Half Yearly Report

RNS Number : 0407W

Artemis Alpha Trust PLC

19 December 2013

 



ARTEMIS ALPHA TRUST PLC (the "Company")

Half-Yearly Financial Report for the six months ended 31 October 2013

This announcement contains regulated information

Chairman's Statement

Performance

The Company's net asset value increased by 13.1 per cent during the six months to 31 October 2013. This compares to a 7.7 per cent increase in the FTSE All-Share Index.

After a strong start to 2013, stock markets staged a retreat from mid May through to late June in response to worries about the tapering of quantitative easing in the US. Those fears, however, soon faded and share prices resumed their ascent. The market's gains over the reporting period were led by smaller companies. The FTSE Small Cap Index rose by 24.1 per cent while the FTSE AIM All Share Index returned 14.8 per cent.

There were a number of strong performances from the unquoted portfolio in the period. Metapack, All The Worlds Entertainment and Oxford Nanopore Technologies were written up following transactions at higher valuations.

Dividend

A first interim dividend of 1.20p per ordinary share for the year ending 30 April 2014 (2013: 1.20p) has been declared. This will be paid on 31 January 2014 to shareholders on the register as at 3 January 2014. The Board will review the second interim dividend following the year-end.

Share buybacks

The price at which the Company's shares trade is kept under constant review to seek to ensure that the discount to the net asset value does not widen unduly. During the period the Company bought back 2,923,800 ordinary shares at an average discount of 11.0 per cent. This added 2.20 pence per ordinary share to the net asset value for continuing shareholders.

Borrowing facility and gearing

After the end of the reporting period, the Company entered into a new £30 million five-year, multi-currency revolving loan facility with The Royal Bank of Scotland. This replaces the previous three-year, £30 million facility. It provides the Company with continued flexibility in its borrowings and also reduces the short term re-financing risk.

The Company maintained its gearing at broadly the same level throughout the period. At the period end the Company's gearing was 16.1 per cent of net assets.

Board composition

During the period, Mr Ian Dighé resigned as a director of the Company. Mr Dighé has a number of other business commitments, notably his role as executive chairman of Miton Group plc, and wanted to concentrate his efforts on these other commitments. The Board would like to thank him for his valuable contribution to the Company during his tenure.

Mr Duncan Budge was appointed as an independent non-executive director of the Company in November.

Industry developments

As I have noted in recent reports, there are a number of new regulatory matters with which the Company is required to comply. Of these, the most significant, currently, is the Alternative Investment Fund Manager's Directive (AIFMD). AIFMD is a European directive that affects investment companies and will have an impact on the operations of the Company, notably with regard to the appointment of a depositary to undertake certain oversight duties with regard to the Company's investments and cash. This will result in the Company incurring further costs, although these are not likely to be significant.

AIFMD requires the Company to appoint an Alternative Investment Fund Manager and it is expected that Artemis will fulfil this role.

The Board is continuing discussions with the Investment Manager and the Company's solicitors over the arrangements that will be put in place to ensure that the Company complies with AIFMD. We will provide further updates to shareholders as necessary.

Outlook

The Bank of England's forward guidance suggests that interest rates will not be increased for some time. Government finances remain stretched and a number of important macroeconomic issues remain unresolved. This will continue to be a concern for markets. Many companies, however, seem in good shape and, as increased bid activity has demonstrated, are optimistic about the future.

The Company has recovered well from a number of disappointments earlier in the year, primarily in its portfolio of unquoted holdings. Stock markets have had a good run, and with most major economies now showing signs of growth, there is room for this to continue.

Regularly updated information on the Company, including a factsheet and performance data, can be found on dedicated web pages of the Investment Manager's website at artemis.co.uk.

I look forward to updating you on the Company and its portfolio in the Annual Report in July 2014. Your Board is always interested to hear the views of shareholders and, should you wish to do so, you can contact me at [e-mail].

Simon Miller

Chairman

19 December 2013

Investment Manager's Review

Performance 

Over the six months to 31 October 2013, the net asset value of your Company rose by 13.1 per cent on a total return basis. This compares favourably with a total return of 7.7 per cent from the FTSE All-Share Index.

Review

Against a background of continued low interest rates, quantitative easing and early signs of recovery in many of the major economies, stock markets continued to rise.

Cheap money has fuelled rises in a variety of asset classes. Equities have been a prime beneficiary of this liquidity - particularly as the long-awaited switch out of government bonds and into stocks began to gather momentum. At the same time, a prolonged period of low interest rates started to feed through into the 'real' economy. Unemployment fell and companies reported increased confidence and brighter prospects than for many years. As investors reassessed the outlook for individual businesses and for the economy as a whole, equity valuation multiples expanded rapidly.

