ALLIANCE TRUST PLC Alliance Trust PLC
22 July 2016
Results for six months ended 30 June 2016
Financial Highlights | As at 30 June 2016 | As at 31 Dec 2015 | As at 30 June 2015 |
Share price | 524.0p | 517.0p | 484.8p |
NAV per share | 591.4p* | 561.1p** | 545.9p** |
Total dividend | 5.65p | 12.43*** | 5.065p |
* Balance sheet value calculated with debt at fair value
** Balance sheet value calculated with debt at par
***Full year dividend for the year ended 31 December 2015
Lord Smith of Kelvin, Chairman of Alliance Trust PLC commented: 'In volatile markets we continue to make good progress against the initiatives outlined last year to enhance shareholder value. Costs are coming down, ATI and ATS are making good strides towards profitability, and a fully non-executive Board is in place. In addition we announced during the period that the Board has initiated a strategic review of the Group, encompassing a broad range of potential courses of action. This review is progressing well and we will report back on the outcome later in the year.
'Investment performance in the period underperformed the benchmark, reflecting the turbulent market conditions around the EU referendum when the Trust's quoted equity portfolio gave up the outperformance it had recorded over the prior five months. However, since the period end Alliance Trust's share price has reached new highs.'
Progress Against our Objectives
Improve investment performance
· Total Shareholder Return (TSR) of 2.6% and Net Asset Value (NAV) Total Return for the Trust of 6.6%, compared to the MSCI ACWI benchmark return of 12.0%
· The underperformance occurred in June, when the quoted equity holdings gave up the outperformance they had recorded versus the benchmark over the first five months of the year
· Since the period end our share price has risen to a new high of 553p (as of 20th July 2016)
Narrow the discount
· A period-end discount of 11.4%, compared to 7.9% at the end of December, at a time of widening discounts for investment trusts in our peer group
Dividend Progression
· Second interim dividend of 2.825p declared, bringing the total to 5.65p for the half year, up from 5.065p a year earlier
Reduce Costs
· Remain on track to achieve target of an Ongoing Charge Ratio of 0.45% by end of 2016, one of the lowest in the Global investment trust sector; with expenses down by 30% to £7.7m versus the prior year
Simplifying the corporate structure
· The Board now consists solely of non-executive directors, with independent boards for Alliance Trust Investments and Alliance Trust Savings
· Experienced new non-executive, Clare Dobie, appointed to the Board since the AGM
Alliance Trust Investments
· Alliance Trust Investments (ATI) generated third-party net inflows of £25m, ending the period with assets under management (AUM) of £5.2bn
· Clear focus on costs and investment proposition which is accelerating ATI's progress towards profitability
Alliance Trust Savings
· Assets under administration rose by over 40% and customer accounts rose by 31%, reflecting the positive impact of the acquisition of Stocktrade
· New corporate partnership account won during the period which will benefit the second half of 2016
-ENDS-
For more information, please contact:
George Renouf
Director of Investor Relations
Alliance Trust PLC
T: 01382 321022
Stephen Malthouse,
Martin Pengelley
Tulchan Communications
T: 020 7353 4200
Alliance Trust PLC Interim Report 2016
Results for 6 months to 30 June 2016
Chairman's Statement
Set out below is a brief summary of the progress we have made implementing the changes announced in October 2015. These are intended to enhance shareholder value and better position the Trust to deliver consistent outperformance in a cost effective manner. I also provide a brief overview of our investment performance over the first half of the year.
In the period we have:
· Implemented changes to the Board, so that it is entirely non-executive. A new Non-Executive Director, Clare Dobie, was appointed
· Signed an Investment Management Agreement with Alliance Trust Investments to manage our portfolio for a fee of 0.35% of net assets under management, with a target of outperforming the MSCI All Country World Index in Sterling (MSCI ACWI) by at least 1% a year over a three year rolling period
· Simplified our structure and appointed independent directors to our subsidiaries, Alliance Trust Investments and Alliance Trust Savings
· Focused the portfolio on global equities and reduced the number of non-core investments.
The first half of 2016 has been marked by significant volatility in markets, particularly around the time of the
EU Referendum. The quoted equity part of the Trust's portfolio outperformed the MSCI ACWI for the five month period to the end of May. In June, and following the EU Referendum, this out-performance was reversed resulting in the equity portfolio returning 9.5% for the period against the benchmark's 12.0% return. The NAV was also impacted by a number of other items such as the value of debt and a pension scheme buy in transaction. The combination of these items generated the Trust's NAV Total Return of 6.6%, with a Total Shareholder Return (TSR) at 2.6%. Against this background it should be noted that since the change in our investment management team in September 2014, the quoted equity part of the Trust's portfolio has performed slightly ahead of the MSCI ACWI. In common with many of our peers, the Trust's share price discount to NAV widened at the end of the period. Since the period end, after the immediate EU Referendum volatility, the Company's share price reached a record high of 553p, with a NAV of 626.2p, at the close on 20 July.
The Trust's expenses have reduced by over 30%, falling to £7.7m from £11.1m in the comparable period last year.
The Trust paid an interim dividend of 2.825p per share on 30 June 2016 and will pay a second interim dividend of 2.825p on 30 September 2016 to shareholders on the register on 26 August 2016.
On 30 May, we announced that we had received an unsolicited approach from RIT Capital Partners PLC for a merger of the two companies. On 7 June, RIT Capital Partners withdrew its proposal. We told our shareholders at the time that we would consider any proposal as part of the Group strategic review that we had already initiated. This review is ongoing and includes a broad range of possible courses of action. We are making good progress and intend to report on the outcome of our review later in the year.
Lord Smith of Kelvin
Chairman
21 July 2016
Company Performance
30 June 2016 | 31 December 2015 | 30 June 2015 | |
Share price | 524.0p | 517.0p | 484.8p |
Net Asset Value (NAV) per share | 591.4p* | 561.1p** | 545.9p** |
Discount to NAV | 11.4% | 7.9% | 11.2% |
*Balance sheet value calculated with debt at fair value. **Balance sheet value calculated with debt at par.
Portfolio Performance
Contribution Analysis (%) | Average Weight | Total Return | Contribution to Total Return |
Equities* | 101.5 | 9.5 | 9.0 |
FX Contracts and Index Futures | N/A | N/A | -0.2 |
Other Investments | 2.6 | -23.0 | -0.7 |
Non-core Investments | 7.0 | 0.9 | 0.0 |
Cost of Gearing | -12.8 | 1.1 | -0.1 |
Cash and Accruals | 1.7 | N/A | 0.1 |
Investment Portfolio Total | 100.0 | 8.1 | |
Pension Fund Contribution** | -0.8 | ||
Fair Value Debt Adjustment** | -0.7 | ||
Buybacks | 0.2 | ||
NAV Total Return | 6.6 | ||
Management Expenses | -0.2 | ||
Effect of Discount | -4.0 | ||
Share Price Total Return | 2.6 | ||
MSCI ACWI Total Return | 12.0 |
* Includes investments in Funds. **Non-recurring.
Source: Alliance Trust and FactSet
Alliance Trust | MSCI All Country | ||||
World Index | Stock | Total | |||
Quoted Equity Portfolio | Portfolio | Sector | Sector Allocation | Selection | Relative |
Attribution (%) | Return | Return | Effect | Effect | Effect |
Equity Portfolio Attribution | 9.5 | 12.0 | -0.9 | -1.6 | -2.5 |
Source: Alliance Trust and FactSet
Shareholder Return
As at 30 June 2016 | 6 months | 1 year | 3 years | 5 years |
Total Shareholder Return (TSR) | 2.6% | 10.9% | 32.4% | 54.2% |
NAV Total Return | 6.6% | 10.9% | 27.8% | 46.1% |
MSCI ACWI | 12.0% | 13.9% | 37.4% | 60.4% |
Company Expenses
6 months to 30 June 2016 | Year to 31 December 2015 | 6 months to 30 June 2015 | |
Company Expenses | £7.7m | £24.0m | £11.1m |
Investment Management Report
Alliance Trust Investments' mandate is to focus on global quoted equities and progressively reduce the Trust's non-core investments.
