Alliance Trust PLC : Final Results
Alliance Trust PLC
6 March 2012
Alliance Trust PLC
Results for the eleven months ended 31 December 2011
| Financial Highlights | As at 31 Dec 2011 | Change from 31 Jan 2011 | Total Return | AIC Global Growth Sector TR | Relative Performance of Alliance Trust |
| NAV per share | 405.8p | -7.6% | -5.7% | -8.0% | +2.3% |
| Share Price | 342.8p | -5.8% | -3.5% | -8.6% | +5.1% |
| Full year dividend | 9.0p | +7.2% | |||
| Total Expense Ratio | 0.65% | +2bps |
Company Highlights
Alliance Trust delivers top quartile total shareholder return
Alliance Trust has delivered strong performance against its peer group
Top quartile Total Shareholder Return was well ahead of Global Growth Sector Index - Alliance Trust ranked 6 out of 32 trusts over the period
NAV outperformed Global Growth Sector index -ranked 10 out of 32 in the sector over the period
The fourth interim dividend of 2.577p will make a total dividend for the period of 9p, an increase of 7.2%.This is fully covered by current year earnings and is the 45th consecutive annual increase.
The discount has narrowed from 17.1% to 15.5% over the period, while the weighted discount of the peer group has widened. The volatility of the discount has significantly reduced.
67.7m shares (10.3% of stock) bought back this year at a total cost of £246m
ATS reduced its losses to £3.1m, an annualised reduction of over 35%. Costs were down 8% on an annualised basis.
The asset management business has been rebranded as Alliance Trust Investments. 3rd party assets grew by over 50% to over £125m. The recent launch of Global Thematic Opportunities fund will consolidate this position in 2012.
Commenting on the results, Katherine Garrett-Cox, Chief Executive, said:
"I am very pleased with the way in which each of the businesses of Alliance Trust has contributed to the results. We have generated returns well ahead of the sector as a whole and, crucially for our long-term investors, we have been able to grow the dividend by over 7%, the largest annual increase in twenty years and we have done so out of current year earnings. Despite the rally over the last three months, equity markets have been and remain as challenging as at any time in generations. We have witnessed a perfect storm created by the global financial crisis which has culminated in the recent uncertainty within the Eurozone, the increased dependence on Sovereign debt and the need to substitute consumer demand from the West with that from the Far East.
Going forward, we see continued high levels of volatility and pressure on margins and corporate earnings which will present challenges for investors. Despite this, in certain cases corporate balance sheets look extremely robust and there are opportunities out there to invest in world class companies at attractive valuations. Consequently, we continue to favour equities as an asset class and continue to invest in companies which we are confident will ride out the storm on the back of their competitive advantage and strong management.
I am confident that Alliance Trust's momentum will continue. We have the people and the culture in place to deliver performance over the long term."
- ENDS -
For more information please contact:
James Leviton and Clare Dundas
Finsbury Group
020 7251 3801
Evan Bruce-Gardyne
Head of Investor Relations, Alliance Trust
01382 321169
Mobile: 07501 500243
Dividend Declaration
Having paid three interim dividends of 2.141p for the last period, the Directors have declared a fourth interim dividend of 2.577p per share payable on 2 April 2012 to shareholders on the register on 16 March 2012. The ex-dividend date is 14 March 2012. The total dividend for the period, of 9.00p, is an increase of 7.2% on the 8.395p paid for the previous year.
In the absence of any unforeseen developments, we expect to be able to recommend quarterly interim dividends of 2.3175p, payable on or around 2 July 2012, 1 October 2012, 31 December 2012 and a fourth interim dividend of at least 2.3175p, payable on or around 2 April 2013.
Re-election of Directors
At the Annual General Meeting on 27 April 2012 Consuelo Brooke, who was appointed to the Board on 25 November 2011, and Karin Forseke, who was appointed on 1 March 2012, will stand for election by shareholders. Lesley Knox is standing down from the Board on 2 April 2012 as previously announced. Hugh Bolland and Timothy Ingram will retire at the Annual General Meeting and are not seeking re-election. The remaining Directors are all standing for re-election.
Chairman's Statement
2011 was a year in which your Company had to confront the challenges arising from difficult economic and market conditions. At the end of the year, although we foresee continued uncertainty, particularly in the Eurozone, I believe that your Company is well placed to take advantage of the opportunities which may emerge.
Investment performance
In my final Chairman's statement I am pleased to report the continuing improvement in investment performance during the year against the Key Performance Indicators which we set out in last year's report. Over the financial period our Total Shareholder Return and Net Asset Value total return ranked 6/32 and 10/32 respectively against our peer group of Global Growth investment trusts compared to 24/33 and 22/33 in the previous year. We continued to grow the dividend and maintained tight control of the Company's costs to reflect the challenging market conditions. Investment performance remains our top priority and this focus will continue under the chairmanship of my successor, Karin Forseke.
Dividend
We recognise that many of our shareholders depend on a steadily rising dividend alongside capital growth. We have maintained our record of annual increases in the dividend for a 45th consecutive year, with an increase in the full year dividend of 7.2% from 8.395p per share to 9.00p per share despite the shortened 11 month financial period following the change of our year end. Importantly, this dividend is covered from earnings and we have not needed to call on our reserves. The establishment of our fixed income team has given us greater flexibility to meet shareholders' expectations while continuing to invest in equities where we see growth opportunities.
Discount and share buybacks
There was much debate about the discount between our share price and our net asset value during the year. A resolution to introduce a rigid discount control mechanism which was requisitioned by a shareholder was defeated by a substantial majority at our 2011 AGM following an unprecedented turnout from our shareholders. The Board was clear throughout in its view that a rigid mechanism, which fails to take into account factors such as performance, peer group discounts and general market conditions, is not appropriate for Alliance Trust.
