Alliance Trust PLC : Final Results
Alliance Trust PLC
12 March 2013
Alliance Trust PLC
Results for year to 31 December 2012
| Financial Highlights | As at 31 Dec 2012 | Change from December 2011 | Total Return | AIC Global Growth Sector Total Return |
| NAV per share | 444.9p | 9.6% | 12.1% | 12.4% |
| Share Price | 375.3p | 9.5% | 12.4% | 12.3% |
| Full year dividend | 9.63p | 7.0% | Including special dividend of 0.36p | |
| Ongoing Charges Ratio | 0.67% | +11bps | ||
Company highlights - Alliance Trust gains momentum
Alliance Trust gains momentum in the year to 31 December 2012, with its investment and savings businesses benefiting from significant transformation.
Strong investment performance delivered, with Net Asset Value Total Return of 12.1% and Total Shareholder Return of 12.4%, in line with the AIC Global Growth index and broad market indices such as the MSCI All-Country World Index.
The investment portfolio was restructured during the year, with the team consolidating four regional portfolios into one global portfolio, adopting a higher conviction investment approach and reducing the number of holdings to around 100 stocks.
Total dividend payment for the year will be 9.63p, an increase of 7% on 2011. A fourth interim dividend of 2.3175p will be paid, making an ordinary dividend for the year of 9.27p and in addition, a special dividend of 0.36p will be paid. This marks the 46th consecutive year of dividend increases and will be paid out of current year earnings.
Alliance Trust Savings achieved monthly profitability in Q4 2012 and is well positioned to capitalise on the changes being brought in as part of the Retail Distribution Review.
Alliance Trust Investments continued to grow third party assets over the year, after it took on £1.2bn of Sustainable and Responsible Investment funds from Aviva Investors. Total assets under advice and management reached £1.9bn by the end of 2012.
The discount has been narrowing consistently and has remained below 15% since the year end.
Alliance Trust has had the best start to a year for over 20 years, with the share price (+16%) and NAV (+13%) breaking new highs, which compares well to the FTSE All-Share which is up 10%.
Katherine Garrett-Cox, Chief Executive of Alliance Trust PLC, commented:
"Alliance Trust has undergone significant change over the last year and I am pleased that the actions which we have taken across the business have resulted in the good results that we are announcing today. Investment performance continues to improve and the equity portfolio generated double digit returns last year. This performance has enabled us to increase the ordinary dividend and also to pay a special dividend, making an overall increase of 7%, paid out of current year earnings.
Our subsidiaries have made strong progress over the year. Alliance Trust Savings is now well positioned to perform profitably and pick up market share as a result of the changes that are being implemented as part of the Retail Distribution Review. At the same time, Alliance Trust Investments has significantly grown third party assets, becoming one of the leading players in the Sustainable and Responsible Investment sector, following its transaction to bring across the team and funds from Aviva Investors last year.
As we look towards the future, it's clear that the issues that have dogged the markets and the economic data over the last three to four years have not gone away; European governments have not fully resolved the Eurozone issue, nor has the US properly addressed the debt ceiling. However, we invest in companies, not markets, and valuations for many companies remain compelling. There are investment opportunities for those with longer time horizons and I believe that Alliance Trust is now better placed than ever to capitalise on these opportunities in 2013 and beyond. At a time when businesses have suffered an erosion in public trust, we will work to ensure we remain true to our name, our values and to the long-term view of our shareholders, continuing to deliver an improving performance for generations."
-ENDS-
Contact
For more information, please contact:
Conor McClafferty & Clare Dundas
RLM Finsbury
T 020 7251 3801
Evan Bruce-Gardyne
Director of Investor Relations
Alliance Trust PLC
T 01382 321169
Dividend Declaration
Having paid three interim dividends of 2.3175p for last year, the Directors have declared a fourth interim dividend of 2.3175p payable on 5 April 2013 to shareholders on the register on 22 March 2013. The ex-dividend date is 20 March 2012.
In the absence of any unforeseen developments, we expect to be able to recommend quarterly interim dividends of 2.3870p, payable on or around 1 July 2013, 30 September 2013 and 31 December 2013 and a fourth interim dividend of at least 2.3870p, payable on or around 31 March 2014.
Special Dividend
The Directors have also declared a special dividend for last year of 0.36p per share. This dividend is payable on or around 1 July 2013 to shareholders on the register on 7 June 2013. The ex-dividend date is 5 June 2013.
The total dividend for the period, of 9.63p, is an increase of 7% on the 9.00p paid for the previous period.
Re-election of Directors
At the Annual General Meeting on 3 May 2013 Susan Noble, who was appointed to the Board on 11 July 2012, Alastair Kerr who was appointed on 1 October 2012 and Win Robbins who was appointed after the year end on 14 February 2013 will stand for election by shareholders. The other Directors are all standing for re-election.
Statement from the Chair
I am delighted to have the opportunity to present my first statement to shareholders in the same year as Alliance Trust celebrates its 125th anniversary. The nature of our business and the environment in which we operate has undergone great change since 1888, and today more than ever there is a need for us to retain the trust of those we serve.
At Alliance Trust, our culture and values are captured in our vision "to be the UK's most trusted investment and savings business". We need to demonstrate focus on sustainability in everything we do, by:
· Long-term, consistent and strong investment performance
· Focus on client relationships and customer service
· Transparent communication
· A focus on people
· Building products to meet specific needs
· Strong corporate governance
Our investment team continues to build a consistent long-term track record, following the actions which we have taken to sharpen our focus on our core capabilities of equities and fixed income. At the same time our investment and savings businesses have both reached key milestones in their development which should give shareholders the confidence that they can represent a source of value and differentiation. We have also undertaken a number of exciting new initiatives despite the continuing challenges across the markets in which we operate.
Dividend Policy
I announced the intention at our last AGM that, in light of the greater flexibility available to investment trusts following recent changes to the tax regime, the Board would review its dividend policy in the course of this year. Having completed this review we intend to retain our policy of paying a steadily rising dividend. However, we now intend, under normal circumstances, to pay out all of each year's net revenue earnings. Where our current year's earnings exceed our previously published guidance we may pay a special dividend from those earnings. We have also decided that, unless there are exceptional circumstances, we will not pay dividends out of our realised capital reserves as we believe that, in the longer term, this is not sustainable.
Dividend
Our ordinary dividend of 9.27p continues our long and proud tradition of annual increases in the dividend, now stretching into a 46th consecutive year, a record shared with only a handful of other FTSE companies. In addition, we are also announcing a special dividend of 0.36p per share, payable on or around 1 July 2013, making a total for the year of 9.63p per share, a 7% increase over the previous period. The total dividend is again paid from current year earnings. The declaration of a special dividend reflects the level of income generated last year from the companies in our portfolio, during a period when dividend growth was strong.
Discount and share buybacks
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. During the year we bought back around 5% of the Company's share capital.
The effect of our policy of buy-backs has been to reduce the volatility of the discount of our share price to NAV. During 2012, it traded in a narrower range than in any of the last five years. Over the year, the discount narrowed to 13.7% as markets rallied in the first quarter of the year, and then, along with many of the other big trusts in the sector, we saw discounts widen until late June. Thereafter, the discount has been narrowing consistently, so that it ended the year where it started, broadly unchanged, at 15.6%.
