Artemis Alpha Trust plc (the "Company")

Annual Financial Report for the year ended 30 April 2017

This announcement contains regulated information

Financial Highlights

Objective & Investment Policy

The objective of the Company is to achieve above average rates of total return over the longer term and to achieve a growing dividend stream. In pursuit of this objective, the Company's portfolio is actively managed by the Investment Manager and comprises largely UK equities, with selected overseas investments. The Investment Manager takes a stock-specific approach in managing the portfolio and, therefore, sector weightings are of secondary consideration. As a result of this approach the portfolio will not track any stock market index. There is no restriction on the number of investments that can be held in the portfolio.

The Company also invests in unquoted companies. The Investment Management Agreement provides that at the time of investment the aggregate value of these investments shall represent no more than 30% of net assets. For the purpose of measuring this, unquoted investments will be measured by the lower of their cost or current valuation.

In addition, the Company can invest up to 30% of its net assets in hedge funds and/or other unregulated collective investment schemes. The Company had no investments in hedge funds or unregulated collective investment schemes during the year. The Company will not invest more than 15% of its gross assets in other investment companies listed on the main market of the London Stock Exchange.

* The date when Artemis was appointed as Investment Manager - Source: Artemis/Datastream

Strategic Report - Chairman's Statement

Performance

In the year to 30 April your Company's net asset value per share rose by 20.9% and its share price by 26.7% compared with an increase in the FTSE All-Share Index of 20.1% (on a total return basis). The performance during the second half of the year was particularly strong with an increase of 17.6% in the net asset value.

Both the unquoted and quoted portions of the portfolio added value over the year, the unquoted holdings increasing by 10.9% while the quoted holdings increased by 22.8%.

I am pleased to be able to report this improvement in recent performance. After a period of outstanding returns achieved when Artemis was originally appointed as Investment Manager, the performance over the last three and five years in particular has been disappointing for reasons that have been well documented. The Board is acutely aware of the need for performance markedly and consistently to be improved in order to regain the confidence of our shareholders, many of whom have been long-term and patient supporters of the fund managers and their distinctive approach.

Discount and share buybacks

Despite a slight narrowing of the discount from 22.4% at the start of the year to 18.5% at the end, we remain concerned at the absolute level of the discount. Although the planned reduction in the level of unquoted investments should contribute to a narrowing of the discount, we believe that only improved performance ultimately will reduce this significantly. As I explained last year, for a company of our size, a formal and concerted programme of buying back shares disadvantages shareholders by reducing the size of the Company and the liquidity of its shares, and by increasing the proportion of the assets held in unquoted investments.

We will, however, continue to buy back shares on a tactical basis to address any imbalances between supply and demand. During the year the Company bought back just over a million shares, representing 2.5% of those in issue at the start of the year, at an average discount of 24.3% and a cost of £2.4m. There have been occasions this year when price-sensitive developments affecting our larger unquoted investments have prevented us from buying back shares.

Continuation vote

The Board and Investment Manager are highly aware of the continuation vote which is to be put to shareholders at next year's AGM, in the autumn of 2018. We recognise our responsibilities to shareholders and will be consulting them over the course of the next few months, as we did last year.

Quoted investments

As I reported in October, the Company's quoted holdings in real estate and financial companies underperformed following the Brexit vote. In the last six months of the year, however, they recovered strongly.

Our largest exposure to any particular sector is to financial companies which account for 37.5% of the portfolio. These are mainly fund management companies and specialist lenders (rather than banks) which are mostly quoted but also include some unquoted companies. The performance of Liontrust Asset Management and Polar Capital, two of our largest holdings, made a positive contribution to our returns during the year. This is an area where our fund managers have particular insights and experience resulting from their involvement in Artemis' highly successful fund management business. Our fund managers are able to draw on the expertise of the other investment teams at Artemis in this as well as other areas and sectors.

A quarter of the portfolio is now invested in large or medium cap companies which our fund managers believe represent sound investment opportunities as individual stocks, mostly as a result of perceived undervaluation. Although these choices are not driven by the desire for income they have been partly responsible for an increase in income over the year.

