ANNUAL
REPORT
Annual Report for the year ended 31 December 2015
2015 Performance
On 1 October 2015 the Company announced major changes to the way it would operate in the
future. Here we report on the changes and how they are driving improved performance.
What we said we would do
Progress to date
Clear investment mandate to improve performance
• Focus on global equities and disposal of non-core
investments.
• The NAV Total Return of the Trust’s equity portfolio
out-performed the MSCI ACWI by 2.2% in 2015.
• Introduction of the MSCI All Country World Index in Sterling
(MSCI ACWI) as a formal performance benchmark. This
provides a clear measure against which to assess the Trust’s
performance. We will target a minimum of 1% annual
outperformance (net of fees) over rolling three year periods.
• 102% of our Net Assets were invested in equities at the year
end. We have sold all direct investments in property and
reduced our fixed income holdings by 58%.
• We now use the MSCI ACWI as our benchmark and report
against this in the Annual Report.
Commitment to narrow the discount
• The measures announced were expected to improve
investment performance and narrow the discount.
• The discount reduced to 8.1% at 31 December 2015.
• We bought back and cancelled 4.9% of the Company’s shares
• Commitment to use share buybacks, as required, to narrow
in the year.
the discount into single figures.
Dividend Policy
• Continuing focus on delivery of progressive dividends.
• All net income earned to be paid out as ordinary dividends.
• We have agreed an ordinary dividend of 10.97p giving a total
dividend for the year of 12.43p, an increase from last year.
• The yield based on the total dividend payments for the year at
31 December 2015 was 2.4%.
• We have extended our record of progressive dividends to 49
consecutive years.
Reducing costs
• Targeting an Ