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RNS
Alliance Trust PLC  -  ATST   

Half-year Report

Released 07:00 26-Jul-2018

RNS Number : 7974V
Alliance Trust PLC
26 July 2018
 

Alliance Trust PLC

 

Results for six months ended 30 June 2018

 

Steady progress of new investment approach

 

Financial highlights

 

 

As at 30 June 2018

As at 31 Dec 2017

As at 30 June 2017

Share price

748.0p

746.5p

700.0p

NAV per share

793.2p

777.7p

742.2p

Total dividend

6.778p

13.16p

6.58p

 

H1 2018 performance highlights

 

·      Total Shareholder Return (TSR) of 1.1%, Net Asset Value (NAV) Total Return of 2.9% and equity portfolio total return of 2.9%* compared with MSCI ACWI Total Return of 2.3%

 

·      Since Willis Towers Watson's (WTW) appointment in April last year, the equity portfolio has delivered a total return of 12.9%* and the Trust a NAV total return of 12.3% compared to the MSCI ACWI's 10.1% over the same period

 

·      Equity portfolio on track to deliver target of 2% outperformance after costs over a rolling three year period vs benchmark

 

·      Interim dividend of 3.389p, an increase of 3% year on year and over 50 years of successive dividend growth

 

·      Discount to NAV averaged 5.8% over the period (H1 2017: 5.1%)

 

*gross of fees

 

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

 

"I am pleased to report another period of steady performance against an increasingly volatile market backdrop, driven by returns from the global equity portfolio constructed by WTW, which now represents 95% of the Trust assets. We are on track to deliver the target we set when we started our new investment strategy on 1 April 2017, of outperformance of 2% more than the benchmark after costs over a rolling three year period.

 

"I am also pleased that we have declared a 3% year-on-year increase in our interim dividend, as we celebrate over half a century of growing our dividend.

 

"Although the short-term market future looks set to remain uncertain, we remain focused on consistent outperformance over the long-term, at a competitive cost. We are encouraged by the steady progress made by WTW's "all-weather" approach to active stock picking. Our diversified, high conviction portfolio is designed to deliver consistent outperformance, irrespective of the dominant drivers of returns in any given period, with low volatility. We believe that the Trust now has a highly differentiated offer for investors that will continue to deliver attractive and sustainable returns for shareholders."

 

 

-ENDS-

 

For more information, please contact:

 

 

 

Mark Atkinson

Marketing & Communications Manager

 

Martin Pengelley

Elizabeth Snow

Lisa Jarrett Kerr

Alliance Trust PLC

 

Tulchan Communications

Tel: 07918 724303

 

Tel: 020 7353 4200

 

 

 

 

Alliance Trust PLC Interim Report 2018

 

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 high-conviction ideas, all at a competitive cost.

 

FINANCIAL HIGHLIGHTS

 

 

 

SHARE PRICE (PENCE)

 

NET ASSET VALUE (PENCE)[1]*

748.0p 0.2% increase

 

793.2p 2.0% increase

30 June 2018

748.0

 

30 June 2018

793.2

31 December 2017

746.5

 

31 December 2017

777.7

31 December 2016

638.0

 

31 December 2016

667.5

31 December 2015

517.0

 

31 December 2015

559.0

31 December 2014

478.9

 

31 December 2014

544.8

31 December 2013

450.1

 

31 December 2013

516.5

 

Source: FactSet and WTW.

*Including income and with debt at fair value

 [1] UK GAAP Measure.

 

RESULTS FOR 6 MONTHS TO 30 JUNE 2018

 

CHAIRMAN'S STATEMENT

 

I am pleased to report the steady progress of our new investment approach. For the first six months of 2018, the Trust's Total Shareholder Return (TSR)*, Net Asset Value (NAV) Total Return* and equity portfolio return* were 1.1%, 2.9% and 2.9% respectively, compared to our benchmark the MSCI All Country World Index (ACWI) which returned 2.3% over the same period. The NAV outperformance was driven by returns from the global equity portfolio constructed by Willis Towers Watson (WTW).

 

Since WTW's appointment in April last year the equity portfolio has delivered a return of 12.9% and the Trust a NAV Total Return of 12.3%, compared to the MSCI ACWI's of 10.1% over the same period.

 

DIVERSIFIED HIGH CONVICTION APPROACH

 

We are encouraged by WTW's "all-weather" approach to investing in global equities, which is designed to outperform regardless of the dominant drivers of returns in any given period. Tried and tested over a number of years in the institutional market, it has stood up well to a variety of market conditions. The Board is confident that it will deliver Alliance Trust's long-term goal of achieving consistent outperformance at a competitive cost, while maintaining our progressive dividend policy.

 

A number of academic studies have shown that active equity managers add most value through their high conviction positions. Yet, the performance of such portfolios can also be highly volatile. WTW has mitigated this by diversifying risk across several managers with different styles, and this has delivered low volatility over the period since WTW's appointment.

 

As previously announced we are reviewing the wording of our Investment Objective so that it better reflects our new investment approach. The revised wording will be proposed for shareholder approval at our next Annual General Meeting (AGM).

 

DISCOUNT CONTROL

 

The discount has remained within a relatively narrow range, despite a significant reduction in share buyback activity. We have purchased just over 7.6m shares since January at a cost of £55m. Since the AGM in April there have been few buybacks and the discount has remained in the 4.7% to 6.8% range suggesting that supply and demand have achieved a level of equilibrium. We will, however, continue to monitor the discount closely and, as before, will consider buying back more shares if the discount shows signs of widening noticeably.

 

CONTROLLING EXPENSES

 

While maintaining our commitment to keep our Ongoing Charges Ratio* below 0.65% at the Trust's current size, ongoing administrative expenses have risen in the first half of the year by £0.9m. The higher ongoing costs reflect the new investment and administration arrangements that have been in place for the full six months this year and an increase in marketing spend.

 

IMPROVING SHAREHOLDER COMMUNICATION

 

As part of our ongoing plans to improve shareholder communication we are planning to provide shareholders with an opportunity to meet a number of our managers in London in October. We are also organising professional investor roadshows around the regions and providing content on our website, which was awarded Best Website for an Individual Investment Company in this year's Association of Investment Companies (AIC) Shareholder Communication Awards. We are also proud to have received the award for Best Factsheet.

 

DISPOSAL OF NON-CORE ASSETS

 

We sold the shares we received from Liontrust Asset Management Plc (Liontrust) in January and redeemed our holdings in three Liontrust funds in April. The sale of one of our private equity investments was agreed just after the period end and progress is being made on the sale of other private equity investments. We are continuing to consider the sale of our Mineral Rights. In April we received a further 1,015,198 Liontrust shares as part of the consideration for the sale of Alliance Trust Investments. These shares are subject to a 12 month lock up.

 

INVESTMENT IN SUBSIDIARY COMPANY

 

Over the period Alliance Trust Savings (ATS) has delivered an improvement in both customer service and operational performance. We have received a number of expressions of interest in ATS and are currently considering whether a change of ownership would be in the interests of Alliance Trust shareholders and ATS' customers and staff. Discussions with interested parties, each of whom envisage maintaining or growing ATS' presence in Dundee, are at an early stage and there can be no certainty that the Board of Alliance Trust will decide to sell ATS.

