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RNS
Alliance Trust PLC  -  ATST   

Half-year Report

Released 07:00 27-Jul-2017

RNS Number : 2230M
Alliance Trust PLC
27 July 2017
 

Alliance Trust PLC

 

27 July 2017

 

Results for six months ended 30 June 2017:  an encouraging start

 

Financial Highlights

As at 30 June 2017

As at 31 Dec 2016

As at 30 June 2016





Share price

700.0p

638.0p

524.0p

NAV per share

742.2p

667.5p

591.4p

Total dividend

6.58p

12.774p

5.65p

 

Lord Smith of Kelvin, Chairman of Alliance Trust PLC commented:

 

"This has been a transformational period for the Trust. We are pleased that the equity portfolio outperformed its benchmark against an uncertain market backdrop, all while transitioning to our new alliance of best ideas investment approach. 

 

The geographic and sector weights of the Trust's portfolio closely mirror those of the benchmark. This means that the relative performance is driven by the active stock selection of the underlying managers chosen by WTW. Looking forward, WTW expects higher levels of volatility to characterise investment markets, resulting in an excellent environment for active stock picking and thus for Alliance Trust.  

 

We are confident that the Trust will deliver attractive returns for our shareholders over the long term under the new approach, and are grateful to our shareholders for their support. Although it is still early days, the Trust is demonstrating that it can deliver outperformance at competitive cost. We believe we have a compelling offering and look forward to investing for generations."

 

H1 2017 Performance

 

·      Total Shareholder Return (TSR) of 10.8% and Net Asset Value (NAV) Total Return of 12.4%, compared with MSCI ACWI + 6.4%.

·      Equity portfolio outperformed the MSCI ACWI benchmark by 4.2%.

·      Transition to new portfolio completed at a much cost lower than originally anticipated.

·      Costs remain competitive and the Ongoing Charges Ratio is targeted to be below 65bps.

·      ATS incurred additional costs in Q2, contributing to a loss for H1 of £1.5m.

·      First and second interim dividends, up 3% on 2016 dividends, continuing our 50 year long track-record of dividend growth.

·      Discount to NAV averaged 5.1% over the period (H1 2016: 10.3%), partly reflecting ongoing share buyback program.

 

-ENDS-

 

For more information, please contact:

 

Martin Pengelley

Michelle Clarke

Samantha Chiene

Tulchan Communications

Tel: 020 7353 4200

 

 

 

 

 

 

 

 

 

Alliance Trust PLC Interim Report 2017

 

Results for 6 months to 30 June 2017

 

Chairman's Statement

 

The Trust has successfully implemented its new investment approach. We are confident that our alliance of best ideas will deliver attractive returns for shareholders over the long term.

 

Our new investment approach supports our aim of achieving consistent outperformance at a competitive cost, while maintaining our progressive dividend policy. With the approval of our shareholders at the General Meeting in February, the management of the investment portfolio transitioned to Willis Towers Watson (WTW). It is responsible for selecting eight underlying managers that it rates as 'best-in-class', each of whom manages concentrated portfolios of their top stock selections. We are targeting an Ongoing Charges Ratio of below 0.65%.

 

Alliance Trust Investments (ATI) was responsible for the Trust's performance to 17th March, at which point the transition commenced. The new strategy became effective on 1st April, with the official appointment of WTW and the transition completed on 12th April. ATI was sold, at what we believe was a fair price, to Liontrust Asset Management, and that this is a good home for the team. We are grateful to all the team at ATI for their work on our behalf.

 

This first half of 2017 has been characterised by the transition the business has gone through, and we strongly believe we now have the foundations in place to deliver strong and sustainable performance for our shareholders in the future.

 

Financial Performance

 

Over the period, the Trust performed well. Total Shareholder Return was 10.8%, Net Asset Value (NAV) Total Return was 12.4% and the share price rose 9.7% to 700.0p. We are encouraged that, despite undertaking the transition to the new portfolio, the Trust outperformed its benchmark on a NAV total return basis by 6.0%, primarily driven by the outperformance of the equity portfolio. Additionally, the costs of the transition were much lower than originally anticipated, which is a meaningful saving for the business and our administration expenses for the period are showing only a modest increase at £8.4m (2016: £7.7m).

 

Alliance Trust Savings (ATS) has seen growth in both assets under administration and customer accounts. Whilst we had hoped that ATS would report a profit for the period, additional costs were incurred in the second quarter contributing to a loss for the half year of £1.5m (2016: £0.4m profit). In the second half of the year ATS plans to continue to invest to improve its levels of customer service. We expect it to report a loss for the year.

 

Dividend

 

We are very proud of our dividend track record and the Board is delighted that the Trust has achieved 50 years of consecutive dividend growth, and has been recognised by the AIC through its Dividend Hero Award. The Board continues its progressive dividend policy and has declared a dividend of 3.29p per ordinary share payable on 2nd October 2017 to shareholders on the register on 1st September 2017.

 

Buybacks

 

Towards the end of last year, we introduced a more active approach to share buybacks, supporting our determination to narrow materially the Trust's discount to NAV which averaged 5.1% over the period. Consistent with this programme, the Trust also repurchased Elliott's shareholding following shareholder approval in February.

 

In summary

 

The first half of 2017 has been transformational for the Trust. We have a new investment approach which, although still in its early days, is demonstrating that it can deliver outperformance at competitive cost. We believe we now have a compelling offering and look forward to continuing to invest for generations.

 

Lord Smith of Kelvin

Chairman

26 July 2017

 

 

Company Performance

 


30 June 2017

 

31 December 2016

30 June 2016

Share price

700.0p

638.0p

524.0p

Net Asset Value (NAV) per share*

742.2p

667.5p

591.4p

Discount to NAV

5.7%

4.4%

11.4%

Average Discount to NAV**

5.1%

10.1%

10.3%

 

Source: WTW and Morningstar.

*Balance sheet value calculated with debt at fair value.

**Six months to 30 June and 12 months to 31 December.

 

Portfolio Performance

 

 

Contribution Analysis (%)

Average Weight

Total

Return

Contribution to Total Return

Equity Portfolio

99.8

10.6

9.8

Foreign Exchange Contracts and Index Futures

N/A

N/A

0.0

Non-core Investments

8.0

7.3

0.6

Effect of Gearing*

-7.8

N/A

0.6

Investment Portfolio Total

100.0


11.0

Operating subsidiary



0.0

Cash and Accruals



0.4

Share Buybacks



1.3

Total Administration Costs



-0.3

NAV including Income Total Return



12.4

Effect of Discount



-1.6

Share Price Total Return



10.8





MSCI ACWI Total Return



6.4

 

Source: WTW, BNY Mellon Fund Services (Ireland) Ltd, Morningstar, MSCI Inc and FactSet.

* Gearing effect is attributed assuming that all borrowing is invested in the equity portfolio and is net of the cost of borrowing to achieve the gearing.

 

Shareholder Return

 

As at 30 June 2017

6 months

1 year

3 years

5 years

Total Shareholder Return (TSR)

10.8%

36.4%

68.8%

124.2%

NAV Total Return

12.4%

27.3%

55.0%

95.7%

MSCI ACWI

6.4%

22.9%

54.1%

104.7%

 

Source: WTW and FactSet.

 

Administration Expenses

 


6 months to

30 June 2017

Year to

31 December 2016

6 months to

30 June 2016

Total Administrative Expenses

£8.4m

£16.8m

£7.7m

Less Non-recurring Expenses*

£(1.1)m

£(3.4)m

£(1.4)m

Ongoing Administrative Expenses

£7.3m

£13.4m

£6.3m

 

Source: WTW.

* Includes reorganisation, strategic review and extraordinary general meeting costs.