Portfolio

During the review period, the portfolio was predominately positioned around three main themes: oil & gas; other financials (mainly fund/wealth managers); and online businesses. The growth prospects for the latter two areas are strong. In the case of oil & gas, we have particular expertise in this sector and, we believe, some insight into its prospects for growth over the medium to long term.

The outstanding performer in your Company's portfolio over the period was Metapack, a private business that helps online retailers to despatch orders in the most efficient way. By automatically routing deliveries to the most cost-effective and reliable carrier, it reduces costs for the retailer and also results in far higher levels of end-customer satisfaction. The company has an exceptional list of blue-chip retailers as clients. During the period, a private equity firm bought a 20 per cent stake in the company at a substantial premium to our carrying value. We sold part of our holding in this transaction; but continue to believe that Metapack has excellent prospects as it rolls out its business across Europe.

Five largest stock contributors

	Contribution %
Metapack	3.0
Polar Capital	2.3
Africa Oil	1.6
Telford Homes	1.5
All The Worlds Entertainment	1.5

Five largest stock detractors

	Contribution %
Providence Resources	(3.6)
Salamander Energy	(1.1)
Emis Group	(0.9)
Hurricane Energy	(0.6)
Eland Oil & Gas	(0.6)

Elsewhere, our holdings in fund management companies performed very strongly. Rising equity markets and low interest rates meant that Polar Capital and Liontrust both saw strong flows into their equity funds. Among the wealth managers, Brewin Dolphin was a particularly strong performer. Its new management team continues to make good progress in restructuring the business and aims to increase the company's margins towards the top end of those in the sector. The background for this restructuring effort looks favourable; increased regulatory costs are forcing smaller financial advisors out of the market, allowing larger wealth managers such as Brewin Dolphin to win market share. Other positive contributions came from Telford Homes, a housebuilder focused on east London, and Africa Oil, which found more oil in Kenya.

On the negative side, the portfolio suffered from apathy - and sometimes actual antipathy - towards the oil & gas sector. Some investors doubt the capital discipline of companies in the sector and have concerns over the future direction of the oil price. At a stock level, Providence Resources was the most disappointing performer. Talks with potential partners about the farming out of its Barryroe discovery have been unexpectedly protracted. Although we expect to hear news on this by the end of the calendar year, the difficulties that oil companies currently face in attracting new capital means there is no certainty it will meet this deadline. Hurricane Energy has run into a similar problem. It is looking to raise further equity to enable it to drill and flow test its Lancaster field to prove its commercial viability. In recognition of the difficulties companies in this sector are finding in raising capital, we further wrote down our valuation of the Company's holding in Hurricane even though we remain excited about its prospects.

Emis Group, a healthcare information technology company, was a disappointment. It lost its chief executive for personal reasons. New Britain Palm Oil, meanwhile, suffered due to weakness in the palm oil price. We continue to believe in both of these investments on a longer-term view.

Among the Company's unquoted holdings, we increased our investment in Gift Library by £1 million by buying convertible loan stock. The company used the proceeds to acquire the Wedding Shop, a less seasonal business. Alongside this, we made a new investment in MoPowered, a software business that helps small and medium-sized retailers to optimise their websites for sales on mobile devices. This business floated in December and we subscribed to the share issue. We also increased our exposure to Physiolab, which moved towards the launch of its hot and cold compression product, with first sales expected in the first quarter of 2014. Initial feedback from prospective customers has been extremely positive. We believe this company's product is considerably superior to those of its competitors.

In other transactions, we took partial profits on a number of the Company's fund management and housebuilding holdings, following strong share price appreciation. We significantly reduced the position in Salamander Energy following a series of disappointing drilling results.

New holdings included Mobile Streams, which provides media context to mobile devices in the fast growing Latin American market, and Skyepharma, which develops and manufactures pharmaceutical products. We have high expectations for Skyepharma's asthma treatment product. It has already been approved in 21 countries and is now being marketed in Japan.

Outlook

The current bull market in equities has - the occasional break for worries about the eurozone crisis or the US debt ceiling aside - lasted for almost five years. The arguments in favour of stocks are well-known: valuations are reasonably supportive compared to other asset classes and monetary policy is lax. The consensus seems clear: equities are the only asset class worth owning. The very familiarity of those arguments, however, carries risks. These pro-equity arguments may be rational - but they may be 'in the price'.

And what of corporate earnings? In contrast to indices, they have not surged. The rise in equity indices has been driven by a re-rating of shares. Or, to put it in price-to-earnings terms, the 'p' may be climbing, but the 'e' has not kept pace. That could, in the medium term, pose a risk.