 

PROGRESSIVE DIVIDEND POLICY

 

The Board has declared a second interim dividend for the year ending 31 December 2018 of 3.389p per ordinary share payable on 1 October 2018 to shareholders on the register on 7 September 2018: the ex-dividend date is 6 September 2018. This is a 3% increase on last year. Although the equity managers do not explicitly target higher yielding investments, they are expected to generate sufficient income through the cycle to allow us to pay an increasing dividend. In the short term there is likely to be a shortfall in income generated from the portfolio and the Board will therefore use the Trust's healthy revenue reserves to build on our record of paying an increased dividend every year for over 50 years.

 

UNCERTAIN MARKET OUTLOOK

 

There will always be periods of volatility when the focus of equity markets shifts away from company fundamentals, but we believe WTW's approach to investing is robust. This should stand shareholders in good stead for generations to come, irrespective of short-term market conditions.

 

Lord Smith of Kelvin

Chairman

* Alternative Performance Measure (refer to Glossary on page 24 of the Interim Report).

 

RESULTS FOR 6 MONTHS TO 30 JUNE 2018

 

COMPANY PERFORMANCE

 

30 June 2018

 

31 December 2017

30 June 2017

Share price

748.0p

746.5p

700.0p

Net Asset Value (NAV) per share*

793.2p

777.7p

742.2p

Discount to NAV

5.7%

4.0%

5.7%

Average Discount to NAV**

5.8%

5.4%

5.1%

 

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 (6 MONTHS TO 30 JUNE 2018)

 

Contribution Analysis (%)

Total

Return

Average Weight

Contribution to Total Return

Equity Portfolio (excluding Effect of Gearing)

 

 

2.7

Effect of Gearing*

 

 

0.1

Equity Portfolio including Effect of Gearing

2.9

96

2.8

FX Contracts and Index Futures

 

 

N/A

Non-Core Investments

 

 

-0.1

Investment Portfolio Total

 

 

2.7

Subsidiaries

 

 

0.0

Cash and Accruals

 

 

0.4

Share Buybacks

 

 

0.1

Total Administration Costs

 

 

-0.3

NAV including Income Total Return

 

 

2.9

Effect of Discount

 

 

-1.8

Total Shareholder Return (TSR)

 

 

1.1

 

 

 

 

MSCI ACWI Total Return

 

 

2.3

 

Source: WTW, Bank of New York Mellon (International) Ltd, Morningstar, BNY Mellon Fund Performance & Risk Analytics Europe Limited and MSCI Inc.

* 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 2018

6 months

1 year

3 years

5 years

TSR

1.1%

8.8%

64.6%

96.2%

NAV Total Return*

2.9%

8.7%

54.1%

77.6%

MSCI ACWI

2.3%

9.5%

53.3%

85.0%

 

Source: Morningstar and MSCI inc.

* NAV Total Return is based on NAV including income with debt at fair value, and after all manager fees (including WTW's fees) and allows for any tax reclaims when they are achieved.

 

 

ADMINISTRATION EXPENSES

 

6 months to

30 June 2018

Year to

31 December 2017

6 months to

30 June 2017

Total Administrative Expenses

£9.6m

£17.4m

£8.4m

Less Non-recurring Expenses

£(1.4)m*

£(1.3)m

£(1.1)m

Ongoing Administrative Expenses

£8.2m

£16.1m

£7.3m

 

Source: WTW.

* These expenses relate mainly to the disposal of non-core private equity assets, property related costs and non-recurring professional fees.

 

INVESTMENT APPROACH

 

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.

 

We invest primarily in global equities. We have appointed WTW as our investment manager to manage our portfolio and it in turn has selected eight different, but complementary, equity managers.

 

Each of these equity managers, drawn from WTW's pool of top-rated stock pickers from around the world, is tasked with managing a highly concentrated selection of stocks. On their own, such a concentrated number of stocks would be expected to outperform the market but be highly volatile. However, when blended together by WTW, they should deliver smoother returns. The equity portfolio target is to outperform the MSCI ACWI by 2% per year after costs over rolling three-year periods.

 

Most of the managers are only available to UK investors through the Trust, and none offer the same dedicated high conviction approach to their other retail clients. Given their long-standing relationship with WTW, who has worked with them on similar strategies for institutional investors for a number of years, the equity managers provide their services at a competitive fee level. This has enabled the Trust to keep costs down. We are targeting a maximum Ongoing Charges Ratio of 0.65% at the current size of the Trust.

 

As part of its remit, WTW's investment strategy is expected, in time, to generate sufficient income to support our progressive dividend policy which has made us one of only four FTSE All-Share Index companies with a record of increasing its ordinary dividend for over 50 years.

 

EIGHT OF THE BEST STOCK PICKERS* FROM ACROSS THE WORLD

 

Manager

% of equity portfolio

Investment Approach

Black Creek Investment Management

10%

Its process is to look five to ten years ahead and find stocks across the cap spectrum. Valuation-orientated buyers of leading businesses around the world. The approach is long term and contrarian.

First Pacific Advisors

12%

Long-term approach seeking companies that have high-quality business models, exhibit financial strength, and strong management with a track record of shareholder alignment and allocating capital in a value-accretive manner. The team operates a strict value discipline.

GQG Partners

15%**

Looks for high-quality and sustainable businesses, whose underlying strength should outweigh their macro environment and where each company's strength can only truly be understood through bottom-up analysis.

Jupiter Asset Management

9%

Our manager is well known in the market as a long-standing practitioner of contrarian value investing. This seeks businesses that are out of favour and under-valued, but have prominent franchises and sound balance sheets.

Lyrical Asset Management

15%

Value matters most to Lyrical and the team also 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

9%

River and Mercantile has put in place a process that helps identify value at different stages of a company's lifecycle and to give signals as to when that value might be unlocked. It has shown particular strength in smaller companies and in classic 'Recovery' situations.

Sustainable Growth Advisors

15%

SGA seeks to identify only those very few truly differentiated global businesses that possess strong pricing power, offer recurring revenue generation and benefit from attractive, long runways of growth.

Veritas Asset Management

15%

The investment process utilises a proprietary Real Return Approach, employed with an absolute return mindset, dispensing with any reference to indices. Veritas uses a number of methods including themes to help identify industries and companies that are well positioned to benefit medium-term growth, regardless of where they are located.

To read more about our equity managers' views please visit: https://www.alliancetrust.co.uk *As rated by WTW. **Manages both a global equity and an emerging markets equity portfolio.

 

 

INVESTMENT MANAGER'S REPORT

 

WTW'S REPORT FOR 1 JANUARY TO 30 JUNE 2018

 

MARKET REVIEW

 

Global equity markets have experienced an eventful 2018 so far. Most major market indices posted positive returns in January, continuing the momentum of 2017. However, in February volatility returned to markets as better-than-expected US wage growth sparked inflation fears, triggering a sell-off in US and global equities. In March, the US administration's announcement of tariffs on steel and aluminium imports from China prompted threats of retaliatory tariffs that led to increasing fears of a global trade war, resulting in a further deterioration in valuation of global equity markets. The moves resulted in equity markets witnessing a correction by the end of the first quarter.

 

The second quarter started with equity markets posting positive returns encouraged by higher than expected earnings. However, global equity markets were volatile as geopolitical risks continued to dominate headlines throughout April. In May, US stocks led global equity markets despite persistent fears of a trade war, with the MSCI US index outperforming the global index by approximately 2.3% in sterling terms. The Federal Reserve increased interest rates for the second time this year in June, putting increasing pressure on emerging market countries with large current account deficits.

 

From a sector perspective, technology stocks continued their run of healthy returns, with US tech companies in particular generating significant positive contributions to global equity returns over the period.

 

INVESTMENT PERFORMANCE

 

Over the six month period to 30 June 2018, the Trust's equity portfolio returned 2.9% gross of fees, outperforming the MSCI All Country World Index (ACWI) which returned 2.3% over the same period.

 

The portfolio started the year strongly and outperformed the market in January due to the underweight position in America. During the months of February and March, our balanced exposure across styles, factors and geographies resulted in the portfolio performing similarly to the benchmark through the broadly based market correction. The portfolio underperformed the MSCI ACWI during April and May, but finished the quarter just slightly under the benchmark after strong performance in June. The portfolio's outperformance since the start of the year can mainly be attributed to the portfolio's underweight in Japan and the individual managers' stock selection skills.

 

Since our appointment on 1 April 2017, the Trust's equity portfolio has returned 12.9% gross of fees - outperforming the MSCI ACWI by 2.8%. It is pleasing to see that the majority of outperformance since our appointment and implementation of the new investment approach can be attributed to stock selection. Our approach to portfolio construction has allowed performance to be driven by the equity managers' stock-picking capabilities and not swayed by any individual style factor or regional/industry bets.

 

While the intention is that each of the Trust's underlying equity managers will outperform the benchmark in the long term, in the shorter term, we would not expect all of the managers to outperform at the same time. Indeed such an outcome would raise questions around whether there is indeed a style bias in the overall portfolio, which we are looking to avoid.

 

In any short time period we would view the majority of the equity managers outperforming as a good result, particularly if the magnitude of the outperformers' relative performance is larger than the magnitude of the underperformers' relative performance.

 

Since inception of the new mandate on 1 April 2017 to end June 2018 this is exactly what we have seen, with six of the nine portfolios outperforming and with some having exceptional outperformance, way in excess of the underperformance seen from just three of the portfolios.

 

We have made the conscious decision not to publicise short-term returns of each of the underlying equity managers. We believe that this is a real strength and differentiator of the Trust, encouraging the managers to run their tailored Alliance Trust portfolios with a long-term outlook, focusing on the risk of permanent loss of capital in each of their holdings rather than risk relative to the benchmark or peers. WTW is responsible for managing the risk of the total portfolio (both relative to the benchmark and in absolute terms) through the choice of managers and their corresponding weights in the overall portfolio.

 

It is also worth noting that the relative performance of each of the tailored 20 stock portfolios is, unlike the combined portfolio, very volatile. Therefore, short-term performance of these is far less meaningful than would typically be the case in other more traditional multi-manager approaches where each manager typically manages its portfolio similarly to how they run their other mainstream accounts.

 

Transparency is really important to us for a number of reasons, but particularly to ensure shareholders understand the key features of the Trust. Our approach to ensuring this has been to make each of the underlying managers available to investors by video and in person, as well as giving a line by line stock listing of the total portfolio and attribution analysis on a regular basis.

 

Going forward, we expect the increased levels of volatility and dispersion that we have witnessed over the recent months to persist, providing opportunities for active stock pickers like the managers within the Trust. There were no changes to the manager line-up or target allocations since the start of the year.

 

STOCK SELECTION IS THE BIGGEST DRIVER OF RETURNS

 

EQUITY PORTFOLIO PERFORMANCE ATTRIBUTION SINCE 1 APRIL 2017

 

 

Outperformance against MSCI ACWI (%)

Total Outperformance

2.8%

Allocation

-0.5%

Stock Selection

3.3%

Source: MSCI and The Bank of New York Mellon (International) Ltd.

 

Our portfolio comprises the stock picks of eight equity managers. Each of the equity managers has a unique asset management and stock selection style; below two of the equity managers talk about one of their high-conviction stock picks.

 

Lyrical Asset Management

HCA Healthcare

 

HCA is the largest public hospital company in the US, providing about 5% of all healthcare services in the country. This is a highly stable and growing business. Most HCA facilities are in fast-growing urban environments, where average population growth is about 50% faster than the national average. These attractive demographics combined with an ageing population lead to consistent volume gains at HCA facilities. High levels of utilization lead to impressive returns on invested capital. Because of the mission-critical nature of HCA's business, these strong returns are experienced in both good and bad times.

 

With more than 1,500 outpatient facilities to complement its 179 hospitals, HCA is much more than a simple hospital company. In fact, in each of its core markets HCA has garnered nearly 25% of the share of total healthcare services, which helps the company negotiate favourable rates with insurers. In aggregate, reliable pricing and volume gains have allowed the company to post strong, positive same-facility revenue growth in each year going back nearly two decades, including through two recessions.

 

Positive gains recently in HCA shares have merely kept pace with strong earnings per share growth, and the stock remains cheap. Considerable uncertainty exists on the future of the Affordable Care Act (ACA) and healthcare regulations in general. However, HCA derives a small amount of earnings from patients receiving healthcare via the ACA. More importantly, HCA benefits from providing an essential service at scale. Healthcare regulations change frequently, but high-quality hospital assets have not only survived but thrived through these periods of change historically.

 

Jupiter Asset Management

Ericsson

 

Ericsson is the global leader in the provision of network equipment and associated software for the mobile telephone industry. The company has had a very difficult few years having signed poor contracts and diversified into unrelated areas. These poor contracts resulted in too big a transfer of risk from the customers to the company and resulted in losses. The unrelated areas (media, IT services) are being restructured, closed or sold. The culmination of this poor financial performance led to a change in the Chief Executive and Chairman of the company together with a new strategy that focuses on their core strength in the network business. The company has net cash on the balance sheet and a low valuation reflecting past disappointments. We believe that this new strategy will be more rewarding for shareholders.

 

 

EQUITY POTFOLIO LISTING

 

We list here all of the stocks selected by our equity managers. Other than the emerging markets portfolio each manager is restricted to a maximum of 20 stocks in which it has the highest conviction. This leads to our total portfolio of almost 200 high conviction stocks.

 

HOLDINGS AS AT 30 JUNE 2018

 

Stock

Sector

Country of

% of

Value

 

 

listing

quoted

£m

 

 

 

equities

 

