Artemis Alpha Trust Plc - Annual Financial Report

 

Artemis Alpha Trust plc (the 'Company')

LEI: 549300MQXY2QXEIL3756

 

Annual Report for the year ended 30 April 2023

 

FinancialHighlights

	Yearended 30 April 2023	Yearended 30 April 2022
Totalreturns
Netassetvalueperordinary share*	1.3%	(21.9)%
Ordinaryshareprice*	(1.2)%	(24.8)%
FTSEAll-ShareIndex	6.0%	8.7%
Revenueanddividends
Revenueearningsperordinaryshare	6.74p	6.29p
Dividendsperordinaryshare	6.20p	5.60p
Ongoingcharges*	1.08%	1.01%

 

			Asat 30 April 2023		Asat 30 April 2022
Capital
NetAssets(£'000)		119,817		124,101
Netassetvalueperordinary share		366.02p		367.65p
Ordinaryshareprice		319.00p		329.00p
Netgearing*		13.4%		9.4%

 

 

 

Totalreturnsto30April2023	3 years	5 years	10 years	Since 1 June 2003**
Netassetvalueperordinary share*	23.5%	0.1%	41.8%	553.4%
Ordinaryshareprice*	34.4%	7.2%	28.3%	500.5%
FTSEAll-ShareIndex	45.2%	24.1%	80.7%	338.3%

 

 

 

**ThedatewhenArtemiswasappointedasInvestmentAdviser

*   AlternativePerformanceMeasure 

Source:Artemis/Datastream

 

Chairman's Statement

Performance

During the year ended 30 April 2023, your Company's net asset value per share rose by 1.3% and its share price fell 1.2% (on a total return basis). In comparison the benchmark FTSE All- Share Index rose by 6.0%. The second half of the year showed a stronger relative performance than the first half.

Although the FTSE All-Share Index is your Company's formal benchmark, a significant proportion of the companies in the portfolio are relatively small and form part of the FTSE 250 Index which declined by 3.3% over the year. As we have reminded shareholders in the past, the portfolio bears little relationship to the FTSE All-Share and the stock-selection is not constrained by it. As the last two years have shown, short-term performance is likely to bear very little resemblance to the benchmark; our aim remains to out-perform it over the long term.

During the year global markets were dominated by Russia's invasion of Ukraine and the resulting sharp increase in energy prices, inflation and interest rates. The uncertainty caused by Brexit was exacerbated by the mishandling of the economy by the Truss government, resulting in weakened sentiment towards the UK market and, in particular, the consumer-orientated stocks which feature strongly in our portfolio.

However, the Manager remains confident in the prospects for individual stocks and convinced of the under-valuation of many UK companies. Although the portfolio remains dominated by exposure to UK companies such as retailers, banks and housebuilders, the Manager has also initiated positions in some non-UK companies including out-of-favour digital companies such as Nintendo, Alphabet and Meta.

Revenue earnings and dividends

We are pleased to be able to deliver growth in dividends at a rate in excess of inflation, in line with our policy.

The Board has declared a final dividend of 3.87p (2022: 3.46p) per share, which will be subject to approval by shareholders at the Company's Annual General Meeting. The final dividend, if approved by shareholders, will be paid on 29 September 2023 to those shareholders on the register at 25 August 2023, with an ex-dividend date of 24 August 2023.

Total dividends declared for the year will therefore amount to 6.20p per share (2022: 5.60p), an increase of 10.7% on the previous year and ahead of the increase in the Consumer Prices Index (9.0% as at April 2022), in line with our target.

Investment income from our investee companies fell during the year by 1.5%. The subsidiary company continues to have healthy reserves with which to support the Company's earnings and dividends, if required.

Revenue earnings per share stand at 6.74p for the year to 30 April 2023, an increase of 7.2% on the 6.29p of the prior year.

Share buy backs/discount

The discount to underlying asset value averaged 10.1% over the course of the year, ranging from 4% to 14%, and at the year end stood at 12.8%. In general, discounts of investment trusts, including our own peer group, have widened over the last few months as a result of adverse market conditions.

During the year, the Company bought back a total of 1,019,766 ordinary shares at a total cost of £3.1 million and an average discount of 11.1%, adding approximately 1.19p to the net asset value per share. The policy of buying back shares when in the best interests of our shareholders will continue. We aim to do so in a pragmatic fashion, taking into account both market conditions and the discounts prevailing amongst our peer group; we believe this to be the most effective way of addressing any imbalance in the supply and demand for our shares.

Board Succession

As noted last year, Blathnaid Bergin, having joined the Board in July 2015, retired at the Annual General Meeting in October 2022. Blathnaid had served as Chair of the Audit Committee and Senior Independent Director throughout that time. I am pleased that Victoria Stewart has agreed to take on the role of Senior Independent Director.

The Board spent a significant amount of time with its external advisers in choosing the right candidate to replace Blathnaid Bergin as Chair of the Audit Committee. The Board recognises the importance of achieving a balance of skills and experience whilst paying close attention to the tenure of directors and the level of diversity. Details of these discussions and the process followed can be found within the Annual Report. This process resulted in Tom Smethers joining the Board in March of this year; he brings outstanding and relevant experience and I welcome him to the Board.

Annual General Meeting

Your Company's Annual General Meeting ("AGM") will take place on Thursday, 21 September 2023 at 10.00 a.m. at the London offices of Artemis Fund Managers, Cassini House, 57 St. James's Street, London, SW1A 1LD. The Directors look forward to welcoming shareholders.

The Investment Manager will make a presentation and answer any questions on the portfolio performance and strategy.

I would encourage you to make use of your proxy votes by completing and returning the form of proxy.

Outlook

Despite continued uncertainty and volatility in markets, our policy remains one of picking individual stocks in pursuit of returns over the long term. Our Investment Manager is confident in the prospects for these companies and the opportunities arising from the current market dislocation.

Contact us

Shareholders can keep up to date with Company performance by visiting artemisalphatrust.co.uk where you will find information on the Company, a monthly factsheet and detailed quarterly updates from the Investment Manager.

The Board is always keen to hear from shareholders. Should you wish to, I can be contacted by email on [e-mail].

Duncan Budge

Chairman

11 July 2023

Investment Manager's Review

In the year ended April 2023, the Company's NAV increased by 1.3% compared to a 6.0% increase in the FTSE All-Share Index. In the last 6-month period since our interim report, performance improved with NAV rising by 17.0%, compared to a 12.5% increase in its benchmark.

Key factors which influenced equity markets and our portfolio in the period included:

• Energy prices rose sharply in response to the impact of the Russia/Ukraine war on European gas supply, increasing the cost pressures affecting consumers and corporates, before falling more recently.
• UK politics faced a crisis of confidence in September following the Liz Truss budget. This caused extreme volatility in UK government bond yields and forced an abrupt U-turn from the new government under Rishi Sunak.
• Inflation remained higher than expected in the United Kingdom, Europe and the US, although economic activity proved more resilient to interest rate increases than first expected.
• Interest rates rose sharply as a result, and a high degree of uncertainty remains over their future path.

 

This series of events has damaged consumer, corporate and investor confidence. Confusingly, despite this, employment trends have remained robust and corporate profitability has been better than expected.

Idiosyncratic events in the UK hurt sentiment that was already fragile since Brexit. Markets are now pricing an idiosyncratic inflation problem in the UK, leaving the UK with higher long-term bond yields than Greece or Italy.

We continue to anticipate attractive prospective returns from our portfolio owing to a combination of macroeconomic and bottom-up factors:

• Inflation is likely to fall markedly to the benefit of consumers and businesses worldwide.
• Discounted UK asset valuations should lead to higher future returns.
• Durable equity franchises are attractively valued and provide a long-term hedge against inflation.
• Capital cycles are leading to increased profitability in capital intensive and cyclical sectors.
• The impact of share buybacks at a time of low valuations should be very positive.

 

The current portfolio is characterised by exposures to capital cycle beneficiaries, structural growth opportunities, and discounted UK assets.

Airlines (easyJet/Ryanair) and retailers (Frasers/Currys) stand to see higher returns from limited capacity / consolidation. Financials (Lloyds/Natwest, Plus500, Hargreaves Lansdown) should be beneficiaries of interest rates remaining higher than they have been in recent years whilst the UK housebuilders should benefit if interest rates ease from current levels. Out-of-favour digital winners (Nintendo, Delivery Hero, and Alphabet) continue to benefit from structural trends that should improve their business economics.

Another reason we are confident in the prospective returns of the portfolio is the result of the diversification in the sources of excess return that we have identified. The portfolio also retains considerable liquidity, with over 80% of the Company able to be sold within one day, which enables us to take advantage of movements in the market.

We judge the greatest visible risks to our outlook to reside in energy markets and geopolitics. Energy markets are fundamentally tight due to underinvestment following the 2014/15 downturn and disruptions to European gas supply provoked by the war. Higher demand or an unforeseen reduction in supply would be damaging to economies with limited domestic supply. Both the UK and US will have elections next year and US-China relations remain strained.

