Half-yearly Report

INTERIM REPORT FOR THE SIX MONTHS ENDED 31 JULY 2007 Statement of investment objective and policy Alliance Trust is a self­-managed investment company with investment trust status. Our objective is to be a core investment for investors seeking a long-­term store of increasing value. We allocate our capital across a broad range of asset classes to enhance and preserve total returns and to provide shareholders with real growth over the medium to long term. We can use investment techniques such as gearing and hedging to enhance returns and reduce risks within our portfolio. We do not benchmark against any equity index as we retain the freedom to move not only between equity markets as opportunities arise but also to invest in other asset classes. We pursue our objective by: - investing in both quoted and unquoted equities across the globe in different sectors and industries; - investing internationally in preference shares and in debt securities including government and corporate bonds; - investing in other assets, including property, cash and other financial instruments and investment vehicles; - retaining the ability to borrow, from time to time, and thereby to gear our portfolio; and - investing in subsidiary and associated businesses which allows us to expand into other related activities with the objective of enhancing shareholder value. Company Statistics 31 July 31 January Change 2007 2007 Net Asset Value (basic) ** 434.62p 421.53p 3.1% Net Asset Value (diluted)** 433.90p 421.43p 3.0% Share price 363.75p 365.50p (0.5%) Discount to basic Net Asset Value 16.3% 13.3% TSR (Total Shareholder Return) 0.6%* 7.5%† Indices 31 July 31 January Change 2007 2007 FTSE All-Share Index 3289.12 3211.84 2.4% FTSE All-World Index ex UK (sterling adjusted) 184.92 180.69 2.3% RPI (Retail Prices Index) 2.2%* 4.2%† * 6 months to 31 July 2007 † 12 months to 31 January 2007 ** Based upon the weighted average number of shares shown in note 6 Performance Summary This interim report sets out the results of Alliance Trust PLC for the six months ended 31 July 2007. Over the past six months the Company's net asset value per share has increased by 3.1% (Basic). Over the same six months the FTSE All­-Share index rose by 2.4% and the FTSE All­-World Index (excluding the UK) rose by 2.3%. During the period approximately half of the Company's assets were invested in the UK with the balance invested overseas. Despite good underlying investment performance the share price declined by 0.5% reflecting a widening of the discount from 13.3% to 16.3%. The widening of the discount is disappointing, given the actions we are taking both to improve investment performance and also to develop our subsidiary businesses. During the period under review, fairly flat returns for equity markets included periods of extreme volatility, with significant falls during late February and late July. Our early decision to move into cash provided some protection for shareholders' capital in those market conditions but did impact our performance as equity markets rose, particularly between mid­-March and mid­-June, during which we retained approximately 6% of the portfolio in cash. This asset allocation decision masked the strong performance of most of our individual fund managers' portfolios during the period. A breakdown of performance indicates that the equity portfolio, which comprises the bulk of our assets, rose by 3.4% over the six months under review. In absolute terms, the Asia-­Pacific portfolio provided the largest uplift, rising by 15.3%, taking it to 13.1% of the equity portfolio by end July. The next largest contributor was the UK Small Cap portfolio, which rose by 4.2%, accounting for nearly 11% of the equity allocation. In addition North America rose in absolute terms by 2.1%. The largest negative contribution came from our exposure to Japan, which fell by 4.8% during the period. A decision was taken at the end of May to reduce significantly our exposure to Japanese assets in both equities and Yen. From 7.1% of net assets, at 31 January 2007, we reduced our exposure to 1.1% by the end of June, selling when the Nikkei index stood at over 17,500. By mid September the index had fallen below 16,000. Our remaining exposure is held within the Premier Alliance Trust Japan Fund. In terms of other asset classes for the Company, preference shares were weaker due to concerns about rising rates, and the contribution from our mineral royalties also slightly fell. Through a combination of rising values and allocation of additional funds our private equity exposure rose to over 4% of net assets during the period. Our long-­held conviction that a market correction was overdue proved to be correct, with the US sub-­prime crisis unleashing widespread contagion in major world markets. However as these events unfolded they presented buying opportunities at more realistic valuations. We acted decisively to invest our cash and moved towards tactical gearing, by borrowing up to 5% of the value of the Trust's assets, in early August. We are prepared to increase further our level of gearing where market conditions support such action. In periods of volatility our strategy of diversifying the portfolio into other asset classes, whose performance is not directly correlated, should reduce the volatility in our net asset value and prove beneficial for shareholders. We made a number of high-quality investments in both private equity and property during the period, as well as continuing to invest in the development of our financial services and