Alliance Trust PLC : Final Results
Alliance Trust PLC
7 March 2014
Alliance Trust PLC
Results for year to 31 December 2013
|Financial Highlights||As at 31 |
|NAV per share||516.5p||16.1%||18.4%|
|Full year dividend ||10.83p||12.5%||Including special dividend of 1.282p|
|Ongoing Charges Ratio||0.75%||+8bps|
Alliance Trust: a year of positive momentum
The highlights for the year are:
NAV Total Return of 18.4% and Total Shareholder Return of 22.7% delivered on top of double digit returns in 2012, representing the best absolute returns for three and eight years respectively. Equity portfolio generated gross returns of 21.6%, outperforming the MSCI All Country World Index
Total dividend for the year of 10.83p, an increase of 12.5% on 2012. Fourth interim dividend of 2.387p and special dividend of 1.282p to be paid on 30 June 2014. It will be paid out of current year earnings and marks the 47th consecutive year of dividend increases. The Trust has revenue reserves equivalent to 1.86 times the total dividend payment in 2013
Alliance Trust, Alliance Trust Savings and Alliance Trust Investments won respected industry awards for performance, products, customer service and transparency in reporting
Katherine Garrett-Cox, Chief Executive of Alliance Trust PLC, said:
"After five years of hard work and significant change at Alliance Trust, this year we have started to reap the rewards of that change. The equity portfolio generated a gross return of over 21% and Alliance Trust Savings is now profitable on an ongoing basis and will continue to benefit from changes brought about by the Retail Distribution Review. Moreover, Alliance Trust Investments has established itself as a leader in the sustainable investment sector. As a whole, the business has delivered capital growth and a significantly increased level of income and I am confident that all parts of the business are now better placed to be able to compete effectively in their respective markets and add long-term value to the Group.
The equity portfolio is structured to be able to deliver a combination of capital growth and a consistently rising dividend. The 12.5% increase to the dividend this year has been driven by rising income from all parts of the investment portfolio, including increased exposure to equities, income from our holding in the Monthly Income Bond Fund and a doubling of the royalty income from our legacy mineral rights in North America.
We have always been and continue to remain focused on the service we provide to all our shareholders and customers across the UK and beyond. 2014 is an important year for Scotland. The referendum in September is creating uncertainty for our customers and our business, which we have a responsibility to address. Regardless of the outcome it is critical that we are able to provide continuity of service and protection for their investments and savings. To give them full confidence, we have started work to establish additional companies registered in England, in order to provide operational flexibility and to complement our existing business in Scotland.
We know that we cannot afford to stand still, as change, be it regulatory, political or business-related, is a critical part of the world in which we operate. However, we have the people, the systems and a clear strategy in place to be able to recognise and exploit the investment opportunities that may arise, which will allow us to continue to build a dynamic and successful business for our shareholders."
For more information, please contact:
Conor McClafferty & Clare Dundas
T 020 7251 3801
Director of Investor Relations
Alliance Trust PLC
T 01382 321169
Having paid three interim dividends of 2.387p for last year, the Directors have declared a fourth interim dividend of 2.387p payable on 31 March 2014 to shareholders on the register on 21 March 2014. The ex-dividend date is 19 March 2014.
In the absence of any unforeseen developments, we expect to be able to recommend quarterly interim dividends of 2.4585p, payable on or around 30 June 2014, 30 September 2014 and 31 December 2014 and a fourth interim dividend of at least 2.4585p, payable on or around 31 March 2015.
The Directors have also declared a special dividend for last year of 1.282p per share. This dividend is payable on 30 June 2014 to shareholders on the register on 6 June 2014. The ex-dividend date is 4 June 2014.
The total dividend for the period, of 10.83p, is an increase of 12.5% on the 9.63p paid for the previous period.
Re-election of Directors
At the Annual General Meeting on 1 May 2014 all Directors are standing for re-election.
Statement from the Chair
I am delighted to present Alliance Trust's 126th Annual Report. We report on our performance for the year ended 31 December 2013. We also explain our strategy, business model and long-term priorities. Our focus is on the long-term and we have set out our ambitions for Alliance Trust in our Vision 2020, as explained in our Annual Report.
The focus of the Trust has long been to deliver a combination of capital growth and a consistently rising dividend. In the year, the total return to shareholders was 22.7%. This return ranks the Trust as median within its peer group of Global trusts over one year and the Trust is also ranked above median over three years. The NAV Total Return was 18.4%, which ranked in the third quartile, while it was ranked above median over three years. In line with our dividend policy we are declaring a fourth quarterly dividend of 2.387p and a special dividend of 1.282p, giving a total dividend for the year of 10.83p, an increase of 12.5%. This is our 47th consecutive year of dividend increases, a record matched by only a handful of other listed companies. During the year our discount narrowed significantly from 15.6% to 12.9%, driven principally by increased demand for the shares. During the year we bought back 1.485m shares, or 0.3% of the opening number of shares in issue, at a total cost of £6.7m.
2014 will see voters in Scotland going to the polls to make a decision on their future, either within or outside the United Kingdom. We recognise that regardless of the outcome we have a duty of care to our shareholders, customers and employees. The main areas likely to impact our customers and our business are:
· Jurisdiction and taxation of individual savings and pension plans
· Financial services regulation and consumer protection
· Membership of the European Union
Alliance Trust is focused on serving our shareholders and customers across the United Kingdom from our offices in Dundee, Edinburgh and London. To remove any uncertainty, we have started work to establish additional companies which will be registered in England, in order to provide operational flexibility and to complement our existing business in Scotland. This gives all our customers, regardless of their location, full confidence that we will be able to provide continuity of service and protection for their investments and savings.
We continue to focus on the creation of long-term value for shareholders through investment performance and the development of our subsidiary businesses. We will see the impact of recent regulatory change, in particular the Alternative Investment Fund Managers' Directive, which will apply to Alliance Trust along with other investment trusts from July 2014, and the Retail Distribution Review. In each case the regulators have as their objective the protection of investors and we share that concern, but regulation must also avoid imposing unnecessary costs which are ultimately borne by these same investors.
In our Annual Report, which reflects recent changes to regulation and governance best practice, we discuss all of these issues in more detail. My fellow directors and I hope you find it useful and informative. In the meantime we thank you for your continuing support of Alliance Trust.
Message from the Chief Executive
In 2013 we made steady progress across all parts of the business. This has been reflected in the increase in the NAV and share price. The NAV and share price were the highest year-end levels we have reported.
The core of the Trust is the global equity portfolio, which equates to over 94% of net assets. This produced a solid total return of 21.6%. On the revenue account, we report a 9.1% increase in profit after tax, which has allowed us to increase the total dividend payment.
Our subsidiaries, Alliance Trust Savings and Alliance Trust Investments, have continued to develop. Alliance Trust Savings now has £5.4bn of Assets under Administration and it has gained market share as our distinctive flat-fee structure has appealed to IFAs and a number of private investors who are taking control of their portfolios in the wake of the Retail Distribution Review. Alliance Trust Investments completed the integration of the Aviva sustainable and responsible investment funds and rebranded them as Alliance Trust Sustainable Future funds. We have gone on to win new institutional investors and our first segregated mandate. In addition, nine of the 11 funds were rated above median over the year, and eight of the nine with a three year track record, have similarly outperformed their peers.
In addition to our strong financial results we have been recognised for the quality of our products and the services we provide. We have won many awards for our performance, customer service, transparency, products and services.
"Investing for Generations" is more than a marketing slogan. It encapsulates our 125 year track record of creating value for shareholders and our commitment for the future. We also use "Investing for Generations" to describe our sustainability strategy, which covers not only our investment philosophy but also other ways in which we have an impact on our shareholders, customers and employees and the wider community. You can read more about this later in this statement.
We know that almost 70% of our shares are held, either directly or beneficially, by private individuals and around 90% of the clients of Alliance Trust Savings make their own investment decisions. Most of our investors are private individuals. We see our purpose as being to provide products and services that enable our shareholders and clients to create wealth and security for a stronger financial future. People will invest in us and do business with us because:
We help them achieve long-term financial security
From the conversations and correspondence we have with our shareholders, we know that stability and sustainability of capital and income returns are important factors in their decision to invest in us.