Summary
Global equity markets endured a volatile six month period between January and June 2016, yet delivered strong returns, with the MSCI ACWI in Sterling up 12.0%. Much of this positive return was due to the depreciation of Sterling over the period. Large-cap 'bond proxy' stocks and other low growth sectors such as utilities and telecommunications were the main drivers of the performance of the market.
The UK vote to exit the European Union was the key market driver in the last week of the six month period. While market reaction has thus far been confined to weakness in UK domestic and financial stocks, the risk of a global recession is a key concern heading into the second half of the year.
Market Review
Global equity markets at the beginning of 2016 were very volatile. China was the key source of investor concern as pressure mounted on the world's second largest economy as it continues to transition away from investment-led growth to consumption-led growth. This was accompanied by a falling oil price and investor concern that central banks across the world were running out of options to battle low growth. The US Federal Reserve had hoped that the global economy would improve, allowing it to pursue its policy of normalising US interest rates following its first rate hike in eight years last December.
Market conditions improved from late February, as Chinese authorities decided to inject credit into the economy to support growth; the oil price recovered; and, the US Fed softened its expectations for interest rate rises over 2016 in the US. However, the end of June 2016 saw global equity markets sell off aggressively as the UK electorate voted to leave the EU, which has created risks to UK, European and global economic stability.
Following the UK's vote to leave the EU, Sterling fell dramatically, finishing the period at levels not seen since the 1980s. The Bank of England has now shifted from a bias towards increasing interest rates to a situation in which it may need to loosen monetary policy. Weak investment and consumption for the short, and possibly, medium-term are key risks for the UK economy, which will place further pressure on the currency.
Quoted Equity Portfolio Performance
The Trust's quoted equity portfolio produced a return of 9.5% for the period against the benchmark's 12.0% return. Much of the under-performance over the period came during June as the portfolio was impacted by the dislocation of markets resulting from the EU Referendum.
The Trust's best performers came from companies associated with cloud computing. Equinix, a provider of internet related services, is a key beneficiary of the acceleration of cloud computing adoption across the enterprise technology landscape. Its co-location datacentres have become a key hub in the infrastructure of cloud technology. Accenture, a leading IT service and consulting firm, has also performed well, as it benefits from the need for large corporations to integrate the benefits of cloud computing into its technology infrastructure.
The financial sector was a source of underperformance for the Trust as two core holdings - Prudential and Legal & General - performed poorly over the period. Both companies have been hit by fears around the implications of the EU Referendum, particularly the risk that higher interest rates and bond yields in the UK are now many years away. The fund is overweight the UK versus the MSCI ACWI (16.7% compared to 6.4%), which also pressured performance over June and in the first six months of the year.
Across the materials, telecoms and utilities sectors the growth bias of the Trust's process was a headwind during the first half of the year. With bond yields currently reaching fresh lows and Chinese authorities pumping large amounts of credit into their economy, the market rewarded companies with the lowest valuations, rather than those with the strongest growth and fundamental tailwinds.
Non-core Investments
During the period it was concluded that, given the prevailing weakness in oil and gas prices, it was not an appropriate time to complete the sale of the Trust's mineral rights assets. The Trust will continue to benefit from the revenue generated by these assets and the possibility of a sale will be reassessed when energy prices are more favourable. The Trust's private equity investments have increased in value since the year end and provided a small positive contribution to investment returns over the first half of 2016.
EU Referendum Actions
In the period ahead of, and immediately after, the EU Referendum two hedging positions intended to de-risk the equity portfolio from market volatility were implemented. Given the risk to the value of Sterling a three month currency hedge was taken out in March. This currency position mitigated the equity portfolio's relative overweight to Sterling compared to the US Dollar, equivalent to 4.8% of the portfolio. As Sterling depreciated over the post EU Referendum period this position contributed positively to the Trust's overall performance. This hedge has been rolled over for a further three months.
The second hedge was a short position on the FTSE 100 future put in place to protect the Trust's capital in the event of an extreme market fall-out. The decision was taken to hedge 5% of the portfolio's UK overweight position relative to the MSCI ACWI. When combined with the currency hedge, this neutralised the Trust's overweight position relative to the benchmark. The future position, a protection against a worst case outcome, was entered as soon as the leave vote was confirmed on 24 June and was closed on 1 July when the risk of a disorderly market collapse had abated. Fortunately, the market regained stability relatively swiftly. This protection did incur a cost, and the net contribution of these two measures on the Trust's performance was -0.2%.
Aside from the hedges, the Trust's gearing was reduced by £90m while still maintaining an equity position of at least 100% of net assets throughout the period.
Investment Outlook
The economic outlook for the second half of 2016 appears unclear after the EU Referendum vote. The UK economy appears set for at least a mild recession as investment and consumption freeze up in the midst of so much uncertainty. The question remains as to whether this will spill over into Europe and result in a slowdown across the global economy. The unprecedented nature of the current situation makes forecasting the impact particularly challenging.
Political risks abound; from the US presidential election in November to other important elections and referendums in China, Germany, France and Italy over the next 18 months. With global economic growth already fragile, political uncertainty is sure to be a headwind for equity markets. In this uncertain environment we believe a defensive portfolio that is invested in companies that are growing through structural change - rather than those that are dependent on cyclical tailwinds - will be key to investment performance.
Alliance Trust Investments
Investment Manager
6 Month Equity Portfolio Sector Attribution to End June 2016
Index: MSCI ACWI in Sterling. Gross value of quoted equities in portfolio.
Alliance Trust | MSCI All Country World Index | |||||||
Sector | Stock | Total | ||||||
Equity Portfolio | Average | Portfolio | Contribution to | Average | Sector | Allocation | Selection | Relative |
Attribution (%) | Weight | Return | Equity Return | Weight | Return | Effect | Effect | Effect |
Consumer Discretionary | 8.6 | 0.9 | 0.0 | 12.7 | 5.9 | 0.2 | -0.4 | -0.2 |
Consumer Staples | 8.4 | 20.5 | 1.8 | 10.8 | 20.0 | -0.2 | 0.0 | -0.2 |
Energy | 4.9 | 29.1 | 1.4 | 6.5 | 28.7 | -0.2 | 0.0 | -0.2 |
Financials | 23.3 | 1.9 | 0.4 | 20.6 | 3.3 | -0.2 | -0.3 | -0.5 |
Health Care | 17.4 | 10.4 | 1.7 | 12.3 | 8.9 | -0.2 | 0.1 | -0.1 |
Industrials | 6.9 | 16.5 | 1.0 | 10.4 | 14.8 | -0.1 | 0.2 | 0.1 |
| Information Technology | 19.2 | 10.6 | 2.1 | 14.6 | 10.1 | -0.1 | 0.1 | 0.0 |
Materials | 4.3 | 11.4 | 0.5 | 4.7 | 20.9 | -0.1 | -0.4 | -0.5 |
Telecommunication Services | 3.3 | 6.2 | 0.2 | 4.0 | 21.1 | 0.0 | -0.5 | -0.5 |
Utilities | 3.7 | 14.1 | 0.4 | 3.4 | 25.3 | 0.0 | -0.4 | -0.4 |
Total | 100.0 | 9.5 | 9.5 | 100.0 | 12.0 | -0.9 | -1.6 | -2.5 |
Source: Alliance Trust and FactSet
Subsidiaries
Our subsidiary businesses, Alliance Trust Investments and Alliance Trust Savings, are now operating as standalone businesses and both have seen growth and an increasing level of profitability during the period.