Inflationary pressures likely to ease

UK inflation markets suggest that inflation will be 4% over the next 3 years and 3.6% over the next 10 years. Our view is more sanguine.

Energy prices have fallen markedly in recent months. Luck has played its part as Europe experienced an unusually warm winter. Russian oil production has also proven more resilient than many feared. Following the re-opening of China, the last pandemic-induced distortions to supply chains have eased. These factors suggest downward pressure on goods inflation, when mathematically, inflation should decline from its peak level, as the high rates of inflation seen in the second half of 2023 cease to form part of calculations.

UK labour market tightness has showed signs of easing. In 2022, net migration reached a record net 603,000 against many predictions of a fall following Brexit. The widespread decline in real spending power caused by inflation is providing incentives to seek employment and so the ratio of vacancies to job seekers is falling.

Monetarists were amongst the few correctly to predict higher inflation following the abnormal increase in money supply in response to the pandemic. They are now highlighting marked contractions in money supply growth in both the US and Europe resulting from the increase in interest rates and note that current levels of interest rates would be consistent with the inflation rates seen in the 2010s.

The importance of inflation targeting when making historic comparisons is a factor that is seemingly overlooked. Inflation targeting was introduced in 1992, ahead of the Bank of England becoming independent in 1997. The average annual increase in CPI in the 28 years to 2020 was exactly 2.0%. In the prior 20-year period, the average was 9%.

This illustrates the effectiveness of central banks that have the intent and authority to target inflation over the long- term. Whilst a profound policy mistake was made during the pandemic, central banks remain determined to reassert credibility and have the authority to do what it takes to bring inflation back down to target levels. We are sceptical, consequently, both about expectations of inflation remaining above target and are wary of falling prey to the excessive pessimism currently on display in financial markets as a result of recent difficulties.

A decline in inflation and interest rate expectations should be supportive of risk assets by lowering discount rates and by enabling debt markets to function effectively, even if the cost in the short term is higher interest rates and recession. A re-opening of debt and capital markets would be likely to lead to a pick-up in corporate and private equity activity.

Low valuations in the UK should lead to higher returns

The equity risk premium is a measure of the premium you receive in return for accepting the uncertainty of investing in equities and demonstrates the cheapness of the UK market. At current levels, the earnings yield on the FTSE All-Share is 11%. UK 10-year index linked government bonds yield 0.5%. This implies an equity risk premium of over 10%.

Using the same methodology, the current US and European equity market risk premia are 4% and 7%, respectively. In our judgement, this difference is not justified by the long-term fundamental prospects for corporate profit growth but reflects weak sentiment towards UK markets. Whilst this point might have been made at any point in the last five years, it remains valid.

Our holdings in Natwest and Lloyds illustrate the significant value on offer. Both banks trade on earnings yields in excess of 15% (equating to PE ratios of less than 7x) and at a discount to their book value. This is despite being large and enduring franchises that are also beneficiaries of a normalisation in interest rates. Their combined net interest income in 2023 is forecast to be 40% (>£7bn) more than in 2019.

All of our holdings across the UK housebuilders, with the exception of Berkeley Group, trade below book value. This is attractive for businesses that have consistently achieved returns on capital of over 15%. The UK faces an accumulated supply deficit of over 1 million homes, which has worsened owing to an increasingly difficult environment for planning permissions.

Higher interest rates have reduced demand in the short-term, but this does not impact household formation, which continues every year. Demand for housing is deferred, not eliminated, when it is not fulfilled immediately, and so it is logical to expect industry volumes to recover, as and when mortgage rates stabilise.

The takeover of Dignity highlights the neglected value in UK equities. We have written extensively about the company's irreplicable position within the end-of-life industry as the only vertically integrated provider of funerals (725 branches, #2 share), cremations (46 crematoria, #1 share) and pre-need plans (£1.2bn assets, #1 share).

The Board recommended an offer for the business at an enterprise value of £789m (550p). We have historically noted that the crematoria assets alone generate £48m of EBITDA, implying a value of £820m-£960m based on the comparable multiples of European infrastructure (17-20x). As the bidder offered an opportunity to roll existing shareholdings into a new private vehicle, the Takeover Panel required Morgan Stanley to provide an independent valuation. This was publicly available and indicated a range of 660-990p, 20-80% above the offer price.

We reduced our holding into the cash offer, but we have retained a considerable exposure to the publicly quoted equity roll-over vehicle ("Castelnau") as we see significant value in the business.

Durable equity franchises are attractively valued long-term hedges against inflation

Equity valuation multiples initially contracted sharply in response to higher interest rates, reflecting the fact that higher discount rates reduce equity values. However, higher inflation also acts favourably for equities which display durable pricing power. In our view, this is the primary explanation for the resilience of equity markets that many have found surprising.

The Company has a number of holdings in durable equity franchises such as Nintendo, GSK and EssilorLuxottica each of which enjoys significant pricing power.

Nintendo made considerable progress in the year in its strategy to become a broad entertainment business, allowing it to improve monetisation of its uniquely popular intellectual property. This was evident in the success of the Super Mario Brothers movie, which has become the second most popular animated movie of all time with global box office receipts of over $1.3bn.

GSK has successfully strengthened its balance sheet with the spin-off of its consumer staples business Haleon. The company had a major pipeline success with its RSV (Respiratory Syncytial Virus) vaccine, which has more than 90% efficacy in adults over the age of 50, the cohort at the greatest risk of hospitalisation with the disease.

EssilorLuxottica is the largest global eyewear business, operating in a structurally growing industry and with an R&D budget larger than their four closest competitors combined. This enables the group to provide innovative essential eye care solutions to an ageing global population.

The share prices of Just Eat Takeaway and Delivery Hero have been weak as their growth trends were impacted by consumer confidence and pandemic-related distortions. Both companies have stemmed their losses far more quickly than the market expected, despite declining order volumes. Ultimately, we believe the industry remains in the early stages of long-term adoption and will be able to achieve levels of profitability higher than are anticipated by investors.

The Company's principal focus in the year was to take advantage of volatility to add new holdings in businesses characterised by the long duration of their earnings potential.

In July, the Company initiated a holding in global infrastructure operator Vinci. The company has a portfolio of world-class infrastructure assets (toll roads and airports) with inflation- linked revenues. Vinci has funded these investments from its cash generative contracting business that is benefitting from significant tailwinds from the energy transition.

In August, the Company initiated a holding in Berkeley Group, a company with a unique 16-year land bank and strong record of operational excellence including a counter cyclical approach to buying land. London is a structurally under-supplied market in the <£1m price range. The government estimates demand for London housing to be c.90,000 units per annum, and in the last 3 years deliveries have been less than 30,000 per annum.

The Company received shares in Haleon when the global personal care business was spun out of GSK. The Company doubled its holding in August as we judged concerns over the potential impact of Zantac litigation to be exaggerated. Haleon owns a number of market-leading brands in oral care (Sensodyne), pain relief (Panadol/Advil) and vitamins (Centrum) that have the potential to grow reliably above GDP owing to trends such as ageing populations, self-medication, and premiumisation.

In the second half of the year, the Company repurchased a holding in Meta and initiated a position in Alphabet as we felt that investor pessimism was excessive in the light of the stability of, respectively, their globally dominant franchises in social media and internet search. The digital advertising market has grown rapidly in recent years but remains underpenetrated in many geographies and industry verticals. Meta and Alphabet are amongst the global leaders in the field of artificial intelligence and stand to benefit from the opportunities its development presents.

A new position was started in Hargreaves Lansdown in January as the stock was de-rated sharply in response to slowing industry growth. The company retains an attractive position with a >40% share of the UK direct-to-consumer (D2C) investment market. The entire D2C market has total assets of £300bn, which is only 5% of total UK household wealth of £15tn. We expect the market to grow as costs fall and ageing populations move towards greater personal involvement in their financial planning.

Capital cycles are leading to increased profitability in capital intensive and cyclical sectors

Disruption from the pandemic and volatile demand patterns have created tough conditions in many industries meaning a lack of capital investment is leading to higher returns for those that survive.

In our view, this is most evident in the aviation industry, which was one of the hardest hit sectors through the pandemic as demand evaporated and government support was limited.

Boeing and Airbus combined produced almost 2,000 fewer planes than expected during the pandemic and have full order books to the end of the decade. Demand has rebounded strongly, resulting in a strong pricing environment where it is hard to see how supply can respond.

Our holdings in low-cost airlines easyJet and Ryanair have been strong performers as earnings expectations have been revised upwards owing to their ability to increase fares significantly without loss of volume. Our judgement is that valuations fail to capture the new environment of higher profitability and the operational gearing of their business models to higher prices.

Retail is another sector that has seen dramatic changes owing to the shift to online retail, forced store closures during the pandemic and unpredictable demand. Frasers Group has outshone its peers through prudent cost management and retaining a strong value proposition for customers.

The company has used its strong cash generation to take advantage of commercial distress to acquire several businesses such as Studio Retail, Gieves & Hawkes, Missguided, and Sportsmaster. The company's efficient infrastructure and distribution platforms, combined with its frugal approach to cost, allow it to extract value from businesses which previously struggled. The current environment continues to create new opportunities for the business.