asset management subsidiaries. In these areas, as well as in the management of our equity portfolio, Alliance Trust continues to place emphasis on both the preservation and the enhancement of returns for our shareholders. Dividend In accordance with our quarterly dividend policy the Company paid a dividend of 1.9p per share on 31 July 2007 and a further dividend of 1.9p per share will be paid on or around 31 October 2007 to shareholders on the register on 5 October 2007. For the financial year ending 31 January 2008 and in the absence of any unforeseen developments, we expect to be able to recommend a further quarterly dividend of 1.9p payable on or around 31 January 2008 and a fourth interim dividend of at least 1.9p payable on or around 30 April 2008. Economic Background The global economy remained relatively strong over the last six months as higher levels of activity in Asia and Europe compensated for slower growth in the US. The problems with US sub-­prime lending caused associated weakness in the real estate and residential construction sectors. In addition, the US consumer was impacted by volatility in the oil price. A temporary decline in the price of oil helped to underpin consumer confidence during the first half of the year but the oil price recovered in July to regain the record highs reached in August 2006 and sentiment reversed. High levels of economic activity meant central banks continued to raise interest rates in their fight to control inflationary threats. In July the UK base rate reached its highest level since early 2001 after the fifth rate increase since last August. European interest rates also rose during the first half of 2007 and in June reached a six-year high of 4%. In China, as well, the authorities used interest rates as part of a package of monetary measures designed to slow investment growth, which continues to run at a worryingly high level and contributed to economic growth in excess of 10%. Investment Activity At the start of this reporting period, markets maintained their upward trend sustained by strong global growth, excess liquidity as well as buoyant merger and acquisition activity. However, a sharp fall in the Chinese equity market in early March meant investors suffered a rude awakening. The yen `carry trade', the strategy of borrowing cheaply in yen to invest in higher yielding currencies, temporarily began to unwind and risk premia returned after a long period. Over a three week period, equity markets fell, the US dollar and the yen strengthened while bonds rallied as investors sought shelter from the uncertain conditions. We took advantage of market falls to invest cash. However, as share prices recovered we used the opportunity to reduce our exposure to Japan, believing that the market was vulnerable. The FTSE 100 index lost its first constituent to private equity in June following the successful takeover of Alliance Boots, in which we were shareholders. Other holdings affected by merger and acquisition activity were Hanson, which is being taken over, ICI, which is subject to an offer and Reuters, which is merging with Thomson. Meanwhile, Barclays and RBS are vying for ABN Amro and RTZ is pursuing Alcan. At an asset allocation level, as we reduced the portfolio's Japanese holdings, we reinvested the monies into Asian markets and Europe. We also began to rebuild our North American exposure. With recent volatility in markets and the resulting inability for many corporates to maintain access to funding, we favour those companies with strong balance sheets. We believe that they may prove more likely purchasers than private equity firms, many of whom are now being constrained by a lack of credit. As is evident from our evolving diversification strategy, we added to both private equity and property. We were pleased to make our first co-­investment, through Albany Ventures, into a software company which specialises in document protection. While this is a small first step, co-­investment is one of our preferred routes for increasing private equity exposure and it is facilitated by the skill set we gained from the acquisition of Albany Ventures. We also increased our pooled private equity investments, adding to Caledonia and RIT Capital, both of which had slipped to discounts to net asset value after a period of trading at a premium. We expanded our relationship with Promethean by taking a 15% stake, at a cost of £7.5m, in their new Indian venture. In the property portfolio, two properties were purchased over the last six months at a total cost of about £24m. The most significant acquisition was an office property in Mayfair, London although we also acquired a commercial building, with retail space attached, in George Street, Edinburgh. We will continue to seek out prime property assets in major cities to add to our exposure. The current sell-off within the property market is offering a number of interesting opportunities. Subsidiaries Alliance Trust Savings offers investment dealing, savings products such as investment accounts, ISAs and PEPs, First Steps, an account for investing for children, together with a full range of self­-invested personal pensions (SIPPs). These offer investment in a share-­dealing pension, the Select SIPP, or in a Full SIPP, which allows any investment permitted under the HM Revenue & Customs rules, including commercial property. The pensions range also offers Small Self­-Administered Schemes (SSASs), primarily for directors of small companies. During the half-­year, Alliance Trust Savings launched its new online dealing