We understand their needs and deliver what we say we will
We have been investing the capital of our shareholders for over 125 years and the families of a number of our shareholders have been invested in Alliance Trust for generations. Whether we are talking to shareholders who have invested directly with us, or to customers who invest in our funds or use our platform, we do not forget who our owners are, nor the importance of professional, but personal, customer service.
We have a clear investment focus and grow wealth in a sustainable manner
Our equity portfolio consists of around 100 holdings and before an investment decision is made we undertake a rigorous research process to understand the drivers of that company's potential performance. We know that our shareholders invest in us for the long term and our investment focus is to try to match their investment horizon. We focus on identifying companies which are trading at significant discounts to their intrinsic value, and which we believe exhibit a superior or more sustainable return profile for many years to come.
We offer a 'best value', easy to use platform
Alliance Trust Savings administers a multi-award winning platform, which provides its clients with a cost-effective means of managing their portfolio. We charge a flat fee for the service, as it basically costs us the same amount to administer a portfolio of £50,000 as to administer a portfolio of £500,000. As a result our customers have greater transparency over the charges levied.
We operate in a way that will allow our shareholders and customers to trust us
Trust among private investors in financial service providers has been severely dented by some of the events of the last five years. Alliance Trust is determined to create the environment whereby investors can feel that they can trust Alliance Trust to be clear about what it will do and how it will do it. We will achieve this by being transparent in what we do and how we communicate and relate to our clients.
We are easy to do business with - we have ethical and transparent processes and we produce high quality information
The Association of Investment Companies (AIC) has recognised Alliance Trust as the trust which provides the Best Information to Shareholders of any generalist investment trust for the last two years. While at Alliance Trust Savings we provide a clear charging structure, with no hidden charges or retained fees, and we have won a number of awards for the quality of the service that we provide to our clients.
Review of Investment Performance
The Total Shareholder Return (TSR) for the Trust in 2013 was 22.7% and the Net Asset Value Total Return (NAV TR) was 18.4%. The NAV TR is the best absolute return the Trust has generated for three years and the TSR is the best absolute return that the Trust has reported in eight years. These returns are on top of the double digit growth we reported in 2012. The NAV and share price at 31 December were the highest year-end levels ever achieved.
The difference between the returns is explained by the narrowing of the discount, which ended the year at 12.9%, having spent most of the year below 14%. The discount has not traded consistently at this level since 2006. We recognise that while these numbers are improving, there is always work to be done and we maintain our focus on delivering improved investment performance and a narrowing discount.
On page 9 of our Annual Report we report on our Key Performance Indicators (KPIs). We measure and report on our performance in terms of how we rank relative to the returns generated by other Global investment trusts. We look at our performance over one, three and five years and use the three year results in the Long-Term Incentive Plan (LTIP) calculations. Over the year we were ranked median on a TSR basis and in the third quartile on an NAV basis. We were ranked in the second quartile over three years on both measures and in the third quartile over five years.
The relative rankings are largely a result of the performance of the equity portfolio. The Trust has a greater exposure to the US than many of our peers. The US market was one of the best performing markets in the early part of 2013 and our performance relative to our peers was enhanced as a result. On a rolling six month basis, we were ranked above median for the period up until July, but then as the US started to suffer from political uncertainty arising from 'Obamacare' and the debate over the Federal budget, we saw this position reverse. Although the weakening of the US Dollar relative to Sterling in the second half of the year will have helped make US companies more competitive, the valuation of our portfolio was impacted more than many of our peers, particularly in the third quarter of 2013.
Alliance Trust NAV performance against peer group
|Alliance Trust PLC NAV||+13.6%||-1.2%||-0.1%||+5.4%|
|AIC Global Sector NAV||+12.4%||-1.0%||+3.5%||+5.2%|
Portfolio performance analysis
The following table shows that the equity investment portfolio, which represented on average 94% of net assets, returned 21.6% during the year and contributed 19.4% to the NAV total return. The attribution analysis table below gives more information on how this performance was generated from a global sector perspective.
The total return of fixed income investments was affected by the weakness in bond markets in the second quarter of the year but recovered in the second half, to give an overall total return of 3.6%. The Trust's holding in the Alliance Trust Monthly Income Bond Fund, which accounted for the majority of the investment in fixed income, had a total return of 3.2%, compared to 1.9% for the IBoxx Sterling Corporate Bond 5-15 year index which is the benchmark for that fund. The holdings in the Alliance Trust Dynamic Bond Fund returned 4.7%, showing the robustness of the investment approach during a period of volatile markets. The total weight in fixed income fell as a proportion of total net assets by more than 1% due to the relative strength of equities.
Other Assets, which include Private Equity, Property, Mineral Rights and Subsidiaries made a marginally negative contribution to NAV growth. Cash balances yielded a negligible return due to the continuing very low level of interest rates.
The low interest rate environment allowed the Trust to borrow at an average cost of 1.8%. Gearing was increased from £200m to £380m, to take advantage of the positive outlook for equities. The cost of borrowing was low in relation to the returns that were earned on the Trust's investments so the gearing was beneficial for overall performance.
Expenses of £21.5m reduced the NAV by 0.8% during the year. Buybacks had a small positive effect of around 0.04% of NAV.
|Contribution Analysis (%)||Average|
|Cash and Accruals||2.5||0.0||-0.2|
|Gearing (cost of borrowing)||-11.5||1.8||-0.2|
|NAV Total Return||18.4|
|Narrowing of Discount||4.3|
|Share Price Total Return||22.7|
|MSCI ACWI Total Return||21.1|
Source: Alliance Trust and FactSet
Equity portfolio attribution
The table below analyses the performance of the Trust's equity portfolio by sector and the extent to which each part of the portfolio contributed to the overall return. We do not have a fixed benchmark as we believe that this would constrain our ability to shape the portfolio. However we recognise that many like to measure the Trust against an index and we show our performance relative to the chosen reference index, in this case the MSCI All Country World Index. The portfolio's return of 21.6% was slightly better than the index which returned 21.1%.
The table below shows the weighting of the assets in the portfolio and the index and the return of each sector or
asset class in the portfolio and the index.
The degree of out/underperformance is then attributed to:
Sector Allocation - This measures the impact of over or underweighting each sector relative to the benchmark weightings. For example, we had more in Health Care than the index, and this sector performed better than the index.
Stock Selection - This measures the degree to which the stocks that we held in each sector did better or worse than the sector index. For example, although we were overweight in Utilities which did not do well relative to the index as a whole, we selected good stocks in that sector.
Our investment approach is based on stock selection rather than taking deliberate active positions on a sector basis, but this analysis provides a useful insight into the structure of the portfolio.
The biggest overweight this year has been in Health Care which was the strongest sector in the market. Some of our holdings, such as Intuitive Surgical and Novo Nordisk, lagged in the short term but we remain confident about their future prospects.
|Alliance Trust||MSCI All Country World Index|
|%||Average Weight ||Total Return||Average Weight ||Total Return ||Sector Allocation Effect||Stock Selection Effect||Total Relative Effect|
|Index Futures & Currency Forwards||-0.2||0.0||0.0||0.0||-0.2||0.0||-0.2|
Source: Alliance Trust
Stock selection was strong in Utilities (e.g. China Gas Holdings and Enterprise Product Partners) and Industrials (e.g. Deutsche Post) but was relatively weak in Information Technology (e.g. Samsung Electronics).
The largest overall contributor to relative performance was Materials where the decision to avoid most of the mining stocks (especially gold stocks) in the MSCI Index was beneficial and offset the effects of negative returns from The Mosaic Company and Glencore Xstrata.
The largest sector in terms of absolute weight in the portfolio remains Financials. Stock selection was mixed in this sector, with some notable successes such as Prudential and Legal & General being offset by weak performance from Bangkok Bank and Standard Chartered.