 

Investment Approach

 

Alliance Trust is an investment trust with a unique global equity portfolio providing access to an alliance of 'best-in-class' equity managers and their best ideas, at a competitive cost. It has been a pioneer in investing since 1888 and its objective is to be a core holding for investors seeking increasing value over the long term. The equity portfolio's target is to outperform the MSCI All Country World Index by 2% per year after costs over rolling three year periods.

 

Investment Portfolio

 

Our investment portfolio is made up of:

·      Global equity investments

·      Our subsidiary business - Alliance Trust Savings

·      Non-core investments

-      Mineral Rights*

-      Private Equity*

-      Funds

-      Liontrust Asset Management PLC shares**

 

* These will be disposed of at the appropriate time.

** Liontrust Asset Management PLC shares which formed part of the consideration received on the sale of Alliance Trust Investments (valued at £22.8m).

 

The equity investments are now managed by WTW who provide the Company with access to a range of specialist equity managers and oversee the management of the funds. They have appointed eight equity managers, the majority of whom are not otherwise accessible to individual investors in the UK.

 

Each of the equity managers runs a bespoke portfolio for Alliance Trust focused solely on their best ideas, each containing about 20 stocks. This distinctive approach means that every stock is one in which each equity manager has their highest conviction - investments which they believe are most likely to deliver positive absolute and relative returns. In addition, there is also an emerging markets portfolio which has around 50 stocks. Together these stocks comprise the Company's equity portfolio.

 

WTW's Investment Committee allocates funds across the eight equity managers to manage the investment and risk profile of the portfolio.

 

WTW is also responsible for oversight of the non-core assets.

 

The Alternative Investment Fund Manager and Investment Manager

 

Towers Watson Investment Management (Ireland) Limited (TWIMI) has been appointed as the Company's Alternative Investment Fund Manager (AIFM). The AIFM has delegated the management of the Company's portfolio to Towers Watson Investment Management Limited (TWIM). Both TWIMI and TWIM are members of the Willis Towers Watson group of companies.

 

Willis Towers Watson (NASDAQ: WLTW) has roots dating back to 1828 and is a leading investment group with over 39,000 employees across all of its businesses.

 

A significant element of WTW's business is the provision of investment consultancy. However, WTW is engaged as the Company's Investment Manager.

 

The Equity Managers

 

The eight equity managers selected by WTW have an unconstrained mandate allowing them to choose what they believe are the best stocks. The managers have been selected not just for their capability but to provide a range of different and complementary investment styles.

 

Black Creek Investment Management (10.3% of the equity portfolio) looks for companies that are growing, are leaders in their markets and gaining market share. These companies tend to benefit from huge barriers to entry and sustainable competitive advantages.

 

First Pacific Advisors (12.6% of the equity portfolio) employs a long-term value investment approach, investing in companies that they believe have sustainable business models, exhibit financial strength, are run by operationally strong managers and whose stocks trade at a significant discount to FPA's estimate of intrinsic value.

 

GQG Partners (10.9% of the equity portfolio) looks for high-quality and sustainable businesses which have enduring underlying strength to provide capital protection in down markets and attractive returns to long-term investors over a full market cycle. In addition, GQG manages a second portfolio (4.4% of the equity portfolio) for the Company with particular focus on global emerging market companies.

 

Jupiter Asset Management (9.0% of the equity portfolio) is well known in the market as a longstanding practitioner of contrarian value investing. It seeks businesses that are outoffavour and undervalued, but have prominent franchises and sound balance sheets.

 

Lyrical Asset Management (16.5% of the equity portfolio) maintains a strict discipline around investing in quality companies, seeking businesses that it believes will generate attractive returns on their invested capital, are resilient with reasonable debt levels, positive growth, attractive margins, competent  management, and the flexibility to react to all phases of the business cycle.

 

River and Mercantile Asset Management (8.7% of the equity portfolio) invests in Recovery Equities, through an investment approach that it believes identifies value at different stages of a company's lifecycle.

 

Sustainable Growth Advisors (13.7% of the equity portfolio) focuses on building portfolios of unique, high quality global growth businesses that possess strong pricing power, offer recurring revenue generation and benefit from attractive, long runways of growth.

 

Veritas Asset Management (13.9% of the equity portfolio) focuses on utilising its proprietary Real Return Approach and a number of other methods including themes to identify industries and companies that are well positioned to benefit from medium term growth.

 

Investment Objective

 

Alliance Trust is an investment company with investment trust status. The Company's objective is to be a core investment for investors seeking increasing value over the long term. The Company has no fixed asset allocation benchmark and it invests in a wide range of asset classes throughout the world to achieve its objective. The Company's focus is to generate a real return for shareholders over the medium to long term by a combination of capital growth and a rising dividend.

 

Investment Management Report

 

Summary

 

·      In the period to 17 March the equity portfolio's performance exceeded our benchmark by 1.9%

·      The transition of the portfolio between our managers was achieved at low cost and was completed on 12 April

·      In the period since WTW's appointment the equity portfolio's performance exceeded our benchmark by 2.4%

 

Alliance Trust Investments was the investment manager to 31 March and had investment discretion until 17 March when BlackRock was appointed to manage the transition. WTW was appointed on 1 April and the eight equity managers then took responsibility for managing their portfolios at various dates until the transition was completed on 12 April.

 

Alliance Trust Investments Report for 1 January to 17 March 2017

 

The equity portfolio performed strongly over this period returning 9.2% versus the 7.3% for the MSCI ACWI benchmark. The strong value style headwind that buffeted the equity portfolio during the final quarter of 2016 abated during the first quarter of 2017 to reverse much of the loss experienced last year, creating a market environment conducive to the large cap growth stocks in the portfolio.

 

This market environment favoured the Company's overweight exposure to Info Tech and Health Care stocks with much of the outperformance coming from these two sectors. The Company's Info Tech stalwarts such as Activision Blizzard, Cadence Design Systems and the core Health Care holdings in SS&C Technologies, CSL, Amgen and Roche were notable contributors.

 

Report of the transition managed by BlackRock from 17 March to implementation of new portfolio

 

BlackRock Advisors (UK) Limited (BlackRock) was appointed as Transition Manager on 17 March 2017 to assist with the transition of the portfolio to the new structure and to align the portfolio with the Company's new investment approach. BlackRock was selected by the Board as Transition Manager following a recommendation from WTW and a detailed review and discussion of its proposed strategy for the transition.

 

Following appointment, the incumbent Alliance Trust Investments' portfolio was traded and reshaped to create nine separate portfolios including an emerging markets portfolio, based on the "wish-lists" provided by the new equity managers.

 

The total value of buys and sells completed during the transition was approximately £4.5bn. This was formed of 176 securities to be purchased and 56 securities to be sold, with 4.6% of the legacy equity portfolio being retained. All transition trading was completed as of 12 April 2017 by which time all of the portfolios had been transferred to the control of the newly appointed equity managers.

 

The market environment during the transition period was quiet with lower than average trading volumes globally. BlackRock traded the portfolio so as to manage the risk of moving prices.

 

Prior to the transition, WTW estimated the direct costs (commissions, taxes, fees and bid/offer spreads) would be in the region of 30bps. The final direct costs were much lower at 18bps, which is a meaningful cost saving for the Company. Indirect costs were also kept to a minimum.

 

The transition was completed well within the timeframe expected, and there were no errors in or deviations from the transition plan. The transition portfolio performance, even after costs, in the short period of the transition performed better than if the legacy portfolio had remained in place and not been traded.

 

Willis Towers Watson's Report for 1 April to 30 June 2017

 

Market Review

 

The first half of the year was dominated by political headlines such as a snap general election in the UK, triggering of Article 50, elections across various Euro countries and a stream of tweets coming from the US. Despite the political uncertainty, economic indicators and business surveys posted strong figures close to pre-crisis highs with equities gaining in both emerging and developed markets. European elections have also rejected anti-EU politicians in Austria, the Netherlands and France, potentially implying that the widely feared break-up of the Eurozone may not be as imminent as some would like to think.