service which allows customers to deal real-­time and use its extensive third party investment research services, complementing its established postal and telephone services. The online dealing service already has almost 14,000 customers and now accounts for 17% of all share transactions by our customers. During this reporting period the total number of customers rose to more than 46,000, with over 70,000 plans. SIPP sales across our range increased by over 10%. This continued growth means that Alliance Trust Savings remains one of the country's top ten SIPP providers in what is a growing and competitive part of the pensions market. We have continued to invest in Alliance Trust Savings during the period to enable it to develop a wider range of products and services to meet the changing needs of its customers, enabling them to consolidate their wealth on its platform. We continue to see significant interest in this area as well as from other companies looking to transfer their investors' administration to Alliance Trust Savings. Since 1 January 2007 we have seen transfers of business by Montanaro and Investec from their previous administrators. We believe the transparent and cost­-effective products offered by Alliance Trust Savings, as well as its well­-regarded administration and emphasis on customer service, leave it well placed to benefit from the regulatory changes occurring in the UK market. Through our subsidiaries, AT Asset Management (Asia-­Pacific) and Albany Venture Managers we are developing our asset management capability. Both of these subsidiaries provide asset management services to third parties as well as managing the Company's own investments within their respective areas of expertise. Financial Performance Consolidated This section covers the financial results of Alliance Trust PLC and its subsidiaries. Over the six months to 31 July 2007 our consolidated profit before tax was £117.0m (£33.0m), which comprised £35.5m (£30.6m) net revenue and £81.5m (£2.4m) net capital appreciation on the group's assets. Parent Company This section covers the financial results of Alliance Trust PLC (the `Company'). On 21 June 2006 the Company acquired The Second Alliance Trust PLC (`Second Alliance') for a consideration comprising the issue of new shares representing 25% of the Company's enlarged share capital. Prior to the acquisition the Company had shared its cost base with the Second Alliance and the impact of the acquisition was to increase both the asset base of the Company and its costs by approximately one third. The Company accounted for this transaction as an acquisition of assets, principally the portfolio of Second Alliance. In the comparable period for last year, income and costs prior to 21 June 2006 reflect those of the Company before the acquisition and after that date reflect those of the Company as enlarged by the Second Alliance. The revenue of the Company rose to £46.7m (£46.0m including Second Alliance revenue of £10.4m for the period from 1 February 2006 to 21 June 2006). Since January 2007 our property portfolio has grown from five to seven properties. Rental income for the period was £1.7m. The portfolio is now valued at £91.2m. Company expenses for the period were £7.6m including a non­-recurring £0.8m (including national insurance) payable on our new Chief Investment Officer joining the Company. For the six months to 31 July 2006 comparable expenses were £4.7m. The expenses for the current period also include £0.3m relating to the accounting cost of options to receive shares in the Company granted to directors and employees under the incentive arrangements approved by shareholders on 24 May 2007. Subsidiaries This section covers the financial results of the Company's principal trading subsidiaries. Alliance Trust Savings, our financial services subsidiary, is expanding rapidly. Income grew to £6.5m (£5.7m) with strong growth in share-dealing and related deposit gathering. Pensions income also showed strong growth and SIPP volumes were up by more than 10% in the six months to 31 July 2007. We have continued to invest in Alliance Trust Savings, with expenses for the period of £13.8m (£8.1m). Staff costs increased by £2.0m as we invested in both management and administrative staff to handle the higher volumes and lead the new business initiatives launched during the period. We have continued our technology investment, which is reflected in a higher depreciation charge of £0.8m. In order to improve customer service and to secure long-term improvements in efficiency we have made a number of one-off investments including the centralisation of certain of our back office functions in Dundee. These activities are fundamental to our drive to build a profitable business. We have also reviewed capitalised expenditure and written off the cost of remedial work on systems. The total cost of these one-off items in the period is £2.2m. Further non-recurring costs estimated at £2m are anticipated for the second half of the year. Our asset management subsidiaries reported income for the period of £0.9m (nil). Of this £0.7m related to the provision of asset management services to Alliance Trust. The expenses of the asset management subsidiaries were £1.0m (nil). Outlook The US housing market correction has almost certainly not yet ended and the risk remains that dislocation caused by sub-prime lending will weigh upon the wider market. The prevailing strength of the US labour market will determine how this affects consumer confidence and spending. Although a decline in US consumer