Business developments
Each of our businesses underwent change during the course of the year.
The investment portfolio was radically restructured to ensure that going forward we invest on a genuinely global basis, unconstrained by issues of regional allocation, to create long term value for shareholders.
Alliance Trust Savings reached agreement to sell its more complex Full Self Invested Personal Pension (SIPP) business and sold its Small Self Administered Scheme (SSAS) pensions business. This allows it to focus on the opportunities open to a transparently priced on-line trading platform in the new regulatory environment. After a long period of investment in the repositioning of this business it is now well positioned to perform profitably throughout 2013.
Alliance Trust Investments was successful in acquiring Aviva's Sustainable and Responsible Investment team and the funds which it managed, amounting to some £1.2bn. This gives our third party asset management business critical mass in a competitive market place and allows us to offer a product that meets the increasing demand for a sustainable and responsible approach to investments.
The Board
I would like to thank Lesley Knox for all her support, guidance and wise counsel both during her time as a Director and Chairman of your company and also to me as I assumed her role less than a year ago.
Since last year's AGM Consuelo Brooke and Chris Masters have both stood down from the Board and I record my thanks to them both for their contribution. Chris has played an invaluable role in the transition of the Board as Senior Independent Director, and we were fortunate to be able to attract Alastair Kerr as a worthy successor in this role. We also welcomed Susan Noble as a non-executive director during the year and Win Robbins after the end of the year.
A glance at the biographies of the members of the Board will demonstrate the diversity of backgrounds and experience which they bring to the Board table. We have not adopted a quota or target for gender diversity on the Board because, at a time when there is increasing focus on gender diversity in other companies, we can demonstrate a long-term commitment to selecting the best candidates, regardless of gender, throughout the Company, with women currently comprising over half of the Board and one-third of the Executive Committee. Across the Company as a whole, we are constantly seeking ways to ensure that every member of our staff has the opportunity to fulfil their full potential.
A changing business environment
At a time when the financial services sector is widely mistrusted, and economies are only slowly showing signs of recovery from a long period of recession, the regulatory environment in which we operate and the level of risk which we are prepared to accept within our businesses are regular discussion topics for the Board.
The dramatically increased weight of regulation is an understandable reaction to the events of the past, and we seek to engage constructively with our regulators. We know from our own experience that the cost of regulatory compliance has escalated significantly over recent years. Regulation must, however, be proportionate, preventing excessive risk-taking while encouraging a responsible and informed approach to risk. We support a framework that encourages business and provides choice to investors
and customers.
Scottish Independence
As a company, Alliance Trust does not believe it is appropriate that we should make any comment on the merits of the Scottish Independence proposals. We are, however, actively engaged with the CBI and Scottish Financial Enterprise in trying to explain and understand what opportunities and challenges may be presented to us as an investor, employer and a provider of financial products. Scottish independence might alter the landscape for regulated financial services products, although we do not expect much detail on this ahead of the referendum in 2014. As a provider of such products, we are used to operating in a constantly changing legislative environment and are adept at analysing the impact that such changes will have on our businesses and adjusting our products accordingly. We will be prepared and ready to deliver the best for our shareholders, customers and clients regardless of the outcome of the referendum on Scottish independence.
Chief Executive's Review
In a year when trust in the financial sector has been undermined further, it makes me particularly proud to be able to deliver a Total Shareholder Return of 12.4% and an increase in our dividend for the 46th consecutive year. Once again we have been able to deliver the dividend from our current year earnings and I hope that our long term sustainable approach to investing can preserve the transparent and trusted relationship we have with our shareholders.
Building products to meet specific needs
The Chair writes of our objective to build products to meet investors' needs and this has driven many of the changes that we have undertaken during the last five years. We have streamlined the investment portfolio and process. We have undertaken a major overhaul of Alliance Trust Savings which is now well positioned to grasp the opportunities presented by the Retail Distribution Review (RDR) and have, in Alliance Trust Investments, a viable asset management business. While the investment portfolio will drive the Net Asset Value (NAV) in the medium term, the two wholly-owned subsidiaries provide a differentiated offering in the investment trust market place and will provide value to the Trust going forward. We have moved up the peer group performance rankings and, as a result, we can tell a more confident story than we could have done in 2007.
Underpinning all these changes has been a desire to ensure that all that we do, how we do it and how it is paid for is clear for all to see. As a self-managed trust, the costs of managing the Trust are much more visible as they are itemised in the profit and loss account, rather than simply being wrapped up in the management fee that managed trusts will be charged. The advantage of this structure to our shareholders is that more of the benefits of the performance of the portfolio will accrue to the shareholder. We are also providing much more detail on the key metrics which drive the business plans of our subsidiaries, Alliance Trust Investments and Alliance Trust Savings, in order that the reader can develop a better understanding of the revenue drivers for them and ultimately for the Trust itself.
Long-term, consistent and strong investment performance
During the year, the total return of the NAV and the share price was 12.1% and 12.4% respectively and since Christmas both the NAV and the share price have gone on to reach all time highs, whereas many market indices remain below levels reached in 2008. We do not have a fixed benchmark as we believe that this would constrain our ability to shape the portfolio to protect our shareholders capital. However, we recognise that many like to measure the Trust against an index. By way of comparison, during 2012, the total return of the Global Growth Investment Trust sector was 12.3%, FTSE All-Share Index was 12.3% and the MSCI All-Country World Index was 11.7%. Most of these gains accrued in the second half of the year following the announcement of the bailout of the Spanish Banks, the decision by the European Central Bank to buy European government bonds and latterly, the decision by the US to extend the debt ceiling in early 2013.
Over the last two years, we have reduced the level and the volatility of the discount thereby providing our shareholders with much greater levels of confidence about the ongoing relationship between the NAV and the share price. At the end of the year we had almost 90% of the portfolio invested in equity markets, as we believe that this asset class will be the best performing over the long term. We select stocks which we believe will best protect and preserve our shareholders' capital, while providing the potential to generate good returns over the long term.
At the same time, interest rates have languished at their lowest levels since records began for the last four years and we are not forecasting an early return to base rates of 5%. Against such a backdrop, we are constantly reminded by our shareholders of the importance that they place on sustainable income, both in its own right, but also as a component of total return.
Investment team and portfolio structure
In December 2008, we announced our intention to refocus Alliance Trust on its core competencies, which we defined as being investment in global equities and fixed income. Last July, we took the latest step in this process when we announced a radical change to the way in which we manage the equity portfolio of the Trust. Since 2004 we had managed the portfolio on a regional basis, but we concluded that this was failing to recognise that the world is becoming ever more interconnected and that it was not delivering the best return for the level of risk to which the portfolio has been exposed. Consequently, we combined all the equity portfolios into one and appointed Ilario Di Bon to the role of Head of Equities, with direct responsibility for managing the equity portfolio.
One of the consequences of this change is that we have been able to reduce the number of direct equity holdings to around 100 at the year end. This concentration of positions allows us to benefit from greater exposure to our best ideas. The impact of these changes can be seen in the shape of the portfolio. For the first time since 1987, the largest position in the portfolio is not a UK company and at the end of December 2012, none of the top three holdings had their primary listing in the UK.
