Alliance Trust PLC announces changes to enhance...

Alliance Trust PLC

 1 October 2015

Alliance Trust announces changes to enhance shareholder value

The Board of Alliance Trust PLC has today written to shareholders to outline significant changes to the business that it believes will enhance shareholder value. This follows last year's appointment of a new equity investment team to manage a high quality global equity portfolio designed to generate growth in both capital and income, with a strong focus upon sustainability.

The changes announced today, which follow a period of extensive consultation with a wide range of shareholders, better position Alliance Trust (the "Trust") to deliver consistent outperformance in a cost-effective manner.

Clear investment mandate to improve performance

• Focus on global equities and disposal of non-core investments
• Investment mandate to be awarded to Alliance Trust Investments (ATI) at a rate of 35bps on average NAV - one of the lowest in the industry
• Introduction of the MSCI All Country World Index (MSCI ACWI) as a formal benchmark, setting a clear measure against which to assess the Trust's performance

Reducing costs

• Targeting an Ongoing Charges Ratio of 45bps or less by the end of 2016 (60bps in 2014)
• Significant cost reduction programme delivering savings of £6m for 2016 

Commitment to narrow the discount

• The measures announced today are expected to improve investment performance and narrow the discount
• Commitment to use share buybacks, as required, to narrow the discount into single figures

Dividend policy

• Continuing focus on delivery of progressive dividends
• All net income earned to be paid out as ordinary dividends

Simplifying the structure

• Board to become fully independent, consisting solely of non-executive directors
• Creation of  independent boards for ATI and Alliance Trust Savings (ATS) to increase focus and accountability

Investment management mandate

The Board has carefully reviewed the most appropriate arrangements for the investment management of the Trust. The Board is open to the option of moving to an external manager or managers as an alternative to self-management in the future. However, having considered this option, it has concluded that it is in the best interests of all shareholders to continue with the recently appointed investment team. The Trust's equity portfolio has outperformed the MSCI ACWI by 2.3% (gross) since the team took over management of this portfolio in September 2014, with stock selection being a major contributor.^[1]

The Board has confidence in the ability of the investment team to deliver the returns expected by shareholders. It also believes that it is appropriate to introduce a significantly greater level of accountability. To this end the investment management team at ATI will be awarded a mandate to manage the Trust's portfolio on standard industry terms. The Board will establish a Management Engagement Committee, chaired by Karl Sternberg, to review investment performance regularly. In the event that performance does not consistently deliver against the new benchmark, a full review will be undertaken and external managers considered.

Under the terms of the new Investment Management Agreement, the Trust will be charged 35bps on average net assets (excluding the investments in ATI and ATS). The Board believes that this approach will create the necessary stability and partnership to deliver strong investment performance in a cost-effective way.

Alliance Trust will adopt the MSCI ACWI as the benchmark against which the Trust's performance will be assessed and will set a minimum target of 1 percent per annum outperformance (net of fees).  The mandate will be terminable on six months' notice by either the Trust or ATI.

Asset allocation

Alliance Trust will increasingly focus on global equities and will dispose of its fixed income, legacy mineral rights and property assets as soon as practicable.  The Trust also has a relatively small exposure to private equity. As these investments mature over the next few years, the proceeds will be reinvested into the equity portfolio. This simplification of the Trust will give greater clarity to its investment proposition.

Significant cost reduction

The Board recognises the importance to all shareholders of reducing costs. To this end, the Trust will target an Ongoing Charges Ratio of 45bps or less (including ATI's investment management charge of 35bps), effective for the year ending 31 December 2016.  This is a reduction from 60bps in 2014 and would make the Trust one of the lowest cost investment trusts in the sector. 

In addition, the anticipated timetable for ATI to achieve profitability will be accelerated through a combination of a cost reduction programme as well as a focus on continued growth of third party assets. Anticipated cost efficiencies, of around £6m per annum, are equivalent to more than 20% of the combined recurring asset management costs borne by Alliance Trust and ATI in 2015. ATI is expected to achieve monthly profitability by the end of 2016.

Discount policy

The Board believes that investment performance is the key driver of the Company's share price rating and that the measures announced today will lead to a narrowing of the discount into single figures. The Board is committed to the active use of share buybacks, as required, in pursuit of this aim.

Dividend policy

The Board of Alliance Trust confirms that it intends to maintain its progressive dividend policy and pay out all net income as ordinary dividends, rather than through the current practice of ordinary and special dividends. In order better to reflect the returns from the Trust's predominantly equity portfolio, in future two thirds of administrative expenses will be allocated to the capital account, rather than the revenue account.  This change more than offsets the loss of income from the planned disposal of non-core assets.

The pro forma net impact on the 2014 dividend would have been a one-off 11% increase in the 2014 total dividend per share, giving a net yield of 2.54% compared to the MSCI ACWI gross yield of 2.5% (2014 actual: 2.3% excluding a non-recurring special dividend from Alliance Trust Finance).