spending is likely to have a negative effect on both Europe and Asia, the scale of this might be lessened by the current increased levels of intra-regional trade and activity in both regions. In the UK, the ongoing strength of consumer spending is likely to be tested as the impact of tighter monetary policy, together with economic uncertainty created by tighter credit markets, begins to take effect over the next few months. Equity markets are facing uncertainty as credit spreads widen, confidence is tested and volumes are low. Nonetheless, we are ready to add to our equity positions, and to increase tactical gearing further should markets fall significantly. We are encouraged by corporate balance sheet strength, which will help during more challenging times and provides a solid base for future growth. Events during the period have reinforced our conviction that we will make best use of the company's capital for long-term returns by seeking diversification of our assets. Private equity exposure will depend on selective opportunities and we will also look to expand our co-­investment positions. Our direct property strategy will focus on acquisitions that fit our required criteria of quality and valuation. Overall, we expect a challenging second half to this year. However, on a longer­-term horizon, we believe that the Company will continue to benefit from our improved investment processes and the returns on our investment in our financial services subsidiaries. Responsibility statement of the directors in respect of the half-­yearly financial report We confirm that to the best of our knowledge: - the condensed set of financial statements has been prepared in accordance with IAS 34 `Interim Financial Reporting' as adopted by the EU; - the interim management report includes a fair review of the information required by: (a) DTR 4.2.7R of the `Disclosure and Transparency Rules', being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and (b) DTR 4.2.8R of the `Disclosure and Transparency Rules', being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so. Signed on behalf of the Board Alan Harden Lesley Knox Chief Executive Chairman 24 September 2007 Consolidated Income Statement (unaudited) For the period ended 31 July 2007 6 months to 31 July 2007 6 months to 31 July 2006 Year to 31 January 2007 (audited) £000 Note Revenue Capital Total Revenue Capital Total Revenue Capital Total Revenue Deposit interest 6,905 - 6,905 3,921 - 3,921 11,009 - 11,009 Dividend income 42,899 - 42,899 33,470 - 33,470 58,750 - 58,750 Mineral rights income 929 - 929 1,057 - 1,057 1,575 - 1,575 Rental income 1,748 - 1,748 648 - 648 1,935 - 1,935 Gains and Losses on investments (Decrease) in fair-value designated investments held - (32,463) (32,463) - (87,284) (87,284) - (52,382) (52,382) Increase in fair-value designated investments disposed of - 113,781 113,781 - 90,344 90,344 - 201,655 201,655 Other operating income 4,259 - 4,259 3,726 450 4,176 7,763 - 7,763 -------------------------------------------------------------------------------------------------------------------- Total Revenue 56,740 81,318 138,058 42,822 3,510 46,332 81,032 149,273 230,305 Administrative expenses (19,319) (871) (20,190) (10,466) (62) (10,528) (25,180) (462) (25,642) Merger expenses - - - - (2,461) (2,461) - (2,461) (2,461) Finance costs (1,883) - (1,883) (1,720) (1,008) (2,728) (3,199) (1,224) (4,423) Foreign exchange - 994 994 - 2,404 2,404 - (1,651) (1,651) gains/(losses) -------------------------------------------------------------------------------------------------------------------- Profit before tax 35,538 81,441 116,979 30,636 2,383 33,019 52,653 143,475 196,128 Tax (4,129) 85 (4,044) (3,488) 306 (3,182) (4,329) 367 (3,962) -------------------------------------------------------------------------------------------------------------------- Profit for the period 31,409 81,526 112,935 27,148 2,689 29,837 48,324 143,842 192,166 -------------------------------------------------------------------------------------------------------------------- Attributable to: Minority interest - - - (664) 202 (462) (664) 202 (462) Equity holders of the parent 31,409 81,526 112,935 27,812 2,487 30,299 48,988 143,640 192,628 -------------------------------------------------------------------------------------------------------------------- 31,409 81,526 112,935 27,148 2,689 29,837 48,324 143,842 192,166 Earnings per share From continuing operations Basic 4 4.68p 12.14p 16.82p 5.15p 0.46p 5.61p 8.08p 23.70p 31.78p Diluted 4 4.67p 12.13p 16.80p 5.15p 0.46p 5.61p 8.07p 23.66p 31.73p Consolidated Statement of Recognised Income and Expense (unaudited) 6 months to 31 July 6 months to 31 July Year to 31 January 2007 2007 2006 (audited) £000 Note Revenue Capital Total Revenue Capital Total Revenue Capital Total Income and expense recognised directly in equity: Defined benefit plan actuarial gains 5 - 1,203 1,203 - 142 142 - 304 304 Profit for the period 31,409 81,526 112,935 27,148 2,689 29,837 48,324 143,842 192,166 -------------------------------------------------------------------------------------------------------------------- Total recognised income and expense for the period 31,409 82,729 114,138 27,148 2,831 29,979 48,324 144,146 192,470 Attributable to: Minority interest - - - (664) 202 (462) (664) 202 (462) Equity holders of the parent 31,409 82,729 114,138 27,812 2,629 30,441 48,988 143,944 192,932 -------------------------------------------------------------------------------------------------------------------- 31,409 82,729 114,138 27,148 2,831 