This change in approach led to a reappraisal of the staffing needs of the investment team. This has also been restructured to reflect the change in focus and, as a consequence, we have reduced the headcount of the Trust's investment team by about one-third. We now run an integrated team of global sector specialists and regional income experts. Over the last 18 months we have been able to be more flexible about where the investment team is based and half of the investment team is now based in our London office, with the balance split between our Dundee and Edinburgh offices.
Income generation
Over the year we have reduced our exposure to UK listed companies and, in particular, have invested more into the US. We undertake detailed analysis to understand the difference between where a company is listed and where it derives its income as we believe that this is a much more accurate indicator as to the future prospects for the income we receive. Many Asian, European and US companies are now returning value to shareholders through dividends to the extent that we have been able to diversify the portfolio away from the UK market, where the bulk of the dividends are concentrated in a handful of stocks, to a much broader base of quality international companies. In addition we have also increased our allocation to fixed income, which now stands at over 9%, and this will allow us to focus the equity portfolio more on delivering capital growth, while still yielding income to the Trust. We anticipate that UK interest rates will remain close to the current low levels, so being able to pay a growing dividend from current year earnings will remain one of our key future objectives.
Borrowing
The Trust's low risk and liquid portfolio enables it to secure the most competitive rates for our borrowing facilities. The average rate for our current borrowings is 1.6%, which compares favourably with the rates available to other institutions. The level of net debt at the end of the year stood at 6.6%, broadly similar to the start of the year. The net amount of borrowing invested in the markets was reduced in the first half of the year as concerns in Europe continued. As the outlook improved in July, following the commitment to stabilise the financial sector, we increased net debt. We will continue to replace and renew our borrowing facilities to ensure we maintain the flexibility to enhance returns by selectively borrowing to fund the portfolio investments. In 2012 borrowings contributed 0.8% to the total return.
Focusing on client relationship and customer service
We believe that Alliance Trust provides a valuable service to the private investor and bridges the gap between the financial and the non-financial community. We employ a team of professional investors to build, manage and monitor a portfolio of assets, in order to provide our shareholders with exposure to equities from all over the world on a cost effective basis. Investment trusts were originally created for "the investor of moderate means" and that still holds true today as around 68% of the shares are either directly or beneficially held by private individuals. We consider the feedback from our large and diverse shareholder base as we formulate our strategy, aware that consistency of returns is equally, if not more important, than short-term performance.
Alliance Trust is unique in that there is no other investment trust with our structure, with our two wholly owned subsidiaries, providing products and services to the wider investment community. Over time we expect that these will provide added value to the shareholders of the Trust. In particular, Alliance Trust Savings provides a savings platform for over 62,000 retail investors and in the last year has won awards or been commended for all that it does; for its customer service, for its products and for the platform upon which the products sit. It has undergone significant change over the last four years and is well positioned to perform profitably throughout 2013. This comes at a time when the Retail Distribution Review is challenging the structure and provision of investment products and we expect that our business model will stand up well under such scrutiny.
Business development
Since the year end Alliance Trust has entered into an outsourcing agreement with its existing supplier of outsourced investment administration services, BNY Mellon. The agreement extends the scope of services provided by BNY Mellon to include middle and back office activities for both Alliance Trust PLC and Alliance Trust Investments.
This decision was taken, following an extensive supplier selection exercise, in order to allow us to focus on our core competencies and outsource some of the portfolio administration functions. We envisage that while this will not result in significant cost savings in the short term, the arrangement will provide a single, scalable and cost-effective solution. In addition it will allow us to shorten the time to market for new products and services, and enable management to focus greater effort and investment on those critical value adding activities of investment management and business development.
Transparent communication
Over the last 12 months we sought the views of a wide range of private investors, investment analysts, advisers and journalists on Alliance Trust. We were seeking to understand whether our current shareholders, investment analysts, advisers and journalists felt that the Alliance Trust brand was robust enough to attract the next generation of investors. This is of special relevance today as the Retail Distribution Review alters the investment landscape.
We are seen as independent, solid, committed and trusted by many loyal investors. But, at the same time, in the eyes of some, we have appeared dull, old-fashioned and boring. We recognised that we had two tasks. The first was to ensure that all our staff are better informed about all parts of the business and the second was to look at how we appear to the outside world. The logo on the front cover of our Accounts is the product of this project and it works to bring a more united presentation of Alliance Trust PLC, Alliance Trust Investments and Alliance Trust Savings. We will be rolling it out across the entire business over the next six months.
A focus on people
At Alliance Trust we are dedicated to developing the talent at all levels within our business. The key to our success as a business depends upon the engagement and dedication of our people and we are committed to unlocking potential and providing our people with rewarding and challenging careers. We achieve this through a combination of formal leadership programmes, which develop leadership styles and techniques, ongoing in-house training for all staff, comprehensive graduate recruitment programmes and internships. We were delighted to be able to attract a visiting Harvard Professor to deliver a thought provoking programme for our senior leaders in June 2012. We also target the leadership development of our emerging leaders to ensure that we are nurturing the next level of management for the future, through various programmes including an MBA run in conjunction with Strathclyde Business School. We devote time and energy into developing our key people and careful selection is made of established and emerging leaders to participate in key projects. We realise that the best ideas come from all levels of our business and our culture encourages contribution and challenge.
Outlook
Equity markets have started 2013 in a positive mood, with the best market performance for over 10 years, despite a number of fundamental global monetary imbalances and economic activity remaining subdued. Alliance Trust has had its best start to a year in terms of share price performance and NAV performance for over 20 years.
This highlights one of the key issues faced when positioning the portfolio for the long term. If we look in isolation for cyclical economic changes to determine which countries and sectors will do best, then we are likely to increase portfolio turnover, thus increasing costs and run the risk of misreading the economic signals and being held hostage to macro and political misadventure.
This is why we remain committed to our rigorous and thematic bottom up approach to ensure our investment decisions are focused on finding high quality companies with consistency of earnings, sound management teams and compelling business models as these companies are best placed to weather changes to market sentiment. The formal investment process is made up of four interconnecting elements of idea generation, idea validation, portfolio construction and risk management. We have targeted a portfolio of around 100 stocks, which means that we invest with greater conviction than we have in the past. This spreads the investment risk sufficiently but still allows us to deliver above market returns over the long term.
In essence we have continued to add to our high conviction holdings such as Pfizer and Qualcomm, and have taken profits in stocks that have realised their potential and initiated new holdings in companies with sustainable long-term prospects.
Looking forward into 2013, we continue to assert that equities remain good value relative to other asset classes, particularly government bonds. At a company level we are analysing a range of interesting opportunities which meet our investment criteria and we continue to meet with management of well run businesses with strong balance sheets and valuations that are consistent with above average returns, particularly for long-term investors such as Alliance Trust.
The economic backdrop to this fundamental approach is less gloomy than last year and we forecast that the global economy will grow in 2013, albeit marginally. Many governments and financial institutions will face the challenge of repairing their balance sheets and policy makers will be faced with difficult decisions between austerity and stimulating growth. Recent market moves and the strong flow of funds into equities from bonds suggest that investors feel more confident that the outlook is improving and confidence will play a part in global recovery. However, while we do not expect the current rally to run for the rest of the year at the current pace, we are confident that our portfolio of companies is well placed to drive returns for the Trust.