Changes to Board structure

The Board of Alliance Trust PLC will be reorganised to become fully independent, comprising solely non-executive directors.  A separate Board, including independent non-executive directors, will be established for ATI in order to ensure the necessary separation of shareholder and investment manager interests. Susan Noble will become Chair of ATI and, as a consequence, will retire from the Board of Alliance Trust PLC when the new arrangements take effect.

Katherine Garrett-Cox will continue as Chief Executive Officer and a director of ATI and will step down from the Board of Alliance Trust PLC.

Having completed the work associated with the changes announced today, Alan Trotter, Chief Financial Officer, has decided to leave Alliance Trust to seek to continue his career in a publicly listed company elsewhere.

The acquisition of Stocktrade will further strengthen ATS' position as one of the leading platform providers in the UK and the Board expects ATS to make a meaningful profit in 2016. The Board considers that this is an appropriate time to establish an independent Board for ATS to support the future development of the business and the recruitment process for its chair is under way.

This revised governance structure provides the Board with greater clarity and flexibility in managing these two investments.

Timing

The Board will continue to engage actively with shareholders and to review all aspects of the Trust's activities for the benefit of all shareholders.

These changes are intended to take effect as soon as practicable and, in any event, no later than 1 March 2016, subject to ATI obtaining relevant regulatory permissions under the AIFM Directive.

Karin Forseke, Chair of Alliance Trust PLC, said

"At our Interim Results in July, I acknowledged that the first half of 2015 had been a particularly challenging period for Alliance Trust. In the run up to our AGM, many of our shareholders indicated that they sought change. We have carefully considered the feedback we received and this is reflected in this announcement.

The actions announced today, taken together, represent some of the biggest changes in our history and are designed to further improve shareholder value. They will provide our shareholders with an investment trust which aims to outperform a clear benchmark from a cost base which is among the lowest in the sector.  In addition we plan to continue to pay a progressive dividend and create shareholder value from our investment in two profitable subsidiary businesses, beginning in 2016. All of this is underpinned by the Board's commitment to a single figure discount.

These changes have the full support of the Board. Implementation will require considerable further work by the team but we believe that as a result Alliance Trust will be significantly better positioned for the future.

We would like to thank Alan for his contribution to Alliance Trust over the last five years, culminating in the work he has done on the changes announced today.  We understand his decision not to remain with ATI and wish him the very best in his future career.

While we are sorry that we will lose Susan's wise counsel as a director of Alliance Trust PLC, I am delighted that she has agreed to lead the Board of ATI as it enters an exciting stage in its development.

Finally I would like to thank Katherine for her contribution to the Board over the past eight years and I am confident that under her leadership ATI will create significant value for our shareholders."

Pro forma financial information illustrating the impact of the changes announced today as applied to historic financial information is set out below.

Enquiries

Evan Bruce-Gardyne
Head of Investor Relations,
Alliance Trust PLC
Tel: [phone]
Email: [e-mail]
Web: www.alliancetrust.co.uk

Conor McClafferty / Michael Turner
Finsbury
Tel: [phone]
Email: [e-mail]
Web: www.finsbury.com

William Simmonds
JP Morgan Cazenove
Tel: [phone]

Pro forma Company Portfolio at 30 June 2015

£m	Actual at 30 June 2015	Split %	Net of tax portfolio yield %	Pro forma 30 June 2015	Split %	Net of tax portfolio yield %
Quoted equities	2,919.8	85.5%	2.67%	3,140.3	92.0%	2.67%
Funds	256.9	7.5%	3.56%	83.0	2.4%	1.24%
Split:
Monthly Income Bond Fund	119.9	3.5%	5.71%	-	-	-
Sustainable Future Pan-European  Equity Fund	61.3	1.8%	1.02%	61.3	1.8%	1.02%
Dynamic Bond Fund	54.0	1.6%	2.35%	-	-	-
Sustainable Future Cautious Managed Fund	10.9	0.3%	1.88%	10.9	0.3%	1.88%
Sustainable Future Defensive Managed Fund	10.8	0.3%	1.84%	10.8	0.3%	1.84%
Other investments	237.5	7.0%	1.33%	190.9	5.6%	-
Split:
Private Equity	125.1	3.7%	-	125.1	3.7%	-
Mineral Rights	33.1	1.0%	8.17%	-	-	-
Alliance Trust Savings	31.6	0.9%	-	31.6	0.9%	-
Alliance Trust Investments	24.3	0.7%	-	24.3	0.7%	-
Property	13.5	0.4%	3.44%	-	-	-
Other	9.9	0.3%	-	9.9	0.3%	-
Total investments	3,414.2	100.0%	2.64%	3,414.2	100.0%	2.49%