29,979 48,324 144,146 192,470 Consolidated Balance Sheet (unaudited) As at 31 July 2007 31 January 2007 £000 Note 31 July 2007 31 July 2006 (audited) Non-current Assets Held as fair value investments 2,721,072 2,583,623 2,538,385 Investment property 91,190 37,940 67,145 Property, plant and equipment: Office premises 900 900 900 Motor vehicles 51 43 32 Intangible assets 14,659 11,713 14,808 Retirement benefit surplus 5 1,900 - 181 Deferred tax assets 944 2,036 1,390 ------------------------------------------------------------------------------------------------------ 2,830,716 2,636,255 2,622,841 Current assets Other receivables 47,520 20,506 32,826 Cash and cash equivalents 321,243 201,406 346,571 ------------------------------------------------------------------------------------------------------ 368,763 221,912 379,397 Total assets 3,199,479 2,858,167 3,002,238 Current liabilities Other payables (269,702) (133,156) (155,194) Current tax liabilities (1,214) (1,739) (1,473) Bank overdrafts and loans - (44,117) (5,188) ------------------------------------------------------------------------------------------------------ (270,916) (179,012) (161,855) Total assets less current liabilities 2,928,563 2,679,155 2,840,383 Non-current liabilities Deferred tax liabilities (570) - (228) Retirement benefit obligations - (51) - ------------------------------------------------------------------------------------------------------ Net assets 2,927,993 2,679,104 2,840,155 Equity Share capital 16,798 16,798 16,798 Capital reserves 2,179,478 1,950,101 2,096,078 Merger reserve 645,335 645,335 645,335 Revaluation reserve 608 - - Capital redemption reserve 2,200 2,200 2,200 Revenue reserves 75,053 64,670 73,454 ------------------------------------------------------------------------------------------------------ Equity attributable to equity holders of the parent 2,919,472 2,679,104 2,833,865 Minority interest 8,521 - 6,290 Total Equity 2,927,993 2,679,104 2,840,155 Net asset value per ordinary share Basic 6 435.2p 398.8p 422.0p Diluted 6 434.5p 398.7p 421.8p Consolidated Cash Flow (unaudited) For the period ended 31 July 2007 £000 Note 6 months to 6 months Year to 31 31 July 2007 to 31 January July 2006 2007 (audited) Cash flow from operating activities Profit before tax 116,979 33,019 196,128 Adjustments for: Gains on investments (81,318) (3,510) (149,273) Foreign exchange (gains)/losses (994) (2,404) 1,651 Scrip dividends (300) (152) (617) Bond premium amortisation - - 222 Depreciation 13 5 19 Amortisation of intangibles 1,946 22 177 Interest payable 1,883 2,071 4,423 -------------------------------------------------------------------------------------------------------------- Operating cash flows before movements in working capital 38,209 29,051 52,730 Increase in amounts due to depositors 36,463 27,993 36,661 Increase in receivables (15,638) (8,354) (13,643) Increase in payables 76,573 7,831 11,098 -------------------------------------------------------------------------------------------------------------- Net cash from operating activities before income taxes 135,607 56,521 86,846 Taxes paid (522) (706) (4,760) -------------------------------------------------------------------------------------------------------------- Net cash from operating activities 135,085 55,815 82,086 Cash flows from investing activities Proceeds on disposal of fair value through profit and loss 594,254 279,314 871,207 investments Purchase of fair value through profit and loss investments (693,396) (268,721) (645,326) Cash and cash equivalent acquired through merger - 23,596 23,596 Purchase of investment properties (24,045) - (36,684) Purchase of property, plant and equipment (66) (14) (35) Purchase of intangible assets (1,433) (510) (4,536) Purchase of business and subsidiary undertaking - - (224) -------------------------------------------------------------------------------------------------------------- Net cash (outflow)/inflow from investing activities (124,686) 33,665 207,998 Cash flows from financing activities Dividends paid - Equity (25,844) (37,541) (50,136) Purchase of own shares (4,523) (321) (321) Repayment of borrowings (5,188) (10,721) (54,837) Minority interest investment in PATIF* 5,905 - 2,616 Dividends (paid to) minority interest - - (125) Interest payable (1,883) (2,071) (4,423) -------------------------------------------------------------------------------------------------------------- Net cash outflow from financing activities (31,533) (50,654) (107,226) Net (decrease)/increase in cash and cash equivalents (21,134) 38,826 182,858 Cash and cash equivalents at beginning of period/year 341,383 160,176 160,176 Effect of foreign exchange rate changes 994 2,404 (1,651) -------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at the end of period/year 321,243 201,406 341,383 *Premier Alliance Trust Investment Funds Notes to the Financial Statements 1 General information The information for the period ended 31 July 2007 does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. A copy of the statutory accounts for the year ended 31 January 2007 has been delivered to the Registrar of Companies. The auditors' report on those accounts was not qualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. The interim results are unaudited. They should not be taken as a guide to the full year and do not constitute the statutory accounts. 