 

The US economy continues to look healthy, prompting the Federal Reserve (Fed) to raise rates again in June. The Fed also signalled that it may start to reduce the size of its balance sheet "relatively soon". These actions may potentially have an impact on equity prices.

 

The economic and political outlook in the UK continues to be highly uncertain. The result of Theresa May's decision to call a snap general election leaves the UK in a weakened position at a crucial time for the country as it begins its Brexit negotiations. Whilst political uncertainty across Europe has fallen, the risk remains significant within the UK.

 

Equity Portfolio Performance

 

The new investment approach adopted by Alliance Trust has been in place since the start of April 2017. Over this quarter the equity portfolio returned 3.0%, significantly outperforming the MSCI All Country World Index (ACWI) which returned 0.6%. Even though the results are short term, we are very pleased with the initial performance achieved under the new approach.

 

Investment Outlook

 

We continue to expect higher levels of market volatility. Periods of strong equity market returns coupled with low expectations of volatility in the market, as observed in recent months, are typically followed by periods of higher volatility. We believe that future equity returns over the longer term are unlikely to keep up with the exceptionally strong returns of recent years. This may be exacerbated by the possible gradual reduction in monetary stimulus or raising of interest rates by the main central banks.

 

We also believe that the high-level market view masks significant dispersion between companies, providing an excellent environment for active stock selection. We continue to position the portfolio relatively neutrally against the market with respect to countries, sector and styles to allow returns for the portfolio to be driven by the stock selection of our managers.

 

Non-core Investments

 

The ongoing divestment of non-core investments continues. In the first half of 2017 the Company sold its holding in Euroclear and the final distribution from Albany Venture Partners III LP, a legacy direct private equity holding, was received in June. The reduction in value of private equity and indirect property holdings to £97m from £113m as at 31 December 2016 reflects continuing divestments. This resulted in the release of cash for investment in the equity portfolio. We expect further reductions in non-core holdings as remaining assets are realised in an orderly manner.

 

Alliance Trust Savings

 

Alliance Trust Savings has made a number of important changes designed to enhance its longer-term performance through improvements to the operating platform and customer service. In the second quarter additional costs associated with these changes have been incurred and, with a delay in the full launch of the new technology platform, a loss of £1.5m was made in the first half of the year (2016: £0.4m profit).

 

During the period, Alliance Trust Savings has delivered:

 

·      Continued growth across all business channels with total assets under administration now over £15bn, an increase of 11% since 31 December 2016; and

·      An increase in the number of customer accounts of 3% to almost 114,000 since the year end.

 

We have concluded that the valuation of the Company's investment in Alliance Trust Savings should remain at £61.5m. In coming to this conclusion the Directors considered the underlying profitability of Alliance Trust Savings against the background of its financial performance, its continued focus on improving customer service and the potential to further develop the business. This valuation will be assessed in the second half of 2017 as the planned enhancements to customer service are introduced.

 

Disposal of Alliance Trust Investments

 

As reported in our Annual Report for 2016, we sold Alliance Trust Investments to Liontrust Asset Management. This completed in early April and the value of the shares received as part of the consideration has increased by £3m from that reported at the year end.

 

Company Portfolio Review

 

Equity holdings as at 30 June 2017

 