In our many meetings with shareholders over this period we recognised concerns as to the level of discount and the Board gave careful consideration to the actions which could be taken to narrow the discount. Following the AGM in May 2011 we confirmed our commitment to the ongoing flexible use of buybacks, taking into account the Company's discount relative to the peer group. During the period under review we bought back just over 10% of the Company's share capital. This contributed to a reduction in the volatility of the discount during a period of turbulent market conditions and to a narrowing from 17.1% to 15.5%. Over half of those shares were bought back between May and July 2011, with buybacks continuing throughout the remainder of the period. We would not expect to maintain this level of buyback activity in normal market conditions.
The Board
I write this statement with thanks for the guidance and support I have received from shareholders, other directors and management throughout my 10 years on the Board of your Company, and also with optimism for its future under Karin Forseke, who will become Chairman on 2 April when I stand down from the Board. Karin's extensive experience of financial services and her international perspective make her ideally-suited to the opportunities and challenges which the future will bring.
Since the last AGM we have welcomed Consuelo Brooke to the Board as a non-executive director. Consuelo's experience of over 40 years as a fund manager underlines the Board's recognition that investment performance is at the heart of your Company, and she will be a worthy successor to Hugh Bolland who sadly has decided to retire at this year's AGM. Hugh has played an important role both as a non-executive director of your Company and latterly as the chairman of our asset management business, and I am grateful to him for his contribution.
Timothy Ingram has also decided not to stand for re-election because of anticipated increased commitments elsewhere. I would like to thank him for his wise counsel and insight during his time on the Board, during which he has also served as Chairman of the Remuneration Committee.
Chris Masters, who has been a non-executive director since 2002 and Senior Independent Director since 2007, would also have retired at this year's AGM having served nine years. However he has agreed to stand for re-election and, if re-elected, will remain on the Board for a period of up to 12 months to assist with the transition of the Board. Robert Burgess stood down as Chief Executive of Alliance Trust Savings and left the Board in February 2012. He leaves with our thanks for the work he has done in developing Alliance Trust Savings and our best wishes for the future.
During the year, following publication of Lord Davies' review "Women on Boards", there has been a continuing debate about the importance of diversity on boards of listed companies. Your Board wholeheartedly endorses this; diversity brings different perspectives to bear on the opportunities and challenges facing every company. We have chosen not to adopt a target for gender diversity and our policy throughout the Company is a simple one - at all levels to appoint the best-qualified person for the job. Currently women comprise one-third of the Board and of our Executive Committee, which includes the executive directors and other senior executives. Women comprise around one-quarter of our Senior Leadership Group and more than half of our total workforce are women. We continue to encourage the development of all employees to equip them for both their current and future roles.
Scottish independence
We note the proposal by the Scottish Government to hold a referendum on Scottish independence in 2014. Your Board does not believe it is appropriate to take a political stance on this issue - it will be for the electorate to cast their votes as they see fit having heard the arguments. We will however endeavour to ensure that the implications of an independent Scotland in areas such as economic and fiscal policy and regulation of financial services are clearly spelt out. In particular we will wish to establish that the benefits of investment trust status and the position of our investors and customers, wherever they live, will be preserved in order to ensure that the strength of Scotland's investment sector is preserved regardless of the outcome of the vote.
Annual General Meeting
Our Annual General Meeting will be held in Dundee on Friday 27 April 2012. It has been an honour to serve as Chairman of your Company and I have enjoyed meeting many shareholders over the years. I hope that as many of you as possible will take the opportunity to attend to welcome Karin, who will be chairing her first AGM, and to meet the rest of the Board as well as hearing about your Company's progress and outlook.
Chief Executive's Review
Our performance over the period underlines our ability to protect the portfolio from the jarring shocks that have become so much of a feature of equity markets over the last four years. We have also managed to generate increased levels of income that enable us to pay, out of current year earnings, a substantially increased dividend.
Overview
2011 was a year in which the markets were driven by non-financial news. The year started with a series of natural disasters. The human suffering was instantly visible around the world as images of floods in Queensland, earthquakes in Christchurch and the devastating tsunami in North East Japan, were broadcast across social media networks. The full scale of the disaster to those caught up in these events cannot be fully understood by most people, and the human cost of the Fukushima tsunami is incalculable.
The focus of the world's press then moved to North Africa, where the Arab spring uprising spread east from Tunisia through North Africa and on into the Middle East.
While markets did not react particularly to the uprisings, they did react when the financial crisis in Europe hit the headlines in July, to the point where the markets took fright and, despite regular meetings of European leaders, we still seem to be a long way away from finding a solution that will satisfy investors for the long-term. This time last year our view was that the Euro would survive. There is no exit clause in the Treaties and therefore there is no legal way in which a country can be expelled, nor yet expel itself. Over the last year, there has been a subtle, but perceptible change to that thinking and more people are considering how to mitigate and contain what is likely to be a hugely difficult experience for all.
While the Euro dominated the headlines over the summer, it was not the only region where financial developments affected the markets. In early August, the US market suffered its largest one day fall since November 2008 when the ratings agency, Standard & Poors, downgraded the credit rating of the United States. This was the first in a series of such events, the most recent of which has been the downgrading of France, Austria and seven other European countries. The effect of the latter event is to increase the cost of funding for the European Financial Stability Facility (EFSF), which in turn, increases the cost of bailing out Europe.
The UK was not immune from these events. The austerity package implemented by the Coalition has been relatively well received, with the result that borrowing costs for the UK Government have reduced significantly, unlike the meteoric rise experienced in Southern Europe. The growth of the UK economy has been sluggish at best and there is concern that current plans will act to stifle any signs of recovery. Inflation has, however, stabilised and started to fall.