Alphabet

Information Technology

United States

2.4

64.4

Charter Communications

Consumer Discretionary

United States

1.7

45.1

Microsoft

Information Technology

United States

1.6

42.9

Amazon

Consumer Discretionary

United States

1.6

42.7

UnitedHealth Group

Health Care

United States

1.5

41.0

salesforce.com

Information Technology

United States

1.5

40.6

Facebook

Information Technology

United States

1.4

38.4

Western Union

Information Technology

United States

1.3

36.3

Sap Se - ADR

Information Technology

Germany

1.2

33.6

Oracle

Information Technology

United States

1.2

31.4

Hdfc Bank

Financials

India

1.1

30.2

AiA

Financials

Hong Kong

1.1

29.3

Infosys - ADR & Ordinary

Information Technology

India

1.1

29.3

Baidu - ADR

Information Technology

China

1.1

28.5

Ryanair

Industrials

Ireland

1.0

27.7

Page Group

Industrials

United Kingdom

1.0

27.4

Anthem

Health Care

United States

1.0

27.3

HCA Healthcare

Health Care

United States

1.0

26.6

Reckitt Benckiser

Consumer Staples

United Kingdom

1.0

25.8

Suncor Energy

Energy

Canada

1.0

25.7

Equinix

Real Estate

United States

0.9

25.2

Visa

Information Technology

United States

0.9

25.2

EOG Resources

Energy

United States

0.9

25.2

Unilever

Consumer Staples

United Kingdom

0.9

25.0

Fleetcor Technology

Information Technology

United States

0.9

24.3

Regeneron Pharmaceuticals

Health Care

United States

0.9

23.9

Celanese

Materials

United States

0.9

23.6

Novo-Nordisk

Health Care

Denmark

0.9

23.6

Luxottica Group

Consumer Discretionary

Italy

0.9

23.4

Mastercard

Information Technology

United States

0.9

23.3

Tencent

Information Technology

China

0.9

23.3

Aercap

Industrials

Ireland

0.9

23.3

Aflac

Financials

United States

0.9

23.1

Autodesk Inc

Information Technology

United States

0.8

22.8

IHS Markit

Industrials

United Kingdom

0.8

22.5

Cigna

Health Care

United States

0.8

22.2

Scout24

Information Technology

Germany

0.8

22.1

Schlumberger

Energy

United States

0.8

21.9

Pearson

Consumer Discretionary

United Kingdom

0.8

21.9

American Express

Financials

United States

0.8

21.7

CVS Caremark

Health Care

United States

0.8

21.6

Broadcom

Information Technology

United States

0.8

21.5

Booz Allen Hamilton

Information Technology

United States

0.8

21.2

TP ICAP

Financials

United Kingdom

0.8

21.1

Ameriprise Financial

Financials

United States

0.8

20.9

Yum

Consumer Discretionary

United States

0.8

20.9

Applus Services

Industrials

Spain

0.8

20.7

GlaxoSmithKline ADR

Health Care

United Kingdom

0.8

20.4

Danone

Consumer Staples

France

0.7

19.9

Corning

Information Technology

United States

0.7

19.8

Western Digital

Information Technology

United States

0.7

19.7

Ericsson

Information Technology

Sweden

0.7

19.7

Qurate Retail

Consumer Discretionary

United States

0.7

19.3

Edenred

Industrials

France

0.7

19.1

Ambev

Consumer Staples

Brazil

0.7

19.0

Airbus

Industrials

France

0.7

19.0

Barrick Gold

Materials

Canada

0.7

19.0

Allergan

Health Care

United States

0.7

18.8

Santen Pharmaceutical

Health Care

Japan

0.7

18.6

Schneider Electric

Industrials

France

0.7

18.5

Fomento Econ Mexicano

Consumer Staples

Mexico

0.7

18.4

Lincoln National

Financials

United States

0.7

18.2

BP

Energy

United Kingdom

0.7

17.9

Omnicom Cap Inc

Consumer Discretionary

United States

0.7

17.9

Koninklijke Philips Electronics

Health Care

Netherlands

0.7

17.9

Commscope Hldg

Information Technology

United States

0.6

17.5

Safran

Industrials

France

0.6

17.5

Intercontinental Exchange

Financials

United States

0.6

17.4

Nestle

Consumer Staples

Switzerland

0.6

17.0

Samsung Electronics

Information Technology

South Korea

0.6

17.0

AIB Group

Financials

Ireland

0.6

16.9

Whirlpool

Consumer Discretionary

United States

0.6

16.8

Qualcomm

Information Technology

United States

0.6

16.8

Nielsen

Industrials

United States

0.6

16.7

Heidelbergcement

Materials

Germany

0.6

16.7

Henry Schein

Health Care

United States

0.6

16.6

Flex

Information Technology

United States

0.6

16.6

Hain Celestial

Consumer Staples

United States

0.6

16.4

Cie De St-Gobin

Industrials

France

0.6

16.4

L'Oreal

Consumer Staples

France

0.6

16.1

Centrica

Utilities

United Kingdom

0.6

15.9

Johnson

Industrials

United States

0.6

15.9

Diageo

Consumer Staples

United Kingdom

0.6

15.7

Sumitomo Mitsui Financial

Financials

Japan

0.6

15.5

Deutsche Boerse

Financials

Germany

0.6

15.5

Adobe Systems

Information Technology

United States

0.6

15.2

Raph Lauren

Consumer Discretionary

United States

0.6

15.2

Adient Plc

Consumer Discretionary

Ireland

0.6

15.2

Macquarie

Financials

Australia

0.6

15.1

Rolls Royce

Industrials

United Kingdom

0.6

15.1

Citigroup

Financials

United States

0.5

14.9

ALS

Industrials

Australia

0.5

14.7

Glanbia

Consumer Staples

Ireland

0.5

14.7

Nvidia

Information Technology

United States

0.5

14.6

Standard Chartered

Financials

United Kingdom

0.5

14.3

Barclays

Financials

United Kingdom

0.5

14.2

Tesco

Consumer Staples

United Kingdom

0.5

14.1

Capgemini

Information Technology

France

0.5

13.9

Carnival Corporation

Consumer Discretionary

United States

0.5

13.9

Prada

Consumer Discretionary

Italy

0.5

13.6

Anima Holding

Financials

Italy

0.5

13.4

BorgWarner

Consumer Discretionary

United States

0.5

13.4

Lloyds Banking

Financials

United Kingdom

0.5

13.1

Bank Of America

Financials

United States

0.5

13.0

Comcast

Consumer Discretionary

United States

0.5

13.0

Goodyear Tire & Rubber

Consumer Discretionary

United States

0.5

12.9

Naspers

Consumer Discretionary

South Africa

0.5

12.8

Banco Santander-MX

Financials

Mexico

0.5

12.6

Sapiem

Energy

Italy

0.5

12.4

Air Liquide

Materials

France

0.5

12.2

H&R Block

Consumer Discretionary

United States

0.4

12.1

ICICI Bank

Financials

India

0.4

12.0

MercadoLibre

Information Technology

Argentina

0.4

11.8

Anglo American

Materials

United Kingdom

0.4

11.4

Nintendo

Information Technology

Japan

0.4

11.1

Solocal

Consumer Discretionary

France

0.4

10.7

Veeco

Information Technology

United States

0.4

10.7

Marks & Spencer

Consumer Discretionary

United Kingdom

0.4

10.6

Daikin Industries

Industrials

Japan

0.4

10.6

TS Tech

Consumer Discretionary

Japan

0.4

10.4

Malaysia Airports

Industrials

Malaysia

0.4

10.4

Lvmh Moet Hennessy

Consumer Discretionary

France

0.4

10.3

Sanofi

Health Care

France

0.4

10.2

Harley Davidson

Consumer Discretionary

United States

0.4

10.2

Exxon Mobil

Energy

United States

0.4

10.0

Dollar General