In the second half of the year Sterling was strong, particularly against the US Dollar, reversing the move seen in the first half. As the equity portfolio has a relatively high weighting in UK stocks, the currency movement improved relative performance. However, this was partly offset by currency hedges that were designed to bring the overall currency positioning of the Trust closer to neutral.
In the fourth quarter a long position in Nikkei 225 index futures was established to add exposure to the Japanese market. The underlying exposure was equivalent to 5% of the equity portfolio's value at the year-end. The portfolio benefited from strength in the Japanese equity market without being exposed to currency risk from a weakening Yen. We closed this position after the year-end for risk management reasons.
Review of Financial Performance
For the year ended 31 December 2013 the consolidated profit per share was 81.38p (2012: 43.78p) comprising revenue earnings per share of 9.80p (8.61p) and capital profit per share of 71.58p (35.17p). Consolidated administrative expenses charged against revenue profits were £45.4m (£41.2m). Consolidated administrative expenses charged against capital profits were £1.9m (£1.6m).
Company Total Return
The Company generates returns through revenue earnings and capital growth. For the year ended 31 December 2013 the revenue earnings per share were 10.83p (9.74p) and the capital profit per share was 70.80p (35.40p) representing a total profit per share of 81.63p (45.14p).
Company Revenue Performance
Revenue earned from the Company's assets increased by 13% to £90.0m (£80.0m). The increased income was largely the result of a greater exposure to equities following an increase in the level of borrowings in February. Our top 10 income generating investments account for 21% of our investment income, with the largest being Zurich Insurance, HSBC, Resolution, Pfizer and Royal Dutch Shell.
Company Capital Performance
Last year saw an increase in the financial markets and our net asset value per share increased by 16.1% (9.6%) to 516.5p (444.9p). Gains on our investment portfolio totalled £416.1m (£198.5m).
Although Company costs increased by 15% to £21.5m (£18.7m), we remain conscious of prevailing market conditions and the requirement to apply strict cost controls across the business. The main contributors to the increase were the higher cost of fund management and investment in compliance and risk functions to ensure that we remain fully compliant with an ever increasing range of new regulatory requirements.
Ongoing Charges Ratio
The Ongoing Charges Ratio was 0.75% (0.67%). As a self-managed investment company we apply the AIC's recommendation that costs relating to compensation schemes which are linked directly to investment performance should be excluded from the calculation of the principal Ongoing Charges Ratio. We have, in line with the guidance, disclosed in our Annual Report the Ongoing Charges Ratio both including and excluding such capital incentives.
As the Company has substantial investments in the Monthly Income Bond Fund, Dynamic Bond Fund and Global Thematic Opportunities Fund, which are managed by Alliance Trust Investments, a proportion of the ongoing charges of these underlying funds have been incorporated into the Ongoing Charges. The proportion is based on the percentage of the fund held by the Company. It should be noted that the expenses incurred by the Company's subsidiaries have been excluded from the Ongoing Charges calculation as these do not relate to the operation of the investment company. This is in accordance with the guidelines provided by the AIC.
Alliance Trust has a long and proud tradition of annual increases in the dividend. We have increased the dividend in each of the last 47 years and are one of only three investment trusts which have such a track record. Our policy is that we aim to pay a sustainable and rising ordinary dividend and pay the balance of the income derived from the portfolio back to shareholders by way of a special dividend. The ordinary dividend for 2013 will rise by 3% to 9.548p. We are also announcing that the payment to shareholders for the year will also include a special dividend of 1.282p, which will be paid on 30 June 2014. This amounts to an increase in the total dividend payment for the year of 12.5%. The dividend is covered from earnings, ensuring that we maintain the capital base to deliver rising dividends in future years.
The financial results of the subsidiary businesses are disclosed later in this statement and in Note 19 on pages 97 to 99 of our Annual Report which explains the basis of inter-company charging.
At 31 December 2013 we had net debt of £380m or 11.6% (6.6%). The Company had committed funding lines of £450m (£400m) in place at the year end.
Discount and share buybacks
During the year we bought back 1.485m shares representing 0.3% of the Company's share capital at a total cost of £6.7m and a weighted average discount of 13.4%. The effect of our policy of buybacks has been to reduce the volatility of the discount of our share price to NAV and has ensured that the discount has not been allowed to drift wider. The shares bought back are cancelled rather than held in treasury.
Our willingness to undertake share buybacks where we judge it to be beneficial to shareholders is now well established, and we are committed to the ongoing flexible use of buybacks, taking into account the Company's discount relative to the peer group. Last year we reported that the discount had traded in a narrower range than in any of the previous five years and this has remained true in 2013.
During the first four months of 2013, the discount continued to narrow steadily, continuing a trend which had begun in June 2012. In May 2013 it reached its narrowest point (11.2%) at the time when markets were reaching their high point of the year. The discount widened over the summer as the markets grew concerned about the contagion effect of the budgetary developments in the US. As that threat appeared to be resolved, so the discount has started to narrow again and it continues to narrow in 2014.
Our people are the key to our success and unlocking their potential is the route to achieving our 2020 vision and strategy.
Selecting the Best People
We recruit people who will fit well with the values and behaviours we set out for our business.
Where possible, we recruit from within and seek to develop and promote from our existing talent pool. By 2020 we have set ourselves an ambitious target to achieve more than 50% of vacancies filled by internal applicants.
We grow our own talent through an annual graduate scheme which rotates recruits around key business areas, before selecting a permanent area of specialism. A number of senior positions are now held by former graduate scheme members.
We reward our people for performance and these rewards are linked to the success of our business and also aligned closely to our shareholder interests. The majority of our people are shareholders through our All Employee Share Ownership Plan and are therefore closely linked to the performance of the business.
We listen to our people
84% of our people take the time to tell us what they think through our Employee Engagement Survey.
Our engagement results are excellent and 81% of those who responded tell us that they would recommend Alliance Trust as a good place to work. We listen to their feedback and build improvements into our plans for the future.
Equality and Diversity
We fundamentally believe that a diverse workforce will create the optimum environment upon which our business will thrive and grow.
We are committed to creating an inclusive environment where our people can develop and contribute fully.
In formulating and implementing our employment and recruitment policies we ensure that they are at all times compliant with all relevant EU and UK legislation. Recruitment, development and promotion is based solely on their suitability for the job to be done. We will not discriminate on the basis of gender, sexual orientation, age, race, nationality, disability or political or religious belief.
Our Executive Committee comprises 60% male and 40% female members.
The table below provides the gender split at different levels within the business.
|Board||3 (43%)||4 (57%)|
|Senior Managers||47 (73%)||17 (27%)|
|Total workforce||121 (49%)||127 (51%)|
We believe that we are in a unique position at Alliance Trust in that we offer products and services that should appeal to a broad cross-section of investors and meet a range of their investment requirements. We provide for investors who use collective investment vehicles. We offer a globally diversified investment trust and a range of open-ended funds. We also provide a savings platform upon which these, and other, investments may be held in a tax-efficient manner. We have been proactively promoting our products and services to consumers, intermediaries and institutions for a number of years and this has gone a long way to building our company brand awareness to date.
We believe that it is important that shareholders have all the information that they may reasonably need in order to make an informed decision and provide more disclosures than are required in order to assist this understanding. The flat-fee pricing structure in Alliance Trust Savings also provides transparency and certainty for retail investors.
However, with the introduction of the Retail Distribution Review, there are a large number of investors who are looking to manage their own portfolios. For them and others, education is going to play an important role in answering their questions. If we can be seen to provide assistance in this area, then we can engender trust and build up brand awareness by becoming recognised for providing valuable insight and guidance.
With that in mind, we have launched an online hub, in association with the Daily Telegraph, that has quality educational content focusing on topics such as introduction to investment planning, products in a portfolio, global diversification, retirement planning, planning for your family future etc. In 2014, we will be launching a group wide brand campaign focusing on education and guidance aiming at individual investors. We will be advertising these themes heavily with the objective of building brand awareness and, importantly, trust in our brand.