Alliance Trust Investments
During the period, a number of developments have taken place. These demonstrate the continued positive growth in Alliance Trust Investments which:
· increased its assets under management from £2.1bn on 31 December 2015 to £5.2bn at the end of June 2016
· had net third party inflows in the period of £25m
The Alliance Trust Investments' range of Sustainable Future equity and fixed income funds (9 OEICs and 1 SICAV) had a challenging first half of 2016. At the end of May half of these funds were above the median for 2016 versus their peers however by June only one fund was above median. The principal impact came in the last week of June following the UK's vote to leave the EU. The impact on Sterling hit the UK funds particularly hard, but the effect of the increased economic uncertainty it precipitated was felt across the range. The longer-term performance remains strong across the range over 3 and 5 years. In addition the Monthly Income Bond Fund continued to deliver an annual income yield of close to 6%.
Alliance Trust Investments is seeing continued interest from prospective wholesale and institutional clients in its sustainable investment expertise. A number of initiatives continued to take place during the period to reduce costs and focus on the clarity of its investment proposition. These changes are expected to accelerate its path to profitability.
The Company has made a further investment of £2m in the period. This further investment has not yet been recognised in the fair value of the business and this remains as stated in our 2015 Annual Report and Accounts as £19.8m. The Directors will reassess the fair value in light of the continuing development of the business in the second half of the year.
Alliance Trust Savings
During the first half of 2016, Alliance Trust Savings has focused on three areas:
· the completion of the acquisition of Stocktrade
· developing the governance and management of the standalone business
· continuing the development of an enhanced operating platform for the business
Good progress was made in all three areas, with the Stocktrade acquisition completed at the end of April, the new Alliance Trust Savings Board and Executive Committee in place and the new platform technology launched for new business in the intermediary business channel.
Assets under administration rose from £8.5bn at 31 December 2015 to £12bn at 30 June 2016, a rise of 40%. In the same period the net increase in customer accounts is over 26,000 (31%). This growth was from the completion of the Stocktrade acquisition and further organic growth. It has won a new corporate partnership account which will bring additional business in the second half of 2016.
Alliance Trust Savings has made good progress towards delivering profitability in 2016. Benefiting from the increased scale from the Stocktrade acquisition, it achieved a small profit for the first half of the year.
It is expected that customer numbers will continue to increase, attracted by:
· its flat fee structure
· award winning customer service
· differentiated proposition, including banking
· improved functionality with the new technology
The Company has made a further investment of £15m in the period. This further investment has not yet been recognised in the fair value of the business and this remains as stated in our 2015 Annual Report and Accounts as £54.0m. The Directors will reassess the fair value in light of the continuing development of the business, embedding Stocktrade and leveraging the enhanced operating platform in the second half of the year.
Company Portfolio Review
Quoted equity holdings as at 30 June 2016
Stock | Country of | Sector | % of | Value |
listing | equity | £m | ||
portfolio | ||||
Visa | United States | Information Technology | 3.1 | 95.0 |
Pfizer | United States | Health Care | 3.1 | 93.8 |
Accenture | United States | Information Technology | 2.9 | 89.6 |
CVS Health | United States | Consumer Staples | 2.5 | 75.7 |
Amgen | United States | Health Care | 2.5 | 75.7 |
Reckitt Benckiser | United Kingdom | Consumer Staples | 2.5 | 75.2 |
TJX | United States | Consumer Discretionary | 2.4 | 72.7 |
National Grid | United Kingdom | Utilities | 2.4 | 72.3 |
American Tower | United States | Financials | 2.4 | 72.1 |
Equinix | United States | Financials | 2.3 | 70.8 |
Macquarie Infrastructure | United States | Industrials | 2.2 | 66.9 |
CSL | Australia | Health Care | 2.2 | 66.3 |
Daikin Industries | Japan | Industrials | 2.1 | 64.8 |
Blackstone | United States | Financials | 2.0 | 62.2 |
Tencent | Hong Kong | Information Technology | 2.0 | 60.9 |
Danaher | United States | Industrials | 2.0 | 60.2 |
Roche | Switzerland | Health Care | 1.9 | 58.6 |
Toronto-Dominion Bank | Canada | Financials | 1.9 | 57.7 |
Wells Fargo | United States | Financials | 1.8 | 55.3 |
SS&C Technologies | United States | Information Technology | 1.8 | 54.2 |
NASDAQ OMX | United States | Financials | 1.8 | 53.9 |
Prudential | United Kingdom | Financials | 1.8 | 53.8 |
Walt Disney | United States | Consumer Discretionary | 1.7 | 52.4 |
WPP | United Kingdom | Consumer Discretionary | 1.7 | 52.2 |
ARM | United Kingdom | Information Technology | 1.7 | 51.8 |
Ecolab | United States | Materials | 1.7 | 50.4 |
Vodafone | United Kingdom | Telecommunication Services | 1.6 | 49.4 |
Swedbank | Sweden | Financials | 1.6 | 49.3 |
Total | France | Energy | 1.6 | 48.8 |
Statoil | Norway | Energy | 1.6 | 48.5 |
Thermo Fisher Scientific | United States | Health Care | 1.6 | 48.4 |
Linear Technology | United States | Information Technology | 1.6 | 48.2 |
Activision Blizzard | United States | Information Technology | 1.5 | 47.3 |
Enterprise Products Partners | United States | Energy | 1.5 | 47.2 |
Deutsche Telekom | Germany | Telecommunication Services | 1.5 | 45.4 |
Acuity Brands | United States | Industrials | 1.5 | 44.9 |
Johnson Matthey | United Kingdom | Materials | 1.4 | 44.0 |
Microsoft | United States | Information Technology | 1.4 | 42.6 |
Cadence Design Systems | United States | Information Technology | 1.4 | 42.4 |
Alphabet | United States | Information Technology | 1.4 | 42.2 |
Novo Nordisk | Denmark | Health Care | 1.4 | 41.9 |
Continental | Germany | Consumer Discretionary | 1.4 | 41.7 |
ORIX | Japan | Financials | 1.3 | 40.1 |
GlaxoSmithKline | United Kingdom | Health Care | 1.3 | 39.0 |
AmBev | Brazil | Consumer Staples | 1.3 | 38.8 |
Henkel | Germany | Consumer Staples | 1.3 | 38.3 |
Unilever | United Kingdom | Consumer Staples | 1.2 | 38.1 |
AmerisourceBergen | United States | Health Care | 1.2 | 37.4 |
DNB | Norway | Financials | 1.2 | 36.9 |
Dentsu | Japan | Consumer Discretionary | 1.2 | 36.5 |
SAP | Germany | Information Technology | 1.2 | 36.0 |
Mitsui Fudosan | Japan | Financials | 1.2 | 35.9 |
Norsk Hydro | Norway | Materials | 1.1 | 35.1 |
Schlumberger | United States | Energy | 1.0 | 31.3 |
Legal & General | United Kingdom | Financials | 1.0 | 30.5 |
Schneider Electric | France | Industrials | 1.0 | 29.2 |
Bangkok Bank | Thailand | Financials | 0.9 | 28.4 |
Roper Technologies | United States | Industrials | 0.9 | 28.2 |
First Republic Bank San Francisco | United States | Financials | 0.8 | 24.1 |
ENN Energy | Hong Kong | Utilities | 0.6 | 18.9 |
Melrose Industries | United Kingdom | Industrials | 0.2 | 5.0 |
Total value | 3,054.4 |
Funds as at 30 June 2016
Alliance Trust Investment Funds | Country of registration | Value £m |
Sustainable Future Pan-European Equity Fund | Luxembourg | 62.8 |
Sustainable Future Cautious Managed Fund | United Kingdom | 11.0 |
Sustainable Future Defensive Managed Fund | United Kingdom | 11.0 |
Total value 84.8 |
Other investments as at 30 June 2016
Investment | Region | Value £m |
Private Equity | United Kingdom/Europe/Asia | 115.1 |
Mineral Rights | North America | 14.8 |
Alliance Trust Savings | United Kingdom | 54.0 |
Alliance Trust Investments | United Kingdom | 19.8 |
Indirect Property | United Kingdom | 9.4 |
Other | United Kingdom | 2.1 |
Total value 215.2 |
Total investments as at 30 June 2016
Investment | Value £m |
Quoted equities | 3,054.4 |
Funds | 84.8 |
Other investments | 215.2 |
Total value 3,354.4 |
Source - Alliance Trust
A full portfolio listing, similar to that displayed above, is available on a monthly basis on our website athttp://investor.alliancetrust.co.uk/ati/investorrelations/list-of-stock-holdings.htm
Risks and Uncertainties
The Company invests in both quoted and unquoted securities, its subsidiary businesses, other asset classes and financial instruments in order to achieve its investment objectives. Its principal risks and uncertainties are therefore:
• Prudential and Market
• Operational
• Strategic
• Regulatory & Conduct
The Company's Operational and Regulatory & Conduct risks are now managed by Alliance Trust Investments.