Consumer Discretionary

United States

0.4

10.0

Tingyi Holding

Consumer Staples

China

0.4

9.7

Oc Oerlikon

Industrials

Switzerland

0.4

9.6

Sonic Healthcare

Health Care

Australia

0.3

9.4

Grupo Televisa Sab

Consumer Discretionary

Mexico

0.3

9.0

Philip Morris International

Consumer Staples

United States

0.3

8.7

Inovalon

Health Care

United States

0.3

8.7

Check Point

Information Technology

Israel

0.3

8.2

BHP Billiton

Materials

Australia

0.3

8.2

London Stock Exchange

Financials

United Kingdom

0.3

7.7

DSM

Materials

Netherlands

0.3

7.7

Zynga

Information Technology

United States

0.3

7.6

J P Morgan Chase

Financials

United States

0.3

7.6

Myob

Information Technology

Australia

0.3

7.2

Sankyo

Consumer Discretionary

Japan

0.3

7.2

Housing Development  Finance

Financials

India

0.2

6.7

Alibaba

Information Technology

China

0.2

5.3

Aryzta

Consumer Staples

Switzerland

0.2

5.2

Gafisa

Consumer Discretionary

Brazil

0.2

4.7

Heineken

Consumer Staples

Netherlands

0.2

4.4

Bank Central Asia

Financials

Indonesia

0.2

4.4

Taiwan Semiconductor Manufacturing

Information Technology

Taiwan

0.1

4.3

Ping An Insurance

Financials

China

0.1

4.0

CP All

Consumer Staples

Thailand

0.1

3.0

China Gas Holdings

Utilities

Hong Kong

0.1

2.9

Coca-Cola HBC

Consumer Staples

Switzerland

0.1

2.7

SK Hynix Inc

Information Technology

South Korea

0.1

2.6

China Construction Bank

Financials

China

0.1

2.6

Industrial & Commercial Bank of China

Financials

China

0.1

2.3

Wynn Resorts

Consumer Discretionary

United States

0.1

2.3

ASML Holding

Information Technology

Netherlands

0.1

2.3

Reliance Industries

Energy

India

0.1

2.2

Wynn Macau

Consumer Discretionary

Hong Kong

0.1

2.0

New Oriental Education ADR

Consumer Discretionary

China

0.1

1.8

Kotak Mahindra Bank

Financials

India

0.1

1.8

Kering

Consumer Discretionary

France

0.1

1.8

Galaxy Entertainment

Consumer Discretionary

Hong Kong

0.1

1.7

China Resources

Utilities

Hong Kong

0.0

1.4

Noah

Financials

China

0.0

1.3

51Job ADR

Industrials

China

0.0

1.3

SK Telecom

Telecommunication Services

South Korea

0.0

1.3

Interglobe Aviation

Industrials

India

0.0

1.3

Sarana Menara

Telecommunication Services

Indonesia

0.0

1.2

Samsung Fire & Mar

Financials

South Korea

0.0

1.2

Bangkok Dusit

Health Care

Thailand

0.0

1.1

Kasikornbank

Financials

Thailand

0.0

1.1

LG Household & Healthcare

Consumer Staples

South Korea

0.0

1.1

Bank Rakyat

Financials

Indonesia

0.0

1.1

Iqiyi Inc

Information Technology

China

0.0

0.9

Bajaj Finance

Financials

India

0.0

0.7

Autohome Inc ADR

Information Technology

China

0.0

0.6

IHH Healthcare

Health Care

Malaysia

0.0

0.6

Power Grid

Utilities

India

0.0

0.5

ZTO Express

Industrials

China

0.0

0.5

Bangkok Dusit Medi

Health Care

Thailand

0.0

0.4

 

 

 

100%

2,706.7

Source: Willis Towers Watson and The Bank of New York Mellon (International) Ltd.

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

 

INVESTMENT PORTFOLIO

 

EQUITY PORTFOLIO AS AT 30 JUNE 2018

 

Investment

Region

% of Investment Portfolio

Value £m

Equities

Global

95.2

2,706.7

 

 

Total Value

2,706.7

 

INVESTMENT IN OPERATING SUBSIDIARY COMPANY AS AT 30 JUNE 2018

 

Investment

Region

% of Investment Portfolio

Value £m

Alliance Trust Savings

United Kingdom

1.3

38.0

 

 

Total Value

38.0

 

NON-CORE INVESTMENTS AS AT 30 JUNE 2018

 

Investment

Region

% of Investment Portfolio

Value £m

Private Equity

United Kingdom/Europe

2.7

76.9

Mineral Rights

North America

0.5

14.8

Liontrust Asset Management

United Kingdom

0.2

6.4

Other assets

United Kingdom

0.0

0.2

 

 

Total Value

98.3

 

TOTAL INVESTMENTS AS AT 30 JUNE 2018

 

Investment

% of Investment Portfolio

Value £m

Equities

95.2

2,706.7

Investment operating subsidiary company

1.3

38.0

Non-core investments

3.5

98.3

 

Total Value

2,843.0

Source: WTW and The Bank of New York Mellon (International) Ltd.

The Total Investments above does not include the value of the Trust's Head Office in Dundee (valued at £4.94m) unchanged from 31 December 2017.

 

INVESTMENT IN OPERATING SUBSIDIARY COMPANY

 

ALLIANCE TRUST SAVINGS

 

In the first six months of 2018 Alliance Trust Savings generated a profit of £23,000 (compared to a £1.5m loss over the same period in 2017) with improved financial performance through higher revenues and controlling costs.

 

Alliance Trust Savings has been concentrating on improving customer service and has been shortlisted for two Investment Life & Pension Moneyfacts Awards for 2018.

 

During the period, Alliance Trust Savings has seen:

·      Continued growth of total assets under administration, now over £16bn, an increase of 2.5% since December 2017

·      A small decrease in the number of customer accounts falling to 110,402 from 113,317.

 

The fair value of Alliance Trust Savings remains at £38m as stated in our Annual Report.

 

KEY PERFORMANCE INDICATORS

 

 

30 June 2018

31 December 2017

Fair value

£38.0m

£38.0m

Assets under administration

£16.2bn

£15.8bn

Customer accounts

110,402

113,317

 

 

Six months to

30 June 2018

Six months to

30 June 2017

Number of trades

361,763

387,475

 

 

Six months to

30 June 2018 (£m)

Six months to

30 June 2017 (£m)

Income

14.8

13.3

Administrative Expenses

(13.8)

(13.4)

Depreciation and Amortisation

(1.0)

(1.4)

Operating (Loss)/Profit before tax

0.0

(1.5)

 

 

OTHER INFORMATION

 

RISKS AND UNCERTAINTIES

 

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

 

·      Market and Prudential - Investment, Credit and Counterparty, Financial and Prudential Reporting and Liquidity

·      Operational - Cyber-attack and Outsourcing

·      Corporate Governance

·      Investment Trust Status - Loss of tax status

·      Strategic - Performance impacted by external factors

·      Reputational

·      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 25 of the Annual Report for the year ended 31 December 2017, which is available on the Trust's website at www.alliancetrust.co.uk.

 

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

 

RELATED PARTY TRANSACTIONS

 

There were no transactions with related parties during the six months ended 30 June 2018 which have a material effect on the results or the financial position of the Trust.

 

BUYBACKS

 

The availability of the share buyback programme has continued throughout the period. Share buybacks reduced in number and scale during the second quarter of 2018.

 

GOING CONCERN STATEMENT

 

The factors impacting on Going Concern are set out in detail on page 40 of the Annual Report for the year ended 31 December 2017.