During the year we have addressed a number of issues which would otherwise have affected our ability to continue investing and growing the business.
Outsourcing Middle and Back Office Investment Functions
We reported last year that we had entered into an outsourcing agreement with BNY Mellon (BNYM) with a view to BNYM taking on the administration of certain of our middle and back office investment functions. During the year, the project has progressed and we are on track to deliver the first phase of the project during 2014.
The outsourcing arrangements, which are not expected to result in material cost savings, will however enable us to focus on managing the investment portfolio and also to ensure that middle and back office investment functions are delivered in a single, scalable and cost effective manner by our third party provider. It will also ensure that these services will develop in line with industry best practice.
Regulatory change - Alternative Investment Fund Managers' Directive (AIFMD)
The AIFM (Alternative Investment Fund Managers) Directive was conceived in the aftermath of the financial crisis in 2008. Its objective was to ensure that previously unregulated collective investment activities would be subject to regulatory oversight. Although the primary target was hedge funds, the legislation is broadly written to regulate a wide range of collective investments including investment trusts. Unlike many other investments in this category, investment trusts were already regulated by both the Companies Acts and the Listing Rules which apply to companies traded on the London Stock Exchange. The presence of an independent Board also acts to safeguard the interests of shareholders.
Alliance Trust has applied to the Financial Conduct Authority (FCA) for authorisation as a Manager under the Directive. As a self-managed trust we will act as our own manager and, as required, will appoint a third party as a Depositary for the Trust's assets. The principal duties of the Depositary are to ensure the safekeeping of investors' assets and to oversee the processes and procedures of the manager. The costs associated with implementation and the ongoing charges associated with the Directive will be borne by the Trust.
Alliance Trust Savings has entered into an agreement with GBST to deliver its platform technology solution. GBST is a leading global provider of securities transaction and online trading technology. The technology will be fully integrated within the business to improve the offering to customers and intermediaries, deliver operational efficiencies and support the growth of the business. The aim is to launch the new technology for intermediary new business in the early part of 2015, followed by the migration of existing customers towards the end of 2015.
We believe that it is important that the technology we use provides us with the tools that we need to run our business efficiently but is also secure. In the course of the year we reviewed our IT systems, in conjunction with external security consultants, and enhanced controls to improve data security and to reflect industry developments.
Our values are shared beliefs within the business that drive our culture and provide a framework for decisions and behaviours; a compass for our actions, initiatives and how we behave. They are central to everything we do and underpin our focus on the delivery of long-term value for our shareholders.
We are committed to creating a sustainable future for our shareholders, customers and communities. We are committed to a strategy of responsible investment and have a key role to play in supporting a stable capital market. We develop our employees to realise their full potential. We manage the impact of our direct operations on the environment, minimising our carbon footprint and we will begin to influence the actions of our suppliers. We play our part in supporting the communities in which we operate. We actively promote a sense of social responsibility in our own people and encourage our people to get involved and give something back to society.
Independence of Thought
As an independent company, rather than part of a wider financial services group, we can chart our own course. We are not afraid to challenge the norm and are courageous in the way we think and the way we do things. We aim to be distinctive in our approach, in order to deliver better value for shareholders and customers. We are not afraid to ask one another tough questions - in a constructive and supportive way. We encourage our people to drive ideas forward with passion, energy and commitment and we see things through - we don't wait to be told.
The Conviction to Innovate
Larger or multi-national businesses can struggle to be flexible in how they operate. By contrast, we are a business which is big enough to have strong resources but small enough to be flexible and enterprising. We consistently aim to look for improvements in how we do business as well as opportunities in our markets that can offer value for our shareholders and customers in the short and longer term. We listen and are open to other people's ideas, finding the best solution for the business. We stretch ourselves to constantly improve and be the best we can.
Our focus has always been on building long term, mutually beneficial alliances with shareholders, customers and business partners who trust us to deliver. We understand this kind of trust and loyalty has to be earned. We aim to do this through understanding and listening to our audiences, ensuring they feel valued, exceeding their expectations and ultimately, doing the right thing for our shareholders and customers. As well as focusing on our customers, we listen, co-operate and collaborate to support each other. We do what we say we will, building trust with our colleagues. We recognise and celebrate success.
The investment world is built upon an ever-growing volume of complex information that can often feel daunting. Yet, all audiences want quality of insight over quantity of information. They also seek clear messages and open, not closed, doors. We aim to stand out as a business which takes the time and effort to be clear in our messages and to make complex information easier to digest for our shareholders, customers and employees. Internally, we aim to communicate face to face, avoiding email where we can. We are open and honest.
Investing for Generations - Sustainability
The Alliance Trust sustainability strategy is called Investing for Generations. This strategy is focused on building our business for the long term. While we have been investing for 125 years we realise that to continue for the next 125 years, we need to remain as relevant to our shareholders, clients, and customers as we have always been. We have identified five key areas of focus for our Investing for Generations strategy:
We support and encourage our investment team to use our influence, as shareholders, to improve corporate responsibility. For example, following the collapse of the Rana Plaza factory in Bangladesh, we worked with other shareholders, representing about £1 trillion of assets under management, to champion the Bangladesh Accord on Fire and Building Safety. Our argument is that if incidents like this persist, apart from the devastating human impact, it will damage the brands of those companies, so there is a long-term shareholder benefit in making sure that companies respect human rights.
Our policy is to vote whenever practicable. As the quality of the management of a company in which we invest is a key consideration, in most cases we support management but we will engage with them and ultimately vote against their recommendations where we believe that their proposals are not in shareholders' interests.
Votes against management were mainly in respect of Asian companies and ranged from individual reappointments to severance packages and a corporate restructuring. Full details of our voting record can be found on our website www.alliancetrust.co.uk.
|In favour of management recommendations||75|
|Against management recommendations||10|
We will also engage with management throughout the year if we believe that a proposal is detrimental to the long-term future of the business. Recently we were concerned about the way in which a company was planning a major transaction. Although we were ultimately unsuccessful in making them change their plans many commentators agreed with our position and were critical of the way in which the transaction was undertaken.
We are signatories to the United Nations Principles for Responsible Investment (UN PRI) and two of our investment team are members of different UN PRI committees.
Shareholders and Customers
We place our shareholders at the heart of everything that we do. They are the ultimate owners of the Trust and we are focused on the return that we generate for them.
In addition to the management of the portfolio, we are also very conscious of the impact that our interaction with the clients of our asset management business and the customers of our savings platform can have on our performance and reputation.
Alliance Trust Savings operates a customer charter that governs how we treat our customers. Our training programmes are designed to improve customer services and experience as it is by servicing their investment needs that we will provide better returns for our shareholders over the long term.
We are committed to managing the impact of our operations on the environment and embedding environmental management and improvement into all areas of our business. This commitment is the foundation of our environmental management system (EMS), which is based on International Standard ISO 14001:04.
Our EMS is supported by our environmental policy and related policies and procedures which set out our commitment to environmental stewardship and how we aim to minimise our impact on the environment.
We report on our greenhouse gas emissions on page 70 of our Annual Report.
Our goal is to support the communities in which we operate.
We established the Alliance Trust Staff Foundation and have supported local charities operating within Dundee, Edinburgh and London.
We support Pilotlight, which places business professionals onto the Boards of charities, and some of our senior team members are now working directly with local charitable organisations. In collaboration with FutureReach we ran two workshops in local Dundee schools, helping to equip students with the necessary skills to secure employment in the future.
We allocate two volunteering days to our people per annum and encourage them to get involved in local projects or charitable activities.
Our goal is to provide rewarding careers for the people we employ and we aim to recruit, retain and develop the best talent in the marketplace.
We encourage share ownership and this ensures that we align the interests of our people closely with the interests of our shareholders.
Looking forward into 2014, we believe that equities remain relatively good value, particularly when compared to other asset classes. Although stock markets can no longer be described as cheap, at a company level we continue to see a range of interesting investment opportunities in well managed companies with strong balance sheets and sustainable business models. These are the investments we seek and they still offer value and the prospect of above average returns, particularly for long-term investors such as Alliance Trust.