2 Accounting policies The condensed set of financial statements has been prepared using accounting policies consistent with International Financial Reporting Standards (IFRS) as adopted for use in the EU and in accordance with IAS 34 `Interim Financial Reporting'. The same accounting policies, presentations and methods of computation are followed in the condensed set of financial statements as are applied in the Group's latest annual audited financial statements. Segmental Analysis No segmental analysis is provided as the requirements provided under IAS14/FRS8 have not been met and the directors consider that the identified operating segments are immaterial in relation to the results of the group as a whole. Changes in Accounting Policy There are no changes in accounting policies in the period which amend those of the audited financial statements for the year ended 31 January 2007. No material changes in accounting policy are anticipated in the forthcoming financial statements for the year ended 31 January 2008. Acquisition of The Second Alliance Trust PLC On 21 June 2006 the Company acquired The Second Alliance Trust PLC (`Second Alliance') for a consideration comprising the issue of new shares representing 25% of the Company's enlarged share capital. Prior to the acquisition the Company had shared its cost base with the Second Alliance and the impact of the acquisition was to increase both the asset base of the Company and its costs by approximately one third. The Company accounted for this transaction as an acquisition of assets, principally the portfolio of Second Alliance. In the comparable period for last year, income and costs prior to 21 June 2006 reflect those of the Company before the acquisition and after that date reflect those of the Company as enlarged by the Second Alliance. 3 Dividends 6 months to 6 months to Year to 31 July 2007 31 July 2006 31 January 2007 £000 Amounts recognised as distributions to equity holders in the period: Final dividend for the year ended 31 Jan 2006 of 3.70p* per share - 18,646 18,646 First interim dividend for the year ended 31 Jan 2007 of 3.75p* per share - 18,895 18,895 Second interim dividend for the year ended 31 Jan 2007 of 1.875p per share - - 12,595 Third interim dividend for the year ended 31 Jan 2007 of 1.95p per share 13,099 - - First interim dividend for the year ended 31 Jan 2008 of 1.9p per share 12,745 - - * Comparative dividends per share have been restated to reflect the 10:1 subdivision of the Company's ordinary shares. 4 Earnings per share From continuing operations The calculation of the basic and diluted earnings per share is based on the following: 6 months 6 months Year to to 31 July to 31 July 31 January 2007 2006 2007 Basic Earnings Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent (£000) 112,935 30,299 192,628 Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share 671,434,022 540,279,746 606,026,834 Diluted Earnings Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent (£000) 112,935 30,299 192,628 Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share 671,909,760 540,380,448 607,045,990 The weighted average number of ordinary shares is arrived at by taking account of the 1,108,624 (162,939 at 31 July 2006 and 31 January 2007) ordinary shares acquired by the Company and held by the trustees of the Employee Benefit Trust (`EBT') for the Company. The diluted earnings per share is calculated by adding back these shares. 5 Defined benefit schemes The Company sponsors the Alliance Trust Companies' Pension Fund which is a funded defined benefit arrangement. The last full actuarial valuation of this scheme was carried out by a qualified independent actuary as at 1 April 2006 and updated on an approximate basis to 31 July 2007. The contributions made by the employer over the six months to 31 July 2007 were £1,175,368. These comprise the amount expected to be payable in the year to 31 January 2008. The actuarial gain made in the period and recognised in the statement of recognised income and expense was £1,203,000. It is the policy of the group to recognise all actuarial gains and losses in the year in which they occur outside the profit and loss account and in the statement of recognised income and expense. Certain actuarial assumptions have been used to arrive at the retirement benefit surplus of £1.9m (31 January 2007 £0.2m) as at 31 July 2007. 31 July 31 July 31 January 2007 2006 2007 Inflation 3.50% 3.25% 3.25% Salary increases 4.50% 4.25% 4.25% Rate of discount 5.75% 5.25% 5.25% Allowance for pension in payment increases of RPI or 5% p.a. 3.50% 3.25% 3.25% if less Allowance for revaluation of deferred pensions of RPI or 5% 3.50% 3.25% 3.25% p.a. if less 6 Net Asset Value per Ordinary Share The calculation of the basic and diluted net asset value per ordinary share is based on the following: 6 months 6 months Year to to 31 July to 31 July 31 January 2007 2006 2007 Basic Equity shareholder funds attributable to equity holders of the parent (£000) 2,919,472 2,679,104 2,833,865 Number of shares at period end 670,801,136 671,746,821 671,746,821 Diluted Equity shareholder funds attributable to equity holders of the parent (£000) 2,919,472 2,679,104 2,833,865 Number of shares at period end 671,909,760 671,909,760 671,909,760 The number of shares at the period end is arrived at by taking account of the 1,108,624 (162,939 at 31 July 2006 and 31 January 2007) ordinary shares acquired by the Company and held by the trustees of the EBT for the Company. The diluted net asset value per ordinary share is calculated by adding back these shares. 