Stock

Sector

Country of

% of

Value



listing

quoted

£m




equities


UnitedHealth Group

Health Care

United States

1.8

45.5

Charter Communications

Consumer  Discretionary

United States

1.8

43.5

Microsoft

Information Technology

United States

1.6

38.9

Oracle

Information Technology

United States

1.6

38.9

Nielsen

Industrials

United Kingdom

1.4

35.8

CVS Health

Consumer Staples

United States

1.4

34.7

Nestle

Consumer Staples

Switzerland

1.3

32.3

Western Union

Information Technology

United States

1.3

31.5

Johnson Controls International

Industrials

Ireland

1.3

31.2

Ryanair

Industrials

Ireland

1.2

30.9

Anglo American

Materials

United Kingdom

1.2

30.7

Comcast

Consumer  Discretionary

United States

1.2

30.0

Safran

Industrials

France

1.1

27.5

Airbus

Industrials

Netherlands

1.0

25.8

Alphabet

Information Technology

United States

1.0

25.4

AIA Group

Financials

Hong Kong

1.0

24.9

HDFC Bank

Financials

India

1.0

24.9

TP ICAP

Financials

United Kingdom

1.0

24.6

Allergan

Health Care

Ireland

1.0

24.4

PageGroup

Industrials

United Kingdom

1.0

23.6

Samsung Electronics

Information Technology

South Korea

0.9

23.6

Koninklijke Philips

Industrials

Netherlands

0.9

23.3

Britvic

Consumer Staples

United Kingdom

0.9

23.2

Baidu

Information Technology

Cayman Islands

0.9

22.9

Regeneron  Pharmaceuticals

Health Care

United States

0.9

22.9

Aetna

Health Care

United States

0.9

22.8

Western Digital

Information Technology

United States

0.9

22.7

Liberty Interactive

Consumer  Discretionary

United States

0.9

22.5

Novo Nordisk

Health Care

Denmark

0.9

22.1

Anthem

Health Care

United States

0.9

22.0

Tencent

Information Technology

Cayman Islands

0.9

21.9

Whirlpool

Consumer  Discretionary

United States

0.9

21.8

Corning

Information Technology

United States

0.9

21.6

Amazon

Consumer  Discretionary

United States

0.9

21.5

Kansas City Southern

Industrials

United States

0.8

21.1

Aflac

Financials

United States

0.8

21.1

Infosys

Information Technology

India

0.8

21.1

Eaton

Industrials

United States

0.8

20.8

Danone

Consumer Staples

France

0.8

20.8

Hugo Boss

Consumer  Discretionary

Germany

0.8

20.7

Broadcom

Information Technology

Singapore

0.8

20.7

TE Connectivity

Information Technology

Switzerland

0.8

20.4

SAP Se

Information Technology

Germany

0.8

20.3

Celanese

Materials

United States

0.8

20.3

AerCap

Industrials

Netherlands

0.8

20.1

Visa

Information Technology

United States

0.8

20.0

Lincoln National

Financials

United States

0.8

19.8

Prosegur

Industrials

Spain

0.8

19.8

Priceline

Consumer  Discretionary

United States

0.8

19.7

Ameriprise Financial

Financials

United States

0.8

19.1

Flex

Information Technology

Singapore

0.8

19.0

American Express

Financials

United States

0.8

18.8

Goodyear Tire & Rubber

Consumer  Discretionary

United States

0.8

18.8

Suncor Energy

Energy

Canada

0.7

18.6

Mondelez  International

Consumer Staples

United States

0.7

18.5

EOG Resources

Energy

United States

0.7

18.4

Facebook

Information Technology

United States

0.7

18.2

Core Laboratories

Energy

Netherlands

0.7

18.0

Lowe's  Companies

Consumer  Discretionary

United States

0.7

17.9

H&R Block

Consumer  Discretionary

United States

0.7

17.3

Pearson

Consumer  Discretionary

United Kingdom

0.7

17.1

Dollar General

Consumer  Discretionary

United States

0.7

16.8

Exxon Mobil

Energy

United States

0.7

16.4

HeidelbergCement

Materials

Germany

0.6

16.0

ICICI Bank

Financials

India

0.6

16.0

Daikin Industries

Industrials

Japan

0.6

15.9

OC Oerlikon

Industrials

Switzerland

0.6

15.5

BP

Energy

United Kingdom

0.6

15.5

Sumitomo Mitsui Financial

Financials

Japan

0.6

15.4

Capgemini

Information Technology

France

0.6

15.3

Moeller-Maersk

Industrials

Denmark

0.6

15.1

Centrica

Utilities

United Kingdom

0.6

15.0

Deutsche Börse

Financials

Germany

0.6

14.9

Eni

Energy

Italy

0.6

14.8

Sberbank Of Russia

Financials

Russia

0.6

14.7

Royal Bank Of Scotland

Financials

United Kingdom

0.6

14.6

Ericsson

Information Technology

Sweden

0.6

14.6

Check Point Software Technology

Information Technology

Israel

0.6

14.5

Standard Chartered

Financials

United Kingdom

0.6

14.1

Cisco Systems

Information Technology

United States

0.6

14.0

BNP Paribas

Financials

France

0.5

13.6

Rolls Royce

Industrials

United Kingdom

0.5

13.5

Solocal

Consumer  Discretionary

France

0.5

13.5

Express Scripts Holding

Health Care

United States

0.5

13.4

Johnson & Johnson

Health Care

United States

0.5

13.4

Grupo Financiero Santander

Financials

Mexico

0.5

13.1

Schneider Electric

Industrials

France

0.5

13.0

Capita

Industrials

United Kingdom

0.5

13.0

Lam Research

Information Technology

United States

0.5

12.9

SoftBank

Telecommunication  Services

Japan

0.5

12.9

Teradata

Information Technology

United States

0.5

12.9

Macquarie

Financials

Australia

0.5

12.6

London Stock Exchange

Financials

United Kingdom

0.5

12.6

Inovalon

Health Care

United States

0.5

12.5

Ambev

Consumer Staples

Brazil

0.5

12.1

Santen  Pharmaceutical

Health Care

Japan

0.5

12.1

Lloyds Banking Group

Financials

United Kingdom

0.5

12.0

Anta Sports Products

Consumer  Discretionary

Hong Kong

0.5

11.6

Citigroup

Financials

United States

0.5

11.6

InterContinental

Financials

United States

0.5

11.5

Sonic Healthcare

Health Care

Australia

0.5

11.5

BorgWarner

Consumer  Discretionary

United States

0.5

11.5

Accor

Consumer  Discretionary

France

0.5

11.5

Nintendo

Information Technology

Japan

0.5

11.5

Aristocrat Leisure

Consumer  Discretionary

Australia

0.5

11.3

DSM

Materials

Netherlands

0.5

11.3

Galaxy  Entertainment

Consumer  Discretionary

Hong Kong

0.4

11.2

Galp Energia

Energy

Portugal

0.4

11.1

Bank of America

Financials

United States

0.4

11.0

Roche

Health Care

Switzerland

0.4

11.0

Charles Schwab

Financials

United States

0.4

10.9

Taiwan Semiconductor Manufacturing

Information Technology

Taiwan

0.4

10.9

Wells Fargo

Financials

United States

0.4

10.9

Mastercard

Information Technology

United States

0.4

10.8

CME Group

Financials

United States

0.4

10.7

International Business Machines

Information Technology

United States

0.4

10.6

DIA

Consumer Staples

Spain

0.4

10.6

FTI Consulting

Industrials

United States

0.4

9.8

Carsales.com

Information Technology

Australia

0.4

9.8

Applus Services

Industrials

Spain

0.4

9.8

Prada

Consumer  Discretionary

Italy

0.4

9.7

Sanofi

Health Care

France

0.4

9.4

Marks & Spencer

Consumer  Discretionary

United Kingdom

0.4

9.3

South32

Materials

Australia

0.4

9.3

MYOB

Information Technology

Australia

0.4

9.0

Philip Morris International

Consumer Staples

United States

0.4

8.9

DONG Energy

Utilities

Denmark

0.4

8.7

Naspers

Consumer  Discretionary

South Africa

0.3

8.4

Ansell

Health Care

Australia

0.3

8.3

Malaysia Airports

Industrials

Malaysia

0.3

8.3

Tesco

Consumer Staples

United Kingdom

0.3

8.2

Celgene

Health Care

United States

0.3

8.2

Kimberly - Clark de Mexico

Consumer Staples

Mexico

0.3

8.2

Sands China

Consumer  Discretionary

Hong Kong

0.3

7.9

TS Tech

Consumer  Discretionary

Japan

0.3

7.4

QUALCOMM

Information Technology

United States

0.3

7.3

Hengan International Group

Consumer Staples

Cayman Islands

0.3

6.5

Daiichi Sankyo

Consumer  Discretionary

Japan

0.3

6.3

Alibaba

Information Technology

Cayman Islands

0.2

5.3

ARYZTA

Consumer Staples

Switzerland

0.2

5.1

Gafisa

Consumer  Discretionary

Brazil

0.2

4.8

Bank Central Asia

Financials

Indonesia

0.2

4.4

British American Tobacco

Consumer Staples

United Kingdom

0.2

4.2

B3

Financials

Brazil

0.2

4.0

JD.com

Consumer  Discretionary

Cayman Islands

0.1

3.1

CP ALL

Consumer Staples

Thailand

0.1

3.1

Housing Development Finance

Financials

India

0.1

2.9

Itau  Unibanco

Financials

Brazil

0.1

2.8

Telekomunikasi  Indonesia

Telecommunication  Services

Indonesia

0.1

2.5

Heineken

Consumer Staples

Netherlands

0.1

2.4

MercadoLibre

Information Technology

United States

0.1

2.3

CK Hutchison

Industrials

Cayman Islands

0.1

2.1

Moscow Exchange

Financials

Russia

0.1

2.1

Grupo Aeroportuario del Sureste

Industrials

Mexico

0.1

2.0

ALROSA

Materials

Russia

0.1

1.9

NVIDIA

Information Technology

United States

0.1

1.8

Bank Rakyat

Financials

Indonesia

0.1

1.7

Raia Drogasil

Consumer Staples

Brazil

0.1

1.7

InterGlobe  Aviation

Industrials

India

0.1

1.6

OTP Bank

Financials

Hungary

0.1

1.6

Grupo Aeroportuario del Pacifico

Industrials

Mexico

0.1

1.5

Credicorp

Financials

Bermuda

0.1

1.4

Yandex

Information Technology

Netherlands

0.1

1.4

Bancolombia

Financials

Colombia

0.1

1.4

Reliance Industries

Energy

India

0.1

1.3

Infraestructura Energetica Nova

Utilities

Mexico

0.1

1.3

Sarana Menara

Telecommunication  Services

Indonesia

0.1

1.2

Guangdong Investment

Utilities

Hong Kong

0.1

1.2

Hyundai Mobis

Consumer  Discretionary

South Korea

0.0

1.2

Grupo Financiero Galicia

Financials

Argentina

0.0

1.1

Gedeon Richter

Health Care

Hungary

0.0

1.1

Enel Americas

Utilities

Chile

0.0

1.1

Gudang Garam

Consumer Staples

Indonesia

0.0

1.1

Pampa Energia

Utilities

Argentina

0.0

1.0

Energisa

Utilities

Brazil

0.0

1.0

TAESA

Utilities

Brazil

0.0

1.0

Severstal

Financials

Russia

0.0

0.8

Shinhan Financial

Financials

South Korea

0.0

0.8

China Resources Land

Utilities

Bermuda

0.0

0.8

Qualicorp

Health Care

Brazil

0.0

0.8

LUKOIL

Energy

Russia

0.0

0.6

Rosneft Oil

Energy

Russia

0.0

0.6

Hong Kong and China Gas Co

Utilities

Hong Kong

0.0

0.5

TAV Havalimanlari

Industrials

Turkey

0.0

0.2









100%

Total Value 2,463.9

 

Investment in operating subsidiary company as at 30 June 2017

 

Investment

Region

Value £m

Alliance Trust Savings

United Kingdom

61.5



Total Value 61.5

 

Non-core investments as at 30 June 2017

 

Investment

Region

Value £m

Private Equity

United  Kingdom/Europe

97.0

North America

14.1

Luxcellence Liontrust Sustainable Future Pan-European Equity Fund

Luxembourg

79.1

United Kingdom

12.7

Liontrust Sustainable Future Defensive Managed Fund

United Kingdom

12.4

United Kingdom

22.8

Other

United Kingdom

0.1



Total value  238.2

 

Total investments as at 30 June 2017

 

Investment

Value £m

Equities

2,463.9

Investment in operating subsidiary company

61.5

Non-core investments

238.2


 Total value 2,763.6

 

Source: WTW.