Our assessment of the global economic backdrop has improved and most commentators agree that global output will expand in 2014. The recent World Bank forecast suggests global economic growth will be 3.2% and it has issued a more favourable outlook for Europe. This backdrop will help underpin investor confidence as well as business investment, which slowed in 2012 and 2013. However, there are risks inherent in the financial system and we are not complacent about the potential consequences that the unwinding of quantitative easing might bring, as witnessed at the start of 2014. Other areas that still cause concern are the US debt ceiling, "Abenomics" in Japan and the risk of a hard landing in China; none of these should be underestimated. We believe that the best way to protect and grow shareholder value is to focus on the stock-specific risks and our rigorous and thematic bottom-up approach brings to light companies that will be successful throughout the economic cycle. We are confident that we can maintain a portfolio of companies that are well placed to drive future returns for the Trust.
In addition to our equity portfolio we continue to hold investments in mineral rights and private equity. While our investments in private equity do not generate income we expect significant capital distributions in the future. Income from our legacy mineral rights continues to increase as we actively manage these historic assets.
Despite the prospect of further "tapering", global monetary policy will remain loose and fiscal policy should become less restrictive as economies gather momentum. Unemployment remains an issue in some areas although domestic demand is increasing in others, particularly in the UK, the US and parts of Europe. Productivity needs to rise in 2014 but an increase in business investment and subdued wage inflation will help.
It promises to be a very interesting year. With an improving economic backdrop and the prospect of the US Federal Reserve reducing the amount of stimulus it provides, there could be a negative impact on equity markets across the globe. The Scottish political landscape will also be under close scrutiny culminating in an independence referendum in September. Although our focus will continue to be on stockpicking, these and other issues will keep us vigilant throughout the year.
Importantly, even though we constantly monitor global macroeconomic developments, the portfolio continues to be focused on core holdings that are underpinned by long-term, structural thematic drivers.
Demographic change represents a critical backdrop for several companies that we are invested in. The emergence of new middle classes in developing economies is very supportive for the current and future growth of, for example, Reckitt Benckiser and Unilever. Greater penetration of financial services in countries like Mexico and Indonesia will lead to superior value creation for our holdings in Grupo Financiero Banorte and Prudential, respectively.
Challenges associated with the environment and the use of natural resources can represent a source of opportunity for companies that provide the right solutions. Monsanto is helping to address the long-term issue of food scarcity, through its advanced seed technology. Sustainable transportation is enabled by companies that increase fuel efficiency, like BorgWarner. The high level of pollution in China will be tackled by a progressive shift from coal to natural gas as the primary source of energy - our holding in China Gas is well placed to benefit from that transition.
Innovation is another area of focus for the portfolio. Cloud computing is forcing the corporate world to revisit their IT strategies - many Fortune 500 companies are supported by Accenture in a multi-annual process of transformation. Exciting developments in personalised medicine open new growth opportunities for companies with first-class biotechnology capabilities like Roche.
In line with our tradition, our emphasis remains focused on stocks with potential for sustainable capital growth and income generation. We believe that this will provide consistent returns and a rising dividend over the long term.
Alliance Trust Investments
Alliance Trust Investments is a specialist fund management business offering a broad selection of open-ended funds and investment solutions.
Last year we reported that we had entered into an agreement with Aviva Investors under which we engaged a team of specialist Sustainable and Responsible Investment (SRI) managers and acquired around £1.2bn of third party assets. This year we have seen the positive impact of this transaction with an improved financial performance and increased assets under management. We are showing an operating loss for the year of £4.2m compared to £6.6m the previous year.
Our fund managers have delivered good investment performance with over 80% of our funds being ranked in either the first or second quartile against their peers for the year.
Our SRI managers are now a core part of our business and have increased the level of retail investor funds under management. They have also attracted mandates from institutional investors seeking managers who can provide both a sustainable approach to investment and good returns. Of our seven UK Sustainable Future funds, six have out-performed their benchmark over the year and are either first or second quartile against their peers.
Our Fixed Income funds have also proved attractive to investors and they have grown by around 4% in a sector which has seen significant outflows. Our three funds serve different markets; the Monthly Income Bond Fund provides a vehicle for retail investors seeking a regular income, the Dynamic Bond Fund is designed to provide a solution for institutions and pension schemes. The Sustainable Future Corporate Bond Fund aims to produce a higher income than government bonds by investing in bonds issued by companies that meet sustainable and responsible investment criteria. The Monthly Income Bond Fund and the Sustainable Future Corporate Bond Fund were both in the second quartile of their peer group for the year. The Dynamic Bond Fund delivered its objective of providing an absolute return of around 6% for the year.
Our Global Thematic Opportunities Fund, which aims to achieve long-term capital growth, was launched two years ago. This year it has provided a return of 24% and is in the second quartile of its peer group. It will be marketed actively once it has built up a longer track record.
In the course of the year we closed two funds which were not core to our future strategy.
We have a number of key strengths which position us well in the market:
Alliance Trust Investments' 142% increase in net revenue was mainly due to a full year of fees from the SRI assets and fees from £424m of capital invested by Alliance Trust in ATI funds (Global Thematic Opportunities Fund, Dynamic Bond Fund and the Monthly Income Bond Fund).
Average third party basis points
The average 45 basis points earned on third party revenue increased slightly from the prior year.
Expenses increased by £3.0m. The increase was largely due to the one-off acquisition costs of the SRI funds and the first full year's costs of that team, along with the closure costs of two non-core funds.
During the year Alliance Trust invested £11.5m in the business reflecting the additional capital required to support the larger assets under management following the transfer of the SRI assets.
* The fair valuation methodology and assumptions are described in Note 23.8 on page 109 of our Annual Report.
The cumulative capital investment in Alliance Trust Investments is £40.2m.
|Assets Under Management |
|Dec 13 ||£2.2bn|
|Dec 12 ||£1.9bn*|
|Dec 11 ||£551m|
|Third Party Assets Under Management |
|Dec 13 ||£1.8bn|
|Dec 12 ||£1.4bn*|
|Dec 11 ||£129m|
* including assets under advice
|Third Party Average Net Revenue |
|Dec 13 ||0.45bps|
|Dec 12 ||0.43bps|
|Dec 11 ||0.31bps|
|Third Party Net Revenue |
|Dec 13 ||£7.2m|
|Dec 12 ||£1.8m|
|Dec 11 ||£0.4m|
Alliance Trust Savings
Alliance Trust Savings has delivered a profit for the first time in eight years, and is now very well positioned to continue its growth in the platform market and deliver increasing profits. Our continuing platform business generated an operating profit of £0.4m excluding the gain on sale of the Full SIPP business and non-recurring RDR expenditure as outlined below.
The Alliance Trust Savings proposition is to offer a high quality trading platform for direct and intermediary customers, which delivers value for money together with award winning service.
The platform business has made strong progress with assets under administration increasing by 33%, which includes a 405% increase in new accounts from the intermediary market. We incurred non-recurring expenditure of £2.0m to promote the RDR readiness of the business. We made a net gain of £5.4m from the sale of the Full SIPP business which completed in the early part of the year. The disposal of the Full SIPP has allowed the business to focus on the growth and development of the platform.
2014 will see the implementation of the next phase of the Retail Distribution Review (RDR), with platform charging transparency becoming effective from 6 April. Alliance Trust Savings has always been transparent and with its flat-fee structure is in an excellent position to take advantage of this change. We have taken the opportunity to realign our pricing and to strengthen our flat-fee structure with a more inclusive annual fee.
To take advantage of these changes and our excellent proposition, we plan to promote our offering in both the direct and intermediary channels through a significant advertising and marketing campaign over the next two years.
We are also investing in the business through new technology which will help deliver increased functionality, initially in the intermediary market, with a much improved customer experience and efficiencies across the whole business. One-off costs associated with this investment are expected to be around £2m, with ongoing variable costs based on volumes.