7 Related party transactions Alliance Trust Finance (ATF) and Alliance Trust Services purchases goods and services on behalf of the Group and recharge these costs directly to the companies to which these costs relate. During the period ATF was reimbursed the following amounts by the relevant companies: 6 months 6 months Year to to 31 July to 31 July 31 January 2007 2006 2007 £000 Alliance Trust 2,830 3,294 6,403 Alliance Trust Savings Limited 4,822 4,151 9,258 During the period Alliance Trust Services was reimbursed the following amounts by the relevant companies: 6 months 6 months Year to to 31 July to 31 July 31 January 2007 2006 2007 £000 Alliance Trust 2,423 - - Alliance Trust Savings Limited 3,602 - - Transactions with key management personnel For the purpose of IAS 24 `Related party disclosures' key management personnel comprise the executive and non-executive directors of the Company. Their remuneration and compensation is summarised below: 6 months 6 months Year to to 31 July to 31 July 31 January 2007 2006 2007 £000 Total emoluments 1,621 598 967 Post retirement benefits 119 92 113 Equity compensation benefits 233 48 65 As noted in the financial statements for the year ended 31 January 2007, Katherine Garrett-Cox became an executive director of the Company on 1 May 2007. In connection with this appointment and at the recommendation of the Remuneration Committee, the Company has made awards to Mrs Garrett-­Cox under a Share Award Agreement based upon the Alliance Trust PLC Long Term Incentive Plan. Under the terms of this agreement a one-off payment of £700,000 was paid to Mrs Garrett-­Cox when she started work in May 2007. This amount, including any associated national insurance contributions, is included in the total emoluments figure above. Other related party transactions are not material to either party. 8 Intangible Assets - Goodwill Impairment Testing Goodwill has arisen on the acquisition of certain businesses and assets. It is subject to an annual impairment review. Where this indicates that the carrying value is not recoverable it is written down through the income statement. There is no impairment loss for the period (2006-Nil) 9 Capital Expenditure Commitments Construction Agreement During the period the Company signed a pre-­construction agreement with Miller Construction (UK) Limited in relation to the construction of its new headquarters in Dundee. The total budgeted costs of construction of the new building are £12.5m. Over the next twelve months total capital expenditure on the project is expected to total £6.9m. Venture Capital Fund Commitments On 31 July 2007 the Company had undrawn venture capital fund commitments totalling £35.9m (£37m at 31 January 2007). 10 Post Balance Sheet Events Borrowing On 1 August 2007, through floating rate loan facilities, with a maximum rate of LIBOR plus 0.375%, the Company borrowed £145m in order to take advantage of investment opportunities. The loans currently carry a weighted average interest rate of 6.38%. Land Purchase On 7 September 2007 the Company completed the purchase of the land upon which its new headquarters in Dundee will be built. The purchase price was £1m. Venture Capital Fund Commitments On 22 August 2007 the Company committed funds totalling Euro 20m, £13.5m, to the Climate Change Capital Private Equity LP Fund. At that date £13.4m of this commitment remained undrawn. 11 Share Based Payments The group operates three share based payment plans All­-Employee Share Ownership Plan (`AESOP') AESOP performance targets are set annually and dependent on their achievement all employees may receive up to £3,000 of shares; this amount is prorated for part time employees. Individuals receive these shares free of all restrictions after a period of 5 years. Senior Management Equity Incentive Plan (`SMEIP') The group formerly operated the SMEIP as a discretionary plan for executive directors and senior managers. At least half of the participant's annual bonus was applied to purchase shares in the Company to be held in an Employee Benefit Trust (`EBT'). A matching award over shares in the Company was made to the participant, with vesting at the end of the three year deferral period dependent upon the achievement of targets based on the total shareholder return (`TSR') of the Company compared to a peer group of other investment trusts. Following approval of the new Long Term Incentive Plan in May 2007, no further awards will be made under the SMEIP. However awards previously made remain subject to the rules of the SMEIP. Long Term Incentive Plan (`LTIP') The LTIP was approved by the Company's shareholders at its annual general meeting on 24 May 2007 and replaces the SMEIP. Like the SMEIP, it is a discretionary plan for executive directors and senior managers. The LTIP comprises two elements: firstly it provides for the grant of matching awards based on the proportion of annual bonus applied by participants in the purchase of shares in the Company and held in the EBT; and secondly it provides for the grant of performance awards. Both awards, granted over shares in the Company, vest either in full or in part at the end of the three year performance period subject to the TSR of the Company meeting pre-­defined targets. In the period to 31 July 2007 participating employees applied a proportion of their annual bonuses to purchase 103,711 (67,700) Company shares at a price of £3.8625 per share. Matching awards of up to 197,928 (140,360) shares, and performance awards of up to 1,015,637 (nil) shares were granted. Matching awards and performance awards made during the period were valued at £266,807 (£290,703) and £1,233,659 (nil) respectively. The fair value of the awards was based upon a share