A full portfolio listing, similar to that displayed above, is available on a monthly basis on our website at www.alliancetrust.co.uk

Other Information

 

Risks and Uncertainties

 

In order to achieve its investment objectives the Company invests in quoted securities and in its subsidiary business. It also has non-core investments in other asset classes and financial instruments. Its principal risks and uncertainties are therefore:

 

·      Market and Prudential - investment underperformance and liquidity

·      Operational - change of investment manager and cyber attack

·      Strategic - external factors and subsidiary underperformance

·      Regulatory & Conduct - regulatory non-compliance

 

These risks, and the way in which they are managed, are described in more detail within the Risk section on pages 22 to 24 of the Annual Report for the year ended 31 December 2016, which is available on the Company's website at www.alliancetrust.co.uk.

 

The sale of Alliance Trust Investments completed during the period and, since 1 April 2017, the management of the Company's Operational and Regulatory & Conduct risks is now supported by WTW. Having transitioned to our new investment structure the risks associated with the change of investment manager have diminished.

 

The Board has considered the impact of Brexit and of the recent general election and believes that while these may lead to an element of market volatility, the global nature of the investments of the Company are such that neither of these factors are specifically believed to increase the risk of investment underperformance over the long term.

 

Related Party Transactions

 

In the period the Company repurchased 95,478,576 shares from Elliott International L.P., The Liverpool Limited Partnership and Elliott Associates L.P., at a discount of 4.75% to NAV at a total cost of £663m. There were no other transactions with related parties during the six months ended 30 June 2017 which have a material effect on the results or the financial position of the Company.

 

Buybacks

 

The share buyback programme was continued throughout the period, and accommodated the purchase of Elliott's 20% stake during March. As supply and demand has moved towards a state of equilibrium, share buybacks have reduced in number and scale during the second quarter of 2017.

 

Consolidation

 

The Annual Report for the year ended 31 December 2016 presented both Company only financial statements of the Company as well as consolidated Group financial statements consisting of the Company and its wholly owned subsidiary Alliance Trust Services Limited (ATSL). This was because the activities of ATSL were previously material to the Company, which is no longer the case given a cessation of the services provided due to the new investment approach. The Board has therefore decided that, on the basis of materiality, it is now appropriate to no longer prepare consolidated financial statements, and to now present the results of the Company on a Company only basis. This interim report presents prior period Company only results to ensure consistency. The Company continues to recognise its subsidiaries as investments at fair value through the income statement.

 

Going Concern Statement

 

The factors impacting on Going Concern are set out in detail on page 37 of the Annual Report for the year ended 31 December 2016.

 

As at 30 June 2017 there have been no significant changes to these factors. The Directors, who have reviewed budgets, forecasts and sensitivities, consider that the Company has adequate financial resources to enable it to continue in operational existence for the foreseeable future. Accordingly, the Directors believe it is appropriate to continue to adopt the going concern basis for preparing the financial statements.

 

Responsibility Statement

 

We confirm that to the best of our knowledge:

·      The condensed set of financial statements have 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

 

Lord Smith of Kelvin

Chairman

26 July 2017

 

 

 

Financial Statements

Income statement (unaudited)*



6 months to 30 June 2017

 

 6 months to 30 June 2016

Year to

 31 Dec 2016 (audited)

£000

Note

Revenue

Capital

Total

Revenue

Capital

Total

Revenue

Capital

Total

Revenue











Income

3

37,473

37,473

50,775

50,775

84,783

-

84,783

Profit on fair value designated investments


298,595

298,595

188,713

188,713

591,755

591,755

Loss on fair value of debt


(2,000)

(2,000)

(12,670)

(12,670)

(9,800)

(9,800)

Total Revenue


37,473

296,595

334,068

50,775

176,043

226,818

84,783

581,955

666,738

Administrative expenses


(4,193)

(4,225)

(8,418)

(3,861)

(3,825)

(7,686)

(7,960)

(8,810)

(16,770)

Finance costs

4

(1,009)

(2,024)

(3,033)

(1,381)

(2,762)

(4,143)

(2,586)

(5,107)

(7,693)

Loss on revaluation of office premises


-

-

-

-

(40)

(40)

Foreign exchange gains/(loss)


6,807

6,807

4,691

4,691

(2,527)

(2,527)

Profit before tax


32,271

297,153

329,424

45,533

174,147

219,680

74,237

565,471

639,708

Tax

5

(2,850)

-

(2,850)

(3,211)

-

(3,211)

(8,367)

(2,248)

(10,615)

Profit for the period/year


29,421

297,153

326,574

42,322

174,147

216,469

65,870

563,223

629,093












All profit for the period/year is attributable to equity holders.












Earnings per share attributable to equity holders












Basic (p per share)

7

7.78

78.54

86.32

8.20

33.73

41.93

12.77

109.23

122.00

Diluted (p per share)

7

7.77

78.43

86.20

8.18

33.68

41.86

12.76

109.06

121.82

 

 

Statement of comprehensive income (unaudited)*



6 months to 30 June 2017

 

6 months to 30 June 2016

Year to

31 Dec 2016 (audited)

£000

Note

Revenue

Capital

Total

Revenue

Capital

Total

Revenue

Capital

Total

Profit for the period/year


29,421

297,153

326,574

42,322

174,147

216,469

65,870

563,223

629,093

Items that will not be reclassified subsequently to profit or loss:











Defined benefit plan net actuarial loss  and expenses

8

-

(46)

(46)

-

(26,112)

(26,112)

-

(26,637)

(26,637)

Retirement benefit obligations deferred tax


-

-

-

-

-

-

-

4,478

4,478

Other comprehensive loss


-

(46)

(46)

-

(26,112)

(26,112)

-

(22,159)

(22,159)

Total comprehensive income for the period/year


29,421

297,107

326,528

42,322

148,035

190,357

65,870

541,064

606,934

All total comprehensive income for the period/year is attributable to equity holders.

* The accounts are presented as Company only, see Note 2.

Statement of changes in equity (unaudited)*

£000

6 months to

30 June 2017

 

6 months to

30 June 2016

Year to

31 Dec 2016

(audited)

Called up share capital




At 1 January

12,319

13,160

13,160

Own shares purchased and cancelled in the period/year

(3,493)

(285)

(841)

At 30 June / 31 December

8,826

12,875

12,319





Capital reserves




At 1 January

2,508,359

2,163,026

2,163,026

Profit for the period/year

297,153

174,147

563,223

Defined benefit plan actuarial loss

(46)

(26,112)

(22,159)

Own shares purchased and cancelled in the period/year

(969,102)

(56,171)

(195,841)

Share based payments

-

223

110

At 30 June / 31 December

1,836,364

2,255,113

2,508,359





Merger reserve




At 1 January, 30 June and 31 December

645,335

645,335

645,335





Capital redemption reserve




At 1 January

6,679

5,838

5,838

Own shares purchased and cancelled in the period/year

3,493

285

841

At 30 June / 31 December

10,172

6,123

6,679





Revenue reserve




At 1 January

111,450

111,921

111,921

Profit for the period/year

29,421

42,322

65,870

Dividends

(25,176)

(32,001)

(66,329)

Unclaimed dividends (redistributed)/returned

66

(2)

(12)

At 30 June / 31 December

115,761

122,240

111,450





Total equity




At 1 January

3,284,142

2,939,280

2,939,280





At 30 June / 31 December

2,616,458

3,041,686

3,284,142

* The accounts are presented as Company only, see Note 2.