Unquoted investments

In last year's annual report, we stated our intention to reduce the Company's exposure to unquoted investments to below 10% before the continuation vote due to be held in the autumn of 2018. As at 30 April 2017, on a valuation basis, the Company's exposure to unquoted investments stood at 25.2%, down from 27.3% at the previous year end. The overall value of these holdings increased from £36.7m to £38.3m, as positive developments prompted upward revisions to the valuations of URICA, Metapack, Gundaline, Retail Money Market, N+1 Singer and Oxford Sciences Innovation. There was, however, a fall in the valuation of Starcount, following a fundraising at a price lower than the Company's carrying value.

There were two full realisations over the period, of Equus Petroleum and Infusion 2002. As reported at the interim stage, there was also one significant partial realisation: Oxford Nanopore Technologies. In total, these realisations raised £4.3m, in line with the carrying value and compared to a cost of £1.9m.

The Board and Investment Manager remain committed to reducing the Company's exposure to unquoted investments and will actively seek realisations at valuations the Investment Manager considers fair and in the best interests of shareholders.

Earnings and dividends

Revenue earnings for the year were 6.31p per share, an increase of 32% on the previous year (2016: 4.75p). This significant jump was due to the higher level of income from the portfolio and, in particular, large increases from some of the financial holdings. The Company's policy is to seek to increase the dividend by around 10% each year. In line with this target, a second interim dividend of 2.75p (2016: 2.50p) per share has been declared by the Board. The Company's interim dividends for the year total 4.30p per share (2016: 3.90p), an increase of 10%.

Given the substantial increase in net revenue from last year, the Board has decided to declare a special dividend of 2.00p per share. This is due to the exceptional level of income received this year from a number of investments and is also required to satisfy the investment trust rules. This means that total dividends for the year will be 6.30p per share, an increase of 62% over the 2016 payment.

Both the second interim and special dividends will be paid on Friday 25 August 2017 to shareholders on the register as at Friday 28 July 2017, with an ex-dividend date of Thursday 27 July 2017.

Board changes

I am very pleased to welcome Jamie Korner as a non-executive director with effect from 6 April 2017. He has extensive experience of markets and investment management having managed funds at both M&G and Newton and he will be a valuable addition to the Board.

Annual General Meeting

The Company's AGM will take place on Thursday, 5 October 2017 at 12.30 pm at a different venue this year, due to renovations at the office of the Investment Manager. It will be held at The Science Room, The Royal Society of Chemistry, Burlington House, Piccadilly, London W1J 0BA. The fund managers, John Dodd and Adrian Paterson, will make a short presentation at the meeting. The Board would welcome your attendance as it provides shareholders with an opportunity to learn more about the Company and to question both the Board and the fund managers. Light refreshments will follow the meeting. For those shareholders who are unable to attend, I would encourage you to make use of your proxy votes by completing and returning the form enclosed with this report.

Outlook

During the period under review, stock markets have had to cope with an extraordinary succession of unexpected events: Britain's decision to leave the EU, the election of President Trump and the U.K. general election. Inevitably these events have had implications for your Company and its investee companies, as well as for currencies and markets generally. However, we follow a stock-specific investment policy which, while having regard to markets, does not claim to derive returns from predicting economic or political events.

The uncertainty surrounding the Brexit negotiations and the results of the general election are likely to contribute to unsettled conditions for at least the next couple of years. Against this background the Board and the Investment Manager will concentrate on continuing to deliver improved returns for shareholders by seeking out opportunities which offer the prospect of good returns despite those uncertainties.

Duncan Budge

Chairman

20 July 2017

Investment Manager's Review

As shareholders know, the Company has a very broad investment remit and is not restricted by sector or market cap limits. This suits the fund managers' investment approach which is to invest on a stock specific bottom-up basis. In recent years it has principally focused on UK companies and had significant exposure to small cap including AIM and unquoted investments. These are areas which are well suited to the closed-end structure of the Company which allows the Investment Manager to invest over the longer term. Whilst investments in these areas will continue to feature in the portfolio, the unconstrained remit will inevitably see investments being made in other areas where we have identified good opportunities. This does mean that the portfolio bears little resemblance to the stock and sector weightings of the FTSE All-Share Index. As indicated in the Chairman's Statement we have increased our exposure to large caps during the year.

We continue to believe that this investment flexibility differentiates the Company from other trusts and will produce good returns for investors over time. It is pleasing to report an improvement in performance for the period under review.