Pro forma Company Income Statement

	Year to 31 December  2014 (unaudited)
£'000	Revenue	Capital	Total
Revenue
Income	95,707	-	95,707
Less one-off ATF special dividend	(8,000)	-	(8,000)
Impact on income from investing non core assets in equities	(8,979)	-	(8,979)
Profit on fair value of designated investments	-	163,587	163,587
Profit on investment property	-	284	284
Total Revenue	78,728	163,871	242,599
Administrative expenses	(19,714)	(1,090)	(20,804)
Impact of allocating two thirds of administrative expenses to capital rather than revenue	13,143	(13,143)	0
Impact of expenses at 45bps	1,507	3,014	4,521
Finance costs	(3,575)	(4,163)	(7,738)
Impact of allocating finance costs in same proportion as expenses	996	(996)	0
Gain on revaluation of office premises	-	240	240
Foreign exchange losses	-	(2,752)	(2,752)
Pro forma Profit before tax	71,085	144,981	216,066
Tax	(3,666)	-	(3,666)
Pro forma Profit for the year	67,419	144,981	212,400
Reported EPS - Basic	12.38p
Adjusted Reported EPS - Basic (excluding ATF special dividend)	10.94p
Pro forma EPS - Basic	12.14p
Increase	11.0%

Pro forma Alliance Trust Ongoing Charges Ratio
£'000	2014	Pro forma 2014	Change
Opening Company net assets	2,886,154	2,886,154
Closing Company net assets	3,019,162	3,019,162
Average 2014 Company net assets	2,952,658	2,952,658
Total Administrative expenses	20,804	-
Investment management fee - Annual Management Charge @ 0.35% payable to ATI	-	10,334
Other Administrative expenses	-	3,558
Less Capital incentives	(1,090)	-
Add Underlying funds expenses where investment greater than 5% of portfolio	232	-
Less non-recurring expenses	(2,139)	-
Expenses for OCR calculation per current AIC guidelines	17,807	13,892	(21.8%)
OCR	0.60%	0.47%	(21.8%)

Notes

1. Other Administrative expenses include general administrative expenses such as external operational, legal and professional expenses of the Trust (eg. custody, depositary, registrar and listing fees), along with auditor's remuneration and non-executive Directors' fees.
2. Capital incentives represent the cost of long term and short term incentive plans based on portfolio performance.
3. Underlying fund expenses represent a proportion of fund expenses when the value of the holding in the fund represents in excess of 5% of the value of the Trust portfolio.
4. Non recurring expenses represent costs of a one-off or non-recurring nature, for example reorganisation and redundancy costs.

Pro forma Alliance Trust Investments Profit & Loss Account

£m	Actual 2014	Pro forma 2014	Change
Net Revenue	10.1	10.1
Revenue from Alliance Trust PLC mandate	-	10.3
Total Net Revenue	10.1	20.4	102.0%
Expenses	(13.3)	(27.1)
Planned cost efficiencies prior to associated one off costs	-	6.0
Loss before tax	(3.2)	(0.7)	-78.1%

Equity Portfolio Attribution Analysis (gross) for the period 30 September 2014 to 29 September 2015

	Equity portfolio		MSCI ACWI (£)		Attribution
Sector (%)	Average Weight	Sector Return	Average Weight	Sector Return	Sector Allocation Effect	Stock Selection Effect	Total Relative Effect
Consumer Discretionary	7.8	19.9	12.2	9.7	-0.5	0.6	0.1
Consumer Staples	8.4	9.2	9.8	8.6	-0.1	0.1	-0.1
Energy	5.7	-34.8	7.7	-30.1	0.7	-0.5	0.2
Financials	25.8	-1.6	21.4	-2.6	-0.1	0.3	0.2
Health Care	17.1	10.5	12.0	7.6	0.5	0.4	0.9
Industrials	7.9	-1.8	10.5	-2.3	0.0	0.1	0.1
Information Technology	17.4	6.8	13.7	4.0	0.2	0.5	0.7
Materials	4.4	-16.8	5.2	-20.0	0.2	0.1	0.3
Telecoms	1.7	3.9	3.7	-2.6	0.0	0.1	0.1
Utilities	3.8	-4.5	3.2	-0.7	-0.1	-0.2	-0.2
Total	100	0.8	100	-1.5	0.7	1.6	2.3

Please note all of the above unaudited pro forma information is for illustration only and does not constitute a forecast.

This announcement contains "forward-looking statements" regarding the belief or current expectations of Alliance Trust PLC, its Directors and other members of its senior management about Alliance Trust PLC's businesses, financial performance and results of operations. These forward-looking statements are not guarantees of future performance. Rather, they are based on current views and assumptions and involve known and unknown risks, uncertainties and other factors, many of which are outside the control of Alliance Trust PLC and are difficult to predict, that may cause actual results, performance or developments to differ materially from any future results, performance or developments expressed or implied by the forward-looking statements. These forward-looking statements speak only as at the date of this announcement. Except as required by applicable law, Alliance Trust PLC makes no representation or warranty in relation to them and expressly disclaims any obligation to update or revise any forward-looking statements contained herein to reflect any change in Alliance Trust PLC's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Any information contained in this announcement on the price at which shares or other securities in Alliance Trust PLC have been bought or sold in the past, or on the yield on such shares, should not be relied upon as a guide to future performance.

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^[1] Performance from 30 September 2014 to 29 September 2015. Source Morningstar/FactSet.

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This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Alliance Trust PLC via Globenewswire

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