 

 

Balance sheet (unaudited)*

 

£000

Note

30 June 2017

 

30 June 2016

31 Dec 2016 (audited)

Non‑current assets










Investments held at fair value

10

2,763,573

3,343,951

3,474,197

Property, plant and equipment:





   Office premises


4,500

4,540

4,500

   Other fixed assets


-

29

24

Pension scheme surplus

8

38

235

83

Deferred tax asset


72

1,238

72



2,768,183

3,349,993

3,478,876

Current assets





Outstanding settlements and other receivables


14,111

42,535

9,821

Recoverable overseas tax


3,080

2,754

2,997

Cash and cash equivalents


103,134

41,458

49,430



120,325

86,747

62,248

 

Total assets


2,888,508

3,436,740

3,541,124






Current liabilities





Outstanding settlements and other payables


(16,118)

(68,057)

(14,051)

Tax payable


(3,991)

(3,991)

(3,991)

Bank loans

13

(131,000)

(200,000)

(120,000)



(151,109)

(272,048)

(138,042)

Total assets less current liabilities


2,737,399

3,164,692

3,403,082

Non‑current liabilities





Unsecured fixed rate loan notes

13

(120,800)

(121,670)

(118,800)

Deferred tax liability


(72)

(1,238)

(72)

Amounts payable under long term Investment Incentive Plan


(69)

(98)

(68)



(120,941)

(123,006)

(118,940)

Net assets


2,616,458

3,041,686

3,284,142






Equity





Share capital

14

8,826

12,875

12,319

Capital reserve


1,836,364

2,255,113

2,508,359

Merger reserve


645,335

645,335

645,335

Capital redemption reserve


10,172

6,123

6,679

Revenue reserve


115,761

122,240

111,450

Total Equity


2,616,458

3,041,686

3,284,142

 

All net assets are attributable to the equity holders.

* The accounts are presented as Company only, see Note 2.

Net asset value per ordinary share attributable to equity holders






Basic (£)

9

£7.42

£5.91

£6.67

Diluted (£)

9

£7.41

£5.91

£6.67

 

Cash flow statement (unaudited)*

 

£000

6 months to

30 June 2017

 

 

6 months to

30 June 2016*

Year to

31 Dec 2016

(audited)

Cash flows from operating activities




Profit before tax

329,424

219,680

639,708

 

Adjustments for:




Gains on investments

(298,595)

(188,713)

(591,755)

Loss on fair value of debt

2,000

12,670

9,800

Foreign exchange (gain)/loss

(6,807)

(4,691)

2,527

Depreciation

-

(122)

57

Disposals and transfers of fixed assets

(20)

-

(174)

Loss on revaluation of offices premises

-

-

40

Share based payment expense

-

223

110

Finance costs

3,033

4,143

7,693

Movement in pension scheme surplus

(1)

(19,465)

(15,360)

Operating cash flows before movements in working capital

29,034

23,725

52,646





Decrease/(Increase) in receivables

278

(7,528)

(392)

(Decrease)/Increase in payables

(4,650)

1,863

5,962

Net cash (outflow)/inflow from operating activities before income tax

24,662

18,060

58,216





Taxes paid

(2,933)

(4,482)

(12,129)

Net cash inflow from operating activities

21,729

13,578

46,087

 

 




Cash flows from investing activities




Proceeds on disposal at fair value of investments through profit and loss

5,948,159

586,168

1,481,435

Purchase of investments at fair value through profit and loss

(4,936,674)

(398,933)

(1,054,086)

Disposal/(Purchase) of plant and equipment

44

389

(6)

Disposal of other intangible assets

-

920

917

Proceeds on transfer of property, plant and equipment to Group companies

-

-

395

Net cash inflow from investing activities

1,011,529

188,544

428,655





Cash flows from financing activities




Dividends paid ‑ Equity

(25,176)

(32,001)

(66,329)

Unclaimed dividends (redistributed)/returned

66

(2)

(12)

Purchase of own shares

(969,102)

(56,171)

(195,841)

Bank loan drawdowns

11,000

-

-

Repayment of borrowing

-

(90,000)

(170,000)

Interest payable

(3,149)

(4,148)

(7,570)

Net cash outflow from financing activities

(986,361)

(182,322)

(439,752)

Net increase in cash and cash equivalents

46,897

19,800

34,990

Cash and cash equivalents at beginning of period/year

49,430

16,967

16,967

Effect of foreign exchange rate changes

6,807

4,691

(2,527)

Cash and cash equivalents at the end of period/year

103,134

41,458

49,430

* The accounts are presented as Company only, see Note 2.

1 General Information

The information contained in this report for the period ended 30 June 2017 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for the year ended 31 December 2016 has been delivered to the Registrar of Companies. The auditor's report on those financial statements was prepared under s495 and s496 of the Companies Act 2006. The report was not qualified, did not contain an emphasis of matter paragraph and did not contain statements under section 498(2) or (3) of the Companies Act.

The interim results are unaudited. They should not be taken as a guide to the full year.

2 Accounting Policies

Basis of preparation

The annual financial statements were prepared using accounting policies consistent with International Financial Reporting Standards (IFRS) as adopted by the EU. The condensed set of financial statements included in this half yearly financial report have been prepared in accordance with IAS 34 'Interim Financial Reporting', as adopted by the EU.

 

The Annual Report for the year ended 31 December 2016 presented both Company only financial statements of the Company as well as consolidated Group financial statements consisting of the Company and its wholly owned subsidiary Alliance Trust Services Limited (ATSL).

This was because the activities of ATSL were previously material to the Company, which is no longer the case given a cessation of the services provided due to the new investment approach. The Board has therefore decided that, on the basis of materiality, it is now appropriate to no longer prepare consolidated financial statements, and to now present the results of the Company on a Company only basis. This interim report presents prior period Company only results to ensure consistency. The Company continues to recognise its subsidiaries as investments at fair value through the income statement.

Going concern

The Directors have a reasonable expectation that the Company has sufficient resources to continue in operational existence for the foreseeable future. Accordingly the financial statements have been prepared on a going concern basis.

Segmental reporting

The Company has identified a single operating segment, the investment trust, which aims to maximise shareholders returns. As such no segmental information has been included in these financial statements.

Application of accounting policies

The same accounting policies, presentations and methods of computation are followed in these financial statements as were applied in the Group's last annual audited financial statements with the exception of the changes that have been made to the basis of preparation.

Group Consolidation

 

The Company qualifies as an investment entity under IFRS 10 meeting all the key characteristics and as a result recognises its subsidiaries as investments at fair value through the income statement.

All subsidiaries within the Group are valued at fair value through the income statement as they do not provide services that relate directly to the investment activities of the Company or they are themselves regarded as an investment entity.

 

3 Income

 

£000

6 months to

30 June 2017

 

6 months to

30 June 2016

Year to

31 Dec 2016

Deposit interest

23

(1)

4

Dividend income

35,661

49,950

82,903

Mineral rights income

1,453

826

1,685

Property rental income

335

-

-

Recharged costs

1

-

191

Total income

37,473

50,775

84,783

4 Finance Costs


6 months to 30 June 2017

6 months to 30 June 2016

Year to 31 Dec 2016

£000

Revenue

Capital

Total

Revenue

Capital

Total

Revenue

Capital

Total

Bank loans and unsecured fixed rate loan notes

1,009

2,024

3,033

1,381

2,762

4,143

2,586

5,107

7,693

Total finance costs

1,009

2,024

3,033

1,381

2,762

4,143

2,586

5,107

7,693

Finance costs include interest of £2.2m (£2.2m at 30 June 2016 and £4.3m at 31 December 2016) on the £100m 4.28% unsecured fixed rate loan notes which were drawn down in July 2014 for 15 years.

5 Taxation

UK corporation tax for the period to 30 June 2017 is calculated at the average rate of 19.3% (20.0% for the period to 30 June 2016) of the estimated assessable profits for the period. A reduction in the main rate of UK corporation tax to 19.3% was substantively enacted in April 2017. Taxation for overseas jurisdictions is calculated at the rates prevailing in the respective jurisdictions, such taxation mainly comprises withholding taxes levied on the investment returns generated on foreign investments such as overseas dividend income.

