For the six months ended 31 October 2010

	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 own shares	--	--	(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

	Six months ended 31 October 2009 (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 2009	327	23,984	2,878	1,299	9	1,584	32,320	62,401
Total comprehensive income:
Profit for the period	--	--	--	--	--	656	21,278	21,934
Transactions with owners recorded directly to equity:
Repurchase of own shares	--	--	(129)	--	--	--	--	(129)
Exercise of manager warrants	1	132	--	(21)	--	--	21	133
Dividends paid	--	--	--	--	--	(456)	--	(456)
At 31 October 2009	328	24,116	2,749	1,278	9	1,784	53,619	83,883

	Year ended 30 April 2010 (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 2009	327	23,984	2,878	1,299	9	1,584	32,320	62,401
Total comprehensive income:
Profit for the period	--	--	--	--	--	1,192	27,866	29,058
Transactions with owners recorded directly to equity:
Repurchase of own shares	(23)	--	(968)	--	23	--	--	(968)
Exercise of manager warrants	1	132	--	(21)	--	--	21	133
Dividends paid	--	--	--	--	--	(806)	--	(806)
At 30 April 2010	305	24,116	1,910	1,278	32	1,970	60,207	89,818

 

Condensed Cash Flow Statement

For the six months ended 31 October 2010

	Six months ended 31 October 2010 (unaudited) £'000	Six months ended 31 October 2009 (unaudited) £'000	Year ended 30 April 2010 (audited) £'000
Operating activities
Profit before tax	10,990	21,955	29,090
Interest payable	189	34	177
Gains on investments	(10,999)	(21,453)	(28,331)
Currency gains	(13)	(12)	(20)
Losses/(gains) on current asset investments	--	21	(109)
(Increase)/decrease in other receivables	(12)	336	376
(Decrease)/increase in payables	(147)	8	201
Net cash (outflow)/inflow from operating activities before interest and tax	8	889	1,384
Interest paid	(189)	(34)	(177)
Irrecoverable overseas tax suffered	--	(21)	(32)
Net cash (outflow)/inflow from operating activities	(181)	834	1,175
Investing activities
Purchases of investments	(27,238)	(29,898)	(63,528)
Sales of investments	27,032	22,149	50,062
Net cash outflow from investing activities	(206)	(7,749)	(13,466)
Financing activities
Repurchase of own shares	(318)	(129)	(968)
Exercise of manager warrants	41	134	133
Dividends paid	(479)	(456)	(806)
Net cash outflow from financing activities	(756)	(451)	(1,641)
Net decrease in cash and cash equivalents	(1,143)	(7,366)	(13,932)
Cash and cash equivalents at the start of the period	(10,897)	3,015	3,015
Effect of foreign exchange rate changes	13	12	20
Cash and cash equivalents at the end of the period	(12,027)	(4,339)	(10,897)
Bank loan	(11,500)	(5,000)	(11,500)
Bank overdraft	(716)	--	--
Cash	189	661	603
	(12,027)	(4,339)	(10,897)

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 2010.

2. Earnings per ordinary share

	Six months ended 31 October 2010	Six months ended 31 October 2009	Year ended 30 April 2010
Earnings per share is based on:
Revenue earnings (£'000)	390	656	1,192
Capital earnings (£'000)	10,592	21,278	27,866
Total earnings (£'000)	10,982	21,934	29,058
Weighted average number of shares in issue during the period (basic)	30,011,861	30,388,992	30,345,066
Weighted average number of shares in issue during the period (diluted)	33,304,491	32,927,822	33,273,145

3. Net asset value per ordinary share

	As at 31 October 2010	As at 31 October 2009	As at 30 April 2010
Net asset value per share is based on:
Net assets (£'000)	100,044	83,883	89,818
Number of shares in issue at the end of the period (basic)	29,991,203	30,441,703	30,093,203
Assumed exercised manager warrants at the end of period	6,533,982	6,568,982	6,568,982
Number of shares in issue at the end of the period (diluted)	36,525,185	37,010,685	36,662,185

4. Dividends

	Six months ended 31 October 2010 £'000	Six months ended 31 October 2009 £'000	Year ended 30 April 2010 £'000
Second interim dividend for year ended 30 April 2009 - 1.50p	-	456	456
First interim dividend for year ended 30 April 2010 - 1.15p	-	-	350
Second interim dividend for year ended 30 April 2010 - 1.60p	479	-	-
	479	456	806

A first interim dividend for the year ending 30 April 2011 of £360,000 (1.20p per ordinary share) has been declared. This will be paid on 4 February 2011 to those shareholders on the register at close of business on 26 November 2010.

