The full text of the press release follows:
Outcome of Strategic Review and Fund Management Team Changes
The Board is pleased to announce the outcome of its strategic review of the Company, which has been undertaken in advance of the continuation resolution due to be proposed at the Company's annual general meeting to be held in October 2018.
Prior to the strategic review, the Chairman met with investors representing approximately 50% of the Company's issued share capital (excluding treasury shares) not held by investors connected with the Company's Investment Manager. The strategic review, which was carried out with the assistance of the Company's advisers, considered all aspects of the Company and took into account the views expressed in those investor meetings.
As a result of the strategic review, a number of changes are being made or proposed:
- Investment approach and policy:
- The Investment Manager will continue to pursue an unconstrained and opportunistic stock picking approach to generate sustainable outperformance of the FTSE All-Share Index.
- The adoption of a revised investment policy will result in an increased exposure to overseas listed equities (whilst retaining a UK bias), a broader range of market capitalisations and a more concentrated portfolio.
- In implementing the revised investment policy, the Investment Manager will seek to identify and invest in companies with attractive valuations, strong business models, favourable long-term industry fundamentals and high quality management teams.
- Unquoted investments - the Board reiterates its commitment to reduce the Company's exposure to investments in unquoted companies to 10% (currently 21.7%). However, in order to protect shareholder value this will continue to be done in a gradual and measured manner to maximise value. New investments in unquoted companies will only be made in exceptional circumstances and will be subject to an overall limit of 10% of total assets at the time of investment.
- Dividends - the dividend policy will be linked to inflation (rather than target a specific annual increase).
- Triennial tender opportunity - shareholders will have the opportunity to tender up to 25% of the Company's issued share capital (excluding treasury shares) every three years, commencing in 2021, to help ensure that the share price more closely follows the underlying net asset value per share. This will replace the five yearly continuation resolutions.
- Investment Manager's fees - the Board and Investment Manager have agreed a tiered basis to the rate of the annual management fee payable to the Investment Manager and the removal of the performance fee to maximise shareholder returns.
The Board announces that Kartik Kumar has joined John Dodd as co-Fund Manager to the Company. Adrian Paterson, who has co-managed the Company's portfolio since July 2009, has announced his intention to retire from fund management at the end of the year. He will continue to work closely with John Dodd and Kartik Kumar until he retires.
Duncan Budge, Chairman of Artemis Alpha Trust, said: "We thank Adrian for his contribution to the Company over the years and wish him well for his retirement. We are pleased to announce that Kartik will become co-Fund Manager. His capabilities have contributed to the recovery in the Company's performance and will strongly complement John's experience."
John Dodd, Chairman of Artemis and co-Fund Manager said: "Artemis is grateful for Adrian's valuable contribution to the business as both a partner and fund manager. It has been a great pleasure to work with him since he joined in 2002. Kartik has provided valuable support to the management of the Company's portfolio since he has been involved and is highly regarded internally. I am confident that his appointment will have a positive impact on the future of the Company."
Kartik Kumar said: "I am extremely excited about the opportunity to co-manage Artemis Alpha. We will focus on implementing a high conviction, value-based investment approach with the aim of delivering great long-term investment returns."
A number of the Board's proposals (in particular, the adoption of the revised investment objective and policy and the replacement of the continuation resolutions with regular tender offers) require shareholder approval. A circular setting out full details of the Board's proposals and containing a notice convening a general meeting of the Company, at which the requisite shareholder approvals will be sought, will be sent to shareholders in due course.
Investment Objective, Approach and Policy
The Company's current investment objective is to achieve above average rates of total return over the longer term and to achieve a growing dividend stream. The Board is proposing that the investment objective is revised so that the Company will aim to provide long-term capital and income growth by investing in predominantly listed companies and to achieve a net asset value total return greater than the total return of the FTSE All-Share Index.
Under the proposed revised strategy, it is expected that the underlying liquidity of the portfolio will increase as potential investments will be considered across a wider range of market capitalisations (moving away from the previous UK small capitalisation bias). The concentration of the portfolio will also increase to reflect the high conviction approach. The allocation to overseas equities will become larger as the Fund Management team seek to leverage the Investment Manager's access to companies across multiple geographies. At any time, the majority of the portfolio is likely to be invested in UK listed companies due to the proximity of the Investment Manager to this market and access to company management.