Impact of share buybacks underestimated

Share repurchases are an alternative way of returning cash to shareholders whose value is theoretically equivalent to a reinvestment of dividends. In practice, share buybacks can offer a number of advantages:

• Corporates can use share repurchases to distribute excess capital they might not otherwise pay out as dividends.
• Capital gains taxes are lower than income tax in the UK.
• The resulting growth in earnings per share may be valued more highly by the market than capital returns.

 

To illustrate the last point, consider a company that trades on 10x earnings and grows earnings by 5% per annum over 10 years. Assuming a constant multiple, if 35% of net income is used to repurchase shares, the company's growth in earnings per share doubles from 5% to 10%.

This highlights how lower valuations increases the compounding effect of share repurchases, which in our view is relevant to the UK equity market and our portfolio today and why Charlie Munger once said, "Pay close attention to the cannibals - the businesses that are eating themselves by buying back their stock."

Plus500 is one such example within the portfolio. The company's business model allows it to grow earnings with limited capital required. Since our investment in 2016, it has invested £330m in repurchasing its own shares and this has helped it reduce its share count by 21% and grow its grown earnings by 17% per annum. Plus500 continues to expand into new geographies and business areas, including the US market, which has exciting potential.

Portfolio companies, which account for 45% of NAV, are repurchasing shares. This segment of the portfolio trades on a weighted average multiple of 10x earnings. Whilst the running dividend yield of the portfolio is 2%, including pro-rata share repurchases, the aggregate distribution yield is close to 5%. We believe that such characteristics offer a sound body for future returns to shareholders.

John Dodd and Kartik Kumar 

Fund managers

Artemis Fund Managers Limited

11 July 2023

 

April2023-KeySectorExposures
Sector	2023	2022	Companies
Generalretail	14.8%	16.0%	Currys,Frasers
Housebuilding	13.2%	11.5%	Barratt,Bellway,Berkeley,Redrow,Springfield
Airlines	12.8%	12.7%	easyJet,Ryanair
Video games&hobbies	9.1%	10.5%	Nintendo,Hornby
Banking	7.7%	5.9%	Lloyds,NatWest
Funerals	6.8%	10.1%	Dignity
Food delivery	6.2%	8.0%	DeliveryHero,JustEatTakeaway.com
Financial services	6.1%	3.5%	SingerCapitalMarkets
Technology	5.9%	-	Alphabet,Darktrace,Meta
Aerospace&defence	5.4%	5.2%	ReactionEngines
Tradingplatform	5.0%	5.2%	Plus500
Consumer staples	4.1%	2.0%	EssilorLuxottica,Haleon
Pharmaceuticals	4.1%	5.6%	GSK
China technology	3.0%	4.9%	Prosus
Industrials	2.1%	1.4%	Vinci
Energy	0.9%	-	BP, Shell
Basic materials	0.9%	-	Anglo American
Property	0.7%	0.7%	Claremont Alpha
Serviced offices	-	3.1%	IWG
Leisure	-	2.7%	FlutterEntertainment,JD Wetherspoon

Source: Artemis

ESG & Stewardship at Artemis

Introduction

Artemis believes stewardship activities contribute to improvement in company performance and to consequently higher returns for our clients.

Stewardship is a fundamental element of our approach across all investment strategies. Whilst individual strategies are distinctive, views and ideas are shared across investment teams. The Stewardship team supports fund managers by providing insight, research and analysis, discussion, and challenge on ESG and stewardship matters.

In 2022 Artemis set goals for the Net Zero Asset Managers initiative, covering 80% of AuM. Additionally, we published our first Corporate Social Responsibility report and achieved signatory status from the FRC. We have developed extensive internal tools to inform and guide our Stewardship focuses and continue to strengthen our controls, processes, and actions.

Approach to Stewardship

Our stewardship team is specifically dedicated to supporting our fund managers by providing insight, research and analysis, discussion, and challenge on ESG and stewardship matters including:

• Identifying and incorporating a wider set of risks and opportunities into investment processes including ESG factors
• Monitoring and escalating issues with companies and exercising shareholder rights at company meetings, and
• Working collaboratively to develop and promote best practice internally and across the industry.

 

 Artemis Alpha Stewardship approach

The Company employs a long-term value investing strategy to pick stocks. The framework is based on valuing companies using fundamental analysis and sizing positions according to the attractiveness of share prices relative to our view of their value. The Company's strategy is underpinned by a core principle that the key driver of long-term value is achieving a high and sustainable return on capital employed.

Investee companies that do not adhere to strong governance, look after their employees, or fail to recognise environmental and societal harm risk inhibiting their long-term potential. The investment process requires a focus on the ESG risks and opportunities present in each business and industry.

Risk mitigation

Our view is that ESG factors are most pertinent in their contribution when creating the risk of a permanent loss of capital, usually through obsolescence, excessive leverage, misjudged investment value, misallocations of capital, and regulation.

This is evident in the portfolio where we are significantly underweight controversial sectors (as defined by ESG data providers), and therefore are less exposed to key ESG risks that may affect the prospects of these businesses.

We actively monitor ESG risks and opportunities primarily through our fundamental and bottom-up driven research process for monitoring existing and evaluating prospective investments. We frequently engage with management teams on strategy, capital allocation, incentive alignment and communication.

Engagementandvoting

 

TheFundManagerhasexpandedhisengagementwithcurrentand potential holdings, ensuring appropriate monitoring anddue diligence for the portfolio. During the year, the FundManagerconducted220(vs114lastyear)companymeetings,127 with existing and 93 with prospective investments.

During the year we met with the investor forum to improvethe engagement and disclosure of easyJet, and to representour views on the company's capital allocation. Additionally weraised concerns about the Board's oversight and respondedto concerns about remuneration and share issuance. As aresult of this initiative the company's chair agreed to meetwith investors more regularly.

Theteamuseditsvotingpowerstoexpressitsdissatisfactionwith company/management policy. The number of votesthat were not in line with management guidance grew overthe year 6x to 33, with the proportion of votes not in linewith recommendations rising from 2% to 8%. Votes againstwere focussed on compensation, directors, and non-routinebusiness.

Portfoliocarbonemissions

 

The portfolio's carbon emissions relative to its benchmark, the FTSE All-Share Index, have remained elevated since the onsetofCOVID-19inearly2020.Thisisbecauseourairlineholdingsarestillrecoveringfromdepressedrevenuesthatpenalisedtheircarbon intensity statistics based on emissions per revenue. Furthermore, expectations of a strong recovery in revenue haveresultedinincreasesintheirshareprices,leadingtoanincreasedweightingintheportfoliooftheirtemporarilyinflatedcarbonintensity figures. We expect this measure to normalise somewhat as airline revenues fully recover in 2023.

 

StrategyandBusinessReview

Culture,Purpose&Values

The Directors drive the culture, purpose and values of ArtemisAlpha Trust plc ("the Company") and by doing so seek to ensurethat these three elements underpin the delivery of strategy.

 

Culture

TheCompanyisanexternallymanagedinvestmenttrustandassuchitscultureiscreatedbytheBoardofDirectorsandtheInvestment Manager, Artemis Fund Managers Limited.

 

Purpose

Our purpose is to provide our shareholders, large or small,with a diversified and cost-effective investment opportunityto achieve long-term growth.

 

Values

The Company provides access to a portfolio of investmentswhich the Board expects to be managed with integrity,transparency and accountability and with appropriate duediligence to environmental, social and governance matters.The constructive and openly discursive nature of therelationshipbetweentheBoardandtheInvestmentManagerhelps ensure their respective values are aligned and focusedon delivering the strategy for our shareholders.

ThecorevaluesthatcontributetotheBoardcultureinclude:

• Integrity: the Board seeks to comply with all applicablelaws and regulations, both to the letter and in spirit.
• Accountability:theBoardrecognisestheneedtoexplaintheCompany'sperformancetoinvestorsandtohighlightthe risks in a clear and open manner. The Board has akey role to encourage and challenge the performance ofits Investment Manager and its other service providersto help ensure the Company continues to provideshareholdervalue.
• Respect & Transparency: the Board seeks tocommunicate clearly and openly with shareholders andservice providers respecting individual opinions andexpectations.ContactbyshareholdersviatheChairman'semail address is welcomed.
• Environmental, Social and Governance ("ESG") issues:We are stewards of our shareholders' capital; both theBoard and Investment Manager recognise that thiscomes with responsibilities. ESG considerations areintegrated within the investment process.

An overview of the Investment Manager's culture, valuesand stewardship activities can be found on the website atwww.artemisfunds.com.

 

Corporatestrategy&policy

TheCompanyisincorporatedinEnglandasapubliccompanylimitedbyshares.Itsbusinessasaninvestmenttrustisto buy and sell investments with the aim of achieving theinvestment objective and in accordance with the policy.