Performance

During the year under review, the Company's net asset value rose by 20.9% on a total return basis, versus a rise of 20.1% in the FTSE All-Share Index.

There was a significant improvement in performance in the second half of the Company's financial year. That was particularly the case in the listed portfolio, where share prices recovered from the post Brexit uncertainty. As discussed in the Chairman's statement, the unquoted part of the portfolio also made a positive contribution.

The Company's share price rose by more than its net asset value over the year. We believe this reflects both the improvement in performance of the portfolio and a general narrowing of discounts across the investment trust sector as markets have risen.

The contribution from listed investments and unquoted investments can be seen below.

Portfolio Review

The five largest stock contributors and detractors, along with an industry contribution analysis, are summarised in the tables below.

Five largest stock contributors

Five largest stock detractors

Industry contribution

By industry, the largest contribution came from the Company's holdings in the financial services sector. There was also a strong recovery in some of the oil and gas holdings. Weakness at a sector level tended to be as a result of stock-specific issues.

Listed investments

In the listed portfolio, the biggest positive contribution came from Hurricane Energy. This has been a longstanding investment for the Company. Initially bought as an unquoted investment, it floated on AIM in February 2014. After struggling for several years to raise the capital it needed to drill test wells to the west of Shetland, it finally raised sufficient money (primarily from a specialist oil investor) earlier in the financial year. The result was a highly successful drilling campaign that enabled Hurricane substantially to increase its estimated reserves to more than one billion barrels of oil to bring the field into production. Subsequent to the year end the company raised $520m to fund the next stage of the development of its Lancaster field.

Amid generally strong performance from the Company's financial holdings, the standout performer was Liontrust. Its funds continue to perform well which, coupled with helpful stock markets and its strong distribution capabilities, meant it was able to increase its funds under management. Its acquisition of Alliance Trust Investments brought £2.3bn of assets and a highly regarded investment team with a long-term pedigree. The acquisition increased the group's assets under management to £8bn; by the end of March 2017 this had grown to £9bn. It has also had the effect of diversifying Liontrust's product range and improving the quality of its earnings. Despite the strong performance in Liontrust's shares since the deal was announced, it still trades at a discount to its peers. We feel this is unjustified and so retain a holding.

Another longstanding holding in the fund management sector was Polar Capital Holdings. After a couple of lean years, the successful launch of a new UK equity product and the announcement of a new chief executive with a formidable reputation, Gavin Rachussen (formerly of J O Hambro), saw its shares make a strong recovery. Polar Capital has been suffering from net outflows over the last couple of years but we are hopeful that Mr Rachussen will turn the business around.

Elsewhere, aircraft-leasing business Avation performed strongly. It sold a number of its aircraft at a premium to book value at a time when the stock market was valuing its portfolio at a discount to net asset value. The sale of these aircraft has helped to narrow the discount between Avation's share price and its value on a sum-of-parts basis. We believe this re-rating can continue.

Meanwhile, many of the UK domestic shares that performed poorly following the Brexit referendum - such as Helical, St. Modwen Properties and Telford Homes - recovered strongly in the second half of the Company's financial year. In many cases, the shares have rebounded to levels that are higher than they were before the referendum. The portfolio also benefited from a bid for Market Tech Holdings, the Camden-based property developer, from its founder Teddy Sagi.

On the negative side, Gaming Realms, a mobile gaming company, continued to struggle. We have been reducing our holding. Redcentric was hit by accounting irregularities although we had largely exited our position before the problem was discovered.

Elsewhere, GLI Finance, the owner of a number of online lending platforms, continued to perform poorly. The shares are trading at a substantial discount to the net asset value so we are inclined to hold on at this time. Another disappointment was Vectura Group. After completing the takeover of Skyepharma, there were a number of disappointments in its drug pipeline. That we were already selling down the position, however, helped to mitigate the impact.

Unquoted investments

Overall, the performance from the Company's unquoted holdings was much stronger compared to the previous year. Their overall value increased by almost 11%, with total realisations exceeding £4m.

The strongest performance came from URICA, which provides SMEs with early settlement of their invoices in real time through its online platform. Following initial funding from the UK Government (via the Business Finance Partnership) in collaboration with other credit providers it has now expanded its business from the UK to include France. To fund this growth, URICA raised further capital in April, a small part of which the Company provided. The resulting uplift in valuation added around 2.5% to the Company's net asset value.

Elsewhere, Metapack, the dominant provider of fulfilment software services to online retailers in the UK and Europe, continued to perform strongly: its sales grew by 20%. The business is forecast to become increasingly profitable in the financial year to March 2018. Other strong performers included Gundaline, an Australian farming business, the value of whose water rights has increased and N+1 Singer, a small-cap London broker.

Two other investments raised new equity at valuations above the Company's previous carrying values. The first was Oxford Sciences Innovation, a business created to work with Oxford University to commercialise its intellectual property assets. The second was Retail Money Market, one of the UK's leading peer-to-peer lenders. Both businesses are now well funded and their carrying values reflect the uplifts achieved in these recent funding rounds.

On the negative side, we had to write down the carrying value of the Company's holding in Starcount Group after a heavily discounted fundraising. The underlying position and momentum in the business, however, is improving. It has been engaged by two new major blue-chip clients and these contracts are generating revenues as planned.

We continued our efforts to reduce the Company's overall exposure to unquoted holdings by selling out of Equus Petroleum and Infusion 2002. There was also a partial realisation of our holding in Oxford Nanopore Technologies.

Portfolio themes and transactions

The Company's largest sector exposure remains financials, which account for 37.5% of its total assets. We do not invest, however, in banks, preferring fund managers, wealth managers and specialist lenders. Although these investments have, in general, been made for stock-specific reasons, rising equity markets and a stronger than expected economy have certainly been helpful. Nonetheless, we continue to see value in this part of the market.

One aspect that we should highlight is that a quarter of the portfolio is now invested in large- and mid-caps. These holdings are all interesting on a stock level but they also help to increase the liquidity and flexibility of the portfolio. We have, meanwhile, drawn on the knowledge of Artemis' other investment teams to make a selected number of investments. Examples include Rocket Internet, a German 'incubator' of internet businesses, and Nintendo, a Japanese manufacturer of games consoles.

New investments over the year included Bovis Homes. A profits warning and the subsequent departure of its chief executive allowed us to pick up its shares at a substantial discount to its peers. This came in addition to other holdings in the sector including M J Gleeson, a house-builder focused on northern England, and Telford Homes (although we sold this down following a strong run). We continued to add to our property holdings in the weakness that followed the Brexit vote, particularly St. Modwen Properties and Helical.

We also participated in the IPO market, buying shares in Ramsdens Holdings, a Middlesbrough-based pawnbroker and travel money broker now expanding nationwide. We also subscribed to an offering by FreeAgent Holdings, which provides (cloud-based) accounting software to small businesses. Shares in both have performed well since their listings.

Other deals we participated in included the restructuring of IGas Energy, an onshore oil and gas company. The company has substantial fracking coverage that is ascribed no value by the stock market despite much of the company's costs being carried by Total and INEOS on its substantial work programme. Lastly we bought Attraqt, which provides search and merchandising solutions to online retailers in the UK and US.

On the sell side, we sold our holdings in BP and Dalata Hotel Group. We also took profits in a number of long-term holdings such as Brewin Dolphin, Telford Homes and Vectura Group. We locked in profits made on Booker Group after Tesco announced its intention to buy it (subject to approval from the competition authorities).

We sold a number of smaller holdings from the tail of the portfolio during the year, predominately those that had become very small in size. No new investments were made in unquoted other than some small follow-on investments into existing holdings.

Investment strategy

The strategy remains the same. On the Company's behalf, we invest in a range of companies, predominantly in the UK but also drawing on the global expertise of Artemis' wider investment team where necessary. We have made progress in reducing the overall percentage of the portfolio accounted for by unquoted holdings. Although we are committed to making further disposals in this area in the year ahead, we still believe that the potential of many of these investments is exciting and will look to exit where these meet our valuation assessment.

Outlook

As investors have attempted to anticipate what the recent general election and its aftermath might mean for Brexit and, by extension, the UK economy, politics is exercising a greater influence than usual over the UK market. As the prospect of a comfortable majority for the Conservatives faded and vanished, Sterling fell. Dovish comments from the Bank of England's Mark Carney added to the downward pressure on the pound. As overseas earners, the mega caps of the FTSE 100 Index have been beneficiaries of this weakness. But returns from small- and mid-caps, which tend to be domestic earners - and which dominate the Company's portfolio - have been more modest.

In broad terms, the election has made it more likely that there will be some form of 'transitional' deal for the UK after the two-year negotiating period with the EU comes to an end in March 2019. This reduces the risk of a 'no deal' or 'hard' Brexit. A further positive for the economy is that inflation should start to drop, helped by progressively easier year-on-year comparisons for the oil price. This, in turn, should reduce the squeeze on the real incomes of consumers. That ought to help stocks with a domestic focus. At the same time, the UK market's overseas earners, most of which are large caps, have benefited from strong earnings momentum because of Sterling's fall since the referendum. A weak pound has, in some cases, masked weak underlying performance. These companies could be exposed once support from the currency fades. There are reasons to hope that the Company's bias to small caps - and away from mega caps - won't remain a handicap for much longer.

We are, however, stock-pickers rather than political commentators or currency traders. That politics and other macro matters continue to exercise so much influence over the market is frustrating. But history suggests that it won't last: in time, underlying company fundamentals always prevail. So our focus remains on monitoring the Company's existing holdings and seeking new opportunities.

John Dodd and Adrian Paterson

Fund managers

Artemis Fund Managers Limited

20 July 2017

Corporate strategy & policy

The Company is incorporated in England. Its business as an investment trust is to buy and sell investments with the aim of achieving the objective and in accordance with the policy outlined above.

Gearing

The Company uses gearing as part of its investment strategy. The Articles of Association (the "Articles") permit the Company to borrow up to 25% of its adjusted capital and reserves. Subject to this being complied with, the level of borrowing is a matter for the Board, whilst the utilisation of borrowings is delegated to the Investment Manager. This utilisation may be subject to specific guidelines established by the Board from time to time. The current guidelines permit the Investment Manager to employ borrowings of up to 20% of net assets. The Company has a £30.0m borrowing facility with The Royal Bank of Scotland plc, of which £13.0m (2016: £8.5m) was drawn down at the year end. The use of gearing by the Investment Manager will vary from time to time, reflecting its views on the potential returns from stock markets. The Company's gearing is reviewed by the Board and Investment Manager on an ongoing basis.

Operating environment

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

The Company has been approved as an investment trust in accordance with the requirements of section 1158 of the Corporation Taxes Act 2010 which remains subject to the Company continuing to meet the eligibility conditions and ongoing requirements of the regulations. The Board will manage the Company so as to continue to meet these conditions.

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

Current & future developments

A summary of the Company's developments during the year ended 30 April 2017, together with its prospects for the future, is set out in the Chairman's Statement and Investment Manager's Review above. The Board's principal focus is the delivery of positive long-term returns for shareholders and this will be dependent on the success of the investment strategy. The investment strategy, and factors that may have an influence on it, such as economic and stock market conditions, are discussed regularly by the Board and the Investment Manager. The Board regularly considers the ongoing development and strategic direction of the Company, including its promotion and the effectiveness of communication with shareholders.

Key Performance Indicators ("KPIs")

The performance of the Company is reviewed regularly by the Board and it uses a number of KPIs to assess the Company's success in meeting its objective. The KPIs which have been established for this purpose are:

Discrete annual total returns

Source: Artemis/Datastream

Dividends per ordinary share

* Includes special dividend of 2.00p

Ongoing charges as a proportion of shareholders' funds (excluding performance fees)

In addition to the above KPIs, the Board monitors the discount to the underlying net asset value at which the shares trade. No specific discount target has been set, but the Board sets the policy and has given the Investment Manager discretion to exercise the Company's authority to buy-back its own shares from time to time to address any imbalances between the supply and demand in the Company's shares. This is reviewed regularly by the Board. The Board will also use its authority to issue new ordinary shares from time to time should there be excess demand for the Company's shares.

Principal risks and risk management

The Board, in conjunction with the Investment Manager, has developed a risk map which sets out the principal risks faced by the Company. It is used to monitor these risks and to review the effectiveness of the controls established to mitigate them. Further information on the Company's internal controls is set out in the corporate governance section of the Annual Report. As an investment company the main risks relate to the nature of the individual investments and the investment activities generally. These include market price risk, foreign currency risk, interest rate risk, credit risk and liquidity risk.