 

As at 30 June 2018 there have been no significant changes to these factors. The Directors, who have reviewed budgets, forecasts and sensitivities, consider that the Trust 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

 

 

 

Financial Statements

Income statement (unaudited)

For the period ended 30 June 2018

 

              

 

6 months to 30 June 2018

 

 6 months to 30 June 2017

Year to

 31 December 2017 (audited)

£000

Note

Revenue

Capital

Total

Revenue

Capital

Total

Revenue

Capital

Total

Revenue

 

 

 

 

 

 

 

 

 

 

Income

3

31,488

31,488

37,473

37,473

60,525

-

60,525

Profit on fair value designated investments

 

55,402

55,402

298,595

298,595

432,187

432,187

Profit/(loss) on fair value of debt

 

2,510

2,510

(2,000)

(2,000)

(2,160)

(2,160)

Total Revenue

 

31,488

57,912

89,400

37,473

296,595

334,068

60,525

430,027

490,552

Investment management fees

 

(1,295)

(3,896)

(5,191)

(1,555)

(3,336)

(4,891)

(3,307)

(6,786)

(10,093)

Administrative expenses

 

(2,973)

(1,491)

(4,464)

(2,638)

(889)

(3,527)

(5,496)

(1,843)

(7,339)

Finance costs

4

(775)

(2,302)

(3,077)

(1,009)

(2,024)

(3,033)

(2,094)

(4,096)

(6,190)

Gain on other assets held at fair value

 

-

-

-

-

1,450

1,450

Foreign exchange (losses)/gains

 

(2,603)

(2,603)

6,807

6,807

4,556

4,556

Profit before tax

 

26,445

47,620

74,065

32,271

297,153

329,424

49,628

423,308

472,936

Tax

5

(2,621)

-

(2,621)

(2,850)

-

(2,850)

(1,170)

41

(1,129)

Profit for the period/year

 

23,824

47,620

71,444

29,421

297,153

326,574

48,458

423,349

471,807

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

Earnings per share attributable to equity holders

 

 

 

 

 

 

 

 

 

 

 

Basic (p per share)

7

6.99

13.97

20.96

7.78

78.54

86.32

12.86

112.35

125.21

Diluted (p per share)

7

6.98

13.95

20.93

7.77

78.43

86.20

12.84

112.14

124.98

 

 

Statement of comprehensive income (unaudited)

 

 

6 months to 30 June 2018

 

6 months to 30 June 2017

Year to

31 December 2017 (audited)

£000

Note

Revenue

Capital

Total

Revenue

Capital

Total

Revenue

Capital

Total

Profit for the period/year

 

23,824

47,620

71,444

29,421

297,153

326,574

48,458

423,349

471,807

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

 

 

 

 

 

 

 

 

 

 

Defined benefit plan net actuarial (loss) and expenses/gain

8

-

(38)

(38)

-

(46)

(46)

-

313

313

Retirement benefit obligations deferred tax

 

-

6

6

-

-

-

-

(53)

(53)

Other comprehensive loss

 

-

(32)

(32)

-

(46)

(46)

-

260

260

Total comprehensive income for the period/year

 

23,824

47,588

71,412

29,421

297,107

326,528

48,458

423,609

472,067

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

 

 

Statement of changes in equity (unaudited)

For the period ended 30 June 2018

£000

6 months to

30 June 2018

 

6 months to

30 June 2017

Year to

31 December 2017

(audited)

Called up share capital

 

 

 

At 1 January

8,691

12,319

12,319

Own shares purchased and cancelled in the period/year

(190)

(3,493)

(3,628)

At 30 June / 31 December

8,501

8,826

8,691

 

 

 

 

Capital reserve

 

 

 

At 1 January

1,923,439

2,508,359

2,508,359

Profit for the period/year

47,620

297,153

423,349

Defined benefit plan actuarial (loss)/gain

(32)

(46)

260

Own shares purchased and cancelled in the period/year

(54,891)

(969,102)

(1,008,529)

At 30 June / 31 December

1,916,136

1,836,364

1,923,439

 

 

 

 

Merger reserve

 

 

 

At 1 January, 30 June and 31 December

645,335

645,335

645,335

 

 

 

 

Capital redemption reserve

 

 

 

At 1 January

10,307

6,679

6,679

Own shares purchased and cancelled in the period/year

190

3,493

3,628

At 30 June / 31 December

10,497

10,172

10,307

 

 

 

 

Revenue reserve

 

 

 

At 1 January

111,861

111,450

111,450

Profit for the period/year

23,824

29,421

48,458

Dividends

(22,761)

(25,176)

(48,113)

Unclaimed dividends returned

6

66

66

At 30 June / 31 December

112,930

115,761

111,861

 

 

 

 

Total equity

 

 

 

At 1 January

2,699,633

3,284,142

3,284,142

 

 

 

 

At 30 June / 31 December

2,693,399

2,616,458

2,699,633

 

Balance sheet (unaudited)

As at 30 June 2018

£000

Note

30 June 2018

 

30 June 2017

31 December 2017 (audited)

Non‑current assets

 

 

 

 

 

 

 

 

 

Investments held at fair value

10

2,843,016

2,763,573

2,836,875

Property, plant and equipment

 

4,935

4,500

4,935

Pension scheme surplus

8

-

38

38

Deferred tax asset

 

-

72

6

 

 

2,847,951

2,768,183

2,841,854

Current assets

 

 

 

 

Outstanding settlements and other receivables

 

11,157

17,191

31,607

Cash and cash equivalents

 

92,488

103,134

105,808

 

 

103,645

120,325

137,415

 

Total assets

 

2,951,596

2,888,508

2,979,269

 

 

 

 

 

Current liabilities

 

 

 

 

Outstanding settlements and other payables

 

(12,747)

(20,109)

(25,670)

Bank loans

13

(127,000)

(131,000)

(133,000)

 

 

(139,747)

(151,109)

(158,670)

Total assets less current liabilities

 

2,811,849

2,737,399

2,820,599

Non‑current liabilities

 

 

 

 

Unsecured fixed rate loan notes

13

(118,450)

(120,800)

(120,960)

Deferred tax liability

 

-

(72)

(6)

Amounts payable under long term Investment Incentive Plan

 

-

(69)

-

 

 

(118,450)

(120,941)

(120,966)

Net assets

 

2,693,399

2,616,458

2,699,633

 

 

 

 

 

Equity

 

 

 

 

Share capital

14

8,501

8,826

8,691

Capital reserve

 

1,916,136

1,836,364

1,923,439

Merger reserve

 

645,335

645,335

645,335

Capital redemption reserve

 

10,497

10,172

10,307

Revenue reserve

 

112,930

115,761

111,861

Total Equity

 

2,693,399

2,616,458

2,699,633

 

All net assets are attributable to the equity holders.

 

Net asset value per ordinary share attributable to equity holders

 

 

 

 

 

Basic (£)

9

£7.93

£7.42

£7.78

Diluted (£)

9

£7.92

£7.41

£7.77

 

Cash flow statement (unaudited)

 

For the period ended 30 June 2018

£000

6 months to

30 June 2018

 

 

6 months to

30 June 2017

Year to

31 December 2017

(audited)

Cash flows from operating activities

 

 

 

Profit before tax

74,065

329,424

472,936

 

Adjustments for:

 

 

 

Gains on investments

(55,402)

(298,595)

(432,187)

(Gain)/loss on fair value of debt

(2,510)

2,000

2,160

Foreign exchange losses/(gains)

2,603

(6,807)

(4,556)

Gain on other assets held at fair value

-

-

(1,450)

Finance costs

3,077

3,033

6,190

Movement in pension scheme loss/(surplus)

6

(1)

305

Operating cash flows before movements in working capital

21,839

29,054

43,398

Decrease in receivables

668

278

3,273

Increase/(decrease) in payables

1,708

(4,650)

(6,318)

Net cash inflow from operating activities before income tax

24,215

24,682

40,353

 

 

 

 

Taxes paid

(2,855)

(2,933)

(1,433)

Net cash inflow from operating activities

21,360

21,749

38,920

 

 

 

 

 

Cash flows from investing activities

 

 

 

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

960,072

5,948,159

4,384,770

Purchase of investments at fair value through profit and loss

(905,330)

(4,936,674)

(3,322,009)

Disposal of tangible assets

-

24

25

Net cash inflow from investing activities

54,742

1,011,509

1,062,786

 

 

 

 

Cash flows from financing activities

 

 

 

Dividends paid ‑ Equity

(22,761)

(25,176)

(48,113)

Unclaimed dividends returned

6

66

66

Purchase of own shares

(54,891)

(969,102)

(1,008,529)

Bank loans and unsecured fixed rate loan notes raised

-

11,000

13,000

Repayment of borrowing

(6,000)

-

-

Finance costs paid

(3,173)

(3,149)

(6,308)

Net cash outflow from financing activities

(86,819)

(986,361)

(1,049,884)

Net (decrease)/increase in cash and cash equivalents

(10,717)

46,897

51,822

Cash and cash equivalents at beginning of period/year

105,808

49,430

49,430

Effect of foreign exchange rate changes

(2,603)

6,807

4,556

Cash and cash equivalents at the end of period/year

92,488

103,134

105,808

 

Notes to the financial statements

1 General Information

The information contained in this report for the period ended 30 June 2018 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 2017 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.