5. Analysis of retained earnings - capital

	31 October 2010 £'000	31 October 2009 £'000	30 April 2010 £'000
Retained earnings - capital (realised)	51,223	44,293	53,196
Retained earnings - capital (unrealised)	19,584	9,326	7,011
	70,807	53,619	60,207

6. Comparative information

The financial information for the six months ended 31 October 2010 and 31 October 2009 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 2010 has been extracted from the Audited Financial Statements for the year ended 30 April 2010. 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 2010, and the way in which they are managed are described in more detail in the Annual Report for the year ended 30 April 2010 which is available on the Investment Manager's website at artemisonline.co.uk.

8.   On 1 October 2010, the business of Artemis Investment Management Limited was transferred to Artemis Investment Management LLP. The investment management agreement has been novated to reflect this change.

9.   The Company's investments in unquoted companies were revalued at a meeting of the directors and reflected in the daily net asset value on 6 December 2010.

10.  Merger with Gartmore Growth Opportunities plc

As shareholders are aware, your Board announced proposals for a merger with GGO on 11 November 2010. As part of these proposals a number of changes to the Company's capital have taken place, together with a number of other changes in relation to ancillary matters. The transaction became effective on 10 December 2010 and the main changes are summarised below:

-    Summary of updated share capital following completion:

      1.   Ordinary shares in issue             48,817,266 (including 551,500 in treasury)

      2.   Subscription shares in issue       6,894,338

-    All manager warrants were exercised early and 6,533,282 new ordinary shares were issued to the holders of these warrants in exchange for cash of £7.9 million. These funds were used to fund part of the cash exit provided to GGO shareholders under the terms of the merger.

-    All shareholders have received a bonus issue of subscription shares, which were issued on the basis of one subscription share for every seven ordinary shares held. These subscription shares have a seven year life and can be exercised on 30 June and 31 December each year until 31 December 2017, at a price of 345.0p, which was calculated at a premium of 10 per cent over the prevailing net asset value on the 10 December 2010.

-    As the manager warrants were originally set up as an incentive for the Investment Manager, in order to continue the incentivisation of the Investment Manager, the management fee arrangements have been amended and now include a performance fee element. The Investment Manager will be entitled to 15 per cent of any outperformance of the FTSE All-Share Index plus 2 per cent per annum by the Company's share price total return, on a rolling three year period (save for the periods up to 30 April 2013). This fee will be subject to a high water mark, and subject to an annual cap of 2.5 per cent of the average market capitalisation of the Company over the last 10 business days of the performance period. Where the cap is applied, any outperformance above the cap will be carried forward to future performance periods.

-    As the subscription shares have a life ending on 31 December 2017, the Company has amended its Articles of Association to provide that the next continuation vote for the Company will take place at the annual general meeting to be held in 2018, after the expiry of the subscription shares.

-    The Company has entered into a new £15 million borrowing facility with RBS. This, together with the existing facility with RBS, will provide the Company total facilities of £26.5 million. Of the new facility, £8.5 million was drawn down to partially fund the cash exit provided to GGO shareholders under the terms of the merger and for general investment purposes. The balance will be used at the discretion of the Investment Manager in the ongoing management of the portfolio, subject always to the Board's policy on borrowings.

-    The net assets and market capitalisation of the Company as at 10 December 2010 were £151.0 million and £147.9 million respectively.

Artemis Investment Management LLP

Company Secretary

For further information, please contact:

Billy Aitken at Artemis Investment Management LLP

Telephone: [phone]

21 December 2010

 

 

END

 

 

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