These risks, and the way in which they are managed, are described in more detail within the Risk section on pages 18 and 19 of the Company's Annual Report and Accounts for the year ended 31 December 2015, which is available on the Company's website atwww.alliancetrust.co.uk.
Although the outcome of the referendum on the UK's membership of the EU may provide additional risk from a market perspective we do not expect our principal risks to change for the remainder of the financial year.
Related Party Transactions
The nature of related party transactions has not changed significantly from those described in the Company's Report and Accounts for the year ended 31 December 2015. With effect from 1 January 2016 staff contracts have been transferred to Alliance Trust Investments and Alliance Trust Savings. Alliance Trust Investments was appointed alternative investment fund manager with responsibility for portfolio investment for the Trust on 3 February 2016. In the period the Company subscribed to additional capital in Alliance Trust Savings and Alliance Trust Investments as disclosed on page 6. There were no transactions with related parties during the six months ended 30 June 2016 which have a material effect on the results or the financial position of the Company or of the Group.
Defined Benefit Pension Scheme
In May 2016 the Board decided to inject £19.2m into its closed defined benefit pension scheme to fund the purchase of an annuity policy with Legal & General to match the scheme's liabilities to its members. The annuity was purchased by the Trustees of the Alliance Trust Companies' Pension Scheme on 31 May 2016, prior to the fall in bond yields that followed the EU referendum vote. This has removed volatility and risk from the Company balance sheet but has impacted Total Return in the period by -0.8%.
Buybacks and Discount
In the first half of 2016 the sector average discount widened as market and economic concerns undermined investor confidence. The Company discount closed the period at 11.4% compared to 7.9% at 31 December 2015.
During the period the Company bought back and cancelled 11,365,096 shares. This represents 2.2% of the Company's share capital. On 7 June, the Company announced that it had suspended its share buybacks until it had concluded its strategic review. No shares are held in Treasury. The weighted average discount of these buybacks was 10.2%.
Going Concern Statement
The factors impacting on Going Concern are set out in detail on page 33 of the Company's Annual Report and Accounts for the year ended 31 December 2015.
As at 30 June 2016 there have been no significant changes to these factors. The Directors, who have reviewed budgets, forecasts and sensitivities, consider that the Group has adequate financial resources to enable it to continue in operational existence for the foreseeable future. Accordingly, the Directors believe it is appropriate to continue to adopt the going concern basis for preparing the financial statements.
Responsibility Statement
We confirm that to the best of our knowledge:
• Thecondensed set of financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU;
• The interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual report that could do so.
Signed on behalf of the Board
Lord Smith of Kelvin |
Chairman |
21 July 2016 |
Financial Statements
Consolidated income statement (unaudited) for the period ended 30 June 2016 | ||||||||||
6 months to 30 June 2016 | 6 months to 30 June 2015 | Year to 31 Dec 2015 (audited) | ||||||||
£000 | Note | Revenue | Capital | Total | Revenue | Capital | Total | Revenue | Capital | Total |
Revenue | ||||||||||
Income | 3 | 50,779 | ‑ | 50,779 | 63,378 | ‑ | 63,378 | 114,386 | - | 114,386 |
Profit on fair value designated investments | ‑ | 190,968 | 190,968 | ‑ | 375 | 375 | ‑ | 85,137 | 85,137 | |
Profit on investment property | ‑ | - | - | ‑ | - | - | ‑ | 720 | 720 | |
Loss on fair value of debt | ‑ | (21,670) | (21,670) | ‑ | - | - | ‑ | - | - | |
Total Revenue | 50,779 | 169,298 | 220,077 | 63,378 | 375 | 63,753 | 114,386 | 85,857 | 200,243 | |
Administrative expenses | (3,866) | (3,825) | (7,691) | (21,508) | (709) | (22,217) | (44,460) | (1,585) | (46,045) | |
Finance costs | 4 | (1,381) | (2,762) | (4,143) | (1,964) | (2,465) | (4,429) | (3,972) | (5,281) | (9,253) |
Gain on revaluation of office premises | ‑ | - | - | ‑ | - | - | ‑ | 175 | 175 | |
Foreign exchange gains/(losses) | ‑ | 4,691 | 4,691 | ‑ | (460) | (460) | ‑ | (84) | (84) | |
Profit/(Loss) before tax | 45,532 | 167,402 | 212,934 | 39,906 | (3,259) | 36,647 | 65,954 | 79,082 | 145,036 | |
Tax | 5 | (3,211) | - | (3,211) | (3,444) | - | (3,444) | (5,362) | - | (5,362) |
Profit/(Loss) for the period/year | 42,321 | 167,402 | 209,723 | 36,462 | (3,259) | 33,203 | 60,592 | 79,082 | 139,674 | |
All profit/(loss) for the period/year is attributable to equity holders of the parent.
Earnings per share attributable to equity holders of the parent
Basic (p per share) | 7 | 8.20 | 32.42 | 40.62 | 6.61 | (0.59) | 6.02 | 11.05 | 14.42 | 25.47 |
Diluted (p per share) | 7 | 8.18 | 32.37 | 40.55 | 6.60 | (0.59) | 6.01 | 11.03 | 14.39 | 25.42 |
Consolidated statement of comprehensive income (unaudited)
6 months to 30 June 2016 | 6 months to 30 June 2015 | Year to 31 Dec 2015 (audited) | ||||||||
£000 | Note | Revenue | Capital | Total | Revenue | Capital | Total | Revenue | Capital | Total |
Profit/(Loss) for the period/year | 42,321 | 167,402 | 209,723 | 36,462 | (3,259) | 33,203 | 60,592 | 79,082 | 139,674 | |
Items that will not be reclassified subsequently to profit or loss: | ||||||||||
Defined benefit plan net actuarial (loss)/gain | 8 | - | (26,112) | (26,112) | - | 4,492 | 4,492 | - | (22) | (22) |
Retirement benefit obligations deferred tax | - | - | - | - | - | - | - | (96) | (96) | |
Other comprehensive (loss)/gain | - | (26,112) | (26,112) | - | 4,492 | 4,492 | - | (118) | (118) | |
Total comprehensive income for the period/year | 42,321 | 141,290 | 183,611 | 36,462 | 1,233 | 37,695 | 60,592 | 78,964 | 139,556 | |
All total comprehensive income for the period/year is attributable to equity holders of the parent.
Consolidated statement of changes in equity (unaudited) for the period ended 30 June 2016 | |||
£000 | 6 months to 30 June 2016 | 6 months to 30 June 2015 | Year to 31 Dec 2015 (audited) |
Called up share capital | |||
At 1 January | 13,160 | 13,835 | 13,835 |
Own shares purchased and cancelled in the period/year | (285) | (27) | (675) |
At 30 June / 31 December | 12,875 | 13,808 | 13,160 |
Capital reserves | |||
At 1 January | 2,169,142 | 2,233,915 | 2,233,915 |
Profit/(Loss) for the period/year | 167,402 | (3,259) | 79,082 |
Defined benefit plan actuarial (loss)/gain | (26,112) | 4,492 | (118) |
Own shares purchased and cancelled in the period/year | (56,171) | (5,110) | (136,479) |
Share based payments | 223 | 1,017 | 521 |
Dividends paid | - | - | (7,779) |
At 30 June / 31 December | 2,254,484 | 2,231,055 | 2,169,142 |
Merger reserve | |||
At 1 January, 30 June and 31 December | 645,335 | 645,335 | 645,335 |
Capital redemption reserve | |||
At 1 January | 5,838 | 5,163 | 5,163 |
Own shares purchased and cancelled in the period/year | 285 | 27 | 675 |
At 30 June / 31 December | 6,123 | 5,190 | 5,838 |
Revenue reserve | |||
At 1 January | 112,565 | 120,916 | 120,916 |
Profit for the period/year | 42,321 | 36,462 | 60,592 |
Dividends | (32,001) | (41,552) | (68,982) |
Unclaimed dividends (redistributed)/returned | (2) | - | 39 |
At 30 June / 31 December | 122,883 | 115,826 | 112,565 |
Total equity | |||
At 1 January | 2,946,040 | 3,019,164 | 3,019,164 |
At 30 June / 31 December | 3,041,700 | 3,011,214 | 2,946,040 |
Consolidated balance sheet (unaudited) as at 30 June 2016 | ||||
£000 | Note | 30 June 2016 | 30 June 2015 | 31 Dec 2015 (audited) |
Non‑current assets | ||||
Investments held at fair value | 10 | 3,343,938 | 3,408,527 | 3,307,397 |
Investment property held at fair value | - | 4,830 | - | |
Property, plant and equipment: | ||||
Office premises | 4,540 | 4,365 | 4,540 | |
Other fixed assets | 29 | 352 | 299 | |
Intangible assets | - | 1,012 | 917 | |
Pension scheme surplus | 8 | 235 | 11,299 | 6,882 |
Deferred tax asset | 1,238 | 1,039 | 1,238 | |
3,349,980 | 3,431,424 | 3,321,273 | ||
Current assets | ||||
Outstanding settlements and other receivables | 43,366 | 23,282 | 12,125 | |
Recoverable overseas tax | 2,754 | 1,244 | 1,483 | |
Cash and cash equivalents | 42,817 | 33,505 | 25,153 | |
88,937 | 58,031 | 38,761 | ||
Total assets | 3,438,917 | 3,489,455 | 3,360,034 | |
Current liabilities | ||||
Outstanding settlements and other payables | (70,222) | (10,265) | (17,570) | |
Tax payable | (3,991) | (3,991) | (3,991) | |
Bank loans | 13 | (200,000) | (362,000) | (290,000) |
(274,213) | (376,256) | (311,561) | ||
Total assets less current liabilities | 3,164,704 | 3,113,199 | 3,048,473 | |
Non‑current liabilities | ||||
Unsecured fixed rate loan notes | (121,670) | (100,000) | (100,000) | |
Deferred tax liability | (1,238) | (1,039) | (1,238) | |
Amounts payable under long term Investment Incentive Plan | (96) | (946) | (1,195) | |
(123,004) | (101,985) | (102,433) | ||
Net assets | 3,041,700 | 3,011,214 | 2,946,040 | |
Equity | ||||
Share capital | 14 | 12,875 | 13,808 | 13,160 |
Capital reserve | 2,254,484 | 2,231,055 | 2,169,142 | |
Merger reserve | 645,335 | 645,335 | 645,335 | |
Capital redemption reserve | 6,123 | 5,190 | 5,838 | |
Revenue reserve | 122,883 | 115,826 | 112,565 | |
Total Equity | 3,041,700 | 3,011,214 | 2,946,040 | |
All net assets are attributable to the equity holders of the parent.
Net asset value per ordinary share attributable to equity holders of the parent
Basic (£) | 9 | £5.91 | £5.46 | £5.61 |
Diluted (£) | 9 | £5.91 | £5.45 | £5.60 |
Consolidated cash flow (unaudited) for the period ended 30 June 2016 | |||
£000 | 6 months to 30 June 2016 | 6 months to 30 June 2015 | Year to 31 Dec 2015 (audited) |
Cash flows from operating activities | |||
Profit before tax | 212,934 | 36,647 | 145,036 |
Adjustments for: | |||
Gains on investments | (190,968) | (375) | (85,857) |
Loss on fair value of debt | 21,670 | - | - |
Foreign exchange (gain)/loss | (4,691) | 460 | 84 |
Depreciation | (122) | 118 | 193 |
Amortisation of intangibles | - | 165 | 329 |
Gain on revaluation of offices premises | - | - | (175) |
Share based payment expense | 223 | 1,017 | 521 |
Interest | 4,143 | 4,429 | 9,253 |
Movement in pension scheme surplus | (19,465) | (1,610) | (1,707) |
Operating cash flows before movements in working capital | 23,724 | 40,851 | 67,677 |
(Increase)/Decrease in receivables | (4,720) | (7,796) | 3,367 |
(Decrease)/Increase in payables | (7,771) | 3,311 | 10,067 |
Net cash inflow from operating activities before income taxes | 11,233 | 36,366 | 81,111 |
Taxes paid | (4,482) | (3,693) | (5,948) |
Net cash inflow from operating activities | 6,751 | 32,673 | 75,163 |
Cash flows from investing activities | |||
Proceeds on disposal at fair value of investments through profit and loss | 586,168 | 691,897 | 1,325,859 |
Purchase of investments at fair value through profit and loss | (398,933) | (765,105) | (1,206,841) |
Disposal/(Purchase) of plant and equipment | 389 | (3) | (25) |
Disposal/(Purchase) of other intangible assets | 920 | (142) | (214) |
Net cash inflow/(outflow) from investing activities | 188,544 | (73,353) | 118,779 |
Cash flows from financing activities | |||
Dividends paid ‑ Equity | (32,001) | (41,552) | (76,761) |
Unclaimed dividends (redistributed)/returned | (2) | - | 39 |
Purchase of own shares | (56,171) | (5,110) | (136,479) |
Bank loans and unsecured fixed rate loan notes raised | - | 82,000 | 10,000 |
Repayment of borrowing | (90,000) | - | - |
Interest payable | (4,148) | (4,795) | (9,606) |
Net cash (outflow)/inflow from financing activities | (182,322) | 30,543 | (212,807) |
Net increase/(decrease) in cash and cash equivalents | 12,973 | (10,137) | (18,865) |
Cash and cash equivalents at beginning of period/year | 25,153 | 44,102 | 44,102 |
Effect of foreign exchange rate changes | 4,691 | (460) | (84) |
Cash and cash equivalents at the end of period/year | 42,817 | 33,505 | 25,153 |
The information contained in this report for the period ended 30 June 2016 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for the year ended 31 December 2015 has been delivered to the Registrar of Companies. The auditor's report on those financial statements was prepared under s495 and s496 of the Companies Act 2006. The report was not qualified, did not contain an emphasis of matter paragraph and did not contain statements under section 498(2) or (3) of the Companies Act.
The interim results are unaudited. They should not be taken as a guide to the full year and do not constitute the statutory accounts.
2 Accounting Policies |
Basis of preparation |
The annual financial statements were prepared using accounting policies consistent with International Financial Reporting Standards (IFRS) as adopted by the EU. The condensed set of financial statements included in this half yearly financial report have been prepared in accordance with IAS 34 'Interim Financial Reporting', as adopted by the EU.
The Directors have a reasonable expectation that the Company and Group have sufficient resources to continue in operational existence for the foreseeable future. Accordingly the financial statements have been prepared on a going concern basis.
The Group has identified a single operating segment, the investment trust, which aims to maximise shareholders returns. As such no segmental information has been included in these financial statements.
Application of accounting policies |
The same accounting policies, presentations and methods of computation are followed in these financial statements as were applied in the Group's last annual audited financial statements with the exception of the following changes that have been made to the basis of accounting estimates:
· From 1 January 2016 the Company attributes indirect expenditure one third to revenue and two thirds to capital costs. In prior periods the Company allocated all indirect expenditure against revenue profits save that two thirds of the costs of bank indebtedness, an indirect cost, were allocated against capital profits save for the costs associated with seeding the fixed income bond fund which was all charged to revenue. This is consistent with the Statement of Recommended Practice ('SORP') 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' for investment trusts issued by the Association of Investment Companies ('AIC') in November 2014 which states that either a proportion of all indirect expenditure or no indirect expenditure is allocated against capital profits.
· From the 1 June 2016 the unsecured fixed rate loan notes are recognised at fair value. In prior periods they have been included at par value.
The Company qualifies as an investment entity under IFRS 10 meeting all the key characteristics and as such is no longer required to consolidate its subsidiaries on a line by line basis, but instead recognise them as investments at fair value through the income statement.
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 relate directly to the investment activities of the Company however it is not itself an investment entity.
The investment mandate of the Company was awarded to Alliance Trust Investments ('ATI') in February. The primary objective of ATI however remains to grow its third party asset management business, with the Company being one client and as such we consider it would not be appropriate to consolidate ATI as at 30 June 2016.
All other subsidiaries within the Group are 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 same accounting policies, presentations and methods of computation are followed in these financial statements as were applied in the Group's last annual audited financial statements.
3 Revenue | |||
£000 | 6 months to 30 June 2016 | 6 months to 30 June 2015 | Year to 31 Dec 2015 |
Deposit interest | 3 | 5 | 17 |
Dividend income* | 49,950 | 50,076 | 88,247 |
Mineral rights income | 826 | 1,928 | 3,311 |
Property rental income | - | 230 | 565 |
Recharged costs** | - | 11,139 | 22,027 |
Other income | - | - | 219 |
Total revenue | 50,779 | 63,378 | 114,386 |
* Designated at fair value through profit and loss on initial recognition
** ATSL acted as a paymaster company and as such staff costs and all indirect costs for the two trading business, Alliance Trust Savings Limited ('ATS') and Alliance Trust Investments Limited ('ATI'), were included within income and expenses in the Consolidated Income Statement as these are recharged by ATSL in the results to 31 December 2015 and to 30 June 2015. From 1 January 2016 staff costs and indirect costs were paid directly by the two trading businesses and as such were not recharged through ATSL.
4 Finance Costs | |||||||||
6 months to 30 June 2016 | 6 months to 30 June 2015 | Year to 31 Dec 2015 | |||||||
£000 | Revenue | Capital | Total | Revenue | Capital | Total | Revenue | Capital | Total |
Bank loans and unsecured fixed rate loan notes | 1,381 | 2,762 | 4,143 | 1,964 | 2,465 | 4,429 | 3,972 | 5,281 | 9,253 |
Total finance costs | 1,381 | 2,762 | 4,143 | 1,964 | 2,465 | 4,429 | 3,972 | 5,281 | 9,253 |
Finance costs include interest of £2.2m (£1.7m at 30 June 2015 and £4.3m at 31 December 2015) on the £100m 4.28% unsecured fixed rate loan notes which were drawn down in July 2014 for 15 years.
UK corporation tax for the period to 30 June 2016 is charged at 20.0% (20.3% for the period to 30 June 2015) of the estimated taxable profits for the period. A reduction in the main rate of UK corporation tax to 20.0% was substantively enacted in April 2016. Taxation levied by other jurisdictions is calculated at the rates prevailing in those jurisdictions, such taxation mainly comprises withholding taxes levied on the investment returns generated on foreign investments such as overseas dividend income.
6 Dividends | |||
£000 | 6 months to 30 June 2016 | 6 months to 30 June 2015 | Year to 31 Dec 2015 |
Fourth interim dividend for the year ended 31 December 2014 of 2.4585p per share | - | 13,555* | 13,555* |
First interim dividend for the year ended 31 December 2015 of 2.5325p per share | - | 13,961 | 13,962 |
Second interim dividend for the year ended 31 December 2015 of 2.5325p per share | - | - | 13,965 |
Third interim dividend for the year ended 31 December 2015 of 2.5325p per share | - | - | 13,464 |
Fourth interim dividend for the year ended 31 December 2015 of 3.3725p per share | 17,473* | - | - |
First interim dividend for the year ended 31 December 2016 of 2.825p per share | 14,528 | - | - |
32,001 | 27,516 | 54,946 | |
Special dividend for the year ended 31 December 2014 of 2.546p per share | - | 14,036* | 14,036* |
Special dividend for the year ended 31 December 2015 of 1.463p per share | - | - | 7,779 |
32,001 | 41,552 | 76,761 | |
*Dividends for the year ended 31 December 2015 have been adjusted to reflect share buybacks and changes in shares held by the Trustee of the Employee Benefit Trust.
7 Earnings Per Share |
From continuing operations |
The calculation of the basic and diluted earnings per share is based on the following data:
6 months to 30 June 2016 | 6 months to 30 June 2015 | Year to 31 Dec 2015 | |||||||
£000 | Revenue | Capital | Total | Revenue | Capital | Total | Revenue | Capital | Total |
Ordinary shares Earnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent | 42,321 | 167,402 | 209,723 | 36,462 | (3,259) | 33,203 | 60,592 | 79,082 | 139,674 |
Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share | 516,332,453 | 551,532,534 | 548,480,531 | ||||||
Weighted average number of ordinary shares for the purposes of diluted earnings per share | 517,100,606 | 552,517,817 | 549,465,141 | ||||||
The weighted average number of ordinary shares is arrived at by excluding 698,062 (886,173 at 30 June 2015 and 886,173 at 31 December 2015) ordinary shares acquired by the Trustee of the Employee Benefit Trust with funds provided by the Company.
IAS 33.41 requires that shares should only be treated as dilutive if they decrease earnings per share or increase the loss per share. The earnings per share figures on the income statement reflect this.
The Group sponsors two pension arrangements.
The Alliance Trust Companies' Pension Fund ('the Scheme') is a funded defined benefit pension scheme which closed to future accrual on 2 April 2011. In November 2015, following the announcement of changes made to the management of Alliance Trust PLC, the Trustees requested that Alliance Trust PLC consider funding the Scheme to allow them to secure the benefits of the members with an insurance company. The Board of Alliance Trust PLC, after a tender exercise had been carried out by the Trustees, approved in May 2016 additional funding to allow the Trustees to enter into an agreement with Legal and General Assurance Society Limited for a policy to secure all of the benefits of the members. The Trustees entered into such an Agreement effective 31 May 2016.
Employees are entitled to receive contributions into their own Self Invested Personal Pension ('SIPP') provided by ATS.
The net actuarial loss made in the period and recognised in the Consolidated Statement of Comprehensive Income was £26,112,000 (30 June 2015 net actuarial gain of £4,492,000 and 31 December 2015 net actuarial loss of £22,000) calculated by a qualified independent actuary.
Certain actuarial assumptions have been used to arrive at the retirement benefit scheme surplus of £0.2m as at 30 June 2016 (30 June 2015 surplus of £11.3m and 31 December 2015 surplus of £6.9m). The change in the period is due to the purchase of the bulk annuity policy with Legal and General, which means the assets now match the liabilities of the Scheme, with the exception of the amount held in the bank account. The actuarial assumptions are set out in the following table:
30 June 2016 | 30 June 2015 | 31 Dec 2015 | |
% per annum | % per annum | % per annum | |
Retail Price Index Inflation | 3.30 | 3.15 | 3.50 |
Consumer Price Index Inflation | 2.40 | 2.25 | 2.60 |
Rate of discount | 3.25 | 3.40 | 3.80 |
Allowance for pension in payment increases of RPI (subject to a maximum increase of 5% p.a) | 3.20 | 3.05 | 3.35 |
Allowance for revaluation of deferred pensions of CPI (subject to a maximum increase of 5% p.a) | 2.40 | 2.25 | 2.20 |
9 Net Asset Value Per Ordinary Share | |||
The calculation of the net asset value per ordinary share is based on the following:
30 June 2016 | 30 June 2015 | 31 Dec 2015 | |
Equity shareholder funds (£000) | 3,041,700 | 3,011,214 | 2,946,040 |
Number of shares at period end ‑ Basic | 514,277,739 | 551,447,973 | 525,454,724 |
Number of shares at period end ‑ Diluted | 514,975,801 | 552,334,146 | 526,340,897 |
The number of ordinary shares has been reduced by 698,062 (886,173 at 30 June 2015 and 886,173 at 31 December 2015) ordinary shares held by the Trustee of the Employee Benefit Trust in order to arrive at the Basic figures above.
10 Hierarchical valuation of financial instruments |
The Group refines and modifies its valuation techniques as markets develop. While the Group believes its valuation techniques to be appropriate and consistent with other market participants, the use of different methodologies or assumptions could result in different estimates of fair value at the balance sheet date. Financial instruments excludes the Investment Property.
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2 - Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices)
Level 3 - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)
The following table analyses the fair value measurements for the Group's assets and liabilities measured by the level in the fair value hierarchy in which the fair value measurement is categorised at 30 June 2016. All fair value measurements disclosed are recurring fair value measurements.
Group valuation hierarchy fair value through profit and loss
As at 30 June 2016 | ||||
£000 | Level 1 | Level 2 | Level 3 | Total |
Listed investments | 3,124,036 | - | - | 3,124,036 |
Foreign exchange contracts | - | 4,690 | - | 4,690 |
Unlisted investments | ||||
Private Equity | - | - | 124,500 | 124,500 |
Alliance Trust Savings | - | - | 54,000 | 54,000 |
Alliance Trust Investments | - | - | 19,800 | 19,800 |
Alliance Trust Finance | - | - | 720 | 720 |
Mineral rights | - | - | 14,778 | 14,778 |
Other | - | - | 1,414 | 1,414 |
3,124,036 | 4,690 | 215,212 | 3,343,938 | |
As at 30 June 2015 | ||||
£000 | Level 1 | Level 2 | Level 3 | Total |
Listed investments | 3,176,679 | - | - | 3,176,679 |
Foreign exchange contracts | - | (5) | - | (5) |
Unlisted investments | ||||
Private Equity | - | - | 132,898 | 132,898 |
Alliance Trust Savings | - | - | 31,573 | 31,573 |
Alliance Trust Investments | - | - | 24,269 | 24,269 |
Alliance Trust Finance | - | - | 8,871 | 8,871 |
Mineral rights | - | - | 33,087 | 33,087 |
Other | - | - | 1,155 | 1,155 |
3,176,679 | (5) | 231,853 | 3,408,527 | |
As at 31 Dec 2015 | ||||
£000 | Level 1 | Level 2 | Level 3 | Total |
Listed investments | 3,088,881 | - | - | 3,088,881 |
Unlisted investments | ||||
Private Equity | - | - | 125,254 | 125,254 |
Alliance Trust Savings | - | - | 54,000 | 54,000 |
Alliance Trust Investments | - | - | 19,800 | 19,800 |
Alliance Trust Finance | - | - | 720 | 720 |
Mineral rights | - | - | 17,535 | 17,535 |
Other | - | - | 1,207 | 1,207 |
3,088,881 | - | 218,516 | 3,307,397 | |
There have been no transfers of recurring measurements during the year between Levels 1, 2 and 3.
Fair Value Assets in Level 1
The quoted market price used for financial investments held by the group is the current bid price. These investments are included within Level 1 and comprise of equities, bonds and exchange traded derivatives.
Fair Value Assets in Level 2
The fair value of financial instruments that are not traded in an active market (for example, over‑the‑counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and with minimal reliance on entity specific estimates.
Fair Value Assets in Level 3
Level 3, excluding the valuations of the subsidiaries, are reviewed at least annually by the Valuation Committee who are assigned responsibility by the Board of Alliance Trust PLC. The valuations of the subsidiaries are approved at least annually by the Audit Committee and then recommended to the Valuation Committee. The Valuation Committee considers the appropriateness of the valuation models and inputs used in accordance with the Group's valuation policy. The Valuation Committee will determine the appropriateness of any valuation of the underlying assets.
The following table shows the reconciliation from the beginning balances to the ending balances for fair value measurement in Level 3 of the fair value hierarchy.
Group | |||
£000 | June 16 | June 15 | Dec 15 |
Balance at 1 January | 218,516 | 232,531 | 232,531 |
Net loss from financial instruments at fair value through profit or loss | (15,043) | (2,390) | (16,556) |
Purchases at cost | 17,817 | 9,519 | 42,908 |
Sales proceeds | (9,187) | (10,085) | (38,175) |
Realised gain/(loss) on sale | 3,109 | 2,278 | (2,192) |
Balance at 30 June / 31 December | 215,212 | 231,853 | 218,516 |
Investments in subsidiary companies (Level 3) are valued in the Company's accounts at £168.0m (£170.6m at 30 June 2015 and £173.0m at 31 December 2015) being the Directors' estimate of their fair value, using the guidelines and methodologies on valuation published by the International Private Equity and Venture Capital Board. This includes ATS at £54.0m (£31.6m at 30 June 2015 and £54.0m at 31 December 2015), ATI at £19.8m (£24.3m at 30 June 2015 and £19.8m at 31 December 2015) and ATF £0.7m (£8.9m at 30 June 2015 and £0.7m at 31 December 2015). 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 currently 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. The multiples applied in valuing our subsidiaries are derived from comparable companies sourced from market data.
· ATS ‑ This is valued as a trading business. For the fair valuation of ATS as at 31 December 2015 the Board used an external valuation. A discounted cash flow, revenue multiple and an earnings before interest, tax, depreciation and amortisation multiple approach were used for comparative purposes. No change has been made to the fair valuation as at 30 June 2016.
· ATI ‑ This is valued as a trading business. A discounted cashflow, revenue multiple and an earnings before interest, tax depreciation and amortisation multiple valuation approach was adopted as at 31 December 2015. No change has been made to the fair valuation as at 30 June 2016.