We have a number of key strengths which position us well in the market:
Financial Performance (Continuing Operations)
Revenue increased 14% reflecting the introduction of quarterly charges on the Investment Dealing Account from August 2012 and a 16% increase in dealing volumes. Net interest income, which accounts for only 16% of revenue, reduced to £1.8m despite an increase in average customer deposits reflecting the reduced deposit rates paid by banks.
Expenses increased by 5% to meet customer service growth and the increased cost of regulatory compliance.
There were no capital injections into Alliance Trust Savings during the year.
|Core Tier 1 Ratio||20.5%||20.7%|
|Total Capital Ratio||27.1%||27.6%|
* Excluding the revenue and expenses relating to the Full SIPP business which was sold in January 2013 and non-recurring RDR expenditure.
** The fair valuation methodology and assumptions are described in Note 23.8 on page 109 of our Annual Report.
The cumulative capital investment in Alliance Trust Savings is £52.8m.
|Assets Under Administration |
|Dec 13 ||£5.4bn|
|Dec 12 ||£4.1bn|
|Dec 11 ||£3.3bn|
|Dec 13 ||£10.9m|
|Dec 12 ||£9.6m|
|Dec 11 ||£6.9m|
|Number of Trades |
|Dec 13 ||448,080|
|Dec 12 ||386,767|
|Dec 11 ||350,717|
|Customer Accounts |
|Dec 12 ||74,231|
|Dec 11 ||70,186|
Our private equity interests are predominantly in lower to mid-market European private equity buy-out funds which invest across a range of sectors and countries. In addition to our fund holdings, we also have small direct investments in three private companies.
The private equity portfolio demonstrates our willingness and ability to invest for the long term, with our funds often committed for longer than 10 years. Our commitment to responsible investment is also reflected in the portfolio.
Several of the fund managers are signatories to the United Nations Principles for Responsible Investment, and resource efficiency is a common investment theme in the majority of the funds.
The total committed to private equity funds at 31 December 2013 was £161m, of which £133m has been invested. Distributions to us from the funds are expected to accelerate as the funds mature over the next few years.
The Trust owns the mineral rights to land in the Southern and Mid Western United States. These are legacy positions from the time when Alliance Trust's principal activity was that of a mortgage bank, focused on lending to farmers in the United States. Historically, we have generated royalty income from the oil and natural gas that has been extracted from this land and have valued the assets on the basis of the revenue it has generated. Over the last 12 months, we have seen an increase in leasing activity which has led to an increase of 115% in the revenue received and this in turn has led to an increase in the valuation of the portfolio by around 48%, despite the strength of Sterling.
Alliance Trust reduced its exposure to property late in 2013 as part of the continued strategy to exit from direct real estate investment. The sale of 107 George Street, Edinburgh for £5.0m was completed in December.
The market value of Monteith House, 11 George Square, Glasgow fell from £4.9m to £4.5m. The market valuation was primarily derived using comparable recent market transactions on arm's length terms and in accordance with RICS guidelines, undertaken by an independent professional valuer.
The Climate Change Property Fund Limited Partnership, which we have held since 2008, has made some asset disposals in 2013 and as a result distributions are starting to flow back to Alliance Trust as a limited partner. The valuation stood at £10.2m at the end of the year.
|Principal risks||Mitigation||What we did in 2013|
Uncertainty around the debate on Scottish Independence over such matters as jurisdiction and taxation of savings and pension plans, financial services regulation and consumer protection, currency and membership of the European Union.
The Trust currently invests primarily in equities and fixed income securities and its principal risks are therefore market related and include counterparty and market risk (currency, interest rate and other price risk). An explanation of these risks is included in note 23 on pages 100 to 110 of our Annual Report.
Key operational risks include the availability and reliability of our core systems, reliance on third party suppliers to deliver against service levels, processing failures, IT security issues and operational errors e.g. dealing errors, administration breaches, loss of key personnel and failure to manage and deliver change initiatives.
Key aspects of conduct risks include the appropriateness of products and services, marketing campaigns and financial promotions, product design and development, complaint resolution and corporate culture.
|Legal, Regulatory & Disclosure Risks|
The FSA split into the Prudential Regulatory Authority (PRA) and the Financial Conduct Authority (FCA) in 2013. The key risk is the ability to respond to the volume and scale of mandatory regulation, including AIFMD, EMIR, CRD IV and FATCA among others.
During the year, the Group submitted to the regulator an Internal Capital Adequacy Assessment Process (ICAAP), a Recovery and Resolution Plan for Alliance Trust Savings (RRP) and an Individual Liquidity Systems Assessment (ILSA).
Alliance Trust PLC
Consolidated income statement for the year ended 31 December 2013
|Profit on fair value designated investments||-||420,082||420,082||-||221,313||221,313|
|Profit/(Loss) on investment property||-||211||211||-||(812)||(812)|
|Gain on disposal of other fixed assets||-||14||14||-||-||-|
|Loss on revaluation of office premises ||-||-||-||-||(1,900)||(1,900)|
|Foreign exchange (losses)/gains||-||(15,189)||(15,189)||5||9,026||9,031|
|Profit before tax||59,466||402,336||461,802||53,353||200,644||253,997|
|Profit for the year||54,885||400,686|| 455,571||49,104||200,541||249,645|
|All Profit for the year is attributable to equity holders of the parent|
|Earnings per share attributable to equity holders of the parent|
|Basic (p per share)||9.80||71.58||81.38||8.61||35.17||43.78|
|Diluted (p per share) ||9.78||71.37||81.15||8.58||35.06||43.64|
Consolidated statement of comprehensive income
|Profit for the year||54,885||400,686||455,571||49,104||200,541||249,645|
|Items that will not be reclassified subsequently to profit or loss:|
|Defined benefit plan net actuarial loss||-||(875)||(875)||-||(405)||(405)|
|Retirement benefit obligations deferred tax||-||96||96||-||48||48|
|Other comprehensive loss||-||(779)||(779)||-||(357)||(357)|
|Total comprehensive income for the year||54,885||399,907||454,792||49,104||200,184||249,288|
|All total comprehensive income for the year is attributable to equity holders of the parent|
Company income statement for the year ended 31 December 2013
|Profit on fair value designated investments||-||415,851||415,851||-||199,278||199,278|
|Profit/(Loss) on investment property||-||211||211||-||(812)||(812)|
|Gain on disposal of other fixed assets||-||14||14||-||-||-|
|Loss on revaluation of office premises ||-||-||-||-||(1,900)||(1,900)|
|Foreign exchange (losses)/gains||-||(15,189)||(15,189)||-||9,026||9,026|
|Profit before tax||66,716||396,456||463,172||59,819||201,877||261,696|
|Profit for the year ||60,616||396,356||456,972||55,567||201,877||257,444|
|All profit for the year is attributable to equity holders of the parent|
|Earnings per share attributable to equity shareholders|
|Basic (p per share)||10.83||70.80||81.63||9.74||35.40||45.14|
|Diluted (p per share)||10.80||70.60||81.40||9.71||35.29||45.00|
Company statement of comprehensive income
|Profit for the year||60,616||396,356||456,972||55,567||201,877||257,444|
|Items that will not be reclassified subsequently to profit or loss:|
|Defined benefit plan net actuarial|
|Retirement benefit obligations deferred tax||-||96||96||-||48||48|
|Other comprehensive loss||-||(779)||(779)||-||(357)||(357)|
|Total comprehensive income for the year||60,616||395,577||456,193||55,567||201,520||257,087|
|All total comprehensive income for the year is attributable to equity holders of the parent|
Statement of changes in equity for the year ended 31 December 2013
|£000||Dec 13||Dec 12||Dec 13||Dec 12|
|Called up share capital|
|At 1 January ||14,040||14,833||14,040||14,833|
|Own shares purchased and cancelled in the year||(37)||(793)||(37)||(793)|
|At 31 December ||14,003||14,040||14,003||14,040|
|At 1 January ||1,754,368||1,665,692||1,718,637||1,629,129|
|Profit for the year||400,686||200,541||396,356||201,877|