Gearing

The Company uses gearing (i.e. borrowing) as part of itsinvestment strategy. The Company's Articles of Associationlimit borrowing to 50 per cent of the Company's net assets.However,theinvestmentpolicylimitsthisto25percentofnetassets. Subject to compliance with this restriction, the levelof borrowing is a matter for the Board, whilst the utilisationof borrowings is delegated to the Investment Manager. Thisutilisation may be subject to specific guidelines establishedbytheBoardfromtimetotime.ThecurrentguidelinespermittheInvestmentManagertoemployborrowingsofupto20percentofnetassets.TheCompanyhadnoborrowingfacilityasat 30 April 2023 or the prior year. The use of gearing by theInvestment Manager will vary from time to time, reflectingits views on the potential returns from stock markets. TheCompany's gearing is reviewed by the Board and InvestmentManager on an ongoing basis. At the year end, net gearingwas created through the use of contracts for difference andstood at 13.4 per cent (9.4 per cent as at 30 April 2022).

 

Leverage

Leverage is defined in the Alternative Investment FundManager Directive ("AIFMD") as any method by which theCompany can increase its exposure by borrowing cash orsecurities, or from leverage that is embedded in derivativepositions. The Company has an agreement with NorthernTrust to utilise contracts for difference as a form of leverage.A result of 100 per cent indicates that no leverage has beenused. The Company is permitted by its Articles to borrow upto 50 per cent; however the Company's investment policyrestricts this to 25 per cent. The Company is permitted tohaveadditionalleverageofupto100percentofitsnetassets,whichresultsinpermittedtotalleverageof225percentunderboth ratios. Artemis as the Alternative Investment FundManager ("AIFM"), monitors leverage limits on a daily basisand reviews them annually. No changes have been made tothese limits during the year. At 30 April 2023, the Company'sleverage was 134.2 per cent as determined using the grossmethod and 115.7 per cent under the commitment method.

TheInvestmentManagerrequirespriorBoardapprovalto:

(i)      enterintoanystocklending agreements;

(ii)     borrowmoneyagainstthesecurityoftheCompany'sinvestments;or

(iii)    createanychargesoveranyoftheCompany'sinvestments.

 

Operatingenvironment

The Company operates as an investment trust company andis an investment company within the meaning of section 833of the Companies Act 2006 (the "Act").

 

TheCompanyhasbeenapprovedasaninvestmenttrustin accordance with the requirements of section 1158 of theCorporation Taxes Act 2010 which remains subject to theCompany continuing to meet the eligibility conditions andongoingrequirementsoftheregulations.TheBoardwillmanagethe Company so as to continue to meet these conditions.

The Company has no employees and delegates most of itsoperational functions to service providers.

 

Current&futuredevelopments

A summary of the Company's developments during the yearended30April2023,togetherwithitsprospectsforthefuture,is set out in the Chairman's Statement and theInvestmentManager'sReview in the Annual Report.TheBoard'sprincipal focus is the delivery of positive long-term returnsfor shareholders and this will be dependent on the successof the investment strategy. The investment strategy, andfactors that may have an influence on it, such as economicand stock market conditions, are discussed regularly by theBoard and the Investment Manager. The Board regularlyconsiders the ongoing development and strategic direction ofthe Company, including its promotion and the effectivenessof communication with shareholders.

 

KeyPerformanceIndicators("KPIs")

TheperformanceoftheCompanyisreviewedregularlybytheBoard and it uses a number of KPIs to assess the Company'ssuccess in meeting its objective. The KPIs which have beenestablishedforthispurposeandremainunchangedfromtheprior year are:

Discreteannualtotalreturns

 

Yearended30April	Netassetvalue*	Shareprice*	FTSE All-Share Index
2018	11.0%	13.2%	8.2%
2019	(8.6)%	(8.9)%	2.6%
2020	(11.3)%	(12.5)%	(16.7)%
2021	56.0%	80.8%	26.0%
2022	(21.9)%	(24.8)%	8.7%
2023	1.3%	(1.2)%	6.0%

Source:Artemis/Datastream

*AlternativePerformanceMeasure

 

Dividendsperordinaryshare

 

Yearended30April	Ordinary	Special	Totalpenceperordinary share	Ordinaryincrease	Totalincrease/(decrease)
2018	4.75p	1.60p	6.35p	10.4%	0.8%
2019	5.00p	0.50p	5.50p	5.3%	(13.4)%
2020	5.20p	-	5.20p	4.0%	(5.5)%
2021	5.30p	-	5.30p	1.9%	1.9%
2022	5.60p	-	5.60p	5.6%	5.6%
2023	6.20p	-	6.20p	10.7%	10.7%

 

 

Ongoingchargesasaproportionofshareholders'funds

 

Asat30April	Ongoingcharges*
2018	0.90%
2019	0.93%
2020	0.95%
2021	0.93%
2022	1.01%
2023	1.08%

*AlternativePerformanceMeasure

Discountmanagement

In addition to the above KPIs, the Board monitors thediscount to the underlying net asset value at which theshares trade. The discount levels throughout the financialyearareshownwithintheFinancialHighlights in the Annual Report.Nospecific discount target has been set, but the Board sets theshare buyback policy and has given the Investment Managerdiscretion to exercise the Company's authority to buybackits own shares from time to time to address any imbalancesbetween the supply and demand in the Company's shares orat times where it is believed this is the best use of availablecapital to increase NAV per share. This is reviewed regularlyby the Board. The Board will also use its authority to issuenewordinarysharesfromtimetotimeshouldtherebeexcessdemand for the Company's shares. The Company will alsoprovide tender offers every three years. The first tender offerwasduein2021,for25percentoftheordinarysharestheninissue.However,followingashareholdervote,thisdidnottakeplace. The next proposal for a tender offer will be in 2024.

Principalrisksandrisk management

As required by the 2018 UK Code of Corporate Governance,theBoardhascarriedoutarobustassessmentoftheprincipaland emerging risks facing the Company. Following consideration of the investment, regulatory and operational risks, the Board has concluded that there are no emerging risks facing the Company that require to be added to the principal risks.

TheBoard,inconjunctionwiththeInvestmentManager,hasdevelopedariskmapwhichsetsouttheprincipalrisksfacedbytheCompanyandthecontrolsestablishedto mitigate these risks. This is an ongoing process and therisk map, including any emerging risks, is formally reviewedevery six months. The Board has given particular attentionto those risks that might threaten the long-term viability oftheCompany.FurtherinformationontheCompany'sinternalcontrols is set out in the corporate governance section in the Annual Report. As an investment company the main risks relate tothe nature of the individual investments and the investmentactivities generally; these include market price risk, foreigncurrency risk, interest rate risk, credit risk and liquidity risk.

 

Asummaryofthekeyareasofrisk,theirmovementduringtheyear and their mitigation is set out below:

 

 