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 Company's last annual audited financial statements with the exception of those noted below.

Adoption of new accounting standards

 

IFRS 15 Revenue from Contracts with Customers

 

In the current financial year the Company has adopted IFRS 15. The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

 

Given the nature of the income streams of the Company, there is no material impact to the current measurement and disclosure of revenue.

 

IFRS 9 Financial Instruments

 

In the current financial year the Company has applied IFRS 9 Financial Instruments (as revised in July 2014) and the related consequential amendments to other IFRSs. IFRS 9 introduces new requirements for the classification and measurement of financial assets and financial liabilities, impairment for financial assets and general hedge accounting. The Company measures all balance sheet items at fair value, there are no impaired assets and, does not enter into general hedge accounting. There is no material impact on the Company in relation to the adoption of this standard.

 

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, 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.

 

Notes to the financial statements

3 Income

 

£000

6 months to

30 June 2018

 

6 months to

30 June 2017

Year to

31 December 2017

Deposit interest

(4)

20

20

Dividend income

29,943

35,664

56,984

Mineral rights income

1,097

1,453

2,803

Property rental income

382

335

570

Recharged costs

70

1

148

Total income

31,488

37,473

60,525

4 Finance Costs

 

6 months to 30 June 2018

6 months to 30 June 2017

Year to 31 December 2017

£000

Revenue

Capital

Total

Revenue

Capital

Total

Revenue

Capital

Total

Bank loans and unsecured fixed rate loan notes

775

2,302

3,077

1,009

2,024

3,033

2,094

4,096

6,190

Finance costs include interest of £2.2m (£2.2m at 30 June 2017 and £4.3m at 31 December 2017) 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 2018 is calculated at the average rate of 19% (19.3% for the period to 30 June 2017) of the estimated assessable profits for the period. A reduction in the main rate of UK corporation tax to 19% 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 2018

6 months to

30 June 2017

Year to

31 December 2017

Fourth interim dividend for the year ended 31 December 2016 of 3.274p per share

-

13,505

13,505

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

-

11,671

11,671

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

-

-

11,507

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

-

-

11,430

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

11,245

-

-

First interim dividend for the year ended 31 December 2018 of 3.389p per share

11,516

-

-

 

22,761

25,176

48,113

7 Earnings Per Share

 

 

6 months to 30 June 2018

6 months to 30 June 2017

Year to 31 December 2017

£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

23,824

47,620

71,444

29,421

297,153

326,574

48,458

423,349

471,807

 

 

 

 

Number of shares

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

340,879,652

378,350,366

376,802,754

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

341,303,463

378,870,625

377,500,816

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

 

Notes to the financial statements

7 Earnings Per Share

 

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

 

The basic weighted average number of ordinary shares is arrived at by excluding 407,316 (456,886 at 30 June 2017 and at 31 December 2017) 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

 

In the period the Company sponsored three pension arrangements.

 

The Alliance Trust Companies' Pension Fund (the Scheme) was a funded defined benefit pension scheme. On 25 June 2018, following completion of a buyout and the issuance by Legal & General and other insurers of individual annuities to all members in respect of their entitlement to benefits from the Scheme, the Trustees of the Scheme terminated the Scheme and it is now wound up.

 

The Company has a NEST pension scheme to comply with the requirements of auto-enrolment. All eligible employees have opted out of this scheme and it has no members.

 

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

 

9 Net Asset Value Per Ordinary Share

 

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

 

30 June 2018

30 June 2017

31 December 2017

Equity shareholder funds (£000)

2,693,399

2,616,458

2,699,633

Number of shares at period end ‑ Basic

339,574,639

352,542,360

347,135,270

Number of shares at period end ‑ Diluted

339,981,955

352,999,246

347,592,156

The number of ordinary shares has been reduced by 407,316 (456,886 at 30 June 2017 and at 31 December 2017) 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

Accounting Standards recognise a hierarchy of fair value measurements, for financial instruments measured at fair value in the Balance Sheet, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The classification of financial instruments depends on the lowest significant applicable input.

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

Level 1      Unadjusted, fully accessible and current quoted prices in active markets for identical assets or liabilities. Included within this category are investments listed on any recognised stock exchange.

Level 2       Quoted prices for similar assets or liabilities or other directly or indirectly observable inputs which exist for the period of investment. Examples of such instruments would be forward exchange contracts and certain other derivative instruments.  

Level 3      Valued by reference to valuation techniques using inputs that are not based on observable market data. The value is the Director's best estimate, based on advice from relevant knowledgeable experts, use of recognised valuation techniques and on assumptions as to what inputs other market participants would apply in pricing the same or similar instrument. Included within this category are direct or pooled private equity investments and mineral rights.

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 2018. All fair value measurements disclosed are recurring fair value measurements.

Company valuation hierarchy fair value through income statement

 

As at 30 June 2018

£000

Level 1

Level 2

Level 3

Total

Listed investments

2,713,143

-

-

2,713,143

Foreign exchange contracts

-

1

-

1

Unlisted investments

 

 

 

 

Private Equity

-

-

76,879

76,879

Alliance Trust Savings

-

-

38,000

38,000

Mineral rights

-

-

14,803

14,803

Other

-

-

190

190

 

2,713,143

1

129,872

2,843,016

 

 

 

 

Notes to the financial statements

10  Hierarchical valuation of financial instruments

 

 

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 31 December 2017

 

£000

Level 1

Level 2

Level 3

Total

 

Listed investments

2,676,179

26,100

-

2,702,279

 

Foreign exchange contracts

-

(2)

-

(2)

 

Unlisted investments

 

 

 

 

 

Private Equity

-

-

81,185

81,185

 

Alliance Trust Savings

-

-

38,000

38,000

 

Mineral rights

-

-

15,297

15,297

 

Other

-

-

116

116

 

 

2,676,179

26,098

134,598

2,836,875

 

             

 

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 bonds and exchange-traded derivatives. This includes Liontrust Asset Management PLC shares, shown as part of the non-core holdings on page 12.

                                                                                         

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 on an ongoing basis by the Valuation Committee of Towers Watson Investment Management (TWIM) 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 the Company. The valuation of ATS is reviewed on an ongoing basis by the Directors. The TWIM Valuation Committee considers the appropriateness of the valuation models, inputs, using the various valuation methods in accordance with the Company's valuation policy, and will determine the appropriateness of any valuation of the underlying assets.

 

 

 

£000

June 18

June 17

December 17

Balance at 1 January

134,598

217,275

217,275

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

(1,697)

9,390

(16,668)

Purchases at cost

2,946

1,823

3,913

Sales proceeds

(10,991)

(49,948)

(68,759)

Realised (gain)/loss on sale

5,016

(5,849)

(1,163)

Balance at 30 June / 31 December

129,872

172,691

134,598

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.