A summary of the key areas of risk is set out below:

—        Strategic: investment objective and policy are not appropriate in the current market and not favoured by investors.

          The investment objective and policy of the Company is set by the Board and is subject to ongoing review and monitoring in conjunction with the Investment Manager. This includes the views expressed by the Company's shareholders.

—        Investment: the Company's investments are selected on their individual merits and the performance of the portfolio is not likely to track the wider UK market (FTSE All-Share Index). The Company invests in small cap (listed), AIM traded and unquoted investments which can be subject to a higher degree of risk than larger quoted investments. The Company may also have significant exposure to particular industry sectors from time to time. 

          The Board considers that this risk is justified by the longer term nature of the investment objective and the Company's closed-ended structure, and that such investments should be a source of positive returns for shareholders. Risk will be diversified through having a broad range of investments in the portfolio. The Board discusses the investment portfolio with the Investment Manager at each Board meeting and part of this discussion includes a detailed review of the Company's unquoted investments, their valuations and future prospects.

          The Company may borrow money for investment purposes. If the investments fall in value, any borrowings will magnify the extent of the losses. If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings.

          All borrowing arrangements entered into require the prior approval of the Board and gearing levels are regularly discussed by the Board and Investment Manager.

—        Regulatory: failure to comply with the requirements of a framework of regulation and legislation, within which the Company operates.

          The Company relies on the services of the Company Secretary and Investment Manager to monitor ongoing compliance with relevant regulations and legislation.

—        Operational: disruption to, or failure of, the Investment Manager's and/or any other third party service providers' systems which could result in an inability to report accurately and monitor the Company's financial position.

          Both the Investment Manager and the Administrator have established business continuity plans to facilitate continued operation in the event of a major service disruption or disaster.

Other matters

Viability Statement

In accordance with the UK Corporate Governance Code, the Board has considered the longer term prospects for the Company. The period assessed is the five years to 30 April 2022. During this period the Board is required to put forward an ordinary resolution for the continuation of the Company for a further five years, with the next vote due to take place at the annual general meeting to be held in October 2018. The Board believes that a review to this date would be too short to be meaningful for shareholders and has considered a five year period to be appropriate.

As part of its assessment of the viability of the Company, the Board has considered each of the principal risks and the impact on the Company's portfolio of a significant fall in UK 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 conclusion of this review is that 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 2022, subject to shareholders approving the continuation of the Company at the annual general meeting in 2018.

Life of the Company

The Company's Articles provide that, at the AGM to be held in 2018 and at every fifth AGM thereafter, a vote on whether the Company should continue in existence as an investment trust will be proposed as an ordinary resolution.

Share capital

Shareholders authorised the Company to buy back up to 14.99% of the shares in issue at last year's AGM. This has been used to manage the balance between supply and demand for the Company's shares in the market.

During the year the Company repurchased a total of 1,040,706 ordinary shares, representing 2.5% of the issued share capital as at 1 May 2016 (2016: 676,000). The Company has repurchased a further 152,500 ordinary shares since the year end.

A resolution to renew the Company's buy-back authority will be put to shareholders at the AGM on 5 October 2017.

3,539 ordinary shares were issued during the year as a result of the exercise of subscription shares (2016: 265).

Directors

The Directors of the Company and their biographical details are set out in the Annual Financial Report.

No Director has a contract of service with the Company.

The Board supports the principles of diversity in the boardroom and acknowledges the benefits of having greater diversity, including gender, and considers this in seeking to ensure that the overall balance of skills and knowledge that the Board has remains appropriate so that it can continue to operate effectively. The Board's director selection policy will, first and foremost, seek to identify the person best qualified to become a director of the Company, but in so doing, consideration will be given to diversity, including gender. The Board is currently comprised of four male directors and one female director.

Modern Slavery Act 2015

The Company does not fall within the scope of the Modern Slavery Act 2015 as its turnover is less than £35.0m. Therefore no slavery and human trafficking statement is included in the Annual Financial Report.