Portfolio Performance Analysis
Performance
The Net Asset Value (NAV) total return for 2012, including reinvested dividends, was 12.1%. Although we do not have a formal benchmark this compares favourably with a return of 11.7% for global equity markets, represented by the MSCI All Country World Index in Sterling terms.
Equity investments, representing on average 95% of net assets, contributed 10.3% to the NAV total return. The attribution analysis table overleaf gives more information on how this performance was generated from a global sector perspective as this is more representative of how we invest than a geographical analysis.
Investments in fixed income provided over 1% to the total return. The allocation to fixed income was increased during the second half of the year to over 9%, and the investments provided a total return of nearly 23%. It was a strong year for fixed income markets in general, and the Trust's investment in the Monthly Income Bond Fund, which accounted for the majority of the Trust's investment in fixed income, had a relative positive return of 4% compared to the IBoxx Sterling Corporate Bond 5-15 year index which is the benchmark for that fund.
Other Assets - which include Private Equity, Real Estate and Subsidiaries - made a small positive contribution to NAV growth, while cash balances made a negligible return due to the continuing very low level of interest rates. Currency hedging added 0.3% (£7 million) to net assets during the year.
The low interest rate environment allowed the Trust to borrow at attractive interest rates of 1.6% on average. The average level of gearing was just under 10%. The cost of borrowing was low in relation to the returns that were earned on the Trust's investments, leading to an Allocation gain (a contribution to relative performance) of over 0.8%.
Expenses of £18.7m had the effect of reducing NAV by 0.8% during the year.
Share buy-backs, mainly in the first half of the year, led to gains of just over 1% of NAV. In total, 31.7 million shares were repurchased at a weighted average discount to NAV of 16.5%.
| Contribution Analysis (%) | Average Exposure | Rate of Return | Contribution to Total Return |
| Equities | 95.3 | 10.9 | 10.3 |
| Fixed Income | 5.5 | 22.8 | 1.2 |
| Other Assets* | 6.6 | 1.9 | 0.1 |
| Cash and FX | 2.7 | 16.3 | 0.5 |
| Gearing (cost of borrowing) | -10.0 | 1.6 | -0.2 |
| Expenses | -0.8 | ||
| Share Buy-backs | 1.0 | ||
| NAV Total Return | 12.1 | ||
| Effect of Discount | 0.3 | ||
| Share Price Total Return | 12.4 | ||
| MSCI ACWI Total Return | 11.7 |
*Private Equity, Real Estate and Subsidiaries
Source: Alliance Trust
Attribution
The Attribution Analysis table below breaks down the performance of the Trust by sector and identifies the extent to which each part of the portfolio contributed to the Trust's overall return relative to the chosen reference index, in this case the MSCI All-Country World Index. It shows the weighting of the assets in the portfolio and the index to identify where the Trust is overweight or underweight and the return of each sector or asset class in the portfolio in the index. The chosen reference index has no exposure to cash, so no weight or return is shown.
The degree of out/underperformance is then attributed to:
· Stock selection - This measures the degree to which the stocks that we held in each sector did better or worse than the sector (e.g. although we were overweight in Materials, which did not do very well relative to the index as a whole, we selected good stocks in that sector)
· Asset allocation - (e.g. we had less in Telecoms than the index, and Telecoms did not perform as well as the index as a whole).
We have analysed the portfolio by sector as this reflects the adoption, in July 2012, of a single global equity portfolio approach for the majority of the Trust's assets.
Our investment approach is now predominantly based on stock selection rather than taking deliberate active positions on a sector basis, but this provides a useful insight into the structure of the portfolio.
Stock selection was relatively strong in Materials and Utilities but relatively poor in Energy, Consumer Discretionary and Financials. From a sector allocation perspective, the underweight positions in the high-performing Financials and Consumer Discretionary sector were both minor detractors from relative performance, while the underweight in Telecommunication was beneficial as this sector lagged the broad market.
In the course of the year, as the portfolio was restructured, the weight in Health Care and Information Technology increased while the weight in Energy, Materials and Industrials decreased, based on our analysis of the attractiveness of the companies in those sectors.
Index futures were used for hedging purposes in the first half of 2012 and for efficient portfolio management in the second half of the year while the portfolio was being restructured.
The table also highlights the positive effect of both the allocation to fixed income as an asset class and the fixed income stock selection relative to the reference index.
| Alliance Trust | MSCI All Country World Index | ||||||
| Attribution Analysis (%) | Average Weight | Total Return | Average Weight | Total Return | Sector/ Asset Allocation Effect | Stock Selection Effect | Total Relative Effect |
| Consumer Discretionary | 7.6 | 11.7 | 10.4 | 18.6 | -0.2 | -0.4 | -0.6 |
| Consumer Staples | 9.7 | 12.2 | 10.6 | 10.4 | 0.0 | 0.2 | 0.2 |
| Energy | 10.9 | -8.7 | 11.3 | -1.4 | 0.1 | -0.7 | -0.6 |
| Financials | 17.7 | 22.0 | 19.5 | 23.8 | -0.2 | -0.3 | -0.5 |
| Health Care | 11.4 | 14.6 | 9.3 | 13.4 | 0.0 | 0.1 | 0.1 |
| Industrials | 13.0 | 10.9 | 10.4 | 11.6 | -0.1 | -0.1 | -0.2 |
| Information Technology | 9.6 | 12.3 | 12.6 | 10.7 | -0.2 | 0.2 | 0.1 |
| Materials | 7.9 | 14.2 | 7.6 | 6.4 | -0.1 | 0.5 | 0.4 |
| Telecommunication Services | 2.5 | 0.4 | 4.6 | 4.3 | 0.2 | -0.1 | 0.1 |
| Utilities | 2.8 | 11.3 | 3.7 | -1.3 | 0.1 | 0.3 | 0.4 |
| Index Futures | 2.1 | 16.1 | 0.0 | - | 0.0 | - | 0.0 |
| Equities | 95.3 | 10.9 | 100.0 | 11.7 | -0.3 | -0.3 | -0.6 |
| Fixed Income | 5.5 | 22.8 | - | 18.2 | 0.3 | 0.2 | 0.5 |
| Cash, FX & Other Assets | 9.3 | 6.1 | - | - | -0.5 | - | -0.5 |
| Gearing | -10.0 | 1.6 | - | - | 0.8 | - | 0.8 |
| Total | 100.0 | 11.9 | 100.0 | 11.7 | 0.2 | -0.1 | 0.2 |
Source: Alliance Trust
Alliance Trust Investments
£1.9bn value of investments under management and advice, a 248% increase
£1.2bn value of new business from deal with Aviva Investors
75% of the funds under management and advice were in the 1st or 2nd quartile of their peer group over the year
Alliance Trust Investments was founded to use the investment skills of our managers and to create a business managing third party assets which would generate value for the Trust. We have made progress this year through the significant increase in third party assets under management and advice and have in 2012 taken a meaningful step towards achieving profitability.
In August, we entered into an agreement with Aviva Investors under which we engaged a team of specialist Sustainable and Responsible Investment (SRI) managers. After the year end, we assumed the management of £1.2bn of third party assets in SRI funds which we had advised on during the second half of the year. The Sustainable Future Fund range is invested across equities and fixed income.
Following the restructure of the Trust's investment team we reviewed our range of funds, and closed three where we felt that they would be unable to attract sufficient third party investments to be profitable. We launched a new fund, the Dynamic Bond Fund, which uses a target return strategy investing in a full range of bonds as well as bond derivatives. The strategy was developed specifically to address the needs of the UK institutional investor and discretionary fund managers. We consulted with a number of leading market participants as we recognise the challenges faced by the institutional market in times of low yields, high volatility and elevated potential for economic collapse to occur.
We have increased the availability of our funds through reaching agreements with fund platforms to extend their distribution. Alliance Trust Funds are now available on six of the top nine retail platforms in the UK market.
We are beginning to attract greater interest from institutional investors. After the year end we entered into two investment management agreements with institutional investors for almost £50m of assets.
Key Strengths
We have a number of key strengths which position us well in the market.
· Investment Managers - we have a team of experienced and specialist investment managers who, between them, have previously managed significant third party assets at leading investment houses.
· Investment Performance - five of our funds were top quartile performers over the year and the Monthly Income Bond Fund ended the year as the best performing fund in its sector.
· Investment Choice - we have a wide range of funds available to suit both institutional and retail investors.
Strategy
· We will become established as a leading specialist fund manager focusing on SRI, global equities and fixed income.
· We will build a balanced business through both wealth managers and institutions.
· We now have a more substantial range of funds and, with our expanded team, will be recognised as one of the top SRI managers in the European market.
· We will look for opportunities to grow our business through appropriate strategic partnerships where they are consistent with our own culture and values.
Outlook
Although the business was launched in 2009, market conditions since then have extended our start-up period. The significant increase in assets under management and advice during 2012 will flow through to higher revenues from 2013. We continue to consider additional options to accelerate our path to profitability.
Financial Performance
Net revenue
Alliance Trust Investment's 111% increase in net revenue was due to five months of fees from the SRI advisory assets commencing August 2012, £0.5m performance fees (13% of net revenue), fees from £203m seed capital invested by Alliance Trust in newly launched ATI funds (Global Thematic Opportunities Fund and Dynamic Bond Fund) and fees from Alliance Trust's investment in the ATI Monthly Income Bond Fund.
Average third party basis points
The average 43 basis points earned on third party revenue reflected the bias of the portfolio towards fixed income funds, where typically management fees are lower, during the year prior to the transfer of the SRI advisory assets.
Expenses
Expenses increased by an annualised £3.2m. The increase was due in part to the one-off acquisition costs of the SRI funds and the additional recurring running costs of that team.
Net assets
During the year Alliance Trust invested £10m in the business reflecting the additional capital required to support the larger assets under administration and advice following the SRI assets transfer.
| 2012 £m | 2011 £m | |
| Net Revenue | 3.8 | 1.8 |
| Expenses | 10.4 | 6.6 |
| Operating Loss | (6.6) | (4.8) |
| Net assets | 8.6 | 1.8 |
| Assets Under Management and Advice | |
| Dec 12 | £1.9bn |
| Dec 11 | £551m |
| Jan 11 | £384m |
| Third Party Assets Under Management and Advice | |
| Dec 12 | £1.4bn |
| Dec 11 | £129m |
| Jan 11 | £83m |
| Third Party Average Net Revenue | |
| Dec 12 | 0.43bps |
| Dec 11 | 0.31bps |
| Jan 11 | 0.40bps |
| Third Party Net Revenue | |
| Dec 12 | £1.8m |
| Dec 11 | £0.4m |
| Jan 11 | £0.3m |
Alliance Trust Savings
£4.1bn Assets under administration an increase of 21%
386,767 Number of trades during the year, an increase of 10%
£0.4m Loss generated on continuing operations in the year, against a loss last period of £2.3m
Alliance Trust Savings has been simplified and is now well positioned to perform profitably throughout 2013. We completed a programme of transformational change which included the disposal of its SSAS business and, after the end of the year, its Full SIPP business.
The platform business made strong progress during the last year with assets under administration increasing by 21% and representing a 4% share of the direct client market.
Alliance Trust Savings is now in an excellent position to expand its platform business and capitalise on the opportunities in a market anticipated to see significant growth over the next five years. We have already witnessed such growth in Australia and the US, where the platform markets are more mature.
Additionally, the advent of the Retail Distribution Review (RDR), which will bring in transparent charging for advice and platforms, plays directly to the strengths of Alliance Trust Savings as it becomes increasingly known as a champion of pricing transparency and as one of the few platforms where customers can access funds with low management charges. We plan to promote these benefits through a significant advertising and marketing campaign in 2013 targeted at the intermediary channel which currently represents around 10% of business inflows. This will become a key area of focus for Alliance Trust Savings as we seek to exploit the opportunities in this channel.
The Alliance Trust Savings proposition is to offer a high quality trading platform for direct and intermediary clients, which delivers value for money together with award winning service.
Key Strengths
We have a number of key strengths which position us well in the market.
· Fixed Fee pricing - we have a simple fixed fee structure.
· Investment Choice - we have one of the broadest ranges of investments in the platform market.
· Quality of Service - we have won a number of service level awards during the year.
· Alliance Trust - we have the backing of a strong parent independent of banks and life company product providers.
· Retail Distribution Review - we already offer transparent pricing.
Strategy
· The key drivers for the business are customer account numbers and trading volumes, our strategy is to grow both over the coming years by a continued focus on our customer proposition.
· To continue to automate and simplify the business to improve efficiencies.
· To enhance our Intermediary proposition to position ourselves as the leading secondary platform in the market.
Outlook
The Platform business is well placed to exploit emerging market opportunities to grow the business, resulting in the delivery of increasing profits and value to shareholders.
Revenue
Revenue increased 39% reflecting the increase from non-interest income following the introduction of quarterly charges on the Investment Dealing Account from August 2012, higher platform SIPP charges, 6% growth in customer account numbers and a 10% increase in dealing volumes. Net interest income, which now accounts for only 27% of revenue, remained flat at £2.6m despite an increase in average customer deposits reflecting the reduced deposit rates paid by banks.
Expenses
Expenses remained broadly flat compared to the prior period despite the increased cost of regulatory compliance. Savings achieved during the year were reinvested to ensure that business operations were scalable for future growth.
Net assets
During the year Alliance Trust invested £2m in ATS.
| Continuing operations* | 2012 £m | 2011 £m |
| Revenue | 9.6 | 6.9 |
| Expenses | (10.0) | (9.2) |
| Operating Loss | (0.4) | (2.3) |
| Net assets | 18.8 | 17.1 |
| Core Tier 1 Ratio | 20.7% | 17.8% |
| Total Capital Ratio | 27.6% | 25.4% |
*Excluding the revenue and expenses relating to the SASS business, which was sold during the year, and the Full SIPP business which was sold shortly after the year end.
Continuing Operations
| Assets Under Administration | |
| Dec 12 | £4.1bn |
| Dec 11 | £3.3bn |
| Jan 11 | £3.2bn |
| Revenue | |
| Dec 12 | £9.6m |
| Dec 11 | £6.9m |
| Jan 11 | £6.9m |
| Number of Trades | |
| Dec 12 | 386,767 |
| Dec 11 | 350,717 |
| Jan 11 | 356,205 |
| Customer Accounts | |
| Dec 12 | 74,231 |
| Dec 11 | 70,186 |
| Jan 11 | 63,547 |
Risk
Risk Management Framework
Primary responsibility for oversight of the Group's Risk Management Framework rested with the Risk Management Committee (formerly the Risk Committee) which is chaired by the Finance Director and comprises representatives from Alliance Trust and each of its regulated subsidiaries. The Risk Management Framework is designed to ensure that the key risks facing the Group are identified, monitored, assessed and controlled. There is clear ownership and accountability for the day to day management of risk across the Group with risk management practices embedded within business operations.
For 2013 we decided to enhance the level of scrutiny applied to risk within the business by establishing a Board Risk Committee to focus on the oversight of the risk management framework.
Principal Risks
| Principal risks | Mitigation | What we did in 2012 |
| Strategic | ||
| Building investment credibility is dependent on the performance of the portfolio. The ability to pay a steadily increasing dividend depends upon portfolio structure and income generation. The Trust may borrow money for investment purposes. If the investment falls in value, any borrowings will magnify the extent of this loss. Borrowing facilities may not be renewed. A lack of understanding of the Trust and its objectives could lead to a lack of demand and a widening of the discount to Net Asset Value. | The performance of the Trust and the income derived from investments is regularly reported and monitored. Compliance with investment risk parameters and policies is monitored and regularly reported. Borrowing levels and facilities require the prior approval of the Board. Debt levels are regularly monitored and reported. Borrowing commitments are with different banks and with different maturity dates. The majority of the Trust's investments are in quoted equities that are readily realisable. The Trust's investment strategy has been widely communicated. Meetings are also held with key institutional shareholders. | · Portfolio restructured with four regional equity portfolios amalgamated into the global equity portfolio and number of equity holdings reduced to around 100. · Appointed Head of Performance & Investment Risk to oversee and develop the investment performance and risk management model. |
| Market | ||
| The Trust currently invests primarily in equities and in fixed income securities and its principal risks are therefore market related and include counterparty and market risk (currency, interest rate and other price risk). Over the counter derivatives are used in the fixed income funds managed by Alliance Trust Investments both for efficient portfolio management and for investment purposes. | The Asset Allocation Committee meets quarterly to oversee the allocation of capital between and among the asset classes approved by the Board. Exposure to market risk is assessed through stress and scenario testing of the Group's portfolios. Counterparty/concentration limits are in place for all financial instruments including bank deposits. The Group's Research Centre supports the management of market risks by providing analysis of economic and socio-economic issues. | · Stress tests undertaken considering extreme market movements in equity markets, bond prices, interest rates, commodity prices and foreign exchange rates. · Developed and implemented formal, documented processes for risk management of derivative investments. |
| Operational | ||
| One of the key risks to which all investment trusts/asset management firms are exposed is operational risk. The operational risks to which the Group is exposed include: Loss of key personnel; business continuity; management of third parties/suppliers; fraud and other criminal acts; conflict of interest; processing failures, including administration/dealing errors and breach of investment mandates; the number of significant business change initiatives and the volume of regulatory change. | The risk management framework seeks to identify and mitigate key risks. Policies have been implemented to manage key person risks. Continuity of Business plans are maintained. The supplier management framework controls risks from significant third party service providers. The Group operates an anti-financial crime policy and controls to minimise exposure to fraud, money laundering and market abuse. Segregation of duties and oversight of controls mitigate against the risk of conflict of interest and process failures. Project management disciplines are employed with reporting to management committees. | · Further enhancement of reporting of · Risk Management Committee terms · Risk Management Committee · Continuity of Business plans extended to include plans to manage a crisis resulting from Euro zone failures. · External review of IT security. |
| Legal, Regulatory & Disclosure | ||
| The Financial Services sector continues to experience significant regulatory change at national and international levels. The FSA will split into the Prudential Regulatory Authority (PRA) and the Financial Conduct Authority (FCA) in 2013. Risks include uncertainty over roles and responsibilities and the likelihood for increased costs. | The Group maintains a forward radar of forthcoming regulatory changes. Preparedness for implementation of regulatory change is assessed by the Risk Management Committee. We have system based controls and monitoring systems to ensure compliance with relevant regulations. Breaches are reported to the Audit Committee and Board. | · Dedicated resource allocated to monitoring and management of regulatory forward radar. · Monitoring plans developed using a risk based approach approved by the Audit Committee. · Prudential and Conduct Risk strategies developed reflecting changes in the supervisory structure. |
Alliance Trust PLC
Consolidated income statement for the year ended 31 December 2012
| Year to December 2012 | 11 months to December 2011 | |||||
| £000 | Revenue | Capital | Total | Revenue | Capital | Total |
| Revenue | ||||||
| Income | 105,260 | - | 105,260 | 104,610 | - | 104,610 |
| Profit/(Loss) on fair value designated investments | - | 221,313 | 221,313 | - | (253,611) | (253,611) |
| Loss on investment property | - | (812) | (812) | - | (240) | (240) |
| Total revenue | 105,260 | 220,501 | 325,761 | 104,610 | (253,851) | (149,241) |
| Administrative expenses | (41,234) | (1,625) | (42,859) | (37,419) | (1,957) | (39,376) |
| Finance (costs) /income | (10,678) | (25,358) | (36,036) | (8,736) | 5,914 | (2,822) |
| Loss on disposal of office premises | - | - | - | - | (5) | (5) |
| Loss on revaluation of office premises | - | (1,900) | (1,900) | - | - | - |
| Foreign exchange gains | 5 | 9,026 | 9,031 | - | 1,275 | 1,275 |
| Profit/(Loss) before tax | 53,353 | 200,644 | 253,997 | 58,455 | (248,624) | (190,169) |
| Tax | (4,249) | (103) | (4,352) | (2,562) | (100) | (2,662) |
| Profit/(Loss) for the year/period | 49,104 | 200,541 | 249,645 | 55,893 | (248,724) | (192,831) |
| All Profit/(Loss) for the year is attributable to equity holders of the parent | ||||||
| Earnings per share from continuing operations attributable to equity holders of the parent | ||||||
| Basic (p per share) | 8.61 | 35.17 | 43.78 | 8.91 | (39.66) | (30.75) |
| Diluted (p per share) | 8.58 | 35.06 | 43.64 | 8.89 | (39.66) | (30.77) |
Consolidated statement of comprehensive income
| Year to December 2012 | 11 months to December 2011 | |||||
