Final Results

RNS Number : 7182G

Alliance Trust PLC

06 March 2015

 

Alliance Trust PLC

6 March 2015

Alliance Trust:  Delivering consistent returns and top quartile dividend growth.

Results for year to 31 December 2014

Financial Highlights	As at 31 Dec 2014	Change from Dec 2013	Total Return
NAV per share	546.8p	+5.9%	8.1%
Share Price	478.9p	+6.4%	9.0%
Total dividend	12.38p	+14.3%	Including special dividend of 2.546p
Ongoing Charges Ratio	0.60%	-20%

Highlights for the year:

·      Net Asset Value (NAV) Total Return of 8.1% and Total Shareholder Return (TSR) of 9.0% in 2014, a solid performance that ranked the Trust in the second quartile of all Global trusts on both NAV Total Return and TSR basis over the year

·      Total dividend, including a special dividend of 2.546p, rose significantly, by 14.3%. This represents the 48th year of consecutive dividend increases and equates to an effective yield at the year end of 2.6%

·      The share price (478.9p) and NAV per share (546.8p) were the highest year end levels in the history of the Trust and they have both since been exceeded

·      Ongoing Charges Ratio reduced by 20% to 0.60%

·      Greater emphasis on responsible investing and analysis of Environmental, Social & Governance (ESG) factors across the portfolio, following the changes to the equities investment team in September

·      Alliance Trust Investments (ATI) ended the year with third party assets under management (AUM) of £1.9bn, generating net inflows of £88m and reducing losses by 23% to £3.2m. ATI is now among the top three firms in the UK focused on sustainable investing. Inflows into ATI funds have continued in the first two months of 2015 and third party AUM now stand at over £2bn.

·      Alliance Trust Savings' (ATS) flat-fee charging structure is proving appealing to customers in a post-RDR world. Assets under administration (AUA) ended the year at £6.4bn. This is an increase of 19%, compared to market growth of 13%. This was despite the uncertainties surrounding the outcome of the referendum on Scottish independence. Since the start of 2015, AUA have increased a further 8% to £6.9bn

Katherine Garrett-Cox, Chief Executive of Alliance Trust PLC, said:

"We are pleased with the returns that we have delivered in 2014, in particular the total dividend increase of 14.3%. Our total shareholder returns rank median or above, relative to our global peers, over 6 months, 1, 3, 5 and 7 years. Moreover, we have delivered top quartile annualised dividend growth over these same periods. We know that this combination of capital growth and a consistently rising dividend is an important differentiator for the Trust.

We believe that Alliance Trust should be managed in a sustainable way as this is the best way to deliver returns for our shareholders over the long term. We have received positive feedback on the changes to the investment team that we announced last September, with the appointment of Peter Michaelis as Head of Equities and Simon Clements as equity manager of the portfolio. Both have a well-established track record of managing global investment portfolios on a sustainable and responsible basis and we are confident that their expertise and approach will continue to strengthen the investment process of the Trust. Embedding analysis of ESG factors into our investment process helps us to identify those companies which will thrive against a backdrop of increasing regulation and a growing need to improve the management of resources and supply chains. The portfolio is already delivering good results under the new team.

All assets contributed positively to returns in 2014, with our residual private equity portfolio having a particularly strong year. The assets administered by ATS rose by 19% in a tumultuous year, which included the ongoing changes to platform pricing, pension and ISA rules. These changes, along with the expected consolidation in the platform market, provide significant opportunities for ATS to gain market share and clients in the years to come. ATI continues to strengthen its position and perform strongly, with 80% of our funds that have a three year track record ranked above median.  We are confident that superior performance and our specialist product range will continue to attract third party investment.

We also see numerous opportunities for the investment portfolio in the years ahead. The investment team will position the portfolio to take account of any market volatility resulting from economic and geo-political developments relating to the Euro, the conflicts in Ukraine and the Middle East, and the UK General Election. We also await developments at the latest round of the UN Climate Change negotiations, which will take place in Paris in December. We expect this to be a catalyst for a number of sustainable development initiatives, which will set the tone for the negotiations for the next 15 years and which will fundamentally impact upon the way in which we all do business. We see this as part of the irreversible trend that has gained considerable momentum in recent years. We are confident that our experienced team, with their proven track record of investing in sustainable companies, and our distinctive investment process will enable us to identify and support those companies that are creating the future in which we all want to live."

ENDS-

For more information, please contact:

Conor McClafferty & Clare Dundas

Finsbury

T: 020 7251 3801

Evan Bruce-Gardyne

Director of Investor Relations

Alliance Trust PLC

T: 01382 321169

Dividend Declaration

Having paid three interim dividends of 2.4585p for last year, the Directors have declared a fourth interim dividend of 2.4585p payable on 31 March 2015 to shareholders on the register on 20 March 2015. The ex-dividend date is 19 March 2015.

In the absence of any unforeseen developments for 2015 we expect to be able to recommend a 3% increase on the 2014 ordinary dividend to a total of 10.13p, payable quarterly.

Special Dividend

The Directors have also declared a special dividend for last year of 2.546p per share. This dividend is payable on 30 June 2015 to shareholders on the register on 5 June 2015. The ex-dividend date is 4 June 2015.

The total dividend for the period, of 12.38p, is an increase of 14.3% on the total dividend paid for the previous period.

Election and Re-election of Directors

At the Annual General Meeting on 29 April 2015 all Directors are standing for election or re-election.

Introduction from the Chair

I am delighted to present Alliance Trust's 127th Annual Report.

In last year's report and accounts we presented our Vision 2020 strategy towards our aim of becoming the UK's most trusted investment and savings business. As a Board we continuously scrutinise our progress against that strategy and evaluate all aspects of our business to ensure we have the right organisation and structure in place to achieve Vision 2020. We now report on progress during 2014 against those goals.

2014 was a year in which we delivered a Total Shareholder Return of 9.0% and an NAV Total Return of 8.1%, in each case placing us in the second quartile of our Peer Group. At the same time, we have also increased our total dividend by 14.3%, allowing us to continue our progressive dividend track record for the 48th consecutive year. We continue to focus on costs and partly as a result of this the Company's Ongoing Charges Ratio reduced to 0.60% for the year. Our discount narrowed slightly, ending the year at 12.4%, and we maintained our ongoing buyback policy, repurchasing some 6.7m shares, representing 1.2% of shares in issue, over the course of the year.

We report on our performance against the key measures of success, covering both annual and longer-term performance. By focusing on the delivery of consistent and dependable performance, firmly in the second quartile, from year to year we aim to deliver returns for shareholders which will reach the top quartile over the longer term. The changes we have made to our investment team, together with the evolution of our distinctive investment strategy, give us confidence that we are on track and that we can meet the expectations and retain the trust of our shareholders. As a Board, that must remain our over-riding priority.

This year, for the first time, we also report more comprehensively on our sustainability strategy - Investing for Generations. This is the first step in a longer process towards integrated reporting. We believe providing information on our strategy and performance in this broader context is important as it is integral to long-term value creation for our shareholders. Our Chief Financial Officer, Alan Trotter, provides more detail on this on page 25 of the Annual Report.

We also report on the progress which our subsidiary businesses, Alliance Trust Savings and Alliance Trust Investments, have made during the year - we continue to believe that our investment in these businesses differentiates Alliance Trust from other investment trusts and will deliver long-term value for our shareholders.

Towards the end of the year we welcomed Gregor Stewart to the Board as a new non-executive director. In addition to extensive experience as a financial professional, Gregor brings a broader knowledge of financial services which adds to the existing skills represented around our Board table. Win Robbins stood down from the Board after the year end. We thank her for her contribution and wish her well for the future. I believe that the Board must possess a diverse and complementary range of skills and experience if it is to be able to offer constructive challenge and perspective to management and this is evident from the profiles of my fellow directors.

Politically, 2014 was dominated by the referendum on Scottish independence and the decision by voters to remain within the United Kingdom. This was an unsettling period for many of our shareholders and customers, particularly those in other parts of the UK, and inevitably we, along with other Scottish-based companies, were affected. While the debate over the extent of future devolution continues, we would urge all participants to recognise that an extended period of uncertainty is not in the interests either of business or the economy as a whole and we remain ready to act as necessary to protect our shareholders' and customers' interests.

I and my fellow Directors hope you will find the rest of this Annual Report interesting and informative. We thank you for your continuing support of Alliance Trust.

Chief Executive

Today, Alliance Trust is in more robust health than it has been at any time in the last six years. This has not happened overnight, but is the result of the series of improvements that we have made over that time, not least the actions that we have taken in the last twelve months.

At the half year, we commented that the results for the first six months had been disappointing and this was always going to have a bearing on the results for the full year. However, I am pleased to report that the second half performance represents a complete contrast to the first; we reported an NAV Total Return of 0.3% in the first half, 7.8% in the second, making 8.1% for the full year. Our total shareholder return ranks median or above, relative to our peers, over six months, one, three, five and seven years. Moreover, we have delivered top quartile annualised total dividend growth over the same period. We know that this combination of capital growth and a consistently rising dividend are an important differentiator for the Trust.

The portfolio is well positioned, and is being managed with a greater sense of purpose and focus. In September, we announced that we were merging the two equity teams employed by Alliance Trust and Alliance Trust Investments. We did this in order to unify the investment process and in so doing, we have improved the focus of the team and have been able to reduce costs. We appointed Peter Michaelis as Head of Equities and Simon Clements to be the lead manager of the equity portfolio of the Trust. They have worked together for 11 years and have been managing the Sustainable Future fund range for over four years. They joined us over two years ago and during that time, we have been able to fully assess their investment philosophy and process and to monitor the performance of their funds. I am confident that we have put the portfolio of the Trust into the hands of a team that has a proven process and a successful track record.

At the same time, we have continued to put the platform in place to ensure that all parts of the business can achieve the targets set for them as part of Vision 2020. In the case of the Trust, we have secured some of the most cost-effective, long-term, fixed-rate borrowings of any investment trust, which gives us certainty for a large part of our borrowing requirements out to 2029. During 2014 we developed Investing for Generations, our plan for achieving our 2020 Vision. This sets out how we will grow our business in a way that is responsible and ensures a sustainable future for our shareholders, customers and communities. The chart on page 6 of the Annual Report shows how we have delivered both capital and income returns to our shareholders over the last 48 years.

We have strong foundations in place upon which we are building businesses that will consistently compete with the best in their sector. We remain committed to improving the processes we use across the business to drive enhancements to the shareholder, both by increasing revenue and reducing costs.

Over the next three pages I answer some of the questions we have been asked about the Trust and what we have done over the last financial year.

How did our equity portfolio perform in 2014?

We are reasonably pleased with the performance in the latter part of the year, particularly given the back drop of the volatility in global equity markets and the relatively poor start to the period. We always strive to do more, but we are not prepared to compromise the preservation of our shareholders' capital or the delivery of income required to fund the consistently rising dividend. We are long-term investors and our total shareholder return is in line with our peers building upon our steady performance over the last few years. We recognise that we are competing against other trusts and funds and want to deliver returns that meet the expectations of our shareholders. In this respect, the expectations of employees and shareholders are closely aligned as 80% of our employees are also shareholders in Alliance Trust. However, we would guard against fixating on the returns between two specific dates. We look to invest for the long-term and sometimes the stocks in which we invest are temporarily out of favour with the market. We will continue to hold such stocks so long as we remain confident that they will generate superior returns for our shareholders over the lifetime of our investment.