|Defined benefit plan actuarial net loss||(779)||(357)||(779)||(357)|
|Own shares purchased and cancelled in the year||(6,658)||(112,721)||(6,658)||(112,721)|
|Share based payments||1,402||1,213||1,053||709|
|At 31 December ||2,149,019||1,754,368||2,108,609||1,718,637|
|At 1 January and at 31 December ||645,335||645,335||645,335||645,335|
|Capital redemption reserve|
|At 1 January ||4,958||4,165||4,958||4,165|
|Own shares purchased and cancelled in the year||37||793||37||793|
|At 31 December ||4,995||4,958||4,995||4,958|
|At 1 January ||68,202||73,348||107,649||106,332|
|Profit for the year||54,885||49,104||60,616||55,567|
|At 31 December ||68,034||68,202||113,212||107,649|
|Total Equity at 1 January ||2,486,903||2,403,373||2,490,619||2,399,794|
|Total Equity at 31 December ||2,881,386||2,486,903||2,886,154||2,490,619|
Balance sheet as at 31 December 2013
|£000||Dec 13||Dec 12||Dec 13||Dec 12|
|Investments held at fair value||3,317,105||2,722,042||3,214,461||2,633,993|
|Investment property held at fair value||4,525||9,120||4,525||9,120|
|Property, plant and equipment:|
| Office premises||4,125||4,125||4,125||4,125|
| Other fixed assets||390||587||249||157|
|Pension scheme surplus||5,079||4,305||5,079||4,305|
|Deferred tax asset||1,015||990||1,015||990|
|Outstanding settlements and other receivables||37,340||23,882||21,344||14,114|
|Recoverable overseas tax||985||1,106||985||1,106|
|Cash and cash equivalents||473,055||444,916||25,236||33,336|
|Outstanding settlements and other payables||(589,260)||(523,605)||(6,131)||(5,597)|
|Total assets less current liabilities||2,883,342||2,488,735||2,887,711||2,491,978|
|Deferred tax liability||(1,015)||(990)||(1,015)||(990)|
|Amounts payable under long term Investment Incentive Plan||(831)||(588)||(432)||(267)|
|Capital redemption reserve||4,995||4,958||4,995||4,958|
|All net assets are attributable to equity holders of the parent|
Net Asset Value per ordinary share attributable to equity holders of the parent
Cash flow statement for the year ended 31 December 2013
|£000||Dec 13||Dec 12||Dec 13||Dec 12|
|Cash flows from operating activities|
|Profit before tax||461,802||253,997||463,172||261,696|
|Gains on investments||(420,293)||(220,501)||(416,062)||(198,466)|
|Foreign exchange losses/(gains)||15,189||(9,031)||15,189||(9,026)|
|Amortisation of intangibles||1,289||702||154||172|
|Loss on revaluation of office premises||-||1,900||-||1,900|
|Loss on disposal of intangible assets||313||-||-||-|
|Share based payment expense||1,402||1,213||1,053||709|
|Movement in pension scheme surplus ||(1,553)||(1,512)||(1,553)||(1,512)|
|Operating cash flows before movements in working capital||70,727||62,440||68,318||60,347|
|Increase in amounts due to depositors||45,255||34,745||-||-|
|(Increase)/Decrease in receivables||(10,227)||3,015||(2,280)||948|
|Increase/(Decrease) in payables||13,060||4,577||1,125||(1,367)|
|Net cash flow from operating activities before income taxes||118,815||104,777||67,163||59,928|
|Net cash inflow from operating activities||112,705||100,287||61,083||55,537|
|Cash flows from investing activities|
|Proceeds on disposal at fair value of investments through profit and loss||1,082,219||1,825,622||1,075,550||1,668,990|
|Purchases of fair value through profit and loss investments||(1,253,955)||(1,685,709)||(1,240,658)||(1,538,377)|
|Purchase of plant and equipment||(3)||(663)||(261)||(184)|
|Purchase of book of business||(8,164)||-||-||-|
|Purchase of other intangible assets||(1,154)||(512)||(648)||(102)|
|Foreign exchange (losses)/gains on foreign exchange contracts||(13,993)||7,437||(13,993)||7,437|
|Net cash (outflow)/inflow from investing activities||(195,050)||146,175||(180,010)||137,764|
|Cash flows from financing activities|
|Dividends paid - Equity||(55,068)||(67,016)||(55,068)||(67,016)|
|Unclaimed dividends ||15||(13)||15||(13)|
|Purchase of own shares||(6,658)||(112,721)||(6,658)||(112,721)|
|New bank loans raised||180,000||-||180,000||-|
|Repayment of borrowings||-||(48,768)||-||(48,768)|
|Third party investment in subsidiary OEIC - Alliance Trust Investment Funds||8,056||23,449||-||-|
|Net cash inflow/(outflow) from financing activities||111,680||(218,575)||112,023||(233,903)|
|Net increase/(decrease) in cash and cash equivalents||29,335||27,887||(6,904)||(40,602)|
|Cash and cash equivalents at beginning of year||444,916||415,435||33,336||72,349|
|Effect of foreign exchange rate changes||(1,196)||1,594||(1,196)||1,589|
|Cash and cash equivalents at end of year||473,055||444,916||25,236||33,336|
The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2013 or the year ended 31 December 2012, but is derived from those accounts. The comparatives are for the year ended 31 December 2012. Statutory accounts for the year ended 31 December 2012 have been delivered to the Registrar of Companies and those for the year ended 31 December 2013 will be delivered following the Company's annual general meeting. The independent auditor has reported on those accounts: their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498 (2) or (3) of the Companies Act 2006.
1. Expenses comprise £21,513,000 (£18,656,000) incurred by the Company, and £25,720,000 (£24,203,000) incurred by subsidiary companies. Taking guidance from the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" the cost of the Long Term Incentive Plan deemed to be related to the capital performance of the Company has been treated as a capital expense of £1,294,000 (£985,000).
2. The diluted earnings per share is calculated using the weighted average number of ordinary shares, which includes 1,338,233 (1,770,218) ordinary shares acquired by the Trustee of the Employee Benefit Trust ("EBT") with funds provided by the Company. The basic earnings per share is calculated by excluding these shares. The basic Net Asset Value per share calculation also excludes these shares.
3. All expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the income statement, all expenses have been presented as revenue items except as follows:
- Expenses which are incidental to the acquisition of an investment are included within the cost of that investment.
- Expenses which are incidental to the disposal of an investment are deducted from the disposal proceeds of the investment.
- Annual bonus and Incentive Plan costs which relate to the achievement of investment manager performance objectives and total shareholder return and net asset value performance objectives are allocated against capital profits and those that relate to achievement of other corporate targets or job performance objectives against revenue profits save for those costs associated with the fixed income bond fund which are all allocated to revenue costs.
- The Directors have determined to allocate two thirds of the cost of bank indebtedness incurred to finance investment against capital profits with the balance being allocated against revenue profits, save for the costs associated with the fixed income bond fund which are all charged to revenue.
- There have been no related parties transactions that have taken place in the financial year that have materially affected the financial position or the performance of the Company during the year.
4. Alliance Trust PLC has identified three operating segments as strategic business units that offer different products and services. They are managed separately because of the differences in the products and services provided. They are, however, all complementary to the core business of investing in various asset classes to generate increasing value over the long term.
The Group's primary operating segments are the Company, Alliance Trust Savings (ATS) and Alliance Trust Investments (ATI). The disclosures below for ATI do not include the unit creations and cancellations in the ATIF since these do not have any impact on the operational performance of the Company.
The Company is a self-managed investment trust. ATS provides share dealing and pension administration services. ATI is an investment management company.
ATI earns net revenue on the capital invested by Alliance Trust in the funds it manages with such fees market referenced to that appropriate for a seed capital investor. Alliance Trust includes such fees in its Administrative expenses. The costs of the Fixed Income and the SRI team (from August 2012) are charged 100% to ATI. The costs of the Global team who also manage the equity portfolio of Alliance Trust are split between ATI and Alliance Trust according to the average assets under administration during the year.
ATS bears its own direct costs.