| £000 | Revenue | Capital | Total | Revenue | Capital | Total |
| Profit/(Loss) for the year/period | 49,104 | 200,541 | 249,645 | 55,893 | (248,724) | (192,831) |
| Defined benefit plan net actuarial loss | - | (405) | (405) | - | (767) | (767) |
| Retirement benefit obligations deferred tax | - | 48 | 48 | - | 449 | 449 |
| Other comprehensive loss | - | (357) | (357) | - | (318) | (318) |
| Total comprehensive income/(loss) for the year/period | 49,104 | 200,184 | 249,288 | 55,893 | (249,042) | (193,149) |
| All total comprehensive income/(loss) for the year is attributable to equity holders of the parent | ||||||
Company income statement for the year ended 31 December 2012
| Year to December 2012 | 11 months to December 2011 | |||||
| £000 | Revenue | Capital | Total | Revenue | Capital | Total |
| Revenue | ||||||
| Income | 80,047 | - | 80,047 | 85,117 | - | 85,117 |
| Profit/(Loss) on fair value designated investments | - | 199,278 | 199,278 | - | (254,584) | (254,584) |
| Loss on investment property | - | (812) | (812) | - | (240) | (240) |
| Total revenue | 80,047 | 198,466 | 278,513 | 85,117 | (254,824) | (169,707) |
| Administrative expenses | (17,671) | (985) | (18,656) | (14,824) | (1,159) | (15,983) |
| Finance costs | (2,557) | (2,730) | (5,287) | (3,026) | (2,950) | (5,976) |
| Loss on disposal of office premises | - | - | - | - | (5) | (5) |
| Loss on revaluation of office premises | - | (1,900) | (1,900) | - | - | - |
| Foreign exchange gains | - | 9,026 | 9,026 | - | 1,275 | 1,275 |
| Profit/(Loss) before tax | 59,819 | 201,877 | 261,696 | 67,267 | (257,663) | (190,396) |
| Tax | (4,252) | - | (4,252) | (5,369) | 100 | (5,269) |
| Profit/(Loss) for the year/period | 55,567 | 201,877 | 257,444 | 61,898 | (257,563) | (195,665) |
| All profit/(loss) for the year is attributable to equity holders of the parent | ||||||
| Earnings per share from continuing operations attributable to equity holders of the parent | ||||||
| Basic (p per share) | 9.74 | 35.40 | 45.14 | 9.87 | (41.06) | (31.19) |
| Diluted (p per share) | 9.71 | 35.29 | 45.00 | 9.84 | (41.06) | (31.22) |
Company statement of comprehensive income
| Year to December 2012 | 11 months to December 2011 | |||||
| £000 | Revenue | Capital | Total | Revenue | Capital | Total |
| Profit/(Loss) for the year/period | 55,567 | 201,877 | 257,444 | 61,898 | (257,563) | (195,665) |
| Defined benefit plan net actuarial loss | - | (405) | (405) | - | (767) | (767) |
| Retirement benefit obligations deferred tax | - | 48 | 48 | - | 449 | 449 |
| Other comprehensive loss | - | (357) | (357) | - | (318) | (318) |
| Total comprehensive income/(loss) for the year/period | 55,567 | 201,520 | 257,087 | 61,898 | (257,881) | (195,983) |
| All total comprehensive income/(loss) for the year is attributable to equity holders of the parent | ||||||
Statements of changes in equity for the year ended 31 December 2012
| Group | Company | |||
| £000 | December 2012 | December 2011 | December 2012 | December 2011 |
| Called up share capital | ||||
| At 1 January | 14,833 | 16,527 | 14,833 | 16,527 |
| Own shares purchased and cancelled in the year/period | (793) | (1,694) | (793) | (1,694) |
| At 31 December | 14,040 | 14,833 | 14,040 | 14,833 |
| Capital reserves | ||||
| At 1 January | 1,665,692 | 2,158,630 | 1,629,129 | 2,131,651 |
| Profit/(Loss) for the year/period | 200,541 | (248,724) | 201,877 | (257,563) |
| Defined benefit plan actuarial net loss | (357) | (318) | (357) | (318) |
| Own shares purchased and cancelled in the year/period | (112,721) | (245,534) | (112,721) | (245,534) |
| Share based payments | 1,213 | 1,638 | 709 | 893 |
| At 31 December | 1,754,368 | 1,665,692 | 1,718,637 | 1,629,129 |
| Merger reserve | ||||
| At 1 January and at 31 December | 645,335 | 645,335 | 645,335 | 645,335 |
| Capital redemption reserve | ||||
| At 1 January | 4,165 | 2,471 | 4,165 | 2,471 |
| Own shares purchased and cancelled in the year/period | 793 | 1,694 | 793 | 1,694 |
| At 31 December | 4,958 | 4,165 | 4,958 | 4,165 |
| Revenue reserve | ||||
| At 1 January | 73,348 | 71,541 | 106,332 | 98,520 |
| Profit for the year/period | 49,104 | 55,893 | 55,567 | 61,898 |
| Dividends | (54,237) | (54,090) | (54,237) | (54,090) |
| Unclaimed dividends | (13) | 4 | (13) | 4 |
| At 31 December | 68,202 | 73,348 | 107,649 | 106,332 |
| Total Equity At 1 January | 2,403,373 | 2,894,504 | 2,399,794 | 2,894,504 |
| Total Equity At 31 December | 2,486,903 | 2,403,373 | 2,490,619 | 2,399,794 |
Balance sheet as at 31 December 2012
| Group | Company | |||
| £000 | December 2012 | December 2011 | December 2012 | December 2011 |
| Non-current assets | ||||
| Investments held at fair value | 2,722,042 | 2,625,615 | 2,633,993 | 2,560,576 |
| Investment property | 9,120 | 9,775 | 9,120 | 9,775 |
| Property, plant and equipment: | ||||
| Office premises | 4,125 | 6,025 | 4,125 | 6,025 |
| Other fixed assets | 587 | 15 | 157 | 15 |
| Intangible assets | 1,408 | 1,598 | 320 | 390 |
| Pension scheme surplus | 4,305 | 3,150 | 4,305 | 3,150 |
| Deferred tax asset | 990 | 907 | 990 | 907 |
| 2,742,577 | 2,647,085 | 2,653,010 | 2,580,838 | |
| Current assets | ||||
| Outstanding settlements and other receivables | 23,882 | 190,644 | 14,114 | 22,171 |
| Recoverable overseas tax | 1,106 | 968 | 1,106 | 968 |
| Cash and cash equivalents | 444,916 | 415,435 | 33,336 | 72,349 |
| 469,904 | 607,047 | 48,556 | 95,488 | |
| Total assets | 3,212,481 | 3,254,132 | 2,701,566 | 2,676,326 |
| Current liabilities | ||||
| Outstanding settlements and other payables | (523,605) | (600,539) | (5,597) | (22,661) |
| Tax payable | (141) | (141) | (3,991) | (3,991) |
| Bank loans | (200,000) | (248,768) | (200,000) | (248,768) |
| (723,746) | (849,448) | (209,588) | (275,420) | |
| Total assets less current liabilities | 2,488,735 | 2,404,684 | 2,491,978 | 2,400,906 |
| Non current liabilities | ||||
| Deferred tax liability | (990) | (907) | (990) | (907) |
| Finance lease | (254) | - | (102) | - |
| Amounts payable under long term Investment Incentive Plan | (588) | (404) | (267) | (205) |
| (1,832) | (1,311) | (1,359) | (1,112) | |
| Net assets | 2,486,903 | 2,403,373 | 2,490,619 | 2,399,794 |
| Equity | ||||
| Share capital | 14,040 | 14,833 | 14,040 | 14,833 |
| Capital reserve | 1,754,368 | 1,665,692 | 1,718,637 | 1,629,129 |
| Merger reserve | 645,335 | 645,335 | 645,335 | 645,335 |
| Capital redemption reserve | 4,958 | 4,165 | 4,958 | 4,165 |
| Revenue reserve | 68,202 | 73,348 | 107,649 | 106,332 |
| Total equity | 2,486,903 | 2,403,373 | 2,490,619 | 2,399,794 |
| All net assets are attributable to equity holders of the parent Net Asset Value per ordinary share attributable to equity holders of the parent | ||||
| Basic (£) | £4.44 | £4.06 | £4.45 | £4.06 |
| Diluted (£) | £4.43 | £4.05 | £4.44 | £4.04 |