The Company is currently pursuing a strategy of reducing its exposure to unquoted investments and the Board previously set a target of reducing the exposure to below 10% by the time of the Company's annual general meeting later this year. 21.7% of the Company's total assets is currently invested in unquoted companies and, whilst the Investment Manager is currently pursuing a number of potential realisation opportunities, it is not likely that this target will be met. The Board and the Investment Manager remain committed to reducing the Company's exposure to unquoted companies in a gradual and measured manner to maximise value.
The revised investment policy will permit the Company to invest up to 10% of its total assets in unquoted companies, excluding follow-on investments that may be made in any existing unquoted investee company in order to preserve the Company's economic interests. The 10% limit will be measured at the time of investment. Any new or follow-on investments in unquoted companies will require prior Board approval and are expected only to be made in exceptional circumstances.
Notwithstanding the revised investment policy, the Investment Manager will continue to follow an unconstrained and opportunistic approach with the aim of generating sustainable outperformance of the FTSE All-Share Index. In implementing the revised investment policy, the Investment Manager will seek to identify and invest in companies with attractive valuations, strong business models, favourable long-term industry fundamentals and high quality management teams.
Adoption of the proposed revised investment objective and policy is subject to shareholder approval.
The Company's current dividend policy is to seek to increase the dividend by around 10% each year. Under the proposed revised investment policy, the focus will be to achieve a net asset value total return greater than the total return of the FTSE All-Share Index. The Board has concluded, therefore, that it would be more appropriate to link dividend growth to inflation rather than target a specific rate. Subject to shareholders approving the proposed revised investment objective and policy, the Board proposes that the Company's dividend policy will be to grow the annual dividend at a rate greater than inflation, as defined by the UK Consumer Prices Index, with effect from the Company's financial year beginning 1 May 2018.
Discount and Share Buy-backs
The Board believes that the planned reduction in the level of unquoted investments in the Company's portfolio should have a positive impact on the Company's discount (20.1% based on the net asset value (cum-income) per share as at 9 April 2018). However, the Board also believes that sustained improved investment performance will have, ultimately, the most significant effect on narrowing the discount.
The Board continues to believe that a formal and concerted programme of buying-back shares disadvantages shareholders by reducing the size of the Company and the secondary market liquidity in the Company's shares and increasing the percentage of the portfolio in unquoted investments. However, the Board will continue to buy-back shares on a tactical basis to address any imbalances between supply and demand.
Continuation Resolutions and Liquidity Events
Feedback from the recent investor meetings was that voting against the continuation of the Company could potentially reduce value for shareholders in view of the current exposure to unquoted investments. A number of investors also expressed a desire for the Company to offer regular liquidity events, providing shareholders with opportunities to realise at least part of their investment. In view of this, the Board is proposing to replace the continuation resolution due to be proposed at this year's annual general meeting (and every fifth annual general meeting thereafter) with regular tender offers.
The tender offers will be made every three years, commencing in 2021, with each tender offer being for up to 25% of the Company's issued share capital (excluding treasury shares). The tender price will be the net asset value (cum-income) per share of the Company less the costs of the relevant tender offer and less a discount of 3% unless the Board elects to use a realisation pool. The Board may elect at its sole discretion to use a realisation pool with a view to protecting the cash value to be returned to shareholders participating in the tender offer, while at the same time protecting the net asset value per share of continuing shareholders. If the Board elects to use a realisation pool, assets (less the relevant tender offer costs and less a discount of 3%) will be allocated (on a pro rata basis) to the realisation pool, and those assets will be realised in an orderly manner with the tender price calculated by reference to the net realised proceeds of that pool.
Management and Performance Fees
The Investment Manager is currently entitled to a management fee of 0.75% per annum of the average monthly market capitalisation of the Company. With effect from 1 May 2018, the Board and Investment Manager have agreed to a tiering basis to the management fee so that the existing management fee of 0.75% per annum will only apply to the first £250 million of the average monthly market capitalisation of the Company. The balance above that and up to £500 million will be charged at a reduced rate of 0.70% per annum and the balance above £500 million charged at a further reduced rate of 0.65% per annum.
In addition, the Board and Investment Manager have agreed to remove the existing performance fee arrangements with effect from 1 May 2018.
- Duncan Budge Chairman T: +44 (0) 20 7399 6000
- John Dodd Artemis Fund Managers Limited T: +44 (0) 20 7399 6000
- Sue Inglis Cantor Fitzgerald Europe T: +44 (0) 20 7894 8016