How did we achieve this return?

The return has been achieved by being consistent in our approach, even though what drove the market changed significantly over the year. In the first half of the year, the market favoured apparent value, in place of long-term fundamentals which we have always preferred. At such times, our portfolio is liable to underperform. In the early part of the year the challenge was whether we should wait for the market to readjust or whether we needed to consider that the market dynamics had changed to such an extent that investment rationale for the portfolio was undermined. We remained confident in the quality of the portfolio that we held and we were vindicated in our approach by the results in the latter months of the year. We constantly review the investment rationale for each holding and were satisfied that in most cases there was no cause for concern. In October, we undertook a comprehensive review of the whole portfolio and a number of changes were made, which reduced the number of holdings from 84 to 74. These changes were driven by the reassessment of the outlook for those stocks, not by momentum. This has allowed us to put a larger proportion of the portfolio into each holding and the positions in all but five companies each equate to over 0.5% of the portfolio. The vast majority of the companies in which we invest are held because we expect them to deliver a combination of capital growth and a sustainably rising dividend.

Why do we see sustainability as important for the Trust?

We believe that Alliance Trust should be managed in a sustainable way as this is the best way to deliver returns for our shareholders over the long term. We provide detail of how we do this on pages 31 to 35 of the Annual Report. Our belief is that companies that fail to recognise their responsibilities to the wider community are more likely to experience a negative event, which will impact upon their share price.

We see sustainability as an important starting point for identifying companies that will deliver returns to shareholders over the long term. The vast majority of the Trust's shares are held by private individuals and many of them have held their shares for decades. This makes it consistent for us to invest with a long-term view in order to match our investors' time horizons. We look for companies that we expect to have staying power, such that they will be a suitable investment for us for years to come. Typically, such companies will manage their resources carefully and will be led by a management team that understand their responsibilities, not just to their investors, but also to their other stakeholders, be they suppliers, employees or the local communities in which they operate.

The reliability of the earnings progression of more sustainable companies will help underpin the growth of the portfolio, help us reduce trading costs and align the investment horizon of the portfolio with those of our shareholders.

Does being sustainable in our investment approach restrict our ability to deliver investment returns?

Far from being a restriction, it is an important advantage to delivering consistently strong investment returns. By focusing on companies with better quality management and better growth prospects, we will enhance the returns we deliver to our shareholders. The criteria we are looking for is high quality management, good growth prospects and a supportive regulatory environment. We are therefore less likely to be invested in companies which manufacture products such as munitions or tobacco. The Trust can invest in any listed company, provided that the team satisfy themselves that the potential damage that its products do to society or the environment is more than offset by the approach taken by the management to mitigate the worst effects of their products.

Is the reference to sustainability not just the latest trend in investment circles?

Analysis suggests that this is a structural change in the investment industry. We have seen a growing awareness amongst investors, both institutional and private, that shareholders should be taking their responsibilities as owners more seriously. They are increasingly challenging company management teams to recognise their responsibilities for their supply chain and the way in which their products are made. We have seen a sharp rise in the number of signatories to the United Nations Principles for Responsible Investment (UNPRI), whose first Principle is that "we will incorporate Environmental, Social and Governance (ESG) issues into investment analysis and decision making processes". There are over 1,340 signatories with combined assets under management of approximately $45 trillion. We have been signatories for a number of years and we welcome the fact that the mind-set embodied in the UNPRI is becoming mainstream.

What does sustainability mean for our dividend?

We are very aware of the Trust's dividend commitment and are confident that we can continue to deliver on it. We have increased the total dividend payout by 14.3%, making this the 48th consecutive year of increase. We have delivered top quartile annualised total dividend growth over one, three, five and seven years. We monitor our dividend projections very carefully and are confident that we will continue to deliver the dividend and dividend growth as required, without having to draw on reserves.

In addition to monitoring our dividend projections, we also consider how the dividend we receive is generated. For example, we do not hold any tobacco stocks, which have traditionally distributed high levels of income, because they may not be able to maintain these high levels of distribution in the future.

What about the performance of our other assets in the portfolio?

We have seen significant positive contributions from our other assets. The private equity portfolio is maturing as most of our remaining investments were made prior to 2010. The remaining portfolio is valued at £130m and we are confident that there is significant potential uplift embedded in the remaining portfolio which will be delivered as it continues to mature.

The other area where we have seen strong results is in the Mineral Rights portfolio. These rights date back to the early days of Alliance Trust, when it was a mortgage bank lending to farmers in North America. We still own the mineral rights on various plots across southern and central United States and we receive a revenue stream from the oil and gas that is being extracted from these plots. The development of shale gas technology has enabled more land to be exploited and this has led to an uplift in the income received. The increased revenue underpins the 127% increase in the valuation of the mineral rights for 2014. However, we expect that the current lower oil price will feed through into lower valuations for these rights in 2015.

What progress has been made by Alliance Trust Savings in 2014?

Alliance Trust Savings has navigated its way through some of the most turbulent waters facing its industry for generations. During this period our business has also been impacted by the uncertainties surrounding the Scottish independence referendum which led to some customers postponing important investment decisions last year. We are delighted that platform charging has finally become transparent as part of the Retail Distribution Review, and in 2014 we have seen a 19% increase in the assets we administer against a market rise of 13%. We have seen inflows as customers recognise the benefit to them of the flat-fee pricing structure.

There are three sources of income for Alliance Trust Savings: transaction charges which were up as a result of a 10% increase in the number of trades executed; account fees, which were down, because the number of accounts we administer fell by 5%; net interest income, which is largely flat as interest rates remain at very low levels. One factor in the fall in operating profit was the number of customers, mostly with smaller balances, who elected to close their accounts when we announced that we were increasing the administration fees for ISAs and dealing accounts by 87% in February 2014. While we expected that some customers might do so, we were confident that others would transfer their accounts to us and overall we would be a beneficiary of the greater transparency around platform pricing.

We are confident that we are well placed to benefit from the raft of changes that will alter the retail investment industry in the years ahead. The changes to pension rules and ISA limits announced by the Chancellor of the Exchequer in March 2014 are welcome as incentives to save are very important, particularly as we are increasingly encouraged to take responsibility for our own financial futures. We look forward to the implementation of the new pension rules because we believe that they offer greater freedom of choice for pensioners and we are confident that our pricing structure will appeal to a number of the next generation of pensioners.

How did Alliance Trust Investments perform in 2014?

Alliance Trust Investments has continued to generate net inflows and is now managing £1.9bn of third party funds. By keeping tight control over costs and growing the asset base we have reduced the losses again this year. 80% of the funds we manage which have a three year track record are ranked above median relative to their peer group over that time. We have launched the first ever range of risk-profiled Sustainable and Responsible funds and are seeing inflows into our major fixed income funds - the Monthly Income Bond Fund and the Dynamic Bond Fund.

What will happen in 2015 and what will the impact be on our portfolio?

We invest primarily in companies, not in markets. We focus on understanding the business that these companies are in and assessing whether the market has not fully valued their unique propositions or position in their industry. These are subject to long-term trends which may only emerge over a number of years. As long-term investors it is the direction of travel that is of interest to us, we do not seek to predict short-term fluctuations. Most of the companies in which we invest are international in their outlook and political changes at a national level are likely to impact upon only part of their business, which makes them more resilient against challenging domestic backdrops.

In terms of events which will make headlines in 2015, we have an election in the UK in early May, with the prospect of another referendum, this time on EU membership, creating uncertainty. Whatever the outcome it will take time for any changes to make a material difference to the profit and loss accounts of the companies in which we invest. We believe that the reduction in the rate of inflation in December 2014 to 0.5% will mean that interest rates are going to remain low for longer. Commentators have been predicting that interest rates in the UK will rise "next year" for at least the last two years, there is a high probability that they will be using the same words this time next year.

The US economy is regaining momentum while Europe, China and Japan are all struggling to return to a more normalised level of growth. Monetary policy will therefore become more divergent globally over 2015. The US continues to recover, with the employment and housing markets both contributing to improving economic activity. Current expectations are that the Federal Reserve will begin raising interest rates in the second half of 2015. The strength in the US dollar looks set to continue, whilst we believe underlying economic momentum will increase over the first half of the year.

The European economy is struggling to recover from the recession triggered by the sovereign debt crisis of 2011. The breakage of the Swiss Franc's peg to the Euro caused shock waves across currency markets. Germany's economy has slowed as exports have struggled with a slowdown in China and sanctions on Russia. Recovery in Europe's periphery has stalled, as a tough fiscal stance continues to hamper growth. Further monetary easing from the European Central Bank worth €1.1trn has been announced. The situation in Greece is of concern to those governments and institutions that have a financial exposure to the fall-out from an exit from the Euro. We do not view this possible outcome as something that would result in destabilisation of global markets or economies. The bigger concern to us is the political precedent it may set for other members of the Eurozone. In the event that Greece does leave the Euro, it could lead to a reduced commitment to the European ideal and possibly to the break up to the European Union.

In Asia, the Japanese economy is struggling to digest the increase in sales tax in April 2014. Policy initiatives have been successful in depreciating the Yen, but the Abe administration has not yet implemented the crucial reforms necessary in areas such as the labour market. The Chinese economy also continues to slow, with a knock-on effect in demand for commodities.

The portfolio continues to invest in high quality, sustainable companies that benefit from important structural shifts taking place across the global economy.

Portfolio Review

Market review

At the headline level, equity markets gained ground over 2014 with the MSCI All Country World Index finishing the year up 11.2%. However, this performance masked bouts of high volatility, notably in October, and divergent trends in the world economy. In Sterling terms, the MSCI USA returned over 20%, while investors predominantly invested in the UK, will have seen that the FTSE All-Share Index only returned a meagre 1.2%. Of the major markets around the world, only the European equity indices fared worse, returning 0.2% in 2014. By investing globally, Alliance Trust provides UK investors with exposure to these more vibrant markets.

The US market recorded a succession of all-time highs as the economy gained momentum and investors were reassured that the Federal Reserve would not raise interest rates until the recovery had become fully entrenched. In contrast, European markets struggled to make any headway as economic growth faltered and the Euro weakened, while the spectre of deflation returned in Japan where the authorities sanctioned large-scale quantitative easing and the Yen fell back to a seven-year low. Emerging markets were volatile and trailed the World Index as the slowdown in China, geopolitical conflict in the Ukraine and Middle East, and the prospect of higher US interest rates, unsettled investors. There was a wide dispersion in returns between sectors over 2014, with areas such as mining and oil & gas hampered by the broad weakness of commodity markets and a sharp decline in energy prices. A glut of supply and lower Chinese imports saw the oil price record its biggest annual decline since 2008.

The rotation away from companies with growth characteristics, to which the portfolio tends to be exposed, was a feature of the first half of the year as investors harboured concerns that valuations had become too demanding in view of a subdued outlook for earnings growth. As a result, the portfolio's performance lagged the MSCI All Country World Index over the period.

