Strong returns in 2013 & new capital reduction and dividend policy
BAAR, Switzerland--(BUSINESS WIRE)--
Strong returns in 2013 & new capital reduction and dividend policy
- Share price up +24.65%1 and NAV increase of +10.17%2 in 2013
- Investment mandate more than accomplished in 2013 but share price discount remains unsatisfactory
- Board adopts new capital reduction policy
Baar, 15 January 2014 – After reviewing the company's 2013 returns, the Board of Directors of ALTIN AG (SIX: ALTN, LSE: AIA), the Swiss alternative investment company listed on the London and Swiss stock exchanges, has decided to link its capital reduction policy directly to share price performance. When share price appreciation is satisfactory, the Board considers that indiscriminate capital reductions are not in the best long-term interests of the majority of shareholders and of the company. In the future and so long as the discount does not narrow significantly, capital will be returned to compensate investors when share price performance falls below a 10% to 12% target. Such capital reductions will be conducted exclusively through the repurchase of own shares. The Board will no longer propose capital distributions in the form of tax-free dividends out of the share premium account in future.
Strong performance in 2013
In 2013 ALTIN more than accomplished its investment mandate, both in terms of NAV appreciation and especially in terms of share price increase. The NAV increased by +10.17%2, ahead of peers and industry benchmarks, as investment decisions taken over the last 18 months added close to 3% to the 2013 performance. Despite a modest increase in leverage, ALTIN has maintained a relatively contained beta to equity markets, which should provide adequate downside protection in case of a correction in risk assets. More importantly, ALTIN's share price rose by +24.65%1, fuelled by a partial closing of the discount and, to a lesser extent, by the two capital reductions that were undertaken in 2013. Firstly, the company paid a 4% dividend in the form of a tax-free return from the share premium account and secondly, in September, it bought back a further 10% of its capital through an innovative put option strategy. 2013 has also been a successful year from a corporate governance standpoint, as the company appointed Roger Rüegg as a new independent non-executive director and Tony Morrongiello to a newly created position as the CEO of the company.
Unsatisfactory results of discount reduction measures
Despite these good returns and the measures put in place in 2013, the discount to net asset value remains at an unsatisfactory level (around 23% at year-end). As a consequence, the Board has convened to determine a coherent discount management strategy that genuinely serves the best interests of the company and all its long-term investors. An analysis of NAV and share price evolution since the company's inception in 1996 shows that ALTIN's level of discount to NAV is cyclical and is essentially driven by performance and by general market appetite for alternative strategies. The Board has reviewed the measures implemented in 2013 by ALTIN and by its peers and has concluded that capital reduction strategies have had only modest success in narrowing the discount to NAV. While the Board takes very seriously into consideration requests from some investors that demand a continuation of vigorous capital reduction measures, the Board is concerned that an open-ended commitment to buying back capital will inevitably have a longer term detrimental impact on returns, by increasing the total expense ratio of the company and by reducing liquidity in the shares.
Focus on share price performance
Ultimately, the key element for investors is the share price performance over the medium-term. As repeatedly reducing capital is detrimental to their long-term interests and ultimately guts the company of its substance, the Board has concluded that further capital reductions will be far more effective if used as a mechanism to compensate investors during periods of lower share price appreciation, rather than as an indiscriminate discount reduction instrument.
Based on the +6.4% annualised return on its investment portfolio over its 17-year track record and until the discount narrows significantly, the Board considers that ALTIN investors are entitled to a share price increase of 10% to 12% on an annualised basis, in all but the most adverse market environments. As a consequence, as long as the share price increase meets this explicit target, no capital reduction should be expected. On the other hand, should the share price fail to meet this share price return objective, the Board intends to initiate further capital reductions via the issuance of put options or second line share buybacks. By boosting share price performance and transferring intrinsic value to shareholders, these capital reductions should prove to be effective compensatory measures, whilst avoiding to undermine the substance of the company, which as previously stated is detrimental to the interests of long-term investors.
New investor relations programme
The best way of closing the discount is to attract new long-term investors to the company. As a consequence, the investment manager has pledged in 2014 to renew and re-energise its investor relations programme focused, aside from the clear investment merits of the portfolio, on the Board's clear commitment to return capital to shareholders in years of share price underperformance, whilst preserving the capital base in years when performance targets are met.
Future capital reductions to be conducted through put options or second line buybacks
The Board has also concluded that the capital provided by the shareholders (nominal value and share premium account), which can be distributed tax-free, constitute the most valuable part of the capital structure and that a continuation of dividend distributions out of tax-free reserves is not in the best long-term interests of investors, especially in light of the successful capital reduction that was conducted through the issuance of put options. Future capital reductions will therefore be conducted exclusively through the repurchase of own shares either via the issuance of put options or via second line buy backs. Consequently, in 2014 the company does not intend to distribute capital in the form of a tax-free dividend/repayment of nominal value.
For further information, please contact:
Tony Morrongiello - Chief Executive Officer
José Galeano - Investor Relations Manager
Tel. +41 (0)41 760 62 60
Tel. +44 (0)20 7638 3435
Note to Editors
About ALTIN AG
ALTIN AG was launched in 1996 and is listed on the SIX Swiss Exchange as well as on the London Stock Exchange. It ranks among Switzerland’s leading alternative investment companies. Currently, ALTIN is invested in more than 40 hedge funds representing diverse investment strategies. Its objective is to generate an absolute compound annual return in USD terms with lower volatility than equity markets. Owing to these characteristics and a low correlation with equity markets, ALTIN shares provide an ideal complement for all diversified portfolios.
1 Based on SIX Swiss Exchange share price performance at year-end.
2 Estimated NAV performance as at 31 December 2013.