 

Investments in subsidiary companies (Level 3) are valued in the Company's accounts at £83.4m (£124.9m at 30 June 2017 and £88.0m at 31 December 2017).

 

The Directors assessed the fair value of ATS and determined there have been no material changes to the business and no changes in conditions to necessitate a change to the fair valuation of ATS as at 30 June 2018. The fair value of ATS is reviewed on an ongoing basis by the Directors.

 

Notes to the financial statements

10  Hierarchical valuation of financial instruments

 

Mineral rights are carried at fair value and are valued in the Company's accounts at £14.8m (£14.1m at 30 June 2017, £15.3m at 31 December 2017) 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 18

Valuation Method                     

Unobservable inputs

Input

Input

sensitivity +/‑

Change in

valuation +/‑

Alliance Trust Savings

38,000      

Discounted cash flow                 

Cost of equity             

12.5%

0.5

(2,500)/(3,500)

 

 

 

Long-term growth rate

2.0%

1.0

2,000/(1,000)

 

 

 

Long-term PBT margin

0.0%

1.0

3,000/(2,000)

Mineral rights

       14,803                 

Oklahoma Tax Commission          

Revenue multiple ‑ gas                                    

7

1

766/(766)

 

 

multiples and Lierle US Price       

Revenue multiple ‑ oil  

4

1

553/553)

 

 

report (for non producing            

Revenue multiple         

4

1

375/375)

 

 

properties)                                   

‑ products/condensate                                    

 

 

 

 

 

                                                    

Average bonus          

1

0.5

1,360/(1,360)

 

 

                                                    

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 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 TWIM 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). TWIM receives information from the General Partner on the underlying investments which is subsequently reviewed by the TWIM Valuation Committee. Where the TWIM 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 2018 the Company had financial commitments, which have not been accrued, totalling £19.2m (£26.0m at 30 June 2017 and £22.8m at 31 December 2017). 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 limited partnership 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 one of its subsidiaries. The Company provided a letter of support to AT2006 Limited 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 Plan (LTIP), Deferred Bonus and All Employee Share Ownership Plan (AESOP) are disclosed in the December 2017 Annual Report and financial statements and the basis of measuring fair value is consistent with that disclosed therein.

 

Details of the historic LTIP awards are disclosed in the 2017 Annual Report. The Company continues to operate the 2015 LTIP under which awards which will vest in 2020. In the period ended 30 June 2018 no new awards were made and no Company shares were purchased (nil at 30 June 2017 and 31 December 2017). There was no charge to the Company income statement during the period in respect of LTIP awards (nil at 30 June 2017 and at 31 December 2017).

 

 

Notes to the financial statements

 

13 Bank loans and unsecured fixed rate loan notes

 

£000

As at

30 June 2018

As at

30 June 2017

As at

31 December 2017

Bank loans repayable within one year

127,000

131,000

133,000

Analysis of borrowings by currency:

 

 

 

Bank loans ‑ Sterling

127,000

131,000

133,000

The weighted average % interest rates payable:

 

 

 

Bank loans

1.23%

0.97%

1.20%

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

 

 

 

Bank loans

127,000

131,000

133,000

 

 

 

 

Unsecured fixed rate loan notes

118,450

120,800

120,960

 

£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:

2.57%

2.40%

2.53%

14  Share Capital

 

£000

As at

30 June 2018

 

As at

30 June 2017

As at

31 December 2017

Allotted, called up and fully paid:

 

 

 

339,981,955 (352,999,246 at 30 June 2017 and 347,592,156 at 31 December 2017) ordinary shares of 2.5p each

8,501

8,826

8,691

   Share Buybacks

 

£000

As at

30 June 2018

 

As at

30 June 2017

As at

31 December 2017

Ordinary shares of 2.5p each

 

 

 

Opening share capital

8,691

12,319

12,319

Share buybacks

(190)

(3,493)

(3,628)

Closing share capital

8,501

8,826

8,691

 

 

15 Contingent assets

 

The sale of Alliance Trust Investments to Liontrust Asset Management Plc (Liontrust) included £3 million in cash as contingent consideration, dependent on the future level of assets under management payable two years after completion. The inflow of these funds to the Company is considered probable but not virtually certain and as such is being disclosed as a contingent asset.

 

 

 

 

 

 

GLOSSARY: PERFORMANCE MEASURES AND OTHER TERMS

 

Throughout this document we use a number of terms to describe performance. Where not described in detail elsewhere we set out here what these terms mean. Many of the Alternative Performance Measures we use are commonplace for describing the performance of investment trusts however they are not derived from the Financial Statements. We believe the use of such Alternative Performance Measures is consistent with the financial reporting framework adopted by the Trust and is to aid the shareholders understanding of the investment performance of the Trust.

 

Equity Portfolio Return is a measure of the performance of the Trust's equity portfolio over a specified period. It combines any appreciation in the value of the equity portfolio and dividends paid. The comparator used for equity portfolio return is the MSCI ACWI total return. The equity portfolio return was 2.9% over the half year to 30 June 2018 gross of manager fees. On page 4 of the Interim Report we provide an analysis of the investment portfolio and equity portfolio return.

 

Gearing At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets.

 

MSCI means MSCI Inc which provides information relating to the benchmark, the MSCI All Country World Index, against which the performance target for the equity portfolio has been set. MSCI's disclaimer regarding the information provided by it can be found on our website.

 

Net Asset Value (NAV) is the value of total assets less liabilities (including borrowings). The NAV per share is calculated by dividing this amount by the number of ordinary shares in issue and is stated on a cum-income basis. The Trust's balance sheet net asset value as at 30 June 2018 is £2.693bn divided by the 339,574,639 shares in issue on that date giving a NAV per share of 793.2p.

 

NAV Total Return is a measure of the performance of the Trust's net asset value over a specified period. It combines any appreciation in the net asset value and dividends paid. The comparator used for NAV total return is the MSCI ACWI total return, as a NAV total return for that index is not available. It is based on NAV including income with debt at fair value, and after all manager fees (including WTW's fees) and allows for any tax reclaims when they are achieved.

 

The NAV per share at 31 December 2017 was 777.7p and 793.2p at 30 June 2018 increasing 2.0% over the six month period. The NAV total return for the period was 2.9% and the effect of reinvesting the dividends was therefore 0.9%.

 

Ongoing Charges represent the total ongoing costs and are calculated in accordance with the guidelines issued by the Association of Investment Companies (AIC). This is only calculated on the year end figures and more detailed information of how it was calculated for the year ended 31 December 2017 can be found on page 20 of the Annual Report and Accounts.

 

Ongoing Charge Ratio (OCR) The total ongoing expenses (excluding borrowing costs) incurred by the Company as a percentage of the average net asset value (with debt at fair value). This is only calculated on the year end figures and more detailed information of how it was calculated for the year ended 31 December 2017 can be found on page 20 of the Annual Report and Accounts.

 

Total Assets represents total net assets less current liabilities, before deduction of all borrowings.

 

Total Shareholder Return (TSR) is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend. The comparator used for total shareholder return is the MSCI ACWI total return. This measure shows the actual return received by a shareholder from their investment. The Trust's share price as at 31 December 2017 was 746.5p and 748.0p at 30 June 2018, increasing 0.2% over the six month period. The total shareholder return for the six month period was 1.1% and the effect of reinvesting the dividends was therefore 0.9%.

 

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

 

 


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