The overall increase in the levels of indebtedness of the US Government is alarming and will continue to act as a drag on economic growth but quantitative easing and monetary policy have kept funding cost close to all time lows.
Portfolio performance and attribution
For the first time, we are providing performance attribution for the Trust. This will help explain how, why and where the Trust has performed against a specified reference point. We will use this to aid understanding but it is important to recognise that the portfolio differs significantly from that of the reference index in terms of weightings and it is anticipated that this will remain the case going forward. This should therefore not be viewed as a fixed asset allocation benchmark. We will continue to manage the portfolio on the basis of the underlying fundamentals of the companies concerned with the objective of protecting and growing our shareholders' capital irrespective of the regional and sector weightings of the index. Our investment style is focused on the drivers of investment performance in the equity portfolio.
Total Shareholder Return (TSR) outperformed the NAV Total Return (NAV TR) by 2.2%, as a result of the closing of the discount from 17.1% to 15.5% and the NAV TR outperformed the reference point by a further 0.2%. This was primarily down to the successful asset allocation decisions, most notably by maintaining overweight positions in UK equities and fixed income, and underweight in the underperforming European, Asian and Emerging Markets, which added 0.5% to the outperformance, tactical allocation decisions which added a further 0.2% and buy backs which added 1.7%. Overall stock selection was negative 0.3%, although across the quoted equity portion of the Trust was neutral over the period. The cost of running the Trust in performance terms is 0.6% and the impact of gearing reduced the return by a further 0.9% as markets fell.
| Alliance Trust | FTSE All World Index | |||||
| Attribution | Average Weight % | Return % | Average Weight % | Return % | Asset Allocation% | Stock Selection % |
| UK | 32.1 | (2.7) | 8.2 | (2.9) | 0.7 | 0.1 |
| North America | 24.9 | (1.3) | 46.3 | 0.9 | (1.5) | (0.6) |
| Europe ex UK | 13.6 | (13.0) | 17.4 | (16.8) | 0.4 | 0.5 |
| Asia | 17.0 | (10.9) | 21.8 | (11.4) | 0.3 | 0.1 |
| Global | 4.4 | (11.8) | 3.0 | (6.2) | (0.0) | (0.2) |
| Emerging Markets | 4.2 | (10.3) | 3.3 | (13.2) | (0.1) | 0.1 |
| Contribution from Equities | 96.2 | (5.8) | 100.0 | (5.9) | (0.2) | 0.0 |
| Fixed Income | 4.3 | (0.1) | 0.0 | 0.0 | 0.5 | (0.3) |
| Other Assets | 7.8 | (0.5) | 0.0 | 0.0 | 0.0 | (0.0) |
| Discretionary Assets | 108.3 | (6.4) | 100.0 | (5.9) | 0.3 | (0.3) |
| Expenses | (0.6) | |||||
| Cash | 3.3 | 0.5 | ||||
| Impact of Gearing | (11.6) | (0.9) | ||||
| Effect of Buybacks | 1.7 | |||||
| Total Return | 100.0 | (5.7) | 100.0 | (5.9) | ||
Asset Allocation: measures the effect of strategically overweighting or underweighting asset classes compared to the reference point, the FTSE All World Index.
Stock Selection: measures how the stocks within each asset class have performed compared to the reference point, the FTSE All World Index.
Effect of Buybacks: measures the effect of decreasing the number of shares in issue through share buybacks.
Impact of Gearing: measures the impact of borrowings on the portfolio return.
Income Generation
We are particularly pleased to be able to declare a dividend for the period of 9.0p, up 7.2% on last year and paid out of current year earnings. Over the last six years we have been working to rebuild the revenue reserves to the point where they represent nearly two years' dividend cover, enabling us to distribute a greater proportion of the current year earnings. Going forward, we will strive to pay a growing dividend from current year earnings conscious that, for many of our shareholders, the importance of the dividend that Alliance Trust pays out has increased significantly over the last four years. This is particularly relevant as interest rates have fallen to historically low levels.
A very welcome development over recent years has been the initiation of dividend payments by Asian companies. Together with the contribution from our Fixed Income fund, this has allowed us to adjust our regional asset allocation away from the UK, without foregoing significant levels of income. As we have grown concerned about the short-term outlook for equity markets, so we have moved the portfolio to be more defensively positioned. Despite this shift we have been able to generate a yield of over 3% from our Asian assets, something that would have been inconceivable even five years ago. However, the UK continues to provide consistent dividends as total payout to shareholders rose by nearly 20% to a record £67.8bn in 2011.
Asset Allocation
During the year we have continued the process of focusing the Trust back on its core competencies; investing in equities and fixed income. In March, we announced the decision to exit the private equity market and we have now significantly reduced our exposure to that asset class. We have more than halved our undrawn commitments and will not be taking on any new liabilities. We have also managed to sell our existing holdings at NAV or better, reflecting the quality of the assets held in the portfolio. We have also continued to sell down our property portfolio and by the end of December 2011 retained only two of our properties; we occupy the property in Edinburgh and we also own Monteith House in Glasgow.
We have streamlined our equity portfolios to focus on the four main regions of expertise: the UK, North America, Europe and Asia. Although we remain pessimistic about the UK economy, we continue to have over 30% of the portfolio listed in the UK as we recognise that a listing in the UK is not synonymous with exposure to the UK economy. In fact, our analysis shows that while the UK portfolio represents over 30% of our equity portfolio on the basis of where our investments are listed, only 7% of the income earned by the companies in which we invest is sourced in the UK. As the market peaked in early July, we took advantage of the rally to refocus the portfolio and reduced our emerging market exposure, allowing us to increase our exposure to more developed markets. This was followed by a further reduction in the Asian portfolio and a general shift towards a more defensive slant to the portfolio as Standard & Poors downgraded the credit rating of the US in early August.