Portfolio Review

During 2014, Alliance Trust delivered an NAV Total Return of 8.1% and a Total Shareholder Return of 9.0%, the difference reflecting a narrowing of the discount to 12.4% from 12.9% over the course of the year. The NAV total return included a contribution of 2.1% from reinvested dividends. After a relatively poor first six months the NAV return for the year was just behind the weighted average return of the AIC Global Investment Trust sector. The majority of the NAV return was generated from investments in equities: on average over the year, nearly 98% of net assets were invested in equities, with an average total return of 6.9%. This was lower than the 11.2% return of the MSCI ACWI, mainly due to stock selection in the first half of the year. The main features of global equity markets in the second half of the year were the weak returns of the energy and materials sectors, driven by commodity price movements. We have been reducing our exposure to these sectors as we prefer to invest in companies involved in the production of more sustainable energy types. Health care and information technology were the strongest performers, while the US market was the strongest major developed market.

In September we announced that we were restructuring our equity teams. Until that time, we had two teams, one managing global equities and a second, managing our Sustainable Future funds. We took the decision to merge the resources of the two teams and unify the investment process across all products, focusing on sustainability, business fundamentals and valuation in order to identify companies which will deliver returns to shareholders for years to come. We now have a fully resourced, experienced, equity team of 12 individuals with a long and proven track record in managing global equities. Simon Clements was appointed the lead manager of the equity portfolio in September. He has worked in fund management since 1998 and been managing global equity funds since 2004. Members of the combined investment team have been managing sustainable future funds for up to 14 years, and have extensive expertise in this field. Of the funds that they manage which have a three year track record, 80% have outperformed their peer group, which includes unconstrained funds, over that time frame.

Following the restructuring of the team, we undertook a review of the portfolio and made some changes, which affected around 15% of the portfolio. The effect of this review was that 19 holdings were sold and eight new positions were created. A number of companies which are heavily exposed to the oil price, such as oil services companies Seadrill and Oceaneering, were sold and we have reduced our weight in ENI and Total. Moreover, in the fourth quarter, performance benefitted from improved performance from "growth" companies relative to the overall market. The strength of the dollar, which rose against sterling from over £/$1.71 in early July to below £/$1.56 at year-end, boosted the returns of the Trust's dollar-denominated investments when measured in sterling. We added a number of stocks to the portfolio, including German tyre manufacturer Continental AG and UK- based specialty chemical group Johnson Matthey. Continental is exposed to two key themes that will drive earnings over the next few years - tightening emissions regulations and road safety. Johnson Matthey's Emission Control Technologies division designs and manufactures catalysts used in vehicles such as heavy duty diesel trucks to reduce pollution, and revenues are being bolstered by tighter environmental regulations, particularly in Europe. Disposals included French oil services group Technip, as the weaker oil price reduces capital spending by major energy producers. The NAV return also included significant contributions from fixed income and other assets.

The holding in the Monthly Income Bond Fund produced an income yield of nearly 6% and a total return of 7.7%, although the Dynamic Bond Fund had a return of -0.9%. The performance of both funds was held back by their short duration position during a year when global government bond yields continued to fall. The total return from fixed income was 5.1%. The aggregated gains from private equity, property, mineral rights and subsidiaries were £43m, contributing 1.5% to performance. The return from private equity was a strong 10.5%. The use of gearing of a constant £380m throughout the year benefited performance, as we were able to generate returns on all asset classes well in excess of our average borrowing cost of 1.9%. Net gearing was 11.2% of net assets at the end of the year.

Expenses of £20.8m reduced the NAV return by 0.7%. This was a lower impact than in 2013, due to ongoing efficiency management.

In total, 6.7 million shares were repurchased in 2014, equivalent to 1.2% of the initial shares outstanding. The effect of repurchasing shares at a discount was to add 0.2% to the NAV.

A notable feature of the results outlined above is the positive contribution from each asset class, supported by the favourable financial market conditions. This has not always been the case, and indeed the Trust's portfolio is structured in the expectation that there will be periods when having a diversified portfolio turns out to be helpful, for example with weak performance of equity markets being offset by strong performance in fixed income and other asset classes. This is important from a risk management perspective.

Risk management is also a major consideration in the choice of each company in which we invest. The focus on sustainable investing, with careful consideration being given to a broad range of factors including environmental impact and corporate governance, is intended to mitigate risk. This is expected to result in good overall risk-adjusted returns for the equity portfolio and overall for the Trust.

Contribution Analysis (%)	Average Weight	Rate of Return	Contribution  to Total Return
Equities	97.7	6.9	6.9
Fixed Income	6.6	5.1	0.4
Private Equity	4.3	10.5	0.5
Mineral Rights	0.5	126.6	0.6
Alliance Trust Savings	0.9	4.9	0.0
Alliance Trust Investments	0.4	62.4	0.3
Other Investments, Cash & Accruals	2.8	n/a	0.2
Gearing (cost of borrowing)	-13.2	1.9	-0.3
Total	100.00	8.6	8.6
Expenses			-0.7
Share Buy-backs			0.2
NAV Total Return			8.1
Discount Effect			0.9
Share Price Total Return			9.0
MSCI ACWI Total Return			11.2

Source: Alliance Trust and FactSet

Alliance Trust Investments

Alliance Trust Investments is a specialist fund management business offering open-ended funds and investment solutions.

Business Drivers	What we have done
Clients Clients' expectations of the industry and the products that they need are changing.	We have a range of equity and fixed income products to satisfy different needs and risk appetites. We manage a number of programmes targeting institutional and wholesale business including UK-wide roadshows and a website with educational content (www.investment-focus.co.uk).
Products To be successful, managers must be able to innovate while still providing products that satisfy client needs.	During the year we created the UK's first sustainable and responsible risk-profiled fund range. The risk profiling of funds means that financial advisers can more easily match the risk appetite of their client with the appropriate fund from the Sustainable Future range. The Sustainable Future Pan-European Equity Fund continues to be attractive to major European investors. We benefit from Alliance Trust Savings being a significant savings platform with knowledge of customer expectations.
People There is always competition for the best people and ways must be found to attract and retain those with key skills.	We have a strong and experienced investment team who are committed and passionate about driving long term value for our clients. Our reward structures encourage a high level of deferral into our own funds which ensures commitment and alignment with our clients and shareholders.
Technology The pace of change is ever increasing and managers must be flexible and agile.	We continue to invest in market-leading investment management systems to ensure that we meet the needs of an ever-changing market.
Operating Platform There is a need for a structure which is adaptable and scaled for growth.	We strengthened our investment middle and back office functions by outsourcing them to BNY Mellon delivering a single, scalable and cost effective solution.
Business Model There will be continued downward pressure on fees.	We have recognised these changing market conditions and are operating with an average fee of 46 basis points.

The results

·      We have increased third party assets under management to £1.9bn.

·      We have reduced our losses by 23% to £3.2m.

·      Our fund managers continued to deliver strong long-term investment returns.

·      We have seen good net inflows, particularly in our bond funds.

·      We won an award for innovation for our risk-profiled fund range from Investment Week.

Financial performance

Results	2014 £m	2013 £m
Net Revenue	10.1	9.2
Expenses	(13.3)	(13.4)
Loss before tax	(3.2)	(4.2)

Net revenue

Alliance Trust Investments' 10% increase in net revenue was mainly due to growth in assets under management including £1.5m of income from Alliance Trust's £436m seed capital investment in Alliance Trust Investments funds. The average 46 basis points earned on third party assets increased slightly from the prior year.

Expenses

Expenses reduced slightly from 2013. Alliance Trust Investments' share of the efficiency measures described on page 25 of the Annual Report amounts to £1m which will also benefit the results in 2015. The methodology used to charge shared service costs between Alliance Trust Investments and Alliance Trust is also set out on pages 25 and 26 of the Annual Report.

Net assets

Net assets at 31 December 2014 were £15.5m. During the year Alliance Trust invested £2.2m in the business. The cumulative capital investment in Alliance Trust Investments is £42.4m.

Fair value

Given the achievement of net third party new business inflows for the last three years, growth in the purchased SRI book of business and the reduced losses of the business the Directors considered it appropriate to change the methodology used to value the investment in Alliance Trust Investments. This is now valued as a third party asset management business rather than a third party book of business. This means that we now recognise value from future cash flows from new business in our valuation methodology. The result is a 90% increase in fair value to £24.3m.

Further detail is found in Note 23.8 on page 99 of the Annual Report.

Key Performance Indicators

Year to 31 December

Third party assets under management
2014	£1.9bn
2013	£1.8bn

Funds above median over 3 years
2014	80%
2013	89%

Operating Loss
2014	£3.2m
2013	£4.2m

Third party net inflows
2014	£88m
2013	£74m

Fair value
2014	£24.3m
2013	£12.8m

Alliance Trust Savings

Alliance Trust Savings is a savings platform business offering a range of investment and pension products.

Business Drivers	What we have done
Clients Clients are becoming more demanding of the service they expect from financial services providers. Uncertainties surrounding the referendum on Scottish independence significantly impacted financial businesses in Scotland for both existing and potential clients.	We recognise that clients have individual needs. We reflect this in the products we offer, our competitive pricing model and in the different ways that we provide our service. The quality of our service is repeatedly recognised by customers. We were prepared for the outcome of the referendum and continue to monitor the ongoing devolution debate.
Market Commentators anticipate annual growth of over 20% until 2018. Changes announced in 2014 will markedly change the pension market. We expect the number of platforms in the UK to reduce significantly.	We will continue our marketing initiatives in both the direct and intermediary channels. We believe that the market will move to fewer but larger platforms of which we are confident that Alliance Trust Savings will be one.
Products To be successful, platforms must broaden investment choice and deliver added value. Innovation will be key.	Alliance Trust Savings is one of the top five direct platforms with a growing share of the intermediary market. It also provides a wide range of investment choice.
People There is always competition for the best people and ways must be found to attract and retain those with key skills.	We have an experienced and stable team within our savings business. Their key focus is to deliver responsible and efficient service for our customers. We are proud of our customer service which has been recognised externally through industry awards.
Operating Platform The pace of change is ever increasing with changing IT systems and applications being continually developed and adapted. There is a need for a structure which is adaptable and meets the requirements of an ever changing regulatory framework.	To improve our customer experience and to provide a system that is adaptable to change we are investing in new technology. To simplify our business we had planned to relinquish our banking licence and move to the Client Money Regime adopted by most of our competitors. Following unforeseen regulatory change in 2014, we reconsidered that decision and decided to retain our banking licence. This resulted in an impairment charge in respect of the work undertaken in expectation of the change at a cost of £0.9m.
Business Model There will be continued downward pressure on fees.	We strengthened our flat-fee structure with a more inclusive annual fee and guaranteed not to increase our charges until at least 2016.

The results

·      Assets under administration rose 19% to £6.4bn against market growth of 13%.

·      We have delivered an operating profit of £0.2m before non-recurring items.

·      Operating profitability in the year is less than had been anticipated due to:

o  competitor activity; and

o  uncertainties surrounding Scottish independence.

·      Customer accounts fell by 5% - however the change in our pricing model makes us more attractive to those holding investments over £50,000.

·      We won four awards including the Best Customer Service award from Shares Awards for the third consecutive year.

Financial performance

Continuing operations	2014 £m	2013 £m
Net Revenue	12.8	10.9
Expenses	(12.6)	(10.5)
Operating profit*	0.2	0.4
Non-recurring RDR marketing and outsourcing expenditure	(2.6)	(2.0)
Impairment charge relating to retention of banking licence	(0.9)	-
Total loss before tax	(3.3)	(1.6)

* Excluding non-recurring RDR marketing expenditure, costs associated with outsourcing and impairment related to the decision to retain banking licence.

