Alliance Trust PLC : Response to Elliott Statement

2 April 2015

Alliance Trust responds to Elliott Advisors (UK) Ltd.'s statement of 31 March 2015

The Board of Alliance Trust PLC ("Alliance Trust" or the "Company") notes the statement made on 31 March 2015 by Elliott Advisors (UK) Ltd. ("Elliott") in response to the Company's shareholder circular (the "Circular") of 26 March 2015. The Circular set out the key reasons why the Board recommends that shareholders vote against Elliott's requisition to appoint three additional directors to the Board ("Elliott's Resolutions"). We do not intend to restate all of these reasons, but we have a responsibility to correct and clarify some of the more misleading assertions in Elliott's most recent statement.  

Investment Performance

In our Circular we set out details of our investment performance and we stand by this information. This shows that our performance to 24 March 2015 as measured on both a NAV total return and on a TSR basis ranks in the top half of our peer group for the majority of the time periods most commonly referred to by investment professionals.

We remain of the view that Total Shareholder Return remains the most relevant performance metric for the majority of our shareholders and that by delivering sustained, strong investment performance the Company can narrow its discount to NAV further and continue to drive returns for our shareholders.

We are very encouraged that since the changes to the investment management team at the end of September 2014, the Company has delivered strong performance which ranks it 9^th out of the 35 Trusts in the Morningstar global sector investment trust index (the "Global Sector") on a NAV Total Return basis and 11^th out of 35 on a TSR basis. We are confident the investment team will continue this strong performance.

Costs

We believe that the Company provides a high level of transparency over its cost base and refute Elliott's allegation that the true cost to shareholders is higher than reported. Our ongoing charges ratio ("OCR") is audited and is calculated in accordance with the Association of Investment Companies guidelines^[1], which ensures comparability across the sector. We set out in our Annual Report how the OCR is calculated.  We set out below the specifics of the OCR calculation.

Alliance Trust OCR
(£'000)	2014	2013	Change
Opening Company net assets	2,886,154	2,490,619
Closing Company net assets	3,019,162	2,886,154
Average 2014 Company net assets	2,952,658	2,688,387	9.8%
Total Administrative expenses	20,804	21,513	(3.3%)
Less Capital incentives	(1,090)	(1,294)	(15.8%)
Add Underlying funds expenses where investment greater than 5% of portfolio	232	900	(74.2%)
Less non-recurring expenses	(2,138)	(1,083)	97.4%
Expenses for OCR calculation per AIC guidelines	17,808	20,036	(11.1%)
OCR	0.60%	0.75%	(20.0%)

The AIC's recommended methodology for the calculation of an ongoing charges figure states that, for self-managed companies, costs relating to compensation schemes which are linked directly to investment performance should be excluded from the calculation of the principal ongoing charges figure. We also disclose the OCR including capital incentives in our annual report.

As disclosed in our annual report and in accordance with the AIC's recommended methodology we have also included in the OCR the appropriate proportion of the ongoing charges of any underlying funds which represent substantial investments, defined as more than 5% of our portfolio. Our investment in the Alliance Trust Investments Global Thematic Opportunities fund constitutes a substantial investment. The comparable figure is higher in 2013 as in that year Alliance Trust Investments Monthly Income Bond Fund also constituted a substantial investment because at the end of December 2013 it exceeded 5% of the portfolio.

Non-recurring expenses in 2014 included costs associated with implications for the Company of the referendum on Scottish independence and the staff redundancy costs associated with the £2m cost saving initiatives undertaken during the year.  The latter related to the reorganisation of the equity team and associated support functions such as our former in-house economic research team. The non-recurring expenses in 2013 included staff redundancy costs following the restructuring announced in July 2012 of the four regional equity portfolios into one global portfolio. The redundancies associated with two of such former regional equity teams were not completed until 2013.

We have also stated that the Company's share of the cost saving initiatives undertaken in 2014 will amount to £2m, or 9% of 2013 expenses, of which £0.7m has been achieved in 2014. The Company's costs reduced by 3% as a result in 2014. Had the Company cost savings been achieved in full during 2014 the OCR would have been 0.56%. We believe that the Company's OCR compares favourably with the rest of the Global Sector and our peer group as we outlined in our Circular.

Dividends

Our 48 year increasing dividend track record is almost unequalled by any FTSE listed company in the UK. In line with our dividend policy we distribute the net income earned from the investment portfolio as dividends to shareholders, with the excess above our minimum dividend guidance treated as a special dividend.  We have highlighted that the special dividend will by its nature be variable. In 2014 this resulted in a 3% increase in the ordinary dividend and a total dividend increase of 14.3%.

We manage net income in its entirety from all the various constituents of our portfolio including mineral rights and not just the equity portfolio. We fully disclosed in our annual report that our 2014 special dividend included £8m from Alliance Trust Finance, a subsidiary which is no longer required and which we have started the process to wind up. Alliance Trust Finance paid this dividend out of its own retained revenue reserves to Alliance Trust PLC. In the audited Accounts of Alliance Trust PLC, the Company correctly accounted for this as Revenue Income as it related to revenue income and was not a return of capital. 

Our 2014 ordinary dividend was 1.1 times covered by the net revenue earnings per share, excluding the above dividend from Alliance Trust Finance.  This demonstrates the 2014 ordinary dividend was more than covered by the net revenue earned excluding the Alliance Trust Finance dividend.

We believe our strong track record of dividend income is an important factor for the vast majority of our shareholders.

Corporate Governance

The Board's recommendation to vote against the additional directors is based on the process through which they have been proposed, which means that we believe they cannot be judged to be independent, and is not a reflection on the nominees themselves or their track records. As stated in our Circular, the Board intends to initiate a search for an additional Independent Non-Executive Director in the summer and would be happy to meet with and consider any candidates put forward by any shareholder, so long as they are subject to the same rigorous and robust selection processes the Company always employs. 

As we explained in our Circular, we welcome shareholder engagement, but this does not mean that we have to agree with all proposals put to us by individual shareholders, for instance a large tender offer which we believe could jeopardise the Company's future and is not in the interests of all our shareholders.

For more information please contact:
Finsbury
Conor McClafferty / Michael Turner 
020 7251 3801
[e-mail]

Alliance Trust
Evan Bruce-Gardyne, Director of Investor Relations
01382 321169
[e-mail]

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^[1] AIC Ongoing Charges Ratio calculation methodology (http://www.theaic.co.uk/system/files/policy-technical/AICOngoingChargesmethodologyApril2012_0.pdf)

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Source: Alliance Trust PLC via Globenewswire

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