Movement	Principalrisk	Mitigation/control
No change	Strategicrisk Investment objective and policy are not appropriate inthe current market and not favoured by investors.	The investment objective and policy of the Companyis set by the Board and is subject to ongoing reviewand monitoring in conjunction with the InvestmentManager. Views expressed by the Company'sshareholders are also taken into account.
No change	Investmentrisk The Company's investments are selected on theirindividualmeritsandtheperformanceoftheportfolioisnot likely to track the wider UK market (FTSE All-ShareIndex). Whilst the focus is on large cap companies theCompany also invests in small cap (listed), AIM tradedandunquotedinvestmentswhichcanbesubjectto a higher degree of risk than that of larger quotedinvestments.Fromtimetotime,theCompanymayalsohavesignificantexposuretoparticularindustrysectors. The Investment Manager's high conviction approachleads to a concentrated portfolio, typically containingbetween 25 and 60 stocks, carrying a higher degree ofstock-specific risk than a more diversified portfolio. The Company's functional and reporting currency isSterling.However,theinvestmentobjectiveandpolicymay result in a proportion of the Company's portfoliobeing invested in overseas equities denominated incurrenciesotherthanSterling.Asaresult,movementsinexchangeratesmayaffecttheSterlingvalueoftheseinvestments and their returns. The Company may borrow money for investmentpurposes or use derivatives to similarly increaseexposure. If the investments fall in value, anyborrowings/useofderivativeswillmagnifytheextentofthelosses.	The Board considers that this risk is justified by thelonger-term nature of the investment objective andthe Company's closed-ended structure, and that suchinvestments should be a source of positive returns forshareholders. Risks are diversified through having arange of investments in the portfolio covering varioussectors. The Board discusses the investment portfoliowith the Investment Manager at each Board meeting,and at each month end between Board meetings, andpartofthisdiscussionincludesadetailedreviewoftheCompany's unquoted investments, their valuations andfutureprospectstogetherwiththeirportfolioweighting. The Board receives management informationconcerning the geographical sector split of theportfolio. The Company is not materially exposed toforeign currency risk. All borrowing arrangements entered into require thepriorapprovaloftheBoardandgearinglevels,providedby the use of contracts for difference, are regularlydiscussed and reviewed by the Board and InvestmentManager.
No change	Legalandregulatoryrisk A breach of s1158 Corporation Tax Act 2010 could leadto a loss of investment trust status and the resultanttaxation of realised capital gains. The principal laws and regulations the Company isrequired to comply with are the Companies Act 2006,the Alternative Investment Fund Managers' Directive,theMarketAbuseRegulation,theUKListingRulesandthe Disclosure Guidance and Transparency Rules. A breach of the FCA listing rules could lead tosuspension of the Company's shares. A breach of theCompaniesAct2006couldleadtocriminalproceedingsand reputational and financial damage.	The Investment Manager provides investment,company secretarial, administration and accountingservices through the use of qualified professionals. The Board receives internal control reports from theInvestment Manager confirming compliance withregulations. These reports also highlight any matterthat the Compliance team feel should be brought tothe Board's attention along with any items discussedduring internal audit review. The Board meets each year with the Risk andCompliance team to discuss the areas of riskappropriate to the Company and the controlenvironment.
No change	Operationalrisk Disruption to, or failure of, the Investment Manager'sand/oranyotherthird-partyserviceproviders'systemswhich could result in an inability to report accuratelyand monitor the Company's financial position. Northern Trust became administrator, custodian anddepositaryduringtheyeartakingoverfromJPMorganEurope.Therewasatemporaryadditionalriskinrelationto this move due to the operational changes required.	Both the Investment Manager and the Administratorhaveestablishedbusinesscontinuityplanstofacilitatecontinued operation in the event of a major servicedisruption or disaster. All of the Investment Manager's and Administrator'sstaffcanworkfromhomewithnoimpacttooperations. The move to Northern Trust was planned in detail withcontingencies in place as required. The move has nowbeen completed and the risk returned to the prioryearlevel.
No change	Cyber risk FailureordisruptionoftheInvestmentManager'sand/oranyotherthird-partyserviceproviders'systemsasaresult of a cyber-attack, data theft, service disruption,etc. Whilst the risk of a direct financial loss by theCompany is low, the risk of reputational damage andthe risk of loss of control of sensitive information ismoresignificant.	The Company benefits from the cyber security precautions in place at the Investment Manager and also those in place at the third-party suppliers such as the registrar and depositary. TheBoardreceivesregularupdatesfromtheInvestmentManager and its service providers which describe theprotective measures taken to enhance security.
No change	Climatechange Globally, climate change effects are already emergingin the form of changing weather patterns. Extremeweathereventscouldpotentiallyimpairtheoperationsof individual investee companies, potential investeecompanies, their supply chains and their customers.	TheInvestmentManagertakessuchrisksintoaccount,along with the downside risk to any company (whether intheformofitsbusinessprospectsormarketvaluationorsustainabilityofdividends)thatisperceivedtobemakingadetrimentalcontributiontoclimatechange.TheCompanyinvests in a broad portfolio of businesses with operationsspreadgeographically,whichshouldlimittheimpactoflocation-specificweatherevents.
Increased	Geopoliticalrisk Thereisanincreasingrisktomarketstabilityfromgeo-politicalconflicts,suchasbetweenRussiaandUkraine.	The Board discusses such risks as they arise andcontinues to monitor the impact on the Company anditsinvestmentsthroughdiscussionwiththeInvestmentManager as and when required. The Company does not have any direct investments incountrieswherethereisgeopoliticalconflict.However,the Board is provided with information from theInvestmentManageronthemeasuresittakestoassessthe potential impact of geopolitical events, both onitselfandotherserviceproviders,andanyaction taken.
Increased	Inflationaryrisk CentralBankdecisions,thewarinUkraineoranyothereconomic or political factors or global events, mayresult in increasing levels of inflation directly affectingeconomicgrowthandtheunderlyinginvestmentvalues.	The Board and its Investment Manager have regulardiscussions to assess the likely impact of inflationrates on the economy, corporate profitability andassetprices.

ThePandemicrisknotedinthe2022AnnualReportisnolongerconsideredanemergingorprincipalrisk.

Furtherinformationonrisksandthemanagementofthemaresetoutinthenotestothefinancialstatements

Long-term Viability

Viability statement

In accordance with the Association of Investment Companies (the "AIC") Code of Corporate Governance, the Board has considered the longer-term prospects for the Company beyond the twelve months required by the going concern basis of accounting. The period assessed is for five years to 30 April 2028. The Board has concluded that this period is appropriate, carefully taking into account the inherent risk with equities and the long-term investor outlook.

 

As part of its assessment of the viability of the Company, the Board has discussed and considered each of the principal risks, including matters relating to geopolitical events and inflationary pressures, and their impact on the Company. Although the damage to the economy through the total impact of inflation and the geopolitical effect of Russia/ Ukraine cannot be known with certainty, the Board has considered these risks and does not believe they affect the long-term viability of the Company and its portfolio. The Investment Manager carried out stress testing scenarios in connection with a longer-lasting damage to the economy, of the withdrawal of liquidity by the financial authorities and of a significant and sustained fall in markets. The Board has also considered the liquidity of the Company's portfolio to ensure that it will be able to meet its liabilities, as they fall due. The results demonstrated the impact on the Company's NAV throughout the five year period and on its expenses and liabilities. The Board have concluded, given the realisable nature of the majority of the investments, the level of ongoing expenses and the availability of gearing that the Company will continue to be in a position to cover its liabilities.

The Board also made the below assumptions when considering the viability of the Company:

• Investors will continue to wish to have exposure to UK listed companies
• There will be continued demand for investment trusts
• Regulation will not increase to such an extent as to hinder operational efficiency

 

The Directors do not expect there to be any significant change in the current principal risks and the associated mitigating controls other than the decreased risk in relation to Covid-19. The Directors also do not envisage any change in strategy or objectives that would prevent the Company from continuing to operate over the five-year period. The Company's assets are liquid, its commitments limited, and it intends to continue as an investment trust.

 

The 2024 tender offer of up to 25% of the share capital has been considered by the Board when assessing the continuing viability of the Company.

Taking into account the results of the above review, the Board has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period to 30 April 2028.

Life of the Company

The Company operates a triennial liquidity event for shareholders. The tender offers may be made every three years, with the next event proposed in 2024, subject to shareholder approval. Each tender offer will be for up to 25 per cent of the ordinary shares then in issue (excluding Treasury Shares), save that the Board may, at its sole discretion, decide not to proceed with a tender offer if the ordinary shares are trading at a premium to the estimated tender price.

Share capital

Shareholders authorised the Company to buyback up to 14.99 per cent of the shares in issue at the 2022 AGM.

 

During the year the Company bought back 1,019,766 ordinary shares. As at 30 April 2023, 4,525,566 ordinary shares bought back during the year are held in treasury.

A resolution to renew the Company's buyback authority will be put to shareholders at the AGM on 21 September 2023.

No ordinary shares were issued during the year.

Duty to Promote the Success of the Company

How the Directors discharge their duties under s172 of the Companies Act

Under section 172 of the Companies Act 2006, the Directors have a duty to act in a way they consider, in good faith, would be likely to promote the success of the Company for the benefit of its shareholders as a whole, and in doing so have regard to:

a)       the likely consequences of any decision in the long term;

b)       the interests of the Company's employees;

c)       the need to foster the Company's business relationships with suppliers, customers and others;

d)       the impact of the Company's operations on the community and the environment;

e)       the desirability of the Company maintaining a reputation for high standards of business conduct; and

f)        the need to act fairly as between members of the Company.

As an externally managed investment trust, the Company has no employees or physical assets, our stakeholders include our shareholders and service providers, such as the Investment Manager.

 

The below tables describe the impact of engagement with our stakeholders that has taken place during the year:

 

 

Engagement with key stakeholders

 