We were active in the derivatives market. However this was limited to assisting with market timing for efficient portfolio management. We would typically invest in futures in order to adjust the regional weighting, and then expect that the fund manager would unwind the position into or from his underlying assets.
Managing the currency exposure in the portfolio is an integral part of our investment process. Over the year we took advantage of the flexibility of our multicurrency banking facility to borrow in Euros with the view that the currency would weaken. By reducing our exposure to the weakening Euro we helped protect the value of our underlying equity holdings. In the third quarter of the year the relative strength of Sterling against the US dollar also gave us an opportunity to increase our weighting to the dollar and then unwind our position as the pound subsequently weakened. Both of these strategies added to performance. Currency fluctuations can have a significant impact on the value of our overseas holdings and we continue to monitor such movements and take action to protect against them.
Gearing
We have long been able to command very competitive rates of borrowing, which averaged 2.0% at the end of the year. We have been able to exploit the short-term nature of our borrowing facilities to adjust our level of exposure to equity markets in order to reflect our relative level of confidence in the outlook for the various asset classes. Over the period we have reduced the level of net debt from 10.8% at the start of the year to £184m (7.7% of net assets) as we became increasingly concerned about the implications of the Eurozone crisis over the summer. We maintain an ongoing programme of renewing and replacing borrowing facilities to provide us with the flexibility to enhance equity returns by gearing the portfolio.
Risk
Assessing investment risk is a fundamental part of managing the Trust's assets. We seek to diversify risk across the portfolio by investing in over 200 discrete holdings across different asset classes, regions and sectors. Some of these assets are correlated but by spreading the risk across this number of holdings we aim to reduce the single stock specific risk significantly thereby keeping volatility lower. We utilise an industry standard risk model to analyse the technical aspects of risks and look to achieve a balance between risk and reward when considering portfolio structure. We manage the portfolio risks actively and look to reduce risk in times of uncertainty and increase it when our outlook is more favourable.
Outlook
It seems inevitable that politics will continue to drive market sentiment across the globe until the uncertainties in Europe and the macroeconomic issues subside. There are major issues facing policy-makers in the UK, Europe and the US. Forthcoming presidential elections in France and the US later this year will cause further uncertainty and the French election, in particular, is likely to lead to a change of political direction, whereas we expect little change from the US election in November. Europe will doubtless dominate the news in the short term as politicians struggle to resolve the complex problem of the Euro. At the time of writing, the Greek default issue would seem to be in abeyance however our central case is that the issue has not been permanently resolved and some form of default, leading to the eventual departure of Greece from the Euro, will probably occur in the next couple of years. Closer to home, austerity measures are likely to lead to a prolonged period of weak growth and further pressure on the consumer. Across Western economies we anticipate further quantitative easing will be deployed, should growth stall further.
Against this backdrop, equity markets are likely to remain volatile in the short term, however equities remain good value relative to other assets, particularly government bonds and they remain our favoured asset class. Corporate balance sheets remain robust and valuations for some companies look compelling, particularly for long-term investors such as Alliance Trust. Many companies have weathered this financial storm better than they did in 2008 and are in a much stronger position to capitalise on any recovery. They have reduced their levels of borrowing and what remains is costing them less to service. They have also built up significant cash reserves and are waiting for the opportunity to put it to work in the market when they feel more confident about the economic outlook.
We are not currently forecasting a global recession, although we believe that the issue is finely balanced. Investors are waiting for confirmation that the recent pickup in economic activity is sustainable in order to bring them back into the market and away from UK, US and German government bonds where some recent auctions have priced with negative real yields. We consider that this position is unsustainable and that a correction is overdue and our exposure to this asset class is largely restricted to corporate, not government bonds. Our central case is that the recovery of equity markets will be a long drawn-out affair, but as we invest for the long term, this provides interesting investment opportunities. We see companies trading at valuations that do not reflect their true worth and the opportunity, on a stock-specific basis, to invest at levels we have not seen for some time. The problem therefore is not so much the direction that markets will take, but quite when they will set off.
Key Priorities
Since 2009 we have focused on five key priorities which we believed were necessary to enable us to achieve our objective of delivering long-term value for shareholders.
These were to focus on investment in equities, continue to improve investment performance, manage our cost base in line with market conditions, develop our subsidiary businesses and invest in the development of our people.
Going forward, we will concentrate on delivering against the two overarching priorities below.
To restore investment credibility: Investment credibility comes primarily from the performance of the portfolio relative to our peers. In order to achieve this we need to ensure that we have the people, systems and processes in place.
We have demonstrated our ability to deliver performance in turbulent equity markets and we are focused on making the decision-making process more flexible in order that we can identify systemic changes to the outlook on a more timely basis.
To regenerate our investor base: We are working to increase the level of understanding of the Trust with a view to ensuring that there is sustainable demand for the shares of the Trust, which will in turn help to deliver a narrower discount.
We believe that our core shareholder is and should ultimately remain the private investor. We provide access to equity investments from all over the world, which we understand is more appealing to those investors who do not have the resources to undertake their own regionally diversified asset allocation. The most cost-effective way to achieve this is to focus on those who advise and manage the portfolios of private individuals.
Risk Factors
The following section sets out our approach to risk management and focuses on the principal risks that we believe could impact on the performance of the business. Effective risk management is a key component of the business's operating model and assists in ensuring that the different parts of the group operate within acceptable risk parameters.
The Board has overall responsibility for setting the level of risk which it is prepared to accept. The risk framework is overseen by the Risk Committee which is chaired by the Finance Director and is made up of representatives from Alliance Trust and each of its regulated subsidiary businesses. The Chairman of the Audit Committee also attends at least one meeting each year, to provide additional oversight and a Non-executive perspective. Each business maintains and reviews its risk register and the controls in place to mitigate, reduce or prevent loss arising from their key risks. A common risk categorisation is in place for all business units.