Social and environmental matters

The Company has no employees and has delegated the management of the Company's investments to Artemis which, in its capacity as Investment Manager, has a Corporate Governance and Shareholder Engagement document which sets out a number of principles that are intended to be considered in the context of its responsibility to manage investments in the financial interests of shareholders. Artemis undertakes extensive evaluation and engagement with company managements 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.

As the Company has delegated the investment management and administration of the Company to third party service providers, and has no fixed premises, there are no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013, including those within the underlying investment portfolio.

Leverage

Leverage is defined in the Alternative Investment Fund Manager Directive ("AIFMD") as any method by which the Company can increase its exposure by borrowing cash or securities, or from leverage that is embedded in derivative positions. The Company is permitted by its Articles to borrow up to 25% of its net assets (equivalent to 125% under the commitment and gross ratios in the AIFMD). The Company is permitted to have additional leverage of up to 100% of its net assets, which results in permitted total leverage of 225% under both ratios. Artemis as the Alternative Investment Fund Manager ("AIFM"), monitors leverage limits on a daily basis and reviews them annually. No changes have been made to these limits during the period. At 30 April 2017, the Company's leverage was 107.0% as determined using the gross method and 108.7% under the commitment method.

The Investment Manager requires prior Board approval to:

(i)         enter into any stocklending agreements;

(ii)         to borrow money against the security of the Company's investment;, or

(iii)        create any charges over any of the Company's investments.

For and on behalf of the Board,

Duncan Budge

Chairman

20 July 2017

Statement of Directors' Responsibilities in respect of the Annual Financial Report

The Directors are responsible for preparing the Annual Financial 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 IFRS as adopted by the EU and applicable law.

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 IFRS as adopted by the EU; and

—        prepare the financial statements on the 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 complies 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.

We confirm that to the best of our knowledge:

(a)      the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities and financial position of the Company as at 30 April 2017, and of the profit or loss of the Company for the year then ended; and

(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.

For and on behalf of the Board

Duncan Budge

Chairman

20 July 2017

Statement of Comprehensive Income

For the year ended 30 April 2017

The total column of this statement represents the Statement of Comprehensive Income of the Company, prepared in accordance with International Financial Reporting Standards. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies.

All items in the above statement derive from continuing operations.

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

Statement of Financial Position         

As at 30 April 2017

These financial statements were approved by the Board of Directors and signed on its behalf on 20 July 2017 by:

Duncan Budge

Chairman

Statement of Changes in Equity         

For the year ended 30 April 2017

Statement of Cash Flows

For the year ended 30 April 2017

Notes to the Financial Statements

1. Accounting policies

(a) Basis of preparation. The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The principal accounting policies adopted by the Company are set out below.

Where presentational guidance set out in the Statement of Recommended Practice ("SORP") for investment trusts and venture capital trusts issued by the Association of Investment Companies ("AIC") in November 2014 and updated in January 2017 is consistent with the requirements of IFRS, the financial statements have been prepared in accordance with the SORP.

The financial statements have been prepared applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IFRS 28) which was adopted by the European Union for account periods commencing on or after 1 January 2016.

This amendment removes the requirement to consolidate subsidiaries, where these subsidiaries can themselves be classified as investment entities in their own right and instead the subsidiary is treated as an investment at fair value through profit or loss. As the Company's dealing subsidiary, Alpha Securities Trading Limited, meets the criteria to be treated as an investment entity, the Company is now required to prepare its financial statements on a stand alone basis.

There is no impact on the net asset value per ordinary share resulting from this change, nor on the total earnings per ordinary share for the current or prior periods.

The accounting policies which follow set out those policies which apply in preparing the financial statements for the year ended 30 April 2017.

The financial statements are presented in Sterling, which is the currency of the primary environment in which the Company operates. All values are rounded to the nearest thousand pounds (£'000) except where otherwise indicated.

A number of estimates and judgements have been made in the preparation of the financial statements. These are reviewed regularly by the Board and Investment Manager. The most significant judgement is the valuation of unquoted investments.

2. Income

*   All investments are designated at fair value through profit or loss on initial recognition, therefore all investment income arises on investments at fair value through profit or loss.

3. Investment management and performance fees

As at 30 April 2017, £69,000 was outstanding in respect of amounts due to the Investment Manager (2016: £235,000). As the performance of the Company's share price did not meet the criteria required for the payment of a performance fee, no payment has been made (2016: nil).