Stakeholders	Engagement	Impact
Shareholdersandpotentialinvestors	TheBoardisresponsibleforpromotingthelong-term sustainable success and strategicdirectionoftheCompanyforthebenefitoftheCompany'sshareholders.Whilstcertainresponsibilities are delegated, Directors'responsibilities are set out in the scheduleof matters reserved for the Board and thetermsofreferenceofitscommittees,whichare reviewed regularly by the Board. TohelptheBoardinitsaimtoactfairlyasbetweentheCompany'smembers,it encourages communications with allshareholders. The Annual and Half-Yearlyreports are issued to shareholders and areavailable on the Investment Manager'swebsite together with other relevantinformation including monthly factsheets.The Board receives regular feedback onshareholdermeetingsfromtheCompany'sbrokerandanyshareholdercommunicationsarereviewedanddiscussedbytheBoardtoensurethatshareholderviewsaretakenintoconsiderationaspartofanydecisionstakenbytheBoard.TheChairmanisavailableto contact via email: [e-mail]. The Board considerscommunication with shareholders animportant function and Directors are alwaysavailabletorespondtoshareholderqueries.For further information see `Relations withshareholders'.	Through the publication of the AnnualReport and the Half-Yearly Report, monthlyfactsheets and Fund Manager updates tothe Company's website, shareholders arekeptinformedofCompanyperformanceandportfolioactivities. Shareholders are encouraged to raisequestions and communicate with theChairman and the Fund Manager.
ArtemisasInvestmentManager Fundmanagement Companysecretarial Financial reporting Sales& marketing   Complianceandinternalcontrolfunctions Internalaudit   Investmentadministration(outsourced to NorthernTrust)	The Board has set the parameters withinwhich the Investment Manager operatesand these are set out in the InvestmentManagement Agreement and agreed bytheBoard. TheBoardreceivesregularupdatesfrom the Investment Manager and otherservice providers and ensures thatinformation pertaining to its stakeholdersis provided, as required, as part of theinformation presented in regular Boardmeetings. During the year, additionalmonthlyperformanceupdateswereheld between the Board and InvestmentManager to discuss the continuing impactof geopolitical, inflationary and marketmovements events on the Company anditsportfolio.TheBoard,withthesupportofits Management Engagement Committee,regularly reviews the performance of theInvestment Manager and other serviceproviders to ensure that services providedto the Company are managed efficientlyand effectively for the benefit of theCompany'sshareholders. The Board has reviewed and discussedplans for the future marketing anddevelopment of the Company with theInvestment Manager during the year.	During the year the performance of theCompany fell against its benchmark.Buybacks were performed during the yearto help maintain and narrow the discount.TheliquidityinthemarketfortheCompany'sshares continued to increase on the prioryear, further detail can be found within theChairman's Statement and InvestmentManager'sReview. TheFundManagerworkedonanumberof initiatives to raise the profile of theCompany and generate interest with newinvestors;takingpartinvariousshareholderin-person events and webinars during theyear. During the year, the investment administratorchangedfromJPMorgantoNorthernTrust.This was discussed in advance by the Boardand approval was given.
Otherthird-partyserviceproviders   NorthernTrustasDepositaryandCustodian   SingerCapitalMarketsasBroker LinkGroupasRegistrar   JohnstonCarmichaelLLPasAuditor	Asaninvestmentcompany,allservicesareoutsourcedtothird-partyserviceproviders.The Board considers the Depositary, theCustodian, the Broker, the Registrar andAuditor to be key stakeholders. The Board relies on the Investment Managerto work alongside these key stakeholderstomeettherequirementsoftheCompany.TheManagementEngagementCommitteereviews the performance of these serviceproviders, along with their fee levels, andprovides recommendations to the Boardasrequired. The Investment Manager has constantinteraction with the service providers andprovides feedback to and from the Boardasrequired. Annual assurance reports are received toassist the review of the internal controlenvironments of the Depositary andCustodian. The FRC performs and publishes auditquality reviews on a sample of audit firmsand audits each year.	Theperformanceofthethird-partyservice providers is continually monitoredthroughout the year. As and whenappropriate,third-partyproviderspresenttotheBoard. FollowingformalreviewbytheManagementEngagement Committee and Board at theyear end, it was concluded that the serviceproviders were operating effectively andprovided a good level of service. Following the move of administrationservices,DepositaryandCustodianservicesare now provided by Northern Trust.
Investee companies	The Board sets the investment objective and discusses stock selection, asset allocation, and the ESG qualities of investee companies with the Fund Manager at each Board meeting. The Fund Manager engages with the investee companies, prior to investment and on an on-going basis. The Fund Manager has a dedicated Stewardship Team which supports the Fund Manager in the investment process.	The engagement of the Fund Manager with the investee companies aids awareness and understanding of the ESG environment in operation as well as the valuation and prospects of their businesses.
The Association of Investment Companies ("AIC")	The Company is a member of the AIC which is an organisation that represents the interests of investment trusts, VCTs and other closed-end funds.	The Board chooses to report under the AIC Code of Corporate Governance. This Code better reflects the nature of an investment trust in the context of good corporate governance.

 

Boarddiscussionsanddecisions

ThefollowingarethekeydiscussionsanddecisionsmadebytheBoardduringtheyearended30April2023:

 

 

Topic	Background&discussion	Decision
Sharebuybackpolicy	The level of buybacks and their effect onthe discount is discussed at each Boardmeeting. The strategy in relation to buybacks andinvestor feedback thereon is discussedandmonitoredbytheBoard.Theeconomicenvironmenthadworsenedovertheperiodfrom when the initial extended buybackprogramme had been put in place.	The Board weighs up the effectiveness of thebuybackpolicyinhelpingtomaintain/reducethediscounttoNAVagainstitsimpacton the Company and the liquidity of its shares.Inlightofmarketdevelopments, buybacks were conducted at areducedpaceintheperiod. The Board decided to reduce the monetaryamount of buybacks and continue to monitorthe rate in line with discount and liquidityrequirements.
Environmental, social andgovernancematters(`ESG')	The Board discussed its responsibilitiesfor ESG and how Artemis, as InvestmentManager, undertook the required steps toensure ESG was incorporated within theinvestmentprocess. The Board made enquiries of the InvestmentManager as to the ESG credentials of theunderlyingportfolio.TheInvestmentManagerconfirmed engagement with investeeboardshelpedgainanunderstandingofthegovernance in place.	The Board received reporting on ESG,sustainability and voting records quarterly. Arepresentative of the Risk team presents asrequired to the Board. It was decided that ESG was appropriatelyincorporated within the Artemis investmentprocess and the Board would continue todiscuss and monitor on an on-going basis.
Administration,DepositaryandCustodianarrangements	The Board considered and discussed theprogress of the change of administrator,depositary and custodian to NorthernTrust.	The Board confirmed satisfaction with theprogress on the migration of third parties andthe change of responsibilities was completed on6 March 2023.
Gearing	The Board discussed the current policy ofproviding gearing through Contracts forDifference.	The Board decided that this policy continues toprovidegearingatareducedcostcomparedtoaconventional bank loan.
Internalaudit	The Audit Committee discussed thepossibility of the Company having its owninternal audit function.	The Audit Committee and Board decided theCompany should continue to place reliance onthe internal audit function performed by theInvestmentManager.
Directorsuccession	The Board discussed the succession ofDirectors taking into account the numberof years served, the mix of skills requiredto perform the role and the diversityrequirementsofthenewlegislation. The recruitment process to replace MsBergin was discussed. A comprehensivelist of applicants for the role of ChairmanoftheAuditCommitteewasreceivedfromNurole.Thesewerereviewedanddiscussedatlengthtoensuretherightcandidateswerechosen for interview. The Board were keentoseecandidateswithcommercialfinancialandauditskillsaswellasthosefromamoreconventional investment trust background.	It was agreed to enlist the services of Nuroleas an external, independent recruitmentconsultant to assist with the replacement ofMsBergin. Mrs Stewart became interim Chairman of theAudit Committee in October 2022 and becameSenior Independent Director on 28 June 2023. Mr Smethers offered the sought after financialandauditskillsandwasagreedtobeanexcellentaddition to the skills already present on theBoard. The Board approved the recruitment ofMr Smethers and his role as Chairman of theAuditCommittee. WhiletheBoardacknowledgesthatithasnotbeencompliant with the gender diversity guidelinesduringthesecondhalfoftheyear,itsfirmintentionistoreturntoapositionofcompliance.

The Board's primary focus is to promote the long-termsuccess of the Company for the benefit of the Company'sshareholders.Indoingso,theBoardhasregardtotheimpactof its actions on other stakeholders as described above.

 

Directors& Diversity

The Directors of the Company and their biographical detailsare set out in the Annual Report.

NoDirectorhasacontractofservicewiththeCompany.

The Board supports the recommendations of the Hampton-Alexander Review on gender diversity and the Parker Reviewon ethnic representation on Boards.

The Board recognises the principles of diversity in theboardroom and acknowledges the benefits of having greaterdiversity, including gender, social and ethnic backgrounds,and cognitive and personal strengths. When setting a newappointment brief, the Nomination Committee considersdiversity alongside seeking to ensure that the overallbalance of skills and knowledge that the Board has remainsappropriate,sothatitcancontinuetooperateeffectively.TheBoard'sDirectorselectionpolicywill,firstandforemost,seekto identify the person best qualified to become a Director ofthe Company, based on merit and objective criteria.

The Board is currently comprised of four male Directors andone female Director.

The FCA announced a new policy statement on diversity andinclusion on company boards in April 2022. Companies arerequired to comply with the targets or explain the reasonsfor non-compliance. Outlined below is an overview of thetargets and the Company's compliance as at 30 April 2023 inaccordance with Listing Rule 9.8.6R(9):

• 40% of the Board is represented by women: 40% of theindividuals on the Board were women up to 13 October2022,thedateofMsBergin'sretirement.Fromthatpointto15March2023,25%oftheBoardwerewomenandfrom15 March 2023 to 30 April 2023, 20% of the Board werewomen. As at 30 April 2023, the Company does not meetthis diversity target and a further explanation is given in the Annual Report.
•    Onewomaninaseniorposition:asat30April2023no woman was in a senior position.In the absence ofExecutive roles, the Company also considers the role ofChairmanoftheAuditCommittee,alongwiththeroleof Senior Independent Director, to qualify as a seniorposition.MsBerginheldtheserolesthroughouttheyear until retirement on 13 October 2022 at which pointMrs Stewart became interim Chairman of the AuditCommittee until 15 March 2023 and the appointment ofMrSmetherstotherole.TheCompanythereforedoesnotmeetthisdiversitytargetasat30April2023.MrsStewartsubsequently became Senior Independent Director on28 June 2023.
•    One individual from a minority ethnic background: asat30April2023,noindividualsontheBoardarefromaminorityethnicbackground.TheCompanydoesnot therefore meet this diversity target and a furtherexplanation is given in the Annual Report.