Overall, however, markets are being sustained by the largesse of central bankers. It remains to be seen how the world will be weaned off QE. Earnings growth will be essential if equity markets are to maintain their strong momentum into 2014. In this environment, we continue to focus on investing in companies that are masters of their own destiny, rather than the vassals of central banks.

John Dodd & Adrian Paterson

Fund managers

Artemis Investment Management LLP

19 December 2013

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 2013:

·              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 2013

Condensed Consolidated Income Statement

For the six months ended 31 October 2013

		Six months ended 31 October 2013 (unaudited)			Six months ended 31 October 2012 (unaudited)			Year ended 30 April 2013 (audited)
		Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Investment income		935	-	935	1,170	-	1,170	1,760	-	1,760
Other income		12	-	12	16	-	16	(21)	-	(21)
Total revenue		947	-	947	1,186	-	1,186	1,739	-	1,739
Gains/(losses) on investments		-	15,897	15,897	-	1,892	1,892	-	(4,013)	(4,013)
Gains/(losses) on current asset investments		366	-	366	(194)	-	(194)	(140)	-	(140)
Currency gains/(losses)		-	2	2	-	(17)	(17)	-	(21)	(21)
Total income		1,313	15,899	17,212	992	1,875	2,867	1,599	(4,034)	(2,435)
Expenses
Investment management fee		(47)	(426)	(473)	(51)	(456)	(507)	(102)	(920)	(1,022)
Other expenses		(206)	(6)	(212)	(219)	(3)	(222)	(380)	(2)	(382)
Profit/(loss) before finance costs and tax		1,060	15,467	16,527	722	1,416	2,138	1,117	(4,956)	(3,839)
Finance costs		(26)	(220)	(246)	(22)	(195)	(217)	(44)	(400)	(444)
Profit/(loss) before tax		1,034	15,247	16,281	700	1,221	1,921	1,073	(5,356)	(4,283)
Tax		(7)	-	(7)	(12)	-	(12)	(12)	-	(12
Profit/(loss) for the period		1,027	15,247	16,274	688	1,221	1,909	1,061	(5,356)	(4,295)
Earnings per ordinary share	2	2.29p	34.10p	36.39p	1.45p	2.56p	4.01p	2.24p	(11.31p)	(9.07p)

Condensed Consolidated Balance Sheet

As at 31 October 2013

	Notes	31 October 2013 (unaudited) £'000	31 October 2012 (unaudited) £'000	30 April 2013 (audited) £'000
Non-current assets
Investments		168,508	164,342	162,121
Current assets
Investments held by subsidiary		1,014	1,570	950
Other receivables		287	1,009	547
Cash and cash equivalents		3,044	5,508	2,530
		4,345	8,087	4,027
Total assets		172,853	172,429	166,148
Current liabilities
Other payables		(543)	(1,620)	(1,300)
Bank loan		(26,500)	(24,000)	(26,500)
		(27,043)	(25,620)	(27,800)
Net assets		145,810	146,809	138,348
Equity attributable to equity holders
Share capital		543	556	554
Share premium		636	634	635
Special reserve		57,345	67,027	65,334
Capital redemption reserve		47	34	36
Retained earnings - revenue		1,824	1,813	1,621
Retained earnings - capital	5	85,415	76,745	70,168
Total equity		145,810	146,809	138,348
Net asset value per ordinary share	3	333.16p	310.59p	296.32p

 

Condensed Consolidated Statement of Changes in Equity

For the six months ended 31 October 2013

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

Six months ended 31 October 2012 (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 2012	557	630	69,649	33	1,956	75,524	148,349
Total comprehensive income:
Profit  for the period	--	--	--	--	688	1,221	1,909
Transactions with owners recorded directly to equity:
Repurchase of ordinary shares into treasury	--	--	(2,622)	--	--	--	(2,622)
Cancellation of ordinary shares from treasury	(1)	--	--	1	--	--	--
Conversion of subscription shares	--	4	--	--	--	--	4
Dividends paid	--	--	--	--	(831)	--	(831)
At 31 October 2012	556	634	67,027	34	1,813	76,745	146,809

Year ended 30 April 2013 (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 2012	557	630	69,649	33	1,956	75,524	148,349
Total comprehensive income:
Profit/(loss) for the year	-	-	-	-	1,061	(5,356)	(4,295)
Transactions with owners recorded directly to equity:
Repurchase of ordinary shares into treasury	-	-	(4,315)	-	-	-	(4,315)
Cancellation of ordinary shares from treasury	(3)	-	-	3	-	-	-
Conversion of subscription shares	-	5	-	-	-	-	5
Dividends paid	-	-	-	-	(1,396)	-	(1,396)
At 30 April 2013	554	635	65,334	36	1,621	70,168	138,348