4. Dividends paid and proposed

Set out below are the total dividends recognised in respect of the financial year ended 30 April 2017.

Dividends are recognised in the period in which they are due to be paid and are shown through the Statement of Changes in Equity. Therefore, the Statement of Changes in Equity for the year ended 30 April 2017 reflects the second interim dividend for the year ended 30 April 2016 which was paid on 19 August 2016. For the year ended 30 April 2017, a first interim dividend of 1.55p has been paid on 27 January 2017 and a second interim dividend of 2.75p together with a special dividend of 2.00p will be paid on 25 August 2017.

Set out below are the total dividends paid/payable in respect of the financial year ended 30 April 2017.

5. Earnings per share

The revenue earnings per ordinary share is based on the revenue profit for the year of £2,615,000 (2016: £2,029,000) and on 41,443,082 (2016: 42,694,142) ordinary shares, being the weighted average number of ordinary shares in issue during the year.

The capital return per ordinary share is based on the capital return for the year of £23,498,000 (2016: capital loss £10,713,000) and on 41,443,082 (2016: 42,694,142) ordinary shares, being the weighted average number of ordinary shares in issue during the year.

There was no dilution to the returns for the year ended 30 April 2017 (2016: none) relating to the Company's issued subscription shares.

6. Share capital

(a) Share capital

(b) Ordinary shares

The movements in ordinary shares held in treasury during the year are as follows:

During the year ended 30 April 2017, a total of 1,040,706 ordinary shares were repurchased by the Company at a total cost, including transaction costs, of £2,376,000 for placement in treasury (2016: 676,000 ordinary shares were repurchased for placement in treasury for £1,576,000).

(c) Subscription shares

The movements in subscription shares during the year are as follows:

During the year, holders of 3,539 (2016: 265) subscription shares exercised their rights to covert those shares into ordinary shares at a price of 345 pence per ordinary share, giving a total consideration received of £12,000 (2016: £1,000).

Holders of the remaining subscription shares may exercise their right to convert those shares into ordinary shares at a price of 345 pence per ordinary share as at the close of business on 31 December 2017, whereupon rights under the subscription shares will lapse.

7. Net asset value per ordinary share

The net asset value per share is based on the net assets of £150,003,000 (2016: £127,941,000) and on 41,127,975 (2016: 42,165,142) ordinary shares, being the number of ordinary shares in issue at the year end.

The diluted net asset value per share has been calculated on the assumption that 6,859,138 (2016: nil) subscription shares were exercised (as the undiluted asset value is higher than the exercise price of 345 pence) resulting in a total of ordinary shares in issue of 47,987,113 (2016: 42,165,142).

8. Transactions with the Investment Manager and related parties

The amounts paid to the Investment Manager and amounts outstanding at the year end are disclosed in Note 3.  However, the existence of an independent Board of Directors demonstrates that the Company is free to pursue its own financial and operating policies and therefore, under IAS 24: Related Party Disclosures, the Investment Manager is not considered to be a related party.

The Company surrendered excess management expenses without payment to Alpha Securities Trading Limited of £445,000 (2016: £nil). All other transactions with subsidiary undertakings were on an arms length basis. During the year transactions in securities between the Company and its subsidiary undertakings amounted to £nil (2016: £nil). During the year the Company paid its subsidiary undertaking interest on the intercompany loan amounting to £nil (2016: £7,000). 

This Annual Financial Report announcement does not constitute the Company's statutory accounts for the years ended 30 April 2017 and 30 April 2016 but is derived from those accounts. Statutory accounts for the year ended 30 April 2016 have been delivered to the Registrar of Companies.  The statutory accounts for the year ended 30 April 2017 and the year ended 30 April 2016 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 2017 have not yet been delivered to the Registrar of Companies and will be delivered following the Annual General Meeting.

The audited Annual Financial Report for the year ended 30 April 2017 will be available to shareholders shortly. Copies may be obtained from the Company's registered office at Cassini House, 57 St James's Street, London SW1A 1LD or at the website at artemisalphatrust.co.uk.

The Annual General Meeting of the Company will be held on Thursday, 5 October 2017 at 12.30 pm.

For further information, please contact:

Artemis Fund Managers Limited

Company Secretary

Telephone: 0131 225 7300

20 July 2017