Thefollowingtablessetoutthedataonthediversityofthe Directors on the Company's Board in accordance withListing Rule 9.8.6R(10) as at 30 April 2023. This data has beencollected through consultation with the Board. Subsequentto the record date of 30 April 2023, Mrs Stewart became theSenior Independent Director.

 

	NumberofBoardmembers	PercentageoftheBoard	Numberofseniorpositionson the Board	Numberinexecutivemanagement2	Percentageofexecutivemanagement2
Men	4	80%	21	N/A	N/A
Women	1	20%	0	N/A	N/A
Notspecified/prefernottosay	N/A	N/A	N/A	N/A	N/A

1DuncanBudgeistheChairmanoftheBoard,aseniorpositionasdefinedbytheListingRulesandMrSmethersisChairmanoftheAuditCommittee.

2NotapplicableastheCompanydoesnothaveanexecutivemanagement team.

 

NumberofBoardmembers		PercentageoftheBoard	Numberofseniorpositionson the Board	Numberinexecutivemanagement1	Percentageofexecutivemanagement1
WhiteBritishorother White	5	100%	2	N/A	N/A
Mixed/Multipleethnic groups	0	0%	0	N/A	N/A
Asian/AsianBritish	0	0%	0	N/A	N/A
Black/African/Caribbean/BlackBritish	0	0%	0	N/A	N/A
Otherethnicgroup,includingArab	0	0%	0	N/A	N/A
Notspecified/prefernottosay	N/A	N/A	N/A	N/A	N/A

1         NotapplicableastheCompanydoesnothaveanexecutivemanagement team.

Modern Slavery Act 2015

The Company does not fall within the scope of the Modern Slavery Act 2015 as its turnover is less than £36m. Therefore, no slavery and human trafficking statement is included in the Annual Report.

Sustainability and Environmental, social and governance

(`ESG') matters

The Board recognises that the most material way in which the Company can have an impact on ESG is through responsible ownership of its investments. The Board has appointed Artemis as Investment Manager, who engages actively with investee companies undertaking extensive evaluation and engagement on a variety of matters such as strategy, performance, risk, dividend policy, governance and remuneration. All risks and opportunities are considered as part of the investment process in the context of enhancing the long-term value of shareholders' investments. This will include matters relating to material environmental, human rights and social considerations that will ultimately impact the profitability of a company or its stock market rating and hence these matters are an integral part of Artemis' thinking as investors. The ESG and stewardship engagement of Artemis is detailed in the Annual Report.

Financial Statements

The financial statements of the Company are included in the Annual Report.

For and on behalf of the Board,

Duncan Budge

Chairman

11 July 2023

 

Statement of Directors' Responsibilities in respect of the Annual Report

Management Report

Listed companies are required by the Financial Conduct Authority's Disclosure Guidance and Transparency Rules (the "Rules") to include a management report in their annual financial statements. The information required to be in the management report for the purpose of the Rules is included in the Strategic Report in the Annual Report. Therefore no separate management report has been included.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law they are required to prepare the financial statements in accordance with UK-adopted international accounting standards.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of their profit or loss for that period. In preparing each of the financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable
• and prudent;
• state whether they have been prepared in accordance with UK-adopted international accounting standards; and
• prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.

The financial statements are published on a website, artemisalphatrust.co.uk, maintained by the Company's Investment Manager, Artemis. Responsibility for the maintenance and integrity of the corporate and financial information relating to the Company on this website has been delegated to the Investment Manager by the Directors. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' confirmations

Each of the Directors listed in the Annual Report confirm that, to the best of their knowledge:

a)      the financial statements, prepared in accordance with the applicable set of UK-adopted international accounting standards, give a true and fair view of the assets, liabilities and financial position of the Company as at 30 April 2023, and of the profit or loss of the Company for the year then ended;

b)      the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces; and

c)       the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company's position and performance, business model and strategy.

In the case of each Director in office at the date the Directors' Report is approved:

a)      so far as the Director is aware, there is no relevant audit information of which the Company's Auditor is unaware; and

b)      they have taken all steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company's Auditor is aware of that information.

For and on behalf of the Board

Duncan Budge

Chairman

11 July 2023

Financial Statements

StatementofComprehensiveIncome

For the year ended 30 April 2023

 

	Year ended 30 April 2023			Year ended 30 April 2022
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000		Total £'000
Investmentincome	3,052	-	3,052	3,099	-		3,099
Totalrevenue	3,052	-	3,052	3,099	-		3,099
Losseson investments	-	(4,609)	(4,609)	-	(30,511)		(30,511)
Netgains/(losses)on derivatives	-	4,134	4,134	-	(7,770)		(7,770)
Currencygains/(losses)	-	140	140	-	(16)		(16)
Totalincome/(loss)	3,052	(335)	2,717	3,099	(38,297)		(35,198)
Expenses
Investmentmanagement fee	(154)	(615)	(769)	(219)	(875)		(1,094)
Other expenses	(456)	(8)	(464)	(492)	(74)		(566)
Profit/(loss)beforefinancecostsandtax	2,442	(958)	1,484	2,388	(39,246)		(36,858)
Finance costs	(115)	(461)	(576)	(9)	(36)		(45)
Profit/(loss)before tax	2,327	(1,419)	908	2,379	(39,282)		(36,903)
Tax	(101)	-	(101)	(118)	-		(118)
Profit/(loss)andtotalcomprehensiveincome/(expense)for the year	2,226	(1,419)	807	2,261	(39,282)	(37,021)
Earnings/(loss)perordinaryshare	6.74p	(4.30p)	2.44p	6.29p	(109.28p)	(102.99p)

ThetotalcolumnofthisstatementrepresentstheStatementofComprehensiveIncomeoftheCompany,preparedinaccordancewith International Financial Reporting Standards. The supplementary revenue and capital columns are both prepared underguidance published by the Association of Investment Companies.

Allitemsintheabovestatementderivefromcontinuing operations.

AllincomeisattributabletotheequityshareholdersofArtemisAlphaTrustplc.Therearenominorityinterests.

 
 

StatementofFinancialPosition

As at 30 April 2023

 

	2023 £'000	2022 £'000
Non-currentassets
Investments	109,979	119,612
Investmentsinsubsidiary undertaking	4,264	4,231
	114,243	123,843
Currentassets
Derivativeassets	2,187	492
Other receivables	2,208	781
Collateralheld	-	1,970
Cashandcashequivalents	7,653	2,389
Totalassets	126,291	129,475
Currentliabilities
Derivativeliabilities	(106)	(308)
Collateralpledged	(1,930)	-
Other payables	(4,438)	(5,066)
Totalliabilities	(6,474)	(5,374)
Net assets	119,817	124,101
Equityattributabletoequityholders
Sharecapital	373	373
Sharepremium	676	676
Special reserve	18,779	21,964
Capitalredemptionreserve	217	217
Retainedearnings-revenue	3,437	3,117
Retainedearnings-capital	96,335	97,754
Total equity	119,817	124,101
Netassetvalueperordinaryshare	366.02p	367.65p

ThesefinancialstatementswereapprovedbytheBoardofDirectorsandsignedonitsbehalfon 11 July 2023:

 

Duncan Budge

Chairman

 
 

Statement of Changes in Equity

Fortheyearended30April2023

 

	Sharecapital £'000	Sharepremium £'000	Specialreserve £'000	Capitalredemption reserve £'000	Retainedearnings
					Revenue £'000	Capital £'000	Total £'000
Fortheyearended30April2023
At1May2022	373	676	21,964	217	3,117	97,754	124,101
Totalcomprehensiveincome:
Profit/(loss)fortheyear	-	-	-	-	2,226	(1,419)	807
Transactionswithownersrecordeddirectlytoequity:
Repurchaseofordinarysharesintotreasury	-	-	(3,185)	-	-	-	(3,185)
Dividendspaid	-	-	-	-	(1,906)	-	(1,906)
At30April2023	373	676	18,779	217	3,437	96,335	119,817
Fortheyearended30April2022
At1May2021	382	676	40,738	208	2,788	137,036	181,828
Totalcomprehensiveincome:
Profit/(loss)fortheyear	-	-	-	-	2,261	(39,282)	(37,021)
Transactions with owners recordeddirectly to equity:
Repurchaseofordinarysharesintotreasury	-	-	(14,683)	-	-	-	(14,683)
Repurchaseandcancellationofordinary shares	(9)	-	(4,091)	9	-	-	(4,091)
Dividendspaid	-	-	-	-	(1,932)	-	(1,932)
At30April2022	373	676	21,964	217	3,117	97,754	124,101

The notesin the Annual Report formpartof thesefinancialstatements.