6 Dividends paid

 

£000

6 months to

30 June 2017

6 months to

30 June 2016

Year to

31 Dec 2016

Fourth interim dividend for the year ended 31 December 2015 of 3.3725p per share

-

17,473

17,473

First interim dividend for the year ended 31 December 2016 of 2.8250p per share

-

14,528

14,528

Second interim dividend for the year ended 31 December 2016 of 2.8250p per share

-

-

14,528

Third interim dividend for the year ended 31 December 2016 of 3.8500p per share

-

-

19,800

Fourth interim dividend for the year ended 31 December 2016 of 3.2740p per share

13,507

-

-

First interim dividend for the year ended 31 December 2017 of 3.290p per share

11,669

-

-


25,176

32,001

66,329

 

7 Earnings Per Share

From continuing operations

The calculation of the basic and diluted earnings per share is based on the following data:


6 months to 30 June 2017

 

6 months to 30 June 2016

Year to 31 Dec 2016

£000

Revenue

Capital

Total

Revenue

Capital

Total

Revenue

Capital

Total

Ordinary shares

Earnings for the purposes of basic earnings per share being net profit  attributable to equity holders of the parent

29,421

297,153

326,574

42,322

174,147

216,469

65,870

563,223

629,093





Number of shares

Weighted average number of ordinary shares for the purposes of basic earnings per share

378,350,366

516,332,453

515,646,212

Weighted average number of ordinary shares for the purposes of diluted earnings per share

378,870,625

517,100,606

516,414,688

The diluted figure is the weighted average of the entire number of shares in issue.

The weighted average number of ordinary shares is arrived at by excluding 456,886 (698,062 at 30 June 2016 and 698,062 at 31 December 2016) ordinary shares held by the Trustee of the Employee Benefit Trust.

IAS 33.41 requires that shares should only be treated as dilutive if they decrease earnings per share or increase the loss per share. The earnings per share figures on the income statement reflect this.

8 Pension Schemes

The Company sponsors two pension arrangements.

The Alliance Trust Companies' Pension Fund (the 'Scheme') is a funded defined benefit pension scheme which was closed to future accrual on 2 April 2011. On 31 May 2016 the Trustees of the Scheme purchased an annuity with Legal & General. The purpose of this transaction was to align the assets of the Scheme with long-term liabilities and to reduce risk on long-term liabilities.

Employees are entitled to receive contributions into their own Self Invested Personal Pension ('SIPP') provided by ATS.

Defined Benefit Scheme

The 2016 Annual Report contains disclosure of the funding and purchase of an annuity policy by the Trustees of the Scheme with Legal & General in May 2016 to match the Scheme's liabilities to its members. The Statement of Comprehensive Income for the period to June 2017 reports a defined benefit plan actuarial loss and expenses of £46,000 (30 June 2016 net actuarial loss of £26.1 million and 31 December 2016 net actuarial loss of £26.6 million). Given the purchase of the annuity policy the assets of the Scheme are matched to the long-term liability obligations and the actuarial loss represents the movement in the period on the Scheme bank account.


30 June 2017

30 June 2016

31 Dec 2016


% per annum

% per annum

% per annum

Retail Price Index Inflation

3.60

3.30

3.65

Consumer Price Index Inflation

2.70

2.40

2.75

Rate of discount

2.55

3.25

2.70

Allowance for pension in payment increases of RPI (subject to a maximum increase of 5% p.a)

3.45

3.20

3.50

Allowance for revaluation of deferred pensions of CPI (subject to a maximum increase of 5% p.a)

2.70

2.40

2.75

 

 

9 Net Asset Value Per Ordinary Share

The calculation of the net asset value per ordinary share is based on the following:


30 June 2017

 

30 June 2016

31 Dec 2016

Equity shareholder funds (£000)

2,616,458

3,041,686

3,284,142

Number of shares at period end ‑ Basic

352,542,360

514,277,739

492,005,870

Number of shares at period end ‑ Diluted

352,999,246

514,975,801

492,703,932

The number of ordinary shares has been reduced by 456,886 (698,062 at 30 June 2016 and 698,062 at 31 December 2016) ordinary shares held by the Trustee of the Employee Benefit Trust in order to arrive at the Basic figures above.

10  Hierarchical valuation of financial instruments

The Company refines and modifies its valuation techniques as markets develop. While the Company believes its valuation techniques to be appropriate and consistent with other market participants, the use of different methodologies or assumptions could result in different estimates of fair value at the balance sheet date.

The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2 - Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices)

Level 3 - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)

The following table analyses the fair value measurements for the Company's assets and liabilities measured by the level in the fair value hierarchy in which the fair value measurement is categorised at 30 June 2017.  All fair value measurements disclosed are recurring fair value measurements.

Company valuation hierarchy fair value through income statement


As at 30 June 2017

£000

Level 1

Level 2

Level 3

Total

Listed investments

2,590,883

-

-

2,590,883

Foreign exchange contracts

-

(1)

-

(1)

Unlisted investments





Private Equity

-

-

96,959

96,959

Alliance Trust Savings

-

-

61,500

61,500

Mineral rights

-

-

14,109

14,109

Other

-

-

123

123


2,590,883

(1)

172,691

2,763,573

 


As at 30 June 2016

£000

Level 1

Level 2

Level 3

Total

Listed investments

3,124,036

-

-

3,124,036

Foreign exchange contracts

-

4,690

-

4,690

Unlisted investments





Private Equity

-

-

124,500

124,500

Alliance Trust Savings

-

-

54,000

54,000

Alliance Trust Investments

-

-

19,800

19,800

Alliance Trust Finance

-

-

720

720

Mineral rights

-

-

14,778

14,778

Other

-

-

1,427

1,427


3,124,036

4,690

215,225

3,343,951

 

 

 


As at 31 Dec 2016

£000

Level 1

Level 2

Level 3

Total

Listed investments

3,250,069

-

-

3,250,069

Foreign exchange contracts

-

6,853

-

6,853

Unlisted investments





Private Equity

-

-

113,007

113,007

Alliance Trust Savings

-

-

61,500

61,500

Alliance Trust Investments

-

-

28,276

28,276

Mineral rights

-

-

13,187

13,187

Other

-

-

1,305

1,305


3,250,069

6,853

217,275

3,474,197

There have been no transfers during the year between Levels 1, 2 and 3.

Fair Value Assets in Level 1

The quoted market price used for financial investments held by the Company is the current bid price. These investments are included within Level 1 and comprise of equities, and derivatives.                                               

Fair Value Assets in Level 2

The fair value of financial instruments that are not traded in an active market (for example, over‑the‑counter derivatives) is determined using valuation techniques.  These valuation techniques maximise the use of observable market data where it is available and with minimal reliance on entity specific estimates.

Fair Value Assets in Level 3

From 1 April 2017 Level 3 assets, excluding the valuation of Alliance Trust Savings (ATS), are reviewed at least annually by the Valuation Committee of Willis Towers Watson (WTW) who are assigned responsibility for valuation by the Board of the Company. Prior to this date valuation responsibility was assigned to the Valuation Committee of Alliance Trust Investments. The valuation of Alliance Trust Savings is reviewed at least annually by the Audit and Risk Committee with valuations recommended to the Board of the Company. The WTW Valuation Committee considers the appropriateness of the valuation models and inputs, using the various valuation methods in accordance with the Company's valuation policy. The WTW Valuation Committee will determine and advise the Board of the Company on the appropriateness of any valuation of the underlying assets.

The following table shows the reconciliation from the beginning balances to the ending balances for fair value measurement in Level 3 of the fair value hierarchy.