Both ATS and ATI are also allocated a share of indirect expenses according either to the subsidiaries service usage or according to average headcount.
The Group evaluates performance based on the profit before tax. Intersegment sales and transfers are accounted for on an arm's length basis.
All operating segments operate within the United Kingdom.
|Year ended 31 December 2013|
|(continuing operations)||(discontinuing operations)||Total|
|Net interest income||105||1,754||-||1,754||64||1,923|
|Non interest income||89,889||9,176||252||9,428||9,088||108,405|
|Foreign exchange gains||15,189||-||-||-||-||15,189|
|Depreciation and amortisation||245||360||-||360||806||1,411|
|Total expenses excluding RDR||42,884||10,518||1,495||12,013||13,367||68,264|
|Non recurring RDR marketing expense||-||2,047||-||2,047||-||2,047|
|Total expense including RDR||42,884||12,565||1,495||14,060||13,367||70,311|
|Operating profit/(loss) before tax and excluding RDR expense||463,172||412||(1,243)||(831)||(4,215)||458,126|
|Operating profit/(loss) before tax and including RDR expense||463,172||(1,635)||(1,243)||(2,878)||(4,215)||456,079|
|Gain on sale of Full SIPP business||-||-||6,668||6,668||-||6,668|
|Segment profit/(loss) before tax||463,172||(1,635)||5,425||3,790||(4,215)||462,747|
We have not disclosed the split between ATS continuing and discontinuing operations on the face of the primary statements as the Directors do not believe this to be material in terms of the Group results.
|Year ended 31 December 2012|
|(continuing operations)||(discontinuing operations)||Total|
|Net interest income||491||2,582||-||2,582||32||3,105|
|Non interest income||79,556||7,000||4,812||11,812||3,819||95,187|
|Foreign exchange gains||(9,026)||-||-||-||-||(9,026)|
|Depreciation and amortisation||214||530||-||530||91||835|
|Operating profit/(loss) before tax||261,696||(444)||(319)||(763)||(6,563)||254,370|
|Net gain on sale of |
|Segment profit/(loss) before tax||261,696||(444)||47||(397)||(6,563)||254,736|
5. Investments in subsidiary companies (Level 3), inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs), are valued in the Company's accounts at £150.5m (£122.4m) being the Directors' estimate of their fair value, using the guidelines and methodologies on valuation published by the International Private Equity and Venture Capital Association. This includes Alliance Trust Savings Limited at £26.7m (£24.6m), Alliance Trust Investments Limited at £12.8m (£10.1m) and Alliance Trust Finance Limited £16.8m (£17.8m). This represents the Directors' view of the amount for which the subsidiaries could be exchanged between knowledgeable willing parties in an arm's length transaction. This does not assume that the underlying business is saleable at the reporting date or that the Company has any intention to sell the subsidiary business in the future. The Directors have used several valuation methodologies as prescribed in the guidelines to arrive at their best estimate of fair value, including discounted cash flow calculations, revenue and earnings multiples and recent market transactions where available.
The following key assumptions are relevant to the fair valuation of our investment in our subsidiary companies, and are consistent with prior years:
· Alliance Trust Savings - This is valued as a trading business. A discounted cashflow, revenue multiple and an earnings before interest tax depreciation and amortisation multiple approach have been adopted.
· Alliance Trust Investments - This is valued based on third party funds only. Given the stage of development of Alliance Trust Investments it is valued as a book of business rather than a trading business. Both a discounted cashflow and revenue multiple valuation approach have been adopted.
· Alliance Trust Finance - This is predominantly valued using the cash held in this entity.
The multiples applied in valuing our subsidiaries are derived from comparable companies sourced from market data.
Mineral rights are carried at fair value and are valued in the Company's accounts at £13.2m (£8.9m) being the Directors' estimate of their fair value, using the guidelines and methodologies on valuation published by the Oklahoma Tax Commission and for non-producing properties, the Lierle US Price Report.
The table below details how an increase or decrease in the respective input variables would impact the valuation disclosed for the relevant Level 3 assets.
|Alliance Trust Savings|| 26,708 ||DCF Discount rate ||15%||1%|| (1,000)/1,000 |
|Average of discounted cash flow methodology and comparable trading multiples. ||Revenue multiple ||2.5||1|| 3,700/(3,700) |
|EBITDA multiple ||12.6||1|| 200/(200) |
|Alliance Trust Investments|| 12,780 ||DCF Discount rate ||15%||1%|| 100/(100) |
|Average of discounted cash flow methodology and book acquisition multiples.||Revenue multiple || 2 ||1|| 4,200/(4,200) |
| || |
|Mineral Rights|| 13,192 ||Oklahoma Tax Commission multiples and Lierle US Price report (for non-producing properties).||Revenue multiple - gas || 7 ||1|| 900/(900) |
|Revenue multiple - oil || 4 ||1|| 700/(700) |
|Revenue multiple -|| 4 ||1|| 300/(300) |
|products/condensate || |
|Average bonus ||1.2||0.5|| 1,000/(1,000) |
|multiple non-producing || |
The change in valuation disclosed in the above table shows the direction an increase or decrease in the respective input variables would have on the valuation result. For Alliance Trust Savings, an increase in the revenue and EBITDA multiple or a decrease in the discount rate would lead to an increase in the estimated value. For Alliance Trust Investments, an increase in the revenue and a decrease in the discount rate would lead to an increase in the estimated value. For Mineral rights, an increase in the revenue multiple and average bonus multiple would lead to an increase in the estimated value.
Private equity, both fund-to-fund and direct investment, are included under level 3 is valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines issued in September 2009. Unlisted investments in private equity are stated at the valuation as determined by the Valuation Committee based on information provided by the General Partner. The General Partner's policy in valuing unlisted investments is to carry them at fair value. The General Partner will generally rely on the fund's investment manager's fair value at the last reported period rolled forward for any cashflows. However if the General Partner does not feel the manager is reflecting a fair value they will select a valuation methodology that is most appropriate for the particular investments in that fund and generate a fair value. In those circumstances the General Partner believes the most appropriate methodologies to use to value the underlying investments in the portfolio are:
· Price of a recent investment
· Net assets
· Industry valuation benchmarks
An entity is not required to create quantitative information to comply with this disclosure requirement if quantitative unobservable inputs are not developed by the entity when measuring fair value (for example, when an entity uses prices from prior transactions or third-party pricing information without adjustment). Alliance Trust PLC receives information from the General Partner on the underlying investments which is subsequently reviewed by the Valuation Committee. Where Alliance Trust PLC does not feel that the valuation is appropriate, an adjustment will be made.
No interrelationships between unobservable inputs used in the above valuations of Level 3 investments have been identified.
Number of Issued Sharesas at 31 December 2013
Ordinary Shares of 2.5p 560,094,146
No shares have been purchased since the year end.
The Report and Accounts will be available on the Company's website www.alliancetrust.co.uk on Friday 14 March 2014 and will be posted to shareholders around that date. It will also be made available to the public at the Company's registered office, 8 West Marketgait, Dundee DD1 1QN and at the offices of the Company's Registrar, Computershare Investor Services PLC, Leven House, 10 Lochside Place, Edinburgh Park, Edinburgh EH12 9DF on and after Monday 17 March 2014.
In addition to the full annual report, up-to-date performance data, details of new initiatives and other information about the Company can be found on the Company's website.
Annual General Meeting
The Company's Annual General Meeting will be held on Thursday, 1 May 2014 at 11.00 am at the Gardyne Theatre, Gardyne Road, Dundee, DD5 1NY
Statement of Directors' Responsibilities
The responsibility statement below has been prepared in connection with the Company's Annual Report and Accounts for the year ended 31 December 2013. Certain parts thereof are not included within this announcement.
We confirm that to the best of our knowledge:
· the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
· the Directors' report and the Strategic report include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties it faces; and
· the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the performance, strategy and business model of the Company.
|Karin Forseke||Katherine Garrett-Cox|
|6 March 2014||6 March 2014|
This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Alliance Trust PLC via Globenewswire