 
 

StatementofCash Flows

Fortheyearended30April2023

 

	2023 £'000	2022 £'000
Operatingactivities
Profit/(loss)beforetax	908	(36,903)
Interestpayable	576	45
Losseson investments	4,609	30,511
Net(gains)/losseson derivatives	(4,134)	7,770
Currency(gains)/losses	(140)	16
Increaseinother receivables	(6)	(56)
Decreaseinaccrued expenses	(12)	(96)
Netcashinflowfromoperatingactivitiesbeforeinterestandtax	1,801	1,287
Interestpaid	(576)	(45)
Irrecoverableoverseastaxsuffered	(101)	(118)
Netcashinflowfromoperating activities	1,124	1,124
Investingactivities
Purchaseofinvestments	(24,601)	(25,087)
Saleofinvestments	28,584	49,583
Sale/(purchase)of derivatives	583	(6,656)
Collateralpledged/(held)	3,900	(2,800)
Netcashinflowfrominvesting activities	8,466	15,040
Financing activities
Repurchaseofordinarysharesintotreasury	(3,251)	(14,617)
Repurchaseandcancellationofordinary shares	-	(4,091)
Dividendspaid	(1,906)	(1,932)
Increaseinintercompanyloan	691	404
Netcashoutflowfromfinancingactivities	(4,466)	(20,236)
Netdecrease/(increase)innet funds	5,124	(4,072)
Netfundsatthestartoftheyear	2,389	6,477
Effectofforeignexchangeratechanges	140	(16)
Netfundsattheendoftheyear	7,653	2,389
Cashandcash equivalents	7,653	2,389

 

 

 

NotestotheFinancialStatements

1.   Accountingpolicies

The financial statements have beenprepared on a going concern basis under the historical costconventionmodifiedbytherevaluationoffinancialassetsandliabilitiesheldatfairvaluethroughprofitorloss,inaccordancewith UK-adopted international accounting standards ("IFRSs")whichcomprisestandardsandinterpretationsissuedbythe International Accounting Standards Board ("IASB"), asapplied in accordance with the provisions of the CompaniesAct 2006. The principal accounting policies adopted by theCompany are set out below.

WherepresentationalguidancesetoutintheStatementof Recommended Practice ("SORP") for investment trustsand venture capital trusts issued by the Association ofInvestmentCompanies("AIC")inJuly2022isconsistentwiththerequirementsofIFRS,thefinancialstatementshavebeenprepared in accordance with the SORP.

The accounting policies which follow set out those policieswhichapplyinpreparingthefinancialstatementsfortheyearended 30 April 2023 have been applied consistently, otherthan where new policies have been adopted.

ThefinancialstatementsarepresentedinSterling,whichis the currency of the primary environment in which theCompany operates. All values are rounded to the nearestthousand pounds (£'000) except where otherwise indicated.

 

2.   Income

 

	Yearended 30 April 2023 £'000	Yearended 30 April 2022 £'000
Investmentincome*
UK dividend income	1,812	1,920
Overseasdividendincome	662	860
	2,474	2,780
Other income
Bank interest	62	25
Derivativeincome	507	294
Liquidityfundincome	9	-
	578	319
Total income	3,052	3,099

*Allinvestmentsaredesignatedatfairvaluethroughprofitorlossoninitialrecognition,thereforeallinvestmentincomearisesoninvestmentsatfair value through profit or loss.

AnumberofUKquotedinvestmentsaredomiciledinothercountriesfortaxpurposes.

 

3.   Dividendspaidandproposed

Setoutbelowarethetotaldividendsrecognisedinrespectofthefinancialyearended30April 2023.

 

	Yearended 30 April 2023 £'000	Yearended 30 April 2022 £'000
2022finaldividendof3.46pperordinaryshare(2021: 3.19p)	1,140	1,189
2023interimdividendof2.33pperordinaryshare(2022:2.14p)	766	743
	1,906	1,932

Dividends are recognised in the period in which they are due to be paid and are shown through the Statement of Changes inEquity. Therefore, the Statement of Changes in Equity for the year ended 30 April 2023 reflects the final dividend for the yearended 30 April 2022 which was paid on 21 October 2022. For the year ended 30 April 2023, a first interim dividend of 2.33p hasbeen paid on 26 January 2023 and a final dividend of 3.87p has been proposed for payment on 29 September 2023. The finaldividend is proposed for approval by the shareholders at the forthcoming AGM.

Setoutbelowarethetotaldividendspaid/proposedinrespectofthefinancialyearended30April 2023.

 

	Yearended 30 April 2023 £'000	Yearended 30 April 2022 £'000
Firstinterimdividendof2.33pperordinaryshare(2022:2.14p)	766	743
Finaldividendof3.87pperordinaryshare(2022:3.46p)	1,267	1,168
	2,033	1,911

 

4.   Earnings/(loss) per share

The revenue earnings per ordinary share is based on the revenue profit for the year of £2,226,000 (2022: £2,261,000) and on33,033,940 (2022: 35,994,478) ordinary shares, being the weighted average number of ordinary shares in issue during the year.

The capital loss per ordinary share is based on the capital loss for the year of £1,419,000 (2022: £39,282,000) and on 33,033,940(2022: 35,944,478) ordinary shares, being the weighted average number of ordinary shares in issue during the year.

 

5. Share capital

 

(a)Sharecapital
	2023 Shares	2023 £'000	2022 Shares	2022 £'000
Allotted,calledupandfully paid:
Ordinarysharesof1peach	32,734,908	327	33,754,674	338
Ordinarysharesof1peachheldintreasury	4,525,566	45	3,505,800	35
	37,260,474	373	37,260,474	373
(b)Ordinaryshares

 

	Shares	£'000
Movementsinordinarysharesduringtheyear:
Ordinarysharesinissueon1May2022	33,754,674	373
Repurchaseofordinarysharesintotreasury	(1,019,766)	(45)
Ordinaryshares inissue on30 April 2023	32,734,908	327

Themovementsinordinarysharesheldintreasuryduringtheyearareas follows:

 

	2023 Shares	2023 £'000	2022 Shares	2022 £'000
Balancebroughtforward	3,505,800	35	-	-
Repurchasesofordinaryshares	1,019,766	10	3,505,800	35
Balancecarried forward	4,525,566	45	3,505,800	35

Duringtheyearended30April2023,theCompanyrepurchased1,019,766sharesinto treasury(2022:3,505,800).There were no subscription shares in issue at 30 April 2023 (2022: nil).

 

6.   Netassetvalueperordinary share

Thenetassetvaluepershareisbasedonthenetassetsof£119,817,000(2022:£124,101,000)andon32,734,908(2022:33,754,674)ordinary shares, being the number of ordinary shares in issue at the year end.

 

7.   TransactionswiththeInvestmentManagerandrelatedparties

TheamountspaidtotheInvestmentManagerandamountsoutstandingattheyearendaredisclosed in the Annual Report.

However,theexistenceofanindependentBoardofDirectorsdemonstratesthattheCompanyisfreetopursueitsownfinancialandoperatingpoliciesandtherefore,underIAS24:RelatedPartyDisclosures,theInvestmentManagerisnotconsideredtobea related party.

Fees payable during the year to the Directors and their interest in shares of the Company are considered to be related partytransactions and are disclosed within the Directors Remuneration Report, included in the Annual Report.

Alltransactionswithsubsidiaryundertakingswereonanarm'slengthbasis.Duringtheyear,transactionsinsecuritiesbetweenthe Company and its subsidiary undertakings amounted to £nil (2022: £nil). The subsidiary did not pay a dividend to ArtemisAlphaTrustplcduringtheyearto30April2023(2022:£nil).Followingtheincreaseinlendingratesovertheyear,interestpayableby Artemis Alpha Trust to Alpha Securities Trading in respect of the intercompany loan over the period is recognized.

 

8.   Eventsafterthereportingperiod

As at 11 July 2023, a further 21,756 shares had been bought back at a cost of £69,000.

 

9. Annual Report

This Annual Report announcement does not constitute the Company's statutory accounts for the years ended 30 April 2023 and 30 April 2022 but is derived from those accounts. Statutory accounts for the year ended 30 April 2022 have been delivered to the Registrar of Companies.  The statutory accounts for the year ended 30 April 2023 and the year ended 30 April 2022 both received an audit report which was unqualified and did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not include statements under section 498 of the Companies Act 2006. The statutory accounts for the year ended 30 April 2023 have not yet been delivered to the Registrar of Companies and will be delivered following the Annual General Meeting.

 

The audited Annual Report for the year ended 30 April 2023 will be available to shareholders shortly. Copies may be obtained from the Company's registered office at Cassini House, 57-59 St James's Street, London SW1A 1LD or at the website at artemisalphatrust.co.uk.

 

A copy of the Annual Report will also be submitted to the FCA's National Storage Mechanism and will soon be available for inspection at:  https://data.fca.org.uk/#/nsm/nationalstoragemechanism

 

The Annual General Meeting of the Company will be held on Thursday, 21 September 2023 at 10:00a.m.

 

For further information, please contact:

Artemis Fund Managers Limited

Company Secretary

Telephone: [phone]

12 July 2023

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