£000

June 17

June 16

Dec 16

Balance at 1 January

217,275

220,790

220,790

Net gain/(loss) from financial instruments at fair value through profit or loss

9,390

(17,304)

1,551

Purchases at cost

1,823

17,817

18,629

Sales proceeds

(49,948)

(9,187)

(37,308)

Realised (gain)/loss on sale

(5,849)

3,109

13,613

Balance at 30 June / 31 December

172,691

215,225

217,275

Investments in subsidiary companies (Level 3) are valued in the Company's accounts at £124.9m (£168.0m at 30 June 2016 and £169.8m at 31 December 2016) being the Directors' estimate of their fair value, using the guidelines and methodologies on valuation published by the International Private Equity and Venture Capital Association issued in December 2015 and where applicable external valuations. This includes a valuation of ATS at £61.5m (£54.0m at 30 June 2016 and £61.5m at 31 December 2016). This represents the Directors' view of the amount for which the subsidiary could be exchanged between knowledgeable willing parties in an arm's length transaction. This does not assume that the Company currently has any intention to sell the subsidiary in the future. The Directors have used several valuation methodologies as described in the guidelines to arrive at their best estimate of fair value, including discounted cash flow calculations, revenue and earnings multiples and recent market transactions where available. Alliance Trust Investments Limited (ATI), reported with a fair value of £28.3m as at 31 December 2016, was sold to Liontrust Asset Management PLC in April 2017 for consideration consisting of Liontrust ordinary shares, cash and contingent deferred consideration.

The Directors assessed the fair value of ATS. No change has been made to the fair valuation of ATS as at 30 June 2017. As part of the ongoing review of fair value, the Directors will assess the fair value of ATS prior to the year end.

The fair value of ATI as at 31 December 2016 the fair valuation of ATI was based on the value of the sale transaction to Liontrust Asset Management PLC. This valuation was based on the fair value of Liontrust shares used as consideration and the net asset value of ATI excluding any deferred contingent amounts. This transaction was concluded on 1 April 2017.

Mineral rights are carried at fair value and are valued in the Company's accounts at £14.1m (£14.8m at 30 June 2016, £13.2m at 31 December 2016) being the Directors' estimate of their fair value, using the guidelines and methodologies on valuation published by the Oklahoma Tax Commission and for non‑producing properties, the Lierle US Price Report.

The table below details how an increase or decrease in the input variables would impact the valuation disclosed for the relevant Level 3 assets.

 

£000

Investment

Fair Value

at June 2017

Valuation Method

Unobservable

inputs

Input

Input

sensitivity +/-

Change in

valuation +/-

Alliance Trust Savings

61.500

Average of discounted cash flow

DCF Discount rate

12.5%

0.5%

3,800/(3,500)







Mineral Rights

14,109

Oklahoma Tax Commission multiples and Lierle US Price report (for non producing properties).

 

Revenue multiple - gas

7

1

1,300/(1,300)



Revenue multiple - oil

4

1

700/(700)



Revenue multiple -

4

1

600/(600)



products/condensate






Average bonus

1

0.5

1,600/(1,600)



multiple non producing




 

The change in valuation disclosed in the above table shows the direction an increase or decrease in the respective input variables would have on the valuation result. For ATS the Board has taken advice from an external valuer to apply a degree of independence and external challenge into the valuation. For mineral rights, an increase in the revenue multiple and average bonus multiple would lead to an increase in the estimated value.

Private equity investments, both fund‑of‑fund and direct, included under Level 3, are valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines issued in December 2015. Unlisted investments in private equity are stated at the valuation as determined by the WTW Valuation Committee based on information provided by the General Partner. The General Partner's policy in valuing unlisted investments is to carry them at fair value. The General Partner will generally rely on the fund's investment manager's fair value at the last reported period, rolled forward for any cashflows. However, if the General Partner does not feel the manager is reflecting a fair value they will select a valuation methodology that is most appropriate for the particular investments in that fund and generate a fair value. In those circumstances the General Partner believes the most appropriate methodologies to use to value the underlying investments in the portfolio are: price of a recent investment, multiples, net assets, and industry valuation benchmarks. An entity is not required to create quantitative information to comply with this disclosure requirement if quantitative unobservable inputs are not developed by the entity when measuring fair value (for example, when an entity uses prices from prior transactions or third‑party pricing information without adjustment). WTW receives information from the General Partner on the underlying investments which is subsequently reviewed by the WTW Valuation Committee. Where the WTW Valuation Committee does not feel that the valuation is appropriate, a recommendation of the appropriate fair value will be made to the Board of the Company.

No interrelationships between unobservable inputs used in the above valuations of Level 3 investments have been identified.

11  Financial Commitments

As at 30 June 2017 the Company had financial commitments, which have not been accrued, totaling £26.0m (£26.0m at 30 June 2016 and £28.5m at 31 December 2016). These amounts were in respect of uncalled subscriptions in investments structured as limited partnerships all of which relates to investments in our private equity portfolio. This is the maximum amount that the Company may be required to invest. These LP commitments, which can include recallable distributions received, may be called at any time up to an agreed contractual date. The Company may choose not to fulfil individual commitments but may suffer a penalty should it do so, the terms of which vary between investments.

The Company has provided letters of comfort in connection with banking facilities made available to certain of its subsidiaries. The Company provided letters to AT2006 and ATREP GP confirming ongoing support for at least 12 months from the date the annual financial statements were signed, to make sufficient funds available if needed to enable them to continue trading, meet commitments and not to seek repayment of any amounts outstanding.

The Company provides ongoing regulatory support for ATS in the context of its role as a consolidated bank holding company when required.

12  Share Based Payments

The Company operates three share based payment schemes. Full details of these schemes (Long term incentive plans (LTIP), Deferred bonus and All Employee Share Ownership Plan (AESOP)) are disclosed in the December 2016 Annual Report and financial statements and the basis of measuring fair value is consistent with that disclosed therein.

Long Term Incentive Plan ('LTIP')

Details of the LTIP awards are disclosed in the 2016 Annual Report.

 

The Company continues to operate the 2015 LTIP.

 

In the period ended 30 June 2017 no new awards were made and no Company shares were purchased (nil at 30 June 2016 and 31 December 2016). There was no charge to the Company income statement during the period in respect of LTIP awards (£213,000 at 30 June 2016 and £1,000 at 31 December 2016).

13 Bank loans and unsecured fixed rate loan notes

 

£000

As at

30 June 2017

As at

30 June 2016

As at

31 Dec 2016

Bank loans repayable within one year

131,000

200,000

120,000

Analysis of borrowings by currency:




Bank loans ‑ Sterling

131,000

200,000

120,000

The weighted average % interest rates payable:




Bank loans

0.97%

1.24%

0.96%

The Directors' estimate of the fair value of the borrowings:




Bank loans

131,000

200,000

120,000





Unsecured fixed rate loan notes

120,800

121,670

118,800

The effective interest rates payable:




Unsecured fixed rate loan notes

2.29%

2.33%

2.52%

 

£100m of unsecured fixed rate loan notes were drawn down in July 2014, over 15 years at 4.28%.The basis of the fair value estimate is disclosed in the Annual Report.

The total weighted average % interest rates payable:

2.40%

2.25%

2.47%

14  Share Capital

 

£000

As at

30 June 2017

 

As at

30 June 2016

As at

31 Dec 2016

Allotted, called up and fully paid:




352,999,246 (514,975,801 at 30 June 2016 and 492,703,932 at 31 December 2016) ordinary shares of 2.5p each

8,826

12,875

12,319

   Share Buybacks

 

£000

As at

30 June 2017

 

As at

30 June 2016

As at

31 Dec 2016

Ordinary shares of 2.5p each




Opening share capital

12,319

13,160

13,160

Share buybacks

(3,493)

(285)

(841)

Closing share capital

8,826

12,875

12,319

 

 

The Interim Report and Accounts will be available on the Company's website www.alliancetrust.co.uk later today.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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