During the period the Risk Committee met on eight occasions and received external presentations on fraud risk and the proposed new regulatory environment in the UK as well as internal reviews on information technology security, data protection, upcoming regulatory change and the results of global risk surveys. The Committee divides its time between identifying and evaluating emerging risks, challenging business self assessment risk profiles and performing an oversight role for the completion of remediating actions.
We continue to enhance the Risk Framework and in the period improved our risk reporting capabilities with the creation of Key Risk Indicators which are reported at both Management and Board level.
Principal Risks
| Risk | Mitigation | Key developments |
| Strategy - Inappropriate objective and strategy in relation to investor demands in a rapidly changing financial services market. | The Board regularly reviews the strategy of the Trust and the level and sources of demand. The Board recognises the need for consistently good performance in order to drive investor demand. The subsidiary businesses are a source of value going forward and their need to deliver against business plan is recognised by the Board. | Decision to withdraw from Private Equity in favour of quoted equities. Discount has narrowed while the Global Growth sector average has widened during the period. |
| Market - The Trust currently invests primarily in UK and overseas equities and its principal risks are therefore market related and include market risk (currency, interest rate and other price risk). An explanation of these risks along with sensitivities is included in note 23 to these accounts. Some nations in the European Union (EU) have seen their sovereign debt come under pressure amid deteriorating economic and fiscal conditions. This has increased the risk of a government default or a country being forced to exit the Euro area. Alliance Trust has direct exposure to the EU via (i) its European portfolio (ii) holdings in funds managed by its subsidiary company Alliance Trust Investments and (iii) investments made by its Private Equity business. Within the above our exposure to Greece, Italy, Ireland, Portugal and Spain is minimal (<1% total Net Assets of the Trust as at 31 December 2011). Other risks are associated with asset allocation, sector and stock selection which could lead to investment underperformance. | The Asset Allocation Committee meets at least monthly to manage the allocation of the capital of the Company between and among the asset classes approved by the Board within the risk parameters, policies and other limits and guidelines set by the Board. Our internal Research Centre provides an analysis of economies, markets and socio-economic issues that may affect markets to inform investment decisions. We closely monitor exposures to Europe within our investment portfolios and consider both direct and indirect exposures. | Strengthening of capabilities of equity investment team. Launch of Global Thematic Opportunities Fund. Ranked 6/32 of Peer Group for TSR and 10/32 for NAV return over the period. |
| Gearing - The Trust has the ability to borrow money for investment purposes. If the underlying investment falls in value, any borrowings will magnify the extent of this loss. If borrowing facilities are not renewed, the Trust may have to sell investments to repay borrowings. | All borrowings require the prior approval of the Board and gearing levels are reviewed by the Board and the Asset Allocation Committee at every meeting. The majority of the Trust's investments are in quoted equities that are readily realisable. | A new facility for up to £100m was approved with the same lender to replace an existing facility of the same amount. Borrowing commitments are with different banks and over different durations. |
| Accounting, legal and regulatory - In order to qualify as an investment trust the Company must comply with sections 1158-59 of the Corporation Tax Act 2010. Failure to do so would result in the realised capital gains of the Company's portfolio being subject to Corporation Tax. Major regulatory change could impose unnecessary compliance burdens on the Trust or threaten the viability of its business model. | The Finance Director regularly monitors the compliance criteria under sections 1158-59 of the Corporation Tax Act 2010. The Group's Compliance Department maintains a forward radar of upcoming regulatory changes. Where a significant detrimental effect on the Trust is envisaged, representation is either made individually or via trade bodies. Management of the regulatory forward radar is overseen by the Risk Committee. The Compliance Department perform monitoring activities during the year to ensure compliance with relevant regulations. Any breaches are reported to the Board and where relevant to the appropriate authorities. | Pace of regulatory change remains a challenge to the Group. This includes not just legislation emanating from the UK and Europe but also from the US such as the Foreign Account Tax Compliance Act. |
| Operational - Failure of the Trust's accounting or internal control systems or those of other third party suppliers could lead to an inability to provide accurate reporting and monitoring or a misappropriation of assets. | The Trust maintains a Continuity of Business Plan which facilitates the continued operation of the business in the event of a service disruption or major disaster. A report on the effectiveness of internal controls is reviewed by the Board and external reports on the control environments of significant third party service providers are obtained and reviewed. | During the year the effectiveness of the Continuity of Business Plan was tested by way of a crisis scenario workshop. The result of the test was positive. |
Further information on financial instruments and risk as required by IFRS7 can be found on pages 76 to 83 of the Report and Accounts.