The fair value of both ATS and ATI are as stated in the 2015 Annual Report and Accounts. These have been reassessed by the Directors and are still regarded as best estimation of the fair value for financial reporting purposes as at 30 June 2016. The Directors will review the fair value on an ongoing basis and will reassess the fair value in light of progress in the new business integration and operating platform with specific respect to ATS and in respect of delivery of business plans and profitability for both companies, prior to the financial year end.
Mineral rights are carried at fair value and are valued in the Company's accounts at £14.8m (£33.1m at 30 June 2015, £17.5m at 31 December 2015) being the Directors' estimate of their fair value, using the guidelines and methodologies on valuation published by the Oklahoma Tax Commission and for non‑producing properties, the Lierle US Price Report.
The table below details how an increase or decrease in the input variables would impact the valuation disclosed for the relevant Level 3 assets.
£000 Investment | Fair Value at June 2016 | Valuation Method | Unobservable inputs | Input | Input sensitivity +/- | Change in valuation +/- |
Alliance Trust Savings | 54,000 | Average of discounted cash flow methodology and comparable trading multiples. | DCF Discount rate | 13.2% | 1% | 6,000/(6,000) |
AUA Growth | 1 | 1 | 12,000/(12,000) | |||
EBITDA multiple | 1 | 1 | 6,300/(6,300) | |||
Alliance Trust Investments | 19,800 | Average of discounted cash flow methodology and comparable trading multiples. | DCF Discount rate | 15% | 1% | (600)/600 |
Revenue multiple | 2 | 1 | 6,000/(6,000) | |||
EBITDA multiple | 6 | 1 | 470/(470) | |||
Mineral Rights | 14,778 | Oklahoma Tax Commission multiples and Lierle US Price report (for non producing properties). | Revenue multiple - gas | 7 | 1 | 1,100/(1,100) |
Revenue multiple - oil | 4 | 1 | 800/(800) | |||
Revenue multiple - | 4 | 1 | 400/(400) | |||
products/condensate | ||||||
Average bonus | 1 | 0.5 | 1,000/(1,000) | |||
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 ATS, an increase in the assets under administration (AUA) growth multiple and EBITDA multiple or a decrease in the discount rate would lead to an increase in the estimated value. For ATI, 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 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 December 2012. 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, and Industry valuation benchmarks. An entity is not required to create quantitative information to comply with this disclosure requirement if quantitative unobservable inputs are not developed by the entity when measuring fair value (for example, when an entity uses prices from prior transactions or third‑party pricing information without adjustment). 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.
The Company's 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.
As at 30 June 2016 the Group and Company had financial commitments, which have not been accrued, totaling £26m (£42m at 30 June 2015 and £44m at 31 December 2015). Of this amount £26m (£42m at 30 June 2015 and £44m at 31 December 2015) was in respect of uncalled subscriptions in investments structured as limited partnerships all of which relates to investments in our private equity portfolio. This is the maximum amount that the Company may be required to invest. These limited partnership commitments may be called at any time up to an agreed contractual date. The Company may choose not to fulfil individual commitments but may suffer a penalty should it do so, the terms of which vary between investments.
The Company has provided letters of support in connection with funding made available to certain of its subsidiaries, including ATS and ATI, confirming ongoing support for at least 12 months from the date the annual financial statements were signed, to make sufficient funds available if needed to enable them to continue trading, meet commitments and not to seek repayment of any amounts outstanding.
On 25 March 2011 the Company granted a floating charge of up to £30m over its listed investments to the Trustees of the Alliance Trust Companies Pension Fund.
The Group operates two share based payment schemes. Full details of these schemes (LTIP and AESOP) are disclosed in the December 2015 Annual Report and financial statements and the basis of measuring fair value is consistent with that disclosed therein.
Long Term Incentive Plan ('LTIP')
The disclosure in this note relates to the 2014 and 2015 plans; no awards have been granted for a 2016 scheme. As of 1 January 2016, employee contracts have been transferred to ATI and ATS and as such no ongoing remuneration costs are incurred by the Company. However, the Company will continue to incur some costs in relation to the 2014 and 2015 plans through to vesting dates for previous Company employees. The actual pay out values are to be recognised in the Company accounts at the respective plan vesting dates and are contingent on the performance of the business in accordance with the performance measures in the plan rules.
In the period ended 30 June 2016 no Company shares were purchased (98,002 at 30 June 2015 and 31 December 2015) at a price of £ Nil (£5.10 at 30 June 2015 and 31 December 2015) per share. Matching awards of up to Nil (317,880 at 30 June 2015 and 31 December 2015) shares, and performance awards of up to Nil (552,263 at 30 June 2015 and 31 December 2015) shares were granted.
Matching awards and performance awards made during the period were valued at £Nil (£588,000 at 30 June 2015 and at 31 December 2015) and £Nil (£1,022,000 at 30 June 2015 and at 31 December 2015) respectively. The fair value of the awards was calculated using a binomial methodology.
The cumulative charge to the income statement during the period for the 2014 and 2015 LTIP awards was £213,000 (£452,000 at 30 June 2015 and £52,000 at 31 December 2015) for the Group.
These costs are adjusted if certain vesting conditions are not met, for example if a participant leaves before the end of the three year (2014 scheme) and five year (2015 scheme) vesting period.
13 Bank loans and unsecured fixed rate loan notes | |||
£000 | As at 30 June 2016 | As at 30 June 2015 | As at 31 Dec 2015 |
Bank loans repayable within one year | 200,000 | 362,000 | 290,000 |
Analysis of borrowings by currency: | |||
Bank loans ‑ Sterling | 200,000 | 362,000 | 290,000 |
The weighted average % interest rates payable: | |||
Bank loans | 1.24% | 1.39% | 1.33% |
The Directors' estimate of the fair value of the borrowings: | |||
Bank loans | 200,000 | 362,000 | 290,000 |
Unsecured fixed rate loan notes | 121,670 | 100,000 | 100,000 |
The effective interest rates payable: | |||
Unsecured fixed rate loan notes | 4.30% | 4.30% | 4.30% |
£100m of unsecured fixed rate loan notes were drawn down in July 2014, over 15 years at 4.28%. Up until 31 December 2015, these were accounted for at par. With effect from 1 June 2016 these are accounted for at fair value. The fair value at 30 June 2016 was £121.7m (30 June 2015 £107.0m and 31 December 2015 £109.0m).
The total weighted average % interest rates payable: | 2.25% | 2.01% | 2.09% |
14 Share Capital | |||
£000 | As at 30 June 2016 | As at 30 June 2015 | As at 31 Dec 2015 |
Allotted, called up and fully paid: | |||
514,975,801 (552,334,146 at 30 June 2015 and 526,340,897 at 31 December 2015) ordinary shares of 2.5p each | 12,875 | 13,808 | 13,160 |
Share Buybacks | |||
£000 | As at 30 June 2016 | As at 30 June 2015 | As at 31 Dec 2015 |
Ordinary shares of 2.5p each | |||
Opening share capital | 13,160 | 13,835 | 13,835 |
Share buybacks | (285) | (27) | (675) |
Closing share capital | 12,875 | 13,808 | 13,160 |
The Interim Report and Accounts will be available on the Company's websitewww.alliancetrust.co.uklater today.
Alliance Trust plc published this content on 22 July 2016 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 24 July 2016 00:18:01 UTC.
Original documenthttp://online.hemscottir.com/ir/atst/ir.jsp?page=news-item&item=2541323559108608
Public permalinkhttp://www.publicnow.com/view/CE819975FC1338DACFE4BAB4377A9FF0A7A790F9