 

Condensed Consolidated Cash Flow Statement

For the six months ended 31 October 2013

	Six months ended 31 October 2013 (unaudited) £'000	Six months ended 31 October 2012 (unaudited) £'000	Year ended 30 April 2013 (audited) £'000
Operating activities
Profit/(loss) before tax	16,281	1,921	(4,283)
Interest payable	246	217	444
(Gains)/losses on investments	(15,897)	(1,892)	4,013
(Gains)/losses on current asset investments	(366)	17	140
Currency (gains)/ losses	(2)	194	21
Decrease/(increase) in other receivables	55	(2)	271
Decrease in other payables	(29)	(34)	(23)
Net cash inflow from operating activities before interest and tax	288	421	583
Interest paid	(246)	(217)	(444)
Irrecoverable overseas tax suffered	(7)	(12)	(12)
Net cash inflow from operating activities	35	192	127
Investing activities
Purchases of investments	(16,518)	(27,130)	(53,258)
Sales of investments	25,807	27,508	50,484
Net cash inflow/(outflow) from investing activities	9,289	378	(2,774)
Financing activities
Repurchase of ordinary shares into treasury	(7,989)	(2,622)	(4,315)
Conversion of subscription shares	1	4	5
Dividends paid	(824)	(831)	(1,396)
Net cash outflow from financing activities	(8,812)	(3,449)	(5,706)
Net increase/(decrease) in cash and cash equivalents	512	(2,879)	(8,353)
Cash and cash equivalents at the start of the period	(23,970)	(15,596)	(15,596)
Effect of foreign exchange rate changes	2	(17)	(21)
Cash and cash equivalents at the end of the period	(23,456)	(18,492)	(23,970)
Bank loan	(26,500)	(24,000)	(26,500)
Cash	3,044	5,508	2,530
	(23,456)	(18,492)	(23,970)

Notes

1.  Accounting policies

The Group's Half-Yearly Financial Report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting' ('IAS 34'), 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 2013.

2.  Earnings per ordinary share

	Six months ended  31 October 2013	Six months ended 31 October 2012	Year ended 30 April 2013
Earnings per ordinary share is based on:
Revenue earnings (£'000)	1,027	688	1,061
Capital earnings (£'000)	15,247	1,221	5,356
Total earnings (£'000)	16,274	1,909	6,417
Weighted average number of ordinary shares in issue during the period (basic)	44,719,128	47,613,465	47,350,570
Weighted average number of ordinary shares in issue during the period (diluted)	44,719,128	47,613,465	47,350,570

3.  Net asset value per ordinary share

	As at 31 October 2013	As at 31 October 2012	As at 30 April 2013
Net asset value per ordinary share is based on:
Net assets (£'000)	145,810	146,809	138,348
Number of ordinary shares in issue at the end of the period (basic)	43,765,162	47,268,456	46,688,812
Number of ordinary shares in issue at the end of the period (diluted)	43,765,162	47,268,456	46,688,812

During the period the Company bought back 2,923,800 ordinary shares into treasury. 150 subscription shares were exercised and the same number of ordinary shares were issued in respect of these.

At 31 October 2013, the Company held 3,603,800 ordinary shares in treasury, having cancelled 1,167,176 ordinary shares from treasury during the period.

4.  Dividends

	Six months ended 31 October 2013 £'000	Six months ended 31 October 2012 £'000	Year ended 30 April 2013 £'000
Second interim dividend for the year ended 30 April 2012 - 1.75p	-	831	831
First interim dividend for the year ended 30 April 2013 - 1.20p	-	-	565
Second interim dividend for the year ended 30 April 2013 - 1.85p	824	-	-
	824	831	1,396

A first interim dividend for the year ending 30 April 2014 of £525,000 (1.20p per ordinary share) has been declared. This will be paid on 31 January 2014 to those shareholders on the register at close of business on 3 January 2014.

5.  Analysis of retained earnings - capital

	31 October 2013 £'000	31 October 2012 £'000	30 April 2013 £'000
Retained earnings - capital (realised)	65,123	83,836	75,561
Retained earnings - capital (unrealised)	20,292	(7,091)	(37)
	85,415	76,745	75,524

6.  Comparative information

The financial information for the six months ended 31 October 2013 and 31 October 2012 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 2013 has been extracted from the Audited Financial Statements for the year ended 30 April 2013. 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 2013, and the way in which they are managed, are described in more detail in the Annual Report for the year ended 30 April 2013 which is available on the Investment Manager's website, 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 IAS24: 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 2013 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 Investment Management LLP

Company Secretary

For further information, please contact:

Billy Aitken at Artemis Investment Management LLP

Telephone: [phone]

19 December 2013

 

 

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