Alliance Trust PLC
Consolidated income statement for the 11 month period ended 31 December 2011
| 11 months to December 2011 | Year to January 2011 | |||||
| £000 | Revenue | Capital | Total | Revenue | Capital | Total |
| Revenue | ||||||
| Income | 104,610 | - | 104,610 | 101,943 | - | 101,943 |
| (Loss)/Profit on fair value designated investments | - | (253,611) | (253,611) | - | 404,536 | 404,536 |
| (Loss)/Profit on investment property | - | (240) | (240) | - | 589 | 589 |
| Total revenue | 104,610 | (253,851) | (149,241) | 101,943 | 405,125 | 507,068 |
| Administrative expenses | (37,419) | (1,957) | (39,376) | (38,138) | (2,684) | (40,822) |
| Finance (costs) /income | (8,736) | 5,914 | (2,822) | (5,306) | (4,462) | (9,768) |
| Impairment losses | - | - | - | - | (297) | (297) |
| Loss on disposal of office premises | - | (5) | (5) | - | - | - |
| Loss on revaluation of office premises | - | - | - | - | (47) | (47) |
| Foreign exchange gains | - | 1,275 | 1,275 | 30 | 95 | 125 |
| (Loss)/Profit before tax | 58,455 | (248,624) | (190,169) | 58,529 | 397,730 | 456,259 |
| Tax | (2,562) | (100) | (2,662) | (4,439) | (73) | (4,512) |
| (Loss)/Profit for the period | 55,893 | (248,724) | (192,831) | 54,090 | 397,657 | 451,747 |
| All (Loss)/Profit for the period is attributable to equity holders of the parent | ||||||
| Earnings per share from continuing operations attributable to equity holders of the parent | ||||||
| Basic (p per share) | 8.91 | (39.66) | (30.75) | 8.20 | 60.26 | 68.46 |
| Diluted (p per share) | 8.89 | (39.66) | (30.77) | 8.17 | 60.10 | 68.27 |
Consolidated statement of comprehensive income
| 11 months to December 2011 | Year to January 2011 | |||||
| £000 | Revenue | Capital | Total | Revenue | Capital | Total |
| (Loss)/Profit for the period | 55,893 | (248,724) | (192,831) | 54,090 | 397,657 | 451,747 |
| Defined benefit plan net actuarial (loss)/gain | - | (767) | (767) | - | 3,077 | 3,077 |
| Retirement benefit obligations deferred tax | - | 449 | 449 | - | (348) | (348) |
| Loss on revaluation of office premises | - | - | - | - | (183) | (183) |
| Other comprehensive (loss)/income | - | (318) | (318) | - | 2,546 | 2,546 |
| Total comprehensive (loss)/income for the period | 55,893 | (249,042) | (193,149) | 54,090 | 400,203 | 454,293 |
| All total comprehensive (loss)/income for the period is attributable to equity holders of the parent | ||||||
Company income statement for the 11 month period ended 31 December 2011
| 11 months to December 2011 | Year to January 2011 | |||||
| £000 | Revenue | Capital | Total | Revenue | Capital | Total |
| Revenue | ||||||
| Income | 85,117 | - | 85,117 | 86,837 | - | 86,837 |
| (Loss)/Profit on fair value designated investments | - | (254,584) | (254,584) | - | . 391,349 | 391,349 |
| (Loss)/Profit on investment property | - | (240) | (240) | - | 589 | 589 |
| Total revenue | 85,117 | (254,824) | (169,707) | 86,837 | 391,938 | 478,775 |
| Administrative expenses | (14,824) | (1,159) | (15,983) | (15,110) | (1,924) | (17,034) |
| Finance costs | (3,026) | (2,950) | (5,976) | (3,244) | (2,302) | (5,546) |
| Loss on disposal of office premises | - | (5) | (5) | - | - | - |
| Loss on revaluation of office premises | - | - | - | - | (47) | (47) |
| Foreign exchange gains | - | 1,275 | 1,275 | - | 862 | 862 |
| (Loss)/Profit before tax | 67,267 | (257,663) | (190,396) | 68,483 | 388,527 | 457,010 |
| Tax | (5,369) | 100 | (5,269) | (4,696) | 328 | (4,368) |
| (Loss)/Profit for the period | 61,898 | (257,563) | (195,665) | 63,787 | 388,855 | 452,642 |
| All (loss)/profit for the period is attributable to equity holders of the parent | ||||||
| Basic (p per share) | 9.87 | (41.06) | (31.19) | 9.67 | 58.93 | 68.60 |
| Diluted (p per share) | 9.84 | (41.06) | (31.22) | 9.64 | 58.77 | 68.41 |
Company statement of comprehensive income
| 11 months to December 2011 | Year to January 2011 | |||||
| £000 | Revenue | Capital | Total | Revenue | Capital | Total |
| (Loss)/Profit for the period | 61,898 | (257,563) | (195,665) | 63,787 | 388,855 | 452,642 |
| Defined benefit plan net actuarial (loss)/gain | - | (767) | (767) | - | 3,077 | 3,077 |
| Retirement benefit obligations deferred tax | - | 449 | 449 | - | (348) | (348) |
| Loss on revaluation of office premises | - | - | - | - | (183) | (183) |
| Other comprehensive (loss)/income | - | (318) | (318) | - | 2,546 | 2,546 |
| Total comprehensive (loss)/income for the period | 61,898 | (257,881) | (195,983) | 63,787 | 391,401 | 455,188 |
| All total comprehensive (loss)/income for the period is attributable to equity holders of the parent | ||||||
Statements of changes in equity for the 11 month period ended 31 December 2011
| Group | Company | |||
| £000 | December 2011 | January 2011 | December 2011 | January 2011 |
| Called up share capital | ||||
| At 1 February 2011 | 16,527 | 16,677 | 16,527 | 16,677 |
| Own shares purchased and cancelled in the period/year | (1,694) | (150) | (1,694) | (150) |
| At 31 December 2011 | 14,833 | 16,527 | 14,833 | 16,527 |
| Capital reserves | ||||
| At 1 February 2011 | 2,158,630 | 1,776,750 | 2,131,651 | 1,759,022 |
| (Loss)/Profit for the period/year | (248,724) | 397,657 | (257,563) | 388,855 |
| Defined benefit plan actuarial net (loss)/gain | (318) | 2,729 | (318) | 2,729 |
| Own shares purchased and cancelled in the period/year | (245,534) | (19,800) | (245,534) | (19,800) |
| Share based payments | 1,638 | 1,294 | 893 | 845 |