price of £3.8625 (£3.78) per share, a risk free rate of return of 5%, a dividend yield of 2.03% and RPI growth of 3% per annum. In addition to the foregoing plans, matching awards of 434,338 shares were granted (based on her investment in Alliance Trust shares) to Katherine Garrett­-Cox in connection with her appointment as Chief Investment Officer of the Company. Those awards were made at the same time as, and otherwise on the same terms to, matching awards granted under the LTIP. The awards were valued at £585,488 based on the assumptions referred to in the foregoing paragraph. The cumulative charge to the income statement during the period for the cost of the SMEIP and LTIP awards referred to above was £236,181 for the Company and £364,713 for the group. Per IFRS2 the costs of awards are expensed over the three year performance period. Note on Audit This half-yearly financial report has not been audited or reviewed by our auditors pursuant to the Auditing Practice Board guidance on Review of Interim Financial Information. Press Release ALLIANCE TRUST NET ASSET VALUE RISES AS CHOPPY MARKETS OPEN UP OPPORTUNITIES - Company net asset value up 3.1% - Equity portfolio rose 3.4% - Greater volatility on stock markets led to buying opportunities - Investment increased in private equity and property - Subsidiaries revenue up with over 10% growth in SIPP business in the six months to 31 July 2007. Alliance Trust PLC, announced today that the net asset value of the Company rose 3.1% to £2,915m in the six months to 31 July 2007. Consolidated profit before tax for the period rose to £117m, made up of a £81.5m net capital appreciation on the group's assets as well as net revenue of £35.5m. This compares with a figure of £33.0m for the same period in the last financial year, made up of £2.4m net capital appreciation and £30.6m of net revenue Gains on stock market investments boosted capital income although our decision last year to reduce equity exposure dampened short-term gains. The value of the quoted equity portfolio rose 3.4% led by strong absolute gains in Asia-Pacific, up 15.3%, and UK Small Cap, which climbed 4.2%. This was offset by a drop in Japan of 4.8% and during the period the company cut its exposure to Japan from 7.1% to 1.1% of net assets. Increased revenue included rental income from our increased property portfolio and fees from asset management activities in private equity and Asia-Pacific subsidiaries. The Company continued to diversify assets across different asset classes over the half year. At the end of the period, 86.5% of the Company's assets were invested in quoted equities, with 4.2% in private equity, 3.5% in property, 3.3% in cash and other net assets, 0.9% in fixed income and 1.6% in subsidiaries. Chief Executive Alan Harden said, "We enjoyed steady growth over the six months despite some sharp moves on the stock market in late February and late July. More importantly, we acted boldly as value started to emerge in the quoted equity markets where we were a decisive and active buyer, particularly at the end of the period and afterwards. We also made good progress in our objective of diversification, increasing our exposure to private equity and property. We continued to invest in our people and our business to build even stronger, complementary income streams and drive improved performance over the long-term." "We remain convinced the best use of company capital is to continue seeking diversification of our assets beyond quoted equities into areas such as commercial property with strong rental yield, venture capital or private equity partnerships with prospects for medium and long-term growth and returns, and our fast-growing subsidiaries, which can generate fees and revenue that are not directly correlated with the stock markets. Investing in our financial services businesses and building up specialist teams in asset classes such as property and private equity is a long-term strategy. Although markets are still struggling with uncertainty, we are confident that this strategy is positioning our group well for long-term growth with a solid portfolio of quality stocks and specialist investment opportunities." Chief Investment Officer Katherine Garrett-Cox said, "Fairly flat returns for equity markets over the period masked periods of extreme volatility. We took decisive action as opportunities emerged and investors began pricing risk back into the market. We reinvested some of the cash we generated by reducing our equity exposure last year, when we anticipated this sea-change in attitudes to risk, cutting our cash holding in the company from over 7% of net assets at the start of the period to just over 3% at the end. We have since moved further, taking gearing of up to 5% to acquire stocks we believe present real long-term value. Since our objective is to provide real growth we have the flexibility to pinpoint exactly those assets we believe will deliver real long-term growth in income and capital. We used the freedom this gives us to cut our holding in Japan from 7.1% to 1.1% of net assets and switch into Asia-Pacific and Europe." Contacts Jane Holligan, Media Relations Manager Alliance Trust Tel +44 (0)1382 306064 Mobile 07745 783 212 Email jane.holligan@alliancetrust.co.uk Web www.alliancetrust.co.uk Amy Fisher/Richard Winder Lansons Communications Tel +44 (0)20 7294 3641 / 3629 Email alliancetrust@lansons.com Kelly O'Donnell Head of Investor Relations Tel +44 (0)1382 306036 Email Kelly.odonnell@alliancetrust.co.uk

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