In addition, a provision of £0.4m has been made against the net gain of £6.7m on discontinued operations in 2013 relating to the former Full SIPP business.

Net revenue

Net revenue increased by 17%, reflecting the increase in our annual fees at the start of 2014. Although we charge flat fees to our customers, the basis point equivalent of our revenue, based on our average assets under administration, was 21 basis points.

Expenses

Expenses increased 20% as we invested in our operations team to deliver our Vision 2020 ambition. Alliance Trust Savings' investment in new technology was £3.8m which was capitalised as an intangible asset. In line with our accounting policy, the asset will be depreciated over five years from the date the system goes live for intermediaries, which is expected to be during 2015. Non-recurring Retail Distribution Review (RDR) marketing expenditure, promoting the RDR readiness of our business, largely ceased at the end of 2014, as planned, ahead of the Financial Conduct Authority's final phase of RDR which will be fully in place by April 2016. The methodology used to charge shared service costs between Alliance Trust Savings and Alliance Trust is set out on pages 25 and 26 of the Annual Report.

Net assets

Net assets at 31 December 2014 were £21.9m. During the year Alliance Trust invested £3.0m in the business. The cumulative capital investment in Alliance Trust Savings is £55.8m.

Fair value

The Directors have adopted the same policy as last year to value the investment in Alliance Trust Savings. This results in an 18% increase in fair value to £31.6m. Further detail is found in Note 23.8 on page 99 of the Annual Report.

Key Performance Indicators

Year to 31 December

Assets under administration
2014	£6.4bn
2013	£5.4bn

Customer accounts
2014	71,762
2013	75,796

Number of trades
2014	494,483
2013	448,080

Operating profit*
2014	£0.2m
2013	£0.4m

Fair value
2014	£31.6m
2013	£26.7m

* Excluding non-recurring RDR marketing expenditure, costs associated with outsourcing and impairment related to the decision to retain banking licence.

Other Investments

Private equity

We have significant interests in seven externally managed limited partnerships, largely mid market European buyout funds. These limited partnerships invested in a total of 66 underlying investments at the end of 2014. We hold these investments through two fund of fund limited partnerships. We also have a number of small legacy direct investments in companies and other limited partnerships. The oversight of the private equity portfolio investments is undertaken by an inhouse manager with the day to day management of the legacy direct investments and other limited partnerships undertaken by an outsourced manager. The total committed to these assets is £117m.The outstanding commitments of these investments total £18.4m.

We decided to scale back our private equity business in 2011 and since then have been managing the portfolio in run off. We do not intend to return to making large new private equity commitments. However, we may from time to time consider opportunistic non-listed investments which we believe will deliver enhanced value for our shareholders over the long term where we are unable to access such opportunities in the listed equities arena. The investment must also meet our sustainable investment criteria. During 2014 we made a $30 million commitment to LeapFrog Financial Inclusion Fund II, of which £5.8m was drawn during the year. The fund invests in the high growth area of financial services in certain Asian and African countries, with a particular focus on the insurance sector.

Our approach to valuing the private equity portfolio is consistent with prior years and is in accordance with the private equity industry's valuation approach based on international private equity valuation guidelines. As the commitments were made in 2008 and 2009 to our two fund of fund limited partnerships, significant capital distributions are only now starting to be received, with £22.7m distributed in 2014 (2013 £5.6m). The Directors believe the fair value of our total fund of funds limited partnership investments to be £108m at the year end, which equates to a 1.3 times multiple of our original investment (2013: 1.1 times multiple). There have been six full exits of companies held within these investments in 2014. These have delivered an average gross multiple of 3.0 times our original investment compared with one exit in 2013 at a multiple of 2.9 times. We believe there is significant potential value in the fund of funds limited partnership portfolio to be delivered as it matures.

Property

As reported last year, we disposed of 107 George Street, Edinburgh which was occupied by part of the team from Alliance Trust Investments. This necessitated a move to new offices and a decision was taken to lease, rather than to purchase, alternative premises, thereby reducing our exposure to movements in the commercial property market. We moved to our new office in November 2014. The one remaining direct property investment, Monteith House in Glasgow, saw a modest increase in value to £4.8m from £4.5m last year.

Our investment in the Impax Climate Property Fund Limited Partnership, which we have held since 2008, had a value at the end of the year of £7.3m after receiving distributions of £5.2m during the year. We also have an investment valued at £0.5m in the CCC Seed Capital Limited Partnership.

Mineral rights

Our legacy mineral rights portfolio continues to deliver strong results, more than doubling in value in 2014, following a 48% increase in 2013. The portfolio consists of over 950 property interests mainly in Oklahoma and Texas but also in Idaho, Arkansas, Louisiana, Manitoba and Saskatchewan. We receive royalty income from the oil and natural gas that is extracted from these properties as well as lease bonuses. These legacy investments stem from the period when Alliance Trust's principal activity was that of a mortgage bank focused on lending in North America.

We value these assets at fair value, in line with industry standard methodology, by applying externally derived multiples to the revenue received. We actively manage these assets with assistance from local US managers. This has resulted in a number of new leases being signed during 2014, in particular in Oklahoma, thereby increasing the valuation. The valuation has also benefited from the appreciation in the US dollar during the year.

Our 2014 income was not impacted by the more than 50% decline in the oil price during the second half of the year as our income is contracted well in advance. We would, however, expect this drop in oil price to potentially depress our mineral rights income, and therefore valuation, in 2015.

Key Performance Indicators

Year to 31 December

Private equity valuations
2014	£130m
2013	£118m

Private equity outstanding fund commitments†
2014	£49m
2013	£42m

Private equity realisations* (Gross multiple to original cost)
2014	3.0
2013	2.9

Mineral rights' valuation
2014	£30m
2013	£13m

Mineral rights' income
2014	£5m
2013	£2m

† Including recallable distributions.

* Realisation of individual underlying investments held in fund of fund limited partnerships in which the Company is invested.

Chief Financial Officer

We made good progress during 2014 to deliver the financial and risk and control framework necessary to drive our 2020 Vision.

We understand the importance of the dividend to shareholders at this time. Our total dividend yield of 2.6% at the year end, makes us one of the highest yielding companies in our peer group. The chart on page 24 of the Annual Report shows how the growth in the dividend has comfortably outstripped inflation over the last 48 years. In the last five years, when interest rates have been running at 0.5%, our total dividend has grown by an average of 8.7% per year.

We significantly reduced our costs whilst continuing to ensure we meet our current and future regulatory responsibilities. Outsourcing of our middle and back office investment process delivered a single, scalable and cost effective solution. It also ensured that these services will develop in line with industry best practice.

We also took advantage of the current low interest rate environment by issuing £100m of unsecured fixed-rate long-term debt at attractive rates, with our private placement debt issuance being three times oversubscribed.

We strive to continue to deliver clear and concise reporting. We have therefore reduced the length of our Annual Report this year. By seeking to implement integrated reporting in future years we hope that our reporting will continue to benefit all our stakeholders.

What dividend have we declared for 2014 and what guidance are we giving for 2015?

The Company has distributed the net income earned from its investment portfolio as dividends to shareholders, with the excess above our minimum dividend guidance treated as a special dividend, in line with our dividend policy. In 2014 this has resulted in a 3% increase in the ordinary dividend and a total dividend increase of 14.3%. Our fourth interim dividend of 2.4585p per share will be paid on 31 March 2015 with a special dividend of 2.546p payable on 30 June 2015.

Included in the special dividend this year is £8m received from Alliance Trust Finance. This subsidiary is no longer required and we have started the process of winding it up. In line with our dividend policy, its distributable reserves of £8m have been paid to the Company. There are a further £8m of reserves which, as part of the winding up process, will become distributable to shareholders in due course.

In the absence of any unforeseen developments for 2015 we expect to be able to recommend a 3% increase on the 2014 ordinary dividend to a total of 10.13p, payable quarterly.

Why have we changed the way we report our Group results?

An amendment to accounting standard, IFRS 10 "Consolidated Financial Statements", became effective from 1 January 2014. The Company is now categorised as an 'investment entity' and is therefore required to value any investment in a subsidiary at its fair value through the income statement in accordance with IAS 39 Financial Instruments, unless the subsidiary provides services that relate directly to the Company's investment activities. We reviewed all of the activities of our subsidiaries and, other than Alliance Trust Services, which continues to be consolidated in the accounts, all of the Company's subsidiaries are now valued at fair value through the income statement. The Group Financial Statements on pages 68 to 104 of the Annual Report therefore now comprise the results of the Company and Alliance Trust Services only, with prior year comparatives restated.

How do we calculate the Ongoing Charges Ratio (OCR)?

The OCR is calculated as the recurring expenses of running the Trust, divided by our average net assets over the year. We have complied with the guidance issued by the Association of Investment Companies and have excluded the expenses incurred by the Company's subsidiaries, as these do not relate to running the investment company. In accordance with the guidance, we have 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 Alliance Trust Investments Global Thematic Opportunities Fund constitutes a substantial investment.

What is integrated reporting?

Integrated reporting is a way of showing how an organisation's strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value in the short, medium and long term. Companies that have adopted integrated reporting embed non-financial performance measures within their annual report, alongside the more common financial performance measures, to show how these add value for shareholders.

Each company is different, and should focus on those nonfinancial matters which are material to its own business. We have made our first steps towards integrated reporting within this annual report, setting out how our investment process assesses the sustainability of the companies in which we invest and providing information on the measures which underpin our Investing for Generations strategy. We will continue to develop this in future years' reports.

What are we doing to keep control of our expenses?

This year we took a number of decisions which significantly reduced our cost base, whilst continuing to ensure we deliver on our 2020 Vision and meet our current and future regulatory responsibilities. In September 2014 we announced £2m of cost savings as a result of the reorganisation of the equity team and associated support functions such as our former in-house economic research team. We have also implemented further cost savings from which we expect to save a further £1m per year.

We expect that the Company's share of these combined savings will amount to £2m, or 9% of 2013 expenses, of which £0.7m has been achieved this year. The Company's costs reduced by 3% as a result in 2014 to £20.8m. Our OCR reduced to 0.60% in 2014 from 0.75%. We will continue to apply strict cost controls across the business.

How do we recharge internal costs to our subsidiaries?

Alliance Trust Investments earns fees on the capital invested by the Trust in the funds it manages. The fees reflect market rates payable to a seed capital investor. The Trust includes such fees in its administration expenses. The Fixed Income team are charged 100% to Alliance Trust Investments. Prior to the restructure of the SRI and Global Equity teams into a unified Equities team in September 2014, the Global Equity team also managed the equity portfolio of the Trust. The cost of the Global Equity team was split between Alliance Trust Investments and the Trust according to the average assets under administration during the period. Following the reorganisation, the costs of the Equities team were recharged between Alliance Trust Investments and the Trust according to the same methodology. Both Alliance Trust Investments and Alliance Trust Savings are also allocated a share of indirect expenses according either to the subsidiaries' service usage or according to average headcount, as appropriate.

What is the cost of our buyback programme?

In 2014 we repurchased 1.2% of our shares compared with 0.3% in 2013. Since the introduction of our flexible buyback policy in 2011 the Company has bought back and cancelled 16.3% of its shares at a cost of £392m. This has contributed to a reduction in volatility of the discount during a period of turbulent market conditions and to a narrowing of the discount from 17.1% to 12.4% since 2011. The Board remains committed to the ongoing flexible use of buybacks, taking into account the Company's discount relative to the peer group. Whilst we bought back 10% of our shares in 2011 during the first year of our flexible buyback policy we stated at that time we would not expect to maintain this level of buyback activity in normal market conditions.

Why have we taken out long-term debt?

In late July 2014 we issued £100m fixed rate 15 year unsecured debt at 4.28% as we believe that this pricing is attractive and is expected to enhance shareholder returns over the life of the facility in line with the Company's investment objective. The average cost of borrowing for the Trust remains a very competitive 2.2% at the year end.

Risk

Risk Management Framework

The Group has a Risk Management Framework that provides a robust and comprehensive approach for the identification and management of key risks facing the business.

The Framework helps in the assessment and management of current and future risks. Principal Risk categories include Strategic, Market, Operational and Regulatory & Conduct Risk.

The Risk Management Framework supports the ICAAP (Internal Capital Adequacy Assessment Process) process, assisting in determining the capital requirements of the Group.

Risk Appetite

Risk appetite statements have been approved by the Board and provide the basis for the level of risk the Group is prepared to accept. A suite of risk appetite metrics have been agreed and activity is monitored against stated triggers and limits.

Risk Governance Committees

The Board Risk Committee comprises Non-Executive Directors, with delegated responsibility from the Board to provide oversight and challenge to the appropriateness of the risk management framework and the forward looking risks facing the Group.

The Risk Management Committee, chaired by the Chief Financial Officer and comprising members of the senior management of the Group, ensures that the key risks are identified, monitored, assessed and controlled.

The Committees receive reports of Risk Exposures and Events, as well as discussing any breaches of the agreed risk appetite.

Risk and Control Self Assessment (RCSA)

The RCSA is the methodology that allows our business areas to identify and assess risks, and define and perform quarterly testing of controls. Individual risk and control owners are assigned with explicit responsibility for the ongoing monitoring and management of risks. This is reinforced through minimum standards communicated via the Group Policy Framework.

Quarterly risk outlook workshops are undertaken to consider and assess potential changes to the risk profile of the Group. The risk function undertakes a review and challenge of the RCSA and underlying evidence.

Effectiveness of the Risk Function

The Risk and Compliance function is subject to regular review, both in terms of resource and the appropriateness of the skills that reside within the team. In addition, the Board Risk Committee and Risk Management Committee are subject to effectiveness reviews with improvements being identified and implemented where required.

Principal Risks

In common with other financial services organisations, our business model results in a number of inherent risks which are continuously monitored and managed. The risks have been categorised as Strategic, Market, Operational and Regulatory & Conduct Risks. The principal risks and their mitigants are noted below.

Strategic Risks	Risks Building investment credibility is dependent on the performance of the portfolio. The ability to pay a steadily increasing dividend depends upon portfolio structure and income generation. The Trust may borrow for investment purposes and borrowing facilities may not be renewed. A lack of understanding of the Trust and its objectives could lead to a lack of demand and a widening of the discount to Net Asset Value. Political and economic uncertainty generates risk to achieving strategic objectives. Mitigants We regularly report and monitor the performance of the Trust and the income derived from investments. Borrowing levels and facilities require the prior approval of the Board. The Trust's investment strategy has been widely communicated and meetings are also held with key institutional shareholders. We assess the implications of political and economic uncertainty and establish internal working groups to monitor potential risks as required.
Market Risks	Risks The Trust currently invests primarily in equities and fixed income securities and its principal risks are therefore market related and include counterparty and market risk (currency, interest rate and other price risk). An explanation of these risks is included in Note 23 on pages 93 to 97 of the Annual Report. Over The Counter (OTC) derivatives are used in the fixed income funds managed by Alliance Trust Investments both for efficient portfolio management and for investment purposes. If investments fall in value, any borrowings will magnify the extent of this loss. Mitigants The Asset Allocation Committee meets at least quarterly to oversee the allocation of capital between and among the asset classes approved by the Board. Exposure to market risk is assessed through stress and scenario testing of the Group's portfolios. Compliance with investment risk parameters and policies is also monitored and regularly reported. Counterparty/concentration limits are in place for all financial instruments including bank deposits and debt levels are regularly monitored and reported. The majority of the Trust's investments are in quoted equities that are readily realisable.
Operational Risks	Risks Financial services organisations are exposed to operational risk, as a consequence of operating in a complex financial environment. Key operational risks include the availability and reliability of our core systems, reliance on third party suppliers to deliver against service levels, processing failures, IT security issues (including cyber risk) and operational errors. These include dealing errors, administration breaches, loss of key personnel and failure to manage and deliver change initiatives. Mitigants Policies have been implemented to set direction on the management of all operational risks. Business Continuity plans are maintained and tested annually. Our supplier management framework controls risks from significant third party service providers. The Group operates an anti-financial crime policy and controls to minimise exposure to fraud, money laundering and market abuse. Our segregation of duties and oversight of controls mitigate against the risk of conflict of interest and process failures. We manage projects rigorously under our Change Management Framework and robust IT security controls are in place. The Group recognises the increasing risk of cyber attack against its services and data. Our systems and controls are rigorously assessed on an ongoing basis to ensure they remain appropriate to mitigate against the changing risks faced and include deployment of industry standard tools and processes. Training modules have been developed and risk objectives embedded to ensure delivery of appropriate corporate culture behaviours.
Regulatory and Conduct Risks	Risks The Financial Services sector continues to experience significant regulatory change at national and international level. During the year, Alliance Trust PLC has been approved by the FCA as a manager under the Alternative Investment Fund Manager Directive. The profile of conduct risk is ever increasing including the continued strengthening and evolution of the regulatory framework. Key aspects of conduct risks include the appropriateness of products and services, marketing campaigns and financial promotions, product design and development, complaint resolution, management of conflicts, and corporate culture. Mitigants The Group maintains a forward radar of forthcoming regulatory changes. We have a Change Management Framework to help deliver regulatory change. We have system based controls and monitoring systems to ensure compliance with relevant regulations. Our responsibilities under AIFMD include the appointment of a Depositary who undertake verification activities and we monitor leverage against limits and gearing parameters which are agreed by the Board. Customer outcome management information is reviewed at Board and Committee level, with actions taken to ensure the customer is at the heart of our business and includes an assessment of future business initiatives and risk outlook.

The Group operates a three tier line of defence. The key attributes of each line of defence are shown below.

1st line of defence	2nd line of defence	3rd line of defence
Business management are responsible for the identification and assessment of risks, understanding the risk return strategy and operating appropriate controls.	The Risk Management Committee, together with the risk function, provides challenge on the completeness and accuracy of risk assessments, risk reporting and the adequacy of mitigation plans.	Internal Audit and the Board Risk and Audit Committees provide independent and objective assurance on the robustness of the Risk Management Framework and the appropriateness and effectiveness of internal controls.
Key Attributes ·      Promote a strong risk culture and sustainable risk-return thinking. ·      Promote a strong culture of adhering to limits and managing risk exposures in accordance with the approved risk appetite and the associated policy requirements. ·      Ownership, responsibility and accountability for identifying the risks arising from business activities. ·      Ongoing monitoring of inherent and identified risks. ·      Governance process includes committees who will review and monitor risks efficiently and effectively.	Key Attributes ·      Overarching risk oversight across all risk types. ·      Understand aggregated risk positions and support in developing and advising on risk strategies. ·      Objective oversight and challenge to the business areas and internal control framework used in the first line. ·      The Risk Management Committee is supported by the monitoring, advisory and challenging activities of the Risk and Compliance function.	Key Attributes ·      Independent assurance on the robustness and application of the risk framework. ·      Assess the appropriateness and effectiveness of internal controls. ·      The Board Risk Committee is chaired and attended by Non- Executive Directors, providing independent oversight of the key activities of the business. ·      The Internal Audit function provides assurance to the Audit Committee. ·      The Audit Committee report to the Board on effectiveness of internal control framework.

Changes to Risk Profile

The following are key initiatives and events which have influenced the risk profile of the Group during the year.

Alternative Investment Fund Managers Directive (AIFMD)	Alliance Trust PLC obtained approval from the FCA as a Manager under the AIFMD on 18 July 2014. Although many of the requirements under the Directive were already covered by existing legislation or regulation and were reflected in the Trust's established governance framework, our procedures, policies and practices have been updated to ensure full compliance with all AIFMD requirements. As part of the AIFMD authorisation, the Trust has appointed a Depositary whose responsibilities include verification of the investment portfolio assets and provide oversight of transactions, cash movements and valuation processes. Strategic Priority: Platform
Scottish Independence	A project was established to manage the potential impact on the Group of the outcome of the referendum on Scottish independence. This included participation in industry working groups and by direct interaction with UK and Scottish government representatives. This allowed us to develop mitigation plans to respond to the outcome of the referendum in order to provide continuity of service and to ensure that customer investments and savings were protected. Strategic Priority: Purpose
Launch of Risk Profiled Funds	Two new funds were created in Alliance Trust Investments. The funds have provided investors with a suite of five Risk Profiled Sustainable Investment Funds. The launch of the new funds followed a detailed and thorough new product implementation process which addressed the requirements of all business areas impacted. Strategic Priority: Purpose
Regulatory Developments	A number of regulatory initiatives were considered and/or implemented during the year. In addition to the approval of Alliance Trust PLC as an internally managed Alternative Investment Fund under AIFMD, other initiatives included compliance with regulatory changes such as European Market Infrastructure Regulations (EMIR), Capital Requirements Directive IV (CRDIV), the Client Asset Source Book (CASS) and Foreign Account Tax Compliance Act (FATCA). The Group also consider the implications of all future regulatory changes including Markets in Financial Instruments Directive (II) (MIFID II) and Undertakings for the Collective Investment in Transferable Securities V (UCITS V). Strategic Priority: Platform
Outsourcing	During the year we successfully completed the outsourcing of our Fund Accounting and Middle Office functions to Bank of New York Mellon (BNYM) for our investment business. The outsourcing project was undertaken through our Change Management Framework, with appropriately skilled staff in place to oversee the service provided by BNYM. Strategic Priority: Platform

Investing for Generations

"Investing for Generations" is our strategy for achieving our 2020 Vision. We are committed to growing our business in a way that is responsible and ensures a sustainable future for our shareholders, customers and communities.

Investing responsibly and proactively managing our material environmental, social and governance risks and opportunities will create lasting value for all our stakeholders. During 2014 we undertook a materiality assessment to update our understanding of the issues that are most important to drive business performance and are of greatest interest to our stakeholders. As a result of this process, we have identified five focus areas for our strategy; Responsible Investment, Customers, People, Community and the Environment. We have set goals in each area and are in the process of developing a set of key non-financial performance indicators against which we will report our progress annually within this report and on our website. We plan to report our baseline and first complete year of data in next year's report.

Our five key pillars	Our priorities	How we performed in 2014
Responsible Investment To grow the business by investing in a responsible manner	·      Embed responsible investment processes across the business. This includes setting clear objectives to measure and reward responsible investment and integrating material ESG factors into our investment process. ·      Collaborate and engage with the companies in which we invest. ·      Promote more responsible investment in the industry by engaging with industry bodies and communicating how it enhances value.	Company meetings at which we voted 94%
Customers To become the UK's most trusted investment and savings business	·      Promote straightforward and open communications. ·      Deliver solutions to meet our customers' needs. ·      Measure customer perception and feedback, using results to drive on-going improvement. ·      Provide resources, tools and information to improve financial education of customers.	Our campaigns resulted in an average increase in brand awareness of 18%
People To empower our people to drive our 2020 strategy and the success of our business	·      Promote shared purpose and common values to create a positive environment for success. ·      Promote inclusion, empowerment and a strong employee voice to help drive engagement. ·      Link our 2020 Vision to developing and empowering strong leaders. ·      Establish innovation groups to generate new ideas and solve problems.	Engagement increased to 88% from 79% last year Our values index increased to 77% from 72% last year
Community To be recognised as a force for good in our communities	·      Share our skills and expertise with our local communities. ·      Align our values with those of our employees. ·      Create active opportunities for our employees to volunteer. ·      Donate to charitable causes through our Staff Foundation and support our employees in their fundraising efforts.	Funds raised and donated to charities over £52,000
Environment To demonstrate our commitment to combat the global challenge of climate change and protect the environment	·      Shape the external debate on key environmental issues. ·      Set long term targets to reduce our own environmental footprint. ·      Engage and collaborate with others including our employees and suppliers. ·      Influence the companies we invest in and other investment agents.	We know the carbon footprint of the investments held in one third of our Sustainable Future equity funds. CO2 emissions down 4%

Governance

The Investing for Generations Forum is responsible for overseeing and integrating sustainability within the business. It is chaired by a member of the Executive Committee. During 2014 it met 20 times to set objectives and review progress, key performance data and the implementation of standards.

Engaging with stakeholders

We recognise that listening to our stakeholders and responding to their relevant concerns is important to our long-term success. We seek the views of stakeholders through processes such as investor meetings and roadshows, customer surveys, employee surveys and participation in industry forums. We also actively engage with the management of companies that we invest in on material environmental, social and governance (ESG) factors.

Ethical standards

Alliance Trust is committed to maintaining the highest ethical, professional and legal standards. We have a comprehensive set of policies which set out our approach to issues such as whistleblowing, anti-bribery and health and safety. In accordance with the Financial Reporting Council's UK Stewardship Code, we have published the Alliance Trust Stewardship Policy Statement. This sets out how we discharge our stewardship responsibilities as an integral part of our investment philosophy. Our Stewardship Group, chaired by the Chief Executive Officer, is responsible for overseeing the implementation of the Code and reports directly to the Executive Committee and Board.

Responsible investment

Investors are much more aware of both how the returns they receive are generated and of the long-term sustainability of the business models upon which they rely.

In response to investor demand we launched two new funds to our range; the Sustainable Future Cautious Managed Fund, and the Sustainable Future Defensive Managed Fund.

During 2014 we made significant progress in integrating responsible investment processes across our business. We created a single equity investment team to manage both the Alliance Trust equity portfolio and the Sustainable Future Funds. We enhanced our investment process, that already analysed business fundamentals and relevant ESG factors in assessing the financial prospects of companies, to provide more focus on the sustainability of that investment, further details are on pages 16 and 17 of the Annual Report. We have also continued to pursue an active voting policy. In most cases we support management but we will engage with them and ultimately vote against their recommendations where we believe that their proposals are not in shareholders' interests. In 2014 we voted at 98 company meetings, 94% of meetings at which we were eligible to vote. For 36 of these meetings (34%) we voted against, withheld or abstained on one or more resolutions. These votes related to concerns about matters including: board and committee independence and effectiveness; non-pre-emptive securities issues; excessive or opaque remuneration arrangements; and lack of transparency about lobbying activities and fair business policies.

One of our priorities is to engage with the companies in which we invest and the industry more broadly on responsible investment issues. In 2014, our investment team, in collaboration with others, undertook extensive engagement with clothing retailers sourcing from Bangladesh, to promote human rights and more sustainable business models. We also engaged with the banking and pharmaceutical industries on sustainability issues. At the end of 2014 we conducted a series of roadshows across the UK to promote and seek views on responsible investment.

We are a signatory to the UN Principles for Responsible Investment and one of our investment managers is Chair of the PRI's ESG Integration working group. We are also members of the World Business Council for Sustainable Development. Looking ahead, we are working to understand better the carbon impact of our investments. We have signed up to the Montreal Carbon Pledge which was launched by Principles for Responsible Investment in September 2014 and commits investors to measure and publicly disclose the carbon footprint of their investment portfolio on an annual basis.

Customers

We aim to have straightforward and open communication with our customers and seek their feedback in a number of ways, for example through customer surveys, investor meetings and nationwide roadshows. In order to understand better our progress against our Vision 2020 targets we will be conducting a customer perception audit in 2015. This will assess customers' opinions on our business in key areas such as trust and transparency and brand awareness. We will use this to benchmark our performance so that we can drive continuous improvement.  The campaigns we ran in partnership with The Telegraph and The Financial Times were particularly successful and led to an improvement in brand awareness and an increase in the number of unique visitors to Investment Focus, our dedicated website. The aim of Investment Focus is to allow customers to grow their investment knowledge and it can be found at www.investment-focus.co.uk.

People

Our goal is to provide rewarding careers for the people we employ and we aim to recruit, retain and develop the best talent in the marketplace.

We encourage share ownership and this ensures that we align the interests of our people closely with the interests of our shareholders.

Our people are the key to our success and unlocking their potential is the route to achieving our 2020 Vision and strategy.

We recruit people who will fit well with the values and behaviours we set out for our business.

In 2014, we conducted a culture audit of our business. This assessment sought to form a deeper understanding of our organisational culture, values and behaviours and how this supports our business strategy and risk profile. It also explored how our culture aligns with the principles set out by the Financial Conduct Authority. The audit found our organisation to have a strong positive working culture that encourages individuals to remain with the business and work towards our long-term goals.

Where possible, we recruit from within and seek to develop and promote from our existing talent pool. By 2020 we have set ourselves the target to achieve more than 50% of vacancies being filled by internal applicants.

We grow our own talent through an annual graduate scheme which rotates recruits around key business areas, before selecting a permanent area of specialism. A number of senior positions are now held by former graduate scheme members. We have gone through a process to identify high-potential future leaders and have designed a specific development programme to help them reach their potential.

69% of our people take the time to tell us what they think through our Employee Engagement Survey. This survey is an invaluable tool which helps measure how satisfied our people are with the Company and also how engaged our people are with the strategy of the business. The data is analysed by an independent third party and our results have been compared to other organisations in our benchmarking group. Our engagement results are excellent having increased to 88% over the last year. The industry benchmark is 73%. Of those who responded 86% tell us that they would recommend Alliance Trust as a good place to work. We listen to their feedback and build improvements into our plans for the future.

Our focus on our people is paying dividends. Employee turnover is 12% which is in line with our market. This helps to reduce our recruitment costs and increases our business continuity.

Rewarding success

We reward our people for performance and these rewards are linked to the success of our business as well as aligned closely to our shareholder interests. The majority of our people are shareholders through our All Employee Share Ownership Plan and are therefore closely linked to the performance of the business. 80% of our employees hold shares in the Company, with an average holding of over £26,000 at the year end.

Employee performance and reward structures are also aligned with our values. Employee bonuses are based on both an assessment of performance in areas such as stock selection and performance, as well as an assessment of behaviours and demonstration of living our values.

Equality & diversity

We believe that a diverse workforce will create the optimum environment upon which our business will thrive and grow.

We are committed to creating an inclusive environment where our people can develop and contribute fully.

Our employment and recruitment policies are at all times compliant with relevant EU and UK legislation. Recruitment, development and promotion is based solely on the candidate's suitability for the job to be done. We will not discriminate either before, or during, employment on the basis of gender, sexual orientation, age, race, nationality, disability or political or religious belief. Should one of our people become disabled we will ensure that they do not suffer any discrimination and we will make reasonable adjustments to allow them to continue to have the same opportunities as any other member of our workforce.

The table below provides the gender split at different levels within the business at the year end.

	Male	Female
Board	4(50%)	4 (50%)
Senior Managers	45 (74%)	16 (26%)
Total workforce	125 (46%)	147 (54%)

Community

Our goal is to support the communities in which we operate and employee involvement is integral to this.

We established the Alliance Trust Staff Foundation as a Scottish Charitable Incorporated Organisation in 2013 and have supported local charities operating within Dundee, Edinburgh and London.

In 2014 the Alliance Trust Staff Foundation donated £30,800 to local charities. Charities we supported included Breast Foot Forward (supporting work on Breast Cancer), Streetwork (working with the vulnerable in Edinburgh), The Baytree Centre (a community support group in London), Dundee Disabled Children's Association (providing holidays for disabled children), Links Park Community Trust (promoting sport and health education in Montrose), Action for Children (helping fund its Volunteer Mentoring Programme in Dundee) as well as continuing to support the Brae Riding Centre for the Disabled.

Our employees actively participate in fundraising activities and in 2014 collectively raised or donated over £52,000 for charitable causes. This included the Cateran Yomp, a 54 mile walk, with over 560 registered participants including 18 teams from Alliance Trust, raising £66,000 for ABF the Soldier's Charity and £33,000 to the Alliance Trust Staff Foundation to support its work in 2015.

We are increasingly moving towards skills-based volunteering. This achieves greater impacts and helps develop and engage our people. We support Pilotlight, which places business professionals onto the Boards of charities, and some of our senior team members are now working directly with local charitable organisations. We ran two workshops in local Dundee schools, helping to equip students with the necessary skills to secure employment in the future.

Engaging with our value chain

The nature of our business means we have a relatively low direct environmental impact compared to companies in some other industries. We do however believe that we can play a positive role in engaging our suppliers, business partners and the companies that we invest in to help them improve their environmental impact.

We have started to embed sustainability considerations into our procurement decisions. Our sustainable procurement policy for facilities-related contracts outlines our commitment to working with responsible suppliers and includes our criteria for assessing suppliers' environmental performance. We have also integrated environmental considerations into our newly updated business supplier framework. As part of our commitment to the Montreal Carbon Pledge we are exploring how to measure more of our Scope 3 emissions - carbon emissions related to our investments.

Environment

As part of our commitment to being a responsible business and our strategy, Alliance Trust has in place policies and procedures to address our own direct environmental impact. At our head office in Dundee, we have an ISO 14001 certified environmental management system. We are committed to managing our day to day operations across all our locations in line with the principles of good environmental management.

We are also committed to monitoring, reporting and improving our environmental performance as evidenced by our annual participation in the CDP (formerly Carbon Disclosure Project) climate change programme. This year we achieved a CDP climate change score of 89 (for disclosure) and B (for performance), which is a significant improvement compared to the prior year's score of 74 C. We were also shortlisted as a finalist in the Management Awards at the VIBES (Vision in Business for the Environment of Scotland) Awards for 2014.

In line with mandatory reporting we disclose our Greenhouse Gas (GHG) carbon emissions on page 35 of the Annual Report. While Alliance Trust's own carbon footprint is relatively small, as a company we are committed to doing our part to address the negative effects of climate change. We have set ourselves a target to achieve a 20% reduction in Scope 1 and 2 greenhouse gas emissions per full-time employee by 2020, relative to 2013. This year we have made good progress against that goal, achieving a 4.4% reduction as a result of our efforts in this area. Our Scope 3 emissions, associated predominantly with business-related travel, have also improved with an 8.8% reduction this year in absolute terms. The impact of business activities on climate change is an increasingly important issue for many of our stakeholders and we will continue to take steps to improve our businesses performance in this area.

On other environmental aspects, we monitor paper, waste and water consumption, and aim to send zero waste to landfill from our Dundee head office.

Going Concern

The Group's business activities are set out on pages 4 and 5 of the Annual Report with the principal risks which could impact on performance set out above. The Group's financial position and cash flows are set out on pages 68 to 72 of the Annual Report along with an analysis of its borrowings in Note 15 on page 89 of the Annual Report. As regards going concern the Directors have considered both liquidity and solvency risks. The Directors, who have reviewed the budgets, forecasts and sensitivities for the coming year, consider that the Group has adequate financial resources to enable it to continue in operational existence for the foreseeable future. Accordingly the Directors believe that it is appropriate to continue to adopt the going concern basis for preparing the financial statements.

Consolidated income statement for the year ended 31 December 2014
	Year to December 2014			Restated Year to December 2013
£000	Revenue	Capital	Total	Revenue	Capital	Total
Revenue
Income	110,117	-	110,117	103,399	-	103,399
Profit on fair value designated investments	-	163,584	163,584	-	415,851	415,851
Profit on investment property	-	284	284	-	211	211
Total revenue	110,117	163,868	273,985	103,399	416,062	519,461
Administrative expenses	(34,056)	(1,154)	(35,210)	(33,529)	(1,388)	(34,917)
Finance costs	(3,575)	(4,163)	(7,738)	(3,059)	(3,137)	(6,196)
Gain on disposal of other fixed assets	-	-	-	-	14	14
Gain on revaluation of office premises	-	240	240	-	-	-
Foreign exchange losses	-	(2,752)	(2,752)	-	(15,189)	(15,189)
Profit before tax	72,486	156,039	228,525	66,811	396,362	463,173
Tax	(3,666)	-	(3,666)	(6,100)	(100)	(6,200)
Profit for the year	68,820	156,039	224,859	60,711	396,262	456,973
All profit for the year is attributable to equity holders of the parent. All comparative information, including relevant notes, have been restated to reflect the implementation of Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27). Refer to Basis of accounting for details.
Earnings per share attributable to equity holders of the parent
Basic (p per share)	12.39	28.10	40.49	10.85	70.79	81.64
Diluted (p per share)	12.37	28.04	40.41	10.81	70.59	81.40

Consolidated statement of comprehensive income

	Year to December 2014			Restated Year to December 2013
£000	Revenue	Capital	Total	Revenue	Capital	Total
Profit for the year	68,820	156,039	224,859	60,711	396,262	456,973
Items that will not be reclassified subsequently to profit or loss:
Defined benefit plan net actuarial loss	-	(1,506)	(1,506)	-	(875)	(875)
Retirement benefit obligations deferred tax	-	301	301	-	96	96
Other comprehensive loss	-	(1,205)	(1,205)	-	(779)	(779)
Total comprehensive income for the year	68,820	154,834	223,654	60,711	395,483	456,194

All total comprehensive income for the year is attributable to equity holders of the parent. All comparative information, including relevant notes, have been restated to reflect the implementation of Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27). Refer to Basis of accounting for details.

Company income statement for the year ended 31 December 2014
	Year to December 2014			Year to December 2013
£000	Revenue	Capital	Total	Revenue	Capital	Total
Revenue
Income	95,707	-	95,707	89,994	-	89,994
Profit on fair value designated investments	-	163,587	163,587	-	415,851	415,851
Profit on investment property	-	284	284	-	211	211
Total revenue	95,707	163,871	259,578	89,994	416,062	506,056
Administrative expenses	(19,714)	(1,090)	(20,804)	(20,219)	(1,294)	(21,513)
Finance costs	(3,575)	(4,163)	(7,738)	(3,059)	(3,137)	(6,196)
Gain on disposal of other fixed assets	-	-	-	-	14	14
Gain on revaluation of office premises	-	240	240	-	-	-
Foreign exchange losses	-	(2,752)	(2,752)	-	(15,189)	(15,189)
Profit before tax	72,418	156,106	228,524	66,716	396,456	463,172
Tax	(3,666)	-	(3,666)	(6,100)	(100)	(6,200)
Profit for the year	68,752	156,106	224,858	60,616	396,356	456,972
All profit for the year is attributable to equity holders of the parent.
Earnings per share attributable to equity holders of the parent
Basic (p per share)	12.38	28.11	40.49	10.83	70.80	81.63
Diluted (p per share)	12.35	28.05	40.40	10.80	70.60	81.40

Company statement of comprehensive income

	Year to December 2014			Year to December 2013
£000	Revenue	Capital	Total	Revenue	Capital	Total
Profit for the year	68,752	156,106	224,858	60,616	396,356	456,972
Items that will not be reclassified subsequently to profit or loss:
Defined benefit plan net actuarial loss	-	(1,506)	(1,506)	-	(875)	(875)
Retirement benefit obligations deferred tax	-	301	301	-	96	96
Other comprehensive loss	-	(1,205)	(1,205)	-	(779)	(779)
Total comprehensive income for the year	68,752	154,901	223,653	60,616	395,577	456,193

All total comprehensive income for the year is attributable to equity holders of the parent.

Statement of changes in equity for the year ended 31 December 2014
	Group		Company
£000	Dec 14	Restated Dec 13	Dec 14	Dec 13
Called up share capital
At 1 January	14,003	14,040	14,003	14,040
Own shares purchased and cancelled in the year	(168)	(37)	(168)	(37)
At 31 December	13,835	14,003	13,835	14,003
Capital reserve
At 1 January	2,108,441	1,718,563	2,108,609	1,718,637
Profit for the year	156,039	396,262	156,106	396,356
Defined benefit plan actuarial net loss	(1,205)	(779)	(1,205)	(779)
Own shares purchased and cancelled in the year	(30,208)	(6,658)	(30,208)	(6,658)
Share based payments	848	1,053	848	1,053
At 31 December	2,233,915	2,108,441	2,234,150	2,108,609
Merger reserve
At 1 January and at 31 December	645,335	645,335	645,335	645,335
Capital redemption reserve
At 1 January	4,995	4,958	4,995	4,958
Own shares purchased and cancelled in the year	168	37	168	37
At 31 December	5,163	4,995	5,163	4,995
Revenue reserve
At 1 January	113,381	107,723	113,212	107,649
Profit for the year	68,820	60,711	68,752	60,616
Dividends paid	(61,275)	(55,068)	(61,275)	(55,068)
Unclaimed dividends (redistributed)/returned	(10)	15	(10)	15
At 31 December	120,916	113,381	120,679	113,212
Total Equity at 1 January	2,886,155	2,490,619	2,886,154	2,490,619
Total Equity at 31 December	3,019,164	2,886,155	3,019,162	2,886,154

All comparative information, including relevant notes, have been restated to reflect the implementation of Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27). Refer to Basis of accounting for details.

Balance sheet as at 31 December 2014
	Group			Company
£000	Dec 14	Restated Dec 13	Restated Dec 12	Dec 14	Dec 13
Non‑current assets
Investments held at fair value	3,338,832	3,214,386	2,633,918	3,338,910	3,214,461
Investment property held at fair value	4,830	4,525	9,120	4,830	4,525
Property, plant and equipment:			-
Office premises	4,365	4,125	4,125	4,365	4,125
Other fixed assets	467	249	157	467	249
Intangible assets	1,032	814	320	1,032	814
Pension scheme surplus	5,197	5,079	4,305	5,197	5,079
Deferred tax asset	1,039	1,015	990	1,039	1,015
	3,355,762	3,230,193	2,652,935	3,355,840	3,230,268
Current assets
Outstanding settlements and other receivables	15,492	21,177	14,045	17,013	21,344
Recoverable overseas tax	995	985	-	995	985
Withholding tax debtor	-	-	1,006	-	-
Corporation tax debtor	-	-	100	-	-
Cash and cash equivalents	44,102	27,225	35,561	40,685	25,236
	60,589	49,387	50,712	58,693	47,565
Total assets	3,416,351	3,279,580	2,703,647	3,414,533	3,277,833
Current liabilities
Outstanding settlements and other payables	(11,984)	(7,877)	(7,678)	(10,168)	(6,131)
Tax payable	(3,991)	(3,991)	(3,991)	(3,991)	(3,991)
Bank loans	(280,000)	(380,000)	(200,000)	(280,000)	(380,000)
	(295,975)	(391,868)	(211,669)	(294,159)	(390,122)
Total assets less current liabilities	3,120,376	2,887,712	2,491,978	3,120,374	2,887,711
Non‑current liabilities
Unsecured fixed rate loan notes	(100,000)	-	-	(100,000)	-
Deferred tax liability	(1,039)	(1,015)	(990)	(1,039)	(1,015)
Finance leases	-	(110)	(102)	-	(110)
Amounts payable under long term Investment Incentive Plan	(173)	(432)	(267)	(173)	(432)
	(101,212)	(1,557)	(1,359)	(101,212)	(1,557)
Net assets	3,019,164	2,886,155	2,490,619	3,019,162	2,886,154
Equity
Share capital	13,835	14,003	14,040	13,835	14,003
Capital reserve	2,233,915	2,108,441	1,718,563	2,234,150	2,108,609
Merger reserve	645,335	645,335	645,335	645,335	645,335
Capital redemption reserve	5,163	4,995	4,958	5,163	4,995
Revenue reserve	120,916	113,381	107,723	120,679	113,212
Total Equity	3,019,164	2,886,155	2,490,619	3,019,162	2,886,154

All net assets are attributable to equity holders of the parent. All comparative information, including relevant notes, have been restated to reflect the implementation of Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27). Refer to Basis of accounting for details.

Net Asset Value per ordinary share attributable to equity holders of the parent

Basic (£)	£5.47	£5.17	£4.45	£5.47	£5.17
Diluted (£)	£5.46	£5.15	£4.44	£5.46	£5.15

Cash flow statement for the year ended 31 December 2014
	Group			Company
£000		Dec 14	Restated Dec 13		Dec 14	Dec 13
Cash flows from operating activities
Profit before tax		228,525	463,173		228,524	463,172
Adjustments for:
Gains on investments		(163,868)	(416,062)		(163,871)	(416,062)
Foreign exchange losses		2,752	15,189		2,752	15,189
Scrip dividends		256	-		256	-
Depreciation		183	169		183	169
Amortisation of intangibles		333	154		333	154
Gains on revaluation of office premises		(240)	-		(240)	-
Share based payment expense		848	1,053		848	1,053
Interest		7,738	6,196		7,738	6,196
Movement in pension scheme surplus		(1,323)	(1,553)		(1,323)	(1,553)
Operating cash flows before movements in working capital		75,204	68,319		75,200	68,318
Decrease/(Increase) in receivables		735	(2,139)		(619)	(2,280)
(Decrease)/Increase in payables		(1,859)	747		(1,929)	1,125
Net cash flow from operating activities before income taxes		74,080	66,927		72,652	67,163
Taxes paid		(3,676)	(6,080)		(3,676)	(6,080)
Net cash inflow from operating activities		70,404	60,847		68,976	61,083

Cash flows from investing activities
Proceeds on disposal at fair value of investments through profit and loss		1,013,121	1,075,550		1,013,121	1,075,550
Purchases of fair value through profit and loss investments		(965,415)	(1,240,658)		(965,415)	(1,240,658)
Purchase of plant and equipment		(401)	(261)		(401)	(261)
Purchase of other intangible assets		(551)	(648)		(551)	(648)
Foreign exchange losses on foreign exchange contracts		-	(13,993)		-	(13,993)
Net cash inflow/(outflow) from investing activities		46,754	(180,010)		46,754	(180,010)

Cash flows from financing activities
Dividends paid ‑ Equity		(61,275)	(55,068)		(61,275)	(55,068)
Unclaimed dividends (redistributed)/returned		(10)	15		(10)	15
Purchase of own shares		(30,208)	(6,658)		(30,208)	(6,658)
New bank loans and unsecured fixed rate loan notes raised		100,000	180,000		100,000	180,000
Repayment of borrowing		(100,000)	-		(100,000)	-
Interest payable		(6,036)	(6,266)		(6,036)	(6,266)
Net cash (outflow)/inflow from financing activities		(97,529)	112,023		(97,529)	112,023

Net cash increase/(decrease) in cash and cash equivalents		19,629	(7,140)		18,201	(6,904)
Cash and cash equivalents at beginning of year		27,225	35,561		25,236	33,336
Effect of foreign exchange rate changes		(2,752)	(1,196)		(2,752)	(1,196)
Cash and cash equivalents at end of year		44,102	27,225		40,685	25,236

All comparative information, including relevant notes, have been restated to reflect the implementation of Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27). Refer to Basis of accounting for details.

The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2014 or the year ended 31 December 2013, but is derived from those accounts. The comparatives are for the year ended 31 December 2013 and have been restated as a result of the implementation of Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27). Statutory accounts for the year ended 31 December 2013 have been delivered to the Registrar of Companies and those for the year ended 31 December 2014 will be delivered following the Company's annual general meeting.  The independent auditor has 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. Basis of accounting While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements that comply with IFRSs on 12 March 2015. Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) An amendment to IFRS 10 Consolidated Financial Statements was introduced and became effective from 1 January 2014. This amendment included additional accounting requirements for entities regarded as an investment entity and where the definition of an investment entity was met, consolidated financial statements were no longer required in prescribed circumstances. An investment entity is required to measure an investment in a subsidiary at fair value through the income statement in accordance with IAS 39 Financial Instruments: Recognition and Measurement if it meets specified criteria. An investment entity is still required however to consolidate any subsidiary entity where that subsidiary provides services that relate directly to the investment entity's investment activities and is not itself regarded as an investment entity.  IFRS 10 provides that an investment entity should have the following characteristics: ·      it has more than one investment ·      it has more than one investor ·      it has investors that are not related parties of the entity ·      it has ownership interest in the form of equity or similar interests The Company qualifies as an investment entity under IFRS 10 meeting all the key characteristics defined above and as such is no longer permitted to consolidate the majority of its subsidiaries on a line by line basis, but instead recognise them as investments at fair value through the income statement. Significant judgements and assumptions in respect of Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) In previous years, the Alliance Trust Group comprised the Company, 19 wholly owned subsidiaries and an ICVC company in which the Company held over 50% of the share capital and effectively had control over the fund as it had the power to govern the financial and operating policies of the fund and as such benefit from its activities. Following adoption of Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) the 'Consolidated Group' represents the results of the Company ('Alliance Trust PLC') and Alliance Trust Services Limited ('ATSL'). ATSL is required to be consolidated as it provides services that directly relate to the investment activities of the Company however it is not itself an investment entity. All other subsidiaries within the Group will be valued at fair value through the income statement as they do not provide services that relate directly to the investment activities of the Company or they are themselves regarded as an investment entity. The following table summarises the key adjustments made to the consolidated balance sheet on implementation of the new accounting policies:

£000	Balance as at Dec 12	Impact of change in accounting policy	Restated balance as at Dec 12	Balance as at Dec 13	Impact of change in accounting policy	Restated balance as at Dec 13
Investments at fair value through profit and loss	2,731,162	(88,124)	2,643,038	3,321,630	(102,719)	3,218,911
Total assets	3,212,481	(508,834)	2,703,647	3,852,743	(573,163)	3,279,580
Total liabilities	(725,578)	512,550	(213,028)	(971,357)	577,932	(393,425)
Net assets	2,486,903	3,716	2,490,619	2,881,386	4,769	2,886,155
Revenue reserve	68,202	39,521	107,723	68,034	45,347	113,381

The effect on the consolidated income statement was as follows:

£000	Balance as at Dec 12	Impact of change in accounting policy	Restated balance as at Dec 12	Balance as at Dec 13	Impact of change in accounting policy	Restated balance as at Dec 13
Total revenue	325,761	(47,240)	278,521	536,588	(17,127)	519,461
Administrative expenses	(42,859)	24,198	(18,661)	(47,233)	12,316	(34,917)
Profit for the year	249,645	7,802	257,447	455,571	1,402	456,973

1. Revenue

An analysis of the Group's and Company's revenue is as follows:

	Group			Company
£000		Dec 14	Restated Dec 13		Dec 14	Dec 13
Income from investments*
Listed dividends - UK		18,110	22,275		18,110	22,275
Unlisted dividends - UK		-	78		-	78
Distributions from Collective Investment Schemes		12,442	14,132		12,442	14,132
Unlisted dividends - Subsidiaries		8,000	1,000		8,000	1,000
Listed dividends - Overseas		51,600	49,010		51,600	49,010
Unlisted dividends - Overseas		-	39		-	39
Interest on fixed income securities		-	397		-	397
Scrip dividends		256	-		256	-
		90,408	86,931		90,408	86,931
Other income
Property rental income		710	646		710	646
Mineral rights income		4,548	2,303		4,548	2,303
Deposit interest		32	105		26	105
Recharge costs**		14,419	13,414		15	9
		19,709	16,468		5,299	3,063
Total income		110,117	103,399		95,707	89,994
Investment income comprises
Listed UK		30,552	36,407		30,552	36,407
Listed Overseas		51,600	49,049		51,600	49,049
Unlisted		8,000	1,078		8,000	1,078
Other		256	397		256	397
		90,408	86,931		90,408	86,931

* Designated at fair value through profit and loss on initial recognition. ** Alliance Trust Services Limited acts as paymaster company and as such the staff costs for the two trading businesses, Alliance Trust Savings Limited and Alliance Trust Investments Limited, are included in the recharged costs figure noted above as these are recharged by Alliance Trust Services Limited. 2. Expenses comprise £20,804,000 (£21,513,000) incurred by the Company, and £14,406,000 (£13,404,000 restated) 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 £1,090,000 (£1,294,000). 3. The diluted earnings per share is calculated using the weighted average number of ordinary shares, which includes 1,131,837 (1,338,233) 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. 4. 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 costs. -  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 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 year that have materially affected the financial position or the performance of the Company during the year. 5. Investments in subsidiary companies (Level 3), inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs), are valued in the Company's accounts at £172.7m (£150.5m) being the Directors' estimate of their fair value, using the guidelines and methodologies on valuation published by the International Private Equity and Venture Capital Association. This includes Alliance Trust Savings Limited at £31.6m (£26.7m), Alliance Trust Investments Limited at £24.3m (£12.8m) and Alliance Trust Finance Limited at £8.9m (£16.8m). This represents the Directors' view of the amount for which the subsidiaries could be exchanged between knowledgeable willing parties in an arm's length transaction. This does not assume that the underlying business is saleable at the reporting date or that the Company has any intention to sell the subsidiary business in the future. The Directors have used several valuation methodologies as prescribed in the guidelines to arrive at their best estimate of fair value, including discounted cash flow calculations, revenue and earnings multiples and recent market transactions where available. The following key assumptions are relevant to the fair valuation of our investment in our subsidiary companies, and are consistent with prior years: • Alliance Trust Savings - This is valued as a trading business.  A discounted cashflow, revenue multiple and an earnings before interest tax depreciation and amortisation multiple approach have been adopted. • Alliance Trust Investments - This is valued as a trading business.  Given ATI has achieved positive net inflows for 3 years and its losses are reducing, it has in 2014 been valued as a trading business rather than a book of business.  Both a discounted cashflow and revenue multiple valuation approach have been adopted. • Alliance Trust Finance - This is valued using the value of cash held by the entity.  The multiples applied in valuing our subsidiaries are derived from comparable companies sourced from market data.  Mineral rights are carried at fair value and are valued in the Company's accounts at £29.9m (£13.2m) 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 respective input variables would impact the valuation disclosed for the relevant Level 3 assets.

£000 Description	Fair Value at Dec 2014	Change in	Unobservable inputs	Input	Input sensitivity +/-	Change in valuation +/-
Alliance Trust Savings	31,573	Average of discounted cash flow methodology and comparable trading multiples.	DCF Discount rate	15%	1%	(1,000)/1,000
			Revenue multiple	2.5	1	4,500/(4,500)
			EBITDA multiple	11.6	1	900/(900)
Alliance Trust Investments	24,269	Average of discounted cash flow methodology and comparable trading multiples.	DCF Discount rate	15%	1%	(1,400)/1,400
			Revenue multiple	2.6	1	4,600/(4,600)
Mineral Rights	29,891	Oklahoma Tax Commission multiples and Lierle US Price report (for non-producing properties).	Revenue multiple - gas	7	1	2,000/(2,000)
			Revenue multiple - oil	4	1	1,200/(1,200)
			Revenue multiple -	4	1	1,800/(1,800)
			products/condensate
			Average bonus	1.2	0.5	1,800/(1,800)
			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 Alliance Trust Savings, an increase in the revenue and EBITDA multiple or a decrease in the discount rate would lead to an increase in the estimated value. For Alliance Trust Investments, an increase in the revenue and a decrease in the discount rate would lead to an increase in the estimated value. 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‑to‑fund and direct included under Level 3, are valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines issued in September 2009. Unlisted investments in private equity are stated at the valuation as determined by the 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 • 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). Alliance Trust PLC receives information from the General Partner on the underlying investments which is subsequently reviewed by the Valuation Committee. Where Alliance Trust PLC does not feel that the valuation is appropriate, an adjustment will be made. Unsecured fixed rate loan notes are initially recognised at a carrying value equivalent to the proceeds received net of issue costs associated with the borrowings. After initial recognition, unsecured fixed rate loan notes are subsequently measured at amortised cost using the effective interest rate method. The effective rate of interest is 4.30%. No interrelationships between unobservable inputs used in the above valuations of Level 3 investments have been identified. Number of Issued Shares as at 31 December 2014 Ordinary Shares of 2.5p         553,359,146 Since the year end 580,000 shares have been purchased for cancellation. International Financial Reporting Standards While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Company will publish full financial statements that comply with IFRSs on its website. Report and Accounts The Report and Accounts will be available in due course on the Company's website www.alliancetrust.co.uk/annual-results2014.htm.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, Leven House, 10 Lochside Place, Edinburgh Park, Edinburgh EH12 9DF after publication. 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 Wednesday 29 April 2015 at 11.00 am at the Gardyne Theatre, Dundee and Angus College, Gardyne Road, Dundee, DD5 1NY Statement of Directors' Responsibilities The responsibility statement below has been prepared in connection with the Company's Annual Report and Accounts for the year ended 31 December 2014. Certain parts thereof are not included within this announcement. We confirm that to the best of our knowledge: •the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, 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; • the Strategic 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 that they face; and • the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.

Karin Forseke		Katherine Garrett-Cox
Chair		Chief Executive
5 March 2015		5 March 2015

 

END

 

 

FR UVSARVRAORUR