Cash flow statement for the year ended 31 December 2012
| Group | Company | |||
| £000 | December 2012 | December 2011 | December 2012 | December 2011 |
| Cash flows from operating activities | ||||
| Profit/(Loss) before tax | 253,997 | (190,169) | 261,696 | (190,396) |
| Adjustments for: | ||||
| (Gains)/Losses on investments | (220,501) | 253,851 | (198,466) | 254,824 |
| Foreign exchange gains | (9,031) | (1,275) | (9,026) | (1,275) |
| Scrip dividends | (455) | (886) | (455) | (886) |
| Depreciation | 91 | 12 | 42 | 12 |
| Amortisation of intangibles | 702 | 1,732 | 172 | 419 |
| Loss on disposal/revaluation of property | 1,900 | 5 | 1,900 | 5 |
| Share based payment expense | 1,213 | 1,638 | 709 | 893 |
| Interest | 36,036 | 2,822 | 5,287 | 5,976 |
| Movement in pension scheme surplus | (1,512) | (3,071) | (1,512) | (3,071) |
| Operating cash flows before movements in working capital | 62,440 | 64,659 | 60,347 | 66,501 |
| Increase in amounts due to depositors | 34,745 | 43,876 | - | - |
| Decrease in receivables | 3,015 | 9,630 | 948 | 898 |
| Increase/(Decrease) in payables | 4,577 | (6,759) | (1,367) | (1,010) |
| Net cash flow from operating activities before income taxes | 104,777 | 111,406 | 59,928 | 66,389 |
| Taxes paid | (4,490) | (4,377) | (4,391) | (2,103) |
| Net cash inflow from operating activities | 100,287 | 107,029 | 55,537 | 64,286 |
| Cash flows from investing activities | ||||
| Proceeds on disposal of fair value through profit and loss investments | 1,825,622 | 1,526,557 | 1,668,990 | 1,654,004 |
| Purchases of fair value through profit and loss investments | (1,685,709) | (1,176,618) | (1,538,377) | (1,292,281) |
| Foreign exchange gains on foreign exchange contracts | 7,437 | 487 | 7,437 | 487 |
| Purchase of plant and equipment | (663) | - | (184) | - |
| Disposal of property | - | 240 | - | 240 |
| Purchase of intangible assets | (512) | (985) | (102) | (267) |
| Net cash inflow from investing activities | 146,175 | 349,681 | 137,764 | 362,183 |
| Cash flows from financing activities | ||||
| Dividends paid - Equity | (67,016) | (41,310) | (67,016) | (41,310) |
| Unclaimed dividends | (13) | 4 | (13) | 4 |
| Purchase of own shares | (112,721) | (245,534) | (112,721) | (245,534) |
| Repayment of borrowing | (48,768) | (90,229) | (48,768) | (90,229) |
| Third party investment in subsidiary OEIC - Alliance Trust Investment Funds | 23,449 | 50,711 | - | - |
| Interest payable | (13,506) | (11,060) | (5,385) | (5,350) |
| Net cash outflow from financing activities | (218,575) | (337,418) | (233,903) | (382,419) |
| Net increase/(decrease) in cash and cash equivalents | 27,887 | 119,292 | (40,602) | 44,050 |
| Cash and cash equivalents at beginning of year/period | 415,435 | 295,355 | 72,349 | 27,511 |
| Effect of foreign exchange rate changes | 1,594 | 788 | 1,589 | 788 |
| Cash and cash equivalents at end of year/period | 444,916 | 415,435 | 33,336 | 72,349 |
The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2012 or 11 month period ended 31 December 2011, but is derived from those accounts. The comparatives are for the 11 month period ended 31 December 2011. Statutory accounts for the 11 month period ended 31 December 2011 have been delivered to the Registrar of Companies and those for the year ended 31 December 2012 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 £18,656,000 (£15,983,000) incurred by the Company, and £24,203,000 (£23,393,000) 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 £985,000 (£1,159,000).
2. The diluted earnings per share is calculated using the weighted average number of ordinary shares, which includes 1,770,218 (1,770,212) 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 two 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, both 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 accounting policies of the operating segments are the same as those described in the summary of significant accounting policies.
Alliance Trust PLC 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 2012 | ||||||
| £000 | Company | ATS | ATS | ATS | ATI | Total |
| (continuing operations) | (discontinuing operations) | Total | ||||
| Revenue | ||||||
| Investment gains | 198,466 | - | - | - | - | 198,466 |
| 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 |
| Segment revenue | 278,513 | 9,582 | 4,812 | 14,394 | 3,851 | 296,758 |
| Expenditure | ||||||
| Foreign exchange gains | (9,026) | - | - | - | - | (9,026) |
| Depreciation and amortisation | 214 | 530 | - | 530 | 91 | 835 |
| Other expenses | 25,629 | 9,496 | 5,131 | 14,627 | 10,323 | 50,579 |
| Total expenses | 16,817 | 10,026 | 5,131 | 15,157 | 10,414 | 42,388 |
| Operating profit/(loss) before tax | 261,696 | (444) | (319) | (763) | (6,563) | 254,370 |
| Gain on sale of SSAS | - | - | 366 | 366 | - | 366 |
| Segment profit/(loss) before tax | 261,696 | (444) | 47 | (397) | (6,563) | 254,736 |
| Period ended 31 December 2011 | ||||||
| £000 | Company | ATS | ATS | ATS | ATI | Total |
| (continuing operations) | (discontinuing operations) | Total | ||||
| Revenue | ||||||
| Investment (loss)/gain | (254,824) | - | 763 | 763 | - | (254,061) |
| Net interest income | 349 | 2,587 | - | 2,587 | 44 | 2,980 |
| Non interest income | 84,768 | 4,266 | 4,589 | 8,855 | 1,728 | 95,351 |
| Segment revenue | (169,707) | 6,853 | 5,352 | 12,205 | 1,772 | (155,730) |
| Expenditure | ||||||
| Foreign exchange gains | (1,275) | - | - | - | - | (1,275) |
| Depreciation and amortisation | 431 | 1,244 | - | 1,244 | 64 | 1,739 |
| Other expenses | 21,533 | 7,951 | 6,157 | 14,108 | 6,537 | 42,178 |
| Total expenses | 20,689 | 9,195 | 6,157 | 15,352 | 6,601 | 42,642 |
| Segment loss before tax | (190,396) | (2,342) | (805) | (3,147) | (4,829) | (198,372) |
Number of Issued Sharesas at 31 December 2012
Ordinary Shares of 2.5p 561,579,146
No shares have been purchased since the year end.
Posting Arrangements
The Report and Accounts will be available on the Company's website www.alliancetrust.co.uk on Monday 18 March 2013 and will be posted to shareholders after 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, Lochside House, 7 Lochside Avenue, Edinburgh Park, Edinburgh EH12 9DJ on and after Monday 18 March 2013.
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 Friday, 3 May 2013 at 11.00am at the Apex City Quay Hotel, Dundee.
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 2012.
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; and
· the Directors' report includes 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.
| Karin Forseke | Katherine Garrett-Cox | |
| Chair | Chief Executive | |
| 11 March 2013 | 11 March 2013 |
The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.
Source: Alliance Trust PLC via Thomson Reuters ONE
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