| At 31 December 2011 | 1,665,692 | 2,158,630 | 1,629,129 | 2,131,651 |
| Revaluation reserve | ||||
| At 1 February 2011 | - | 183 | - | 183 |
| Revaluation of office premises | - | (183) | - | (183) |
| At 31 December 2011 | - | - | - | - |
| Merger reserve | ||||
| At 1 February 2011 and at 31 December 2011 | 645,335 | 645,335 | 645,335 | 645,335 |
| Capital redemption reserve | ||||
| At 1 February 2011 | 2,471 | 2,321 | 2,471 | 2,321 |
| Own shares purchased and cancelled in the period/year | 1,694 | 150 | 1,694 | 150 |
| At 31 December 2011 | 4,165 | 2,471 | 4,165 | 2,471 |
| Revenue reserve | ||||
| At 1 February 2011 | 71,541 | 72,017 | 98,520 | 89,299 |
| Profit for the period/year | 55,893 | 54,090 | 61,898 | 63,787 |
| Dividends | (54,090) | (54,599) | (54,090) | (54,599) |
| Unclaimed dividends | 4 | 33 | 4 | 33 |
| At 31 December 2011 | 73,348 | 71,541 | 106,332 | 98,520 |
| Minority interest At 1 February 2011 Transfers to liabilities | - - | 11,684 (11,684) | - - | - - |
| At 31 December 2011 | - | - | - | - |
| Total Equity At 1 February 2011 | 2,894,504 | 2,524,967 | 2,894,504 | 2,512,837 |
| Total Equity At 31 December 2011 | 2,403,373 | 2,894,504 | 2,399,794 | 2,894,504 |
Balance sheet as at 31 December 2011
| Group | Company | |||
| £000 | December 2011 | January 2011 | December 2011 | January 2011 |
| Non-current assets | ||||
| Investments held at fair value | 2,625,615 | 3,237,614 | 2,560,576 | 3,172,639 |
| Investment property | 9,775 | 28,515 | 9,775 | 28,515 |
| Property, plant and equipment: | ||||
| Office premises | 6,025 | 6,270 | 6,025 | 6,270 |
| Other fixed assets | 15 | 27 | 15 | 27 |
| Intangible assets | 1,598 | 2,345 | 390 | 542 |
| Pension scheme surplus | 3,150 | 846 | 3,150 | 846 |
| Deferred tax asset | 907 | 182 | 907 | 151 |
| 2,647,085 | 3,275,799 | 2,580,838 | 3,208,990 | |
| Current assets | ||||
| Outstanding settlements and other receivables | 190,644 | 47,051 | 22,171 | 29,687 |
| Withholding tax debtor | 789 | 1,413 | 789 | 1,413 |
| Corporation tax debtor | 179 | 79 | 179 | 79 |
| Cash and cash equivalents | 415,435 | 295,355 | 72,349 | 27,511 |
| 607,047 | 343,898 | 95,488 | 58,690 | |
| Total assets | 3,254,132 | 3,619,697 | 2,676,326 | 3,267,680 |
| Current liabilities | ||||
| Outstanding settlements and other payables | (600,539) | (383,505) | (22,661) | (32,613) |
| Tax payable | (141) | (2,260) | (3,991) | (1,198) |
| Bank overdrafts and loans | (248,768) | (338,997) | (248,768) | (338,997) |
| (849,448) | (724,762) | (275,420) | (372,808) | |
| Total assets less current liabilities | 2,404,684 | 2,894,935 | 2,400,906 | 2,894,872 |
| Non current liabilities | ||||
| Deferred tax liability | (907) | (303) | (907) | (303) |
| Amounts payable under long term Investment Incentive Plan | (404) | (128) | (205) | (65) |
| Net assets | 2,403,373 | 2,894,504 | 2,399,794 | 2,894,504 |
| Equity | ||||
| Share capital | 14,833 | 16,527 | 14,833 | 16,527 |
| Capital reserve | 1,665,692 | 2,158,630 | 1,629,129 | 2,131,651 |
| Merger reserve | 645,335 | 645,335 | 645,335 | 645,335 |
| Capital redemption reserve | 4,165 | 2,471 | 4,165 | 2,471 |
| Revenue reserve | 73,348 | 71,541 | 106,332 | 98,520 |
| Total equity | 2,403,373 | 2,894,504 | 2,399,794 | 2,894,504 |
| All net assets are attributable to equity holders of the parent Net Asset Value per ordinary share attributable to equity holders of the parent | ||||
| Basic (£) | £4.06 | £4.39 | £4.06 | £4.39 |
| Diluted (£) | £4.05 | £4.38 | £4.04 | £4.38 |
Cash flow statement for the 11 month period ended 31 December 2011
| Group | Company | |||
| £000 | December 2011 | January 2011 | December 2011 | January 2011 |
| Cash flows from operating activities | ||||
| (Loss)/Profit before tax | (190,169) | 456,259 | (190,396) | 457,010 |
| Adjustments for: | ||||
| Losses/(Gains) on investments | 253,851 | (405,125) | 254,824 | (391,938) |
| Foreign exchange gains | (1,275) | (125) | (1,275) | (862) |
| Scrip dividends | (886) | (213) | (886) | (213) |
| Depreciation | 12 | 16 | 12 | 16 |
| Amortisation of intangibles | 1,732 | 1,696 | 419 | 404 |
| Impairment losses | - | 297 | - | - |
| Loss on disposal/revaluation of property | 5 | 47 | 5 | 47 |
| Share based payment expense | 1,638 | 1,294 | 893 | 845 |
| Interest Adjustment for pension funding | 2,822 (3,071) | 9,768 (2,690) | 5,976 (3,071) | 5,546 (2,690) |
| Operating cash flows before movements in working capital | 64,659 | 61,224 | 66,501 | 68,165 |
| Increase in amounts due to depositors | 43,876 | 25,930 | - | - |
| Increase/(Decrease) in receivables | 9,630 | (12,616) | 898 | (8,346) |
| (Decrease)/Increase in payables | (6,759) | 10,265 | (1,010) | 1,289 |
| Net cash flow from operating activities before income taxes | 111,406 | 84,803 | 66,389 | 61,108 |
| Taxes paid | (4,377) | (4,998) | (2,103) | (4,966) |
| Net cash inflow from operating activities | 107,029 | 79,805 | 64,286 | 56,142 |
| Cash flows from investing activities | ||||
| Proceeds on disposal of fair value through profit and loss investments | 1,526,557 | 1,304,562 | 1,654,004 | 1,295,360 |
| Purchases of fair value through profit and loss investments | (1,176,618) | (1,510,954) | (1,292,281) | (1,465,954) |
| Purchase of plant and equipment | - | (40) | - | (40) |
| Disposal of property, plant and equipment | 240 | - | 240 | - |
| Purchase of intangible assets | (985) | (692) | (267) | (211) |
| Net cash inflow/(outflow) from investing activities | 349,194 | (207,124) | 361,696 | (170,845) |
| Cash flows from financing activities | ||||
| Dividends paid - Equity | (41,310) | (68,071) | (41,310) | (68,071) |
| Unclaimed dividends repaid | 4 | 33 | 4 | 33 |
| Purchase of own shares | (245,534) | (19,800) | (245,534) | (19,800) |
| New bank loans raised | - | 178,997 | - | 178,997 |
| Repayment of borrowing | (90,229) | - | (90,229) | - |
| Third party investment in subsidiary OEIC - Alliance Trust Investment Funds | 50,711 | 69,502 | - | - |
| Interest payable | (11,060) | (7,587) | (5,350) | (5,525) |
| Net cash (outflow)/inflow from financing activities | (337,418) | 153,074 | (382,419) | 85,634 |
| Net increase/(decrease) in cash and cash equivalents | 118,805 | 25,755 | 43,563 | (29,069) |
| Cash and cash equivalents at beginning of period | 295,355 | 269,475 | 27,511 | 55,718 |
| Effect of foreign exchange rate changes | 1,275 | 125 | 1,275 | 862 |
| Cash and cash equivalents at end of period | 415,435 | 295,355 | 72,349 | 27,511 |
The financial information set out above does not constitute the Company's statutory accounts for the 11 month period ended 31 December 2011 or year ended 31 January 2011, but is derived from those accounts. The comparatives, which are in brackets, are for the year ended 31 January 2011. Statutory accounts for the year ended 31 January 2011 have been delivered to the Registrar of Companies and those for the 11 month period ended 31 December 2011 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts: their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498 (2) or (3) of the Companies Act 2006.
1. Expenses comprise £15,983,000 (£17,034,000) incurred by the Company, and £23,393,000 (£23,788,000) incurred by subsidiary companies. Taking guidance from the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" the cost of the Long Term Incentive Plan deemed to be related to the capital performance of the Company has been treated as a capital expense of £1,159,000 (£1,924,000).
2. The diluted earnings per share is calculated using the weighted average number of ordinary shares, which includes 1,770,212 (1,770,203) ordinary shares acquired by the Trustee of the Employee Benefit Trust ("EBT") with funds provided by the Company. The basic earnings per share is calculated by excluding these shares. The basic Net Asset Value per share calculation also excludes these shares.
3. All expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the income statement, all expenses have been presented as revenue items except as follows:
- Expenses which are incidental to the acquisition of an investment are included within the cost of that investment.
- Expenses which are incidental to the disposal of an investment are deducted from the disposal proceeds of the investment.
- Annual bonus and Incentive Plan costs which relate to the achievement of investment manager performance objectives and total shareholder return and net asset value performance objectives are allocated against capital profits and those that relate to achievement of other corporate targets or job performance objectives against revenue profits save for those costs associated with the fixed income bond fund which are all allocated to revenue reserves.
- The Directors have determined to allocate two thirds of the cost of bank indebtedness incurred to finance investment against capital profits with the balance being allocated against revenue profits, save for the costs associated with seeding the fixed income bond fund which are all charged to revenue.
- There have been no related parties transactions that have taken place in the financial period that have materially affected the financial position or the performance of the Company during the period.
Number of Issued Sharesas at 31 December 2011
Ordinary Shares of 2.5p 593,301,146
After the end of the financial period, the Company acquired and cancelled 8,527,000 shares at a total consideration of £31.0 million. The Company's issued share capital after these transactions, as at 2 March 2012 was 584,774,146 ordinary 2.5p shares.
Posting Arrangements
The Report and Accounts will be available on the Company's website www.alliancetrust.co.uk on Monday 12 March 2012 and will be posted to shareholders after that date. It will also be made available to the public at the Company's registered office, 8 West Marketgait, Dundee DD1 1QN and at the offices of the Company's Registrar, Computershare Investor Services PLC, Lochside House, 7 Lochside Avenue, Edinburgh Park, Edinburgh EH12 9DJ on and after Monday 12 March 2012.
In addition to the full annual report, up-to-date performance data, details of new initiatives and other information about the Company can be found on the Company's website.
Annual General Meeting
The Company's Annual General Meeting will be held on Friday, 27 April 2012 at 11.00 am at the Apex City Quay Hotel, Dundee.
Statement of Directors' Responsibilities
The responsibility statement below has been prepared in connection with the Company's Annual Report and Accounts for the 11 month period ended 31 December 2011.
We confirm that to the best of our knowledge:
· the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
· the Directors' report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties it faces.
Lesley Knox Katherine Garrett-Cox
Chairman Chief Executive
5 March 2012 5 March 2012
The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.
Source: Alliance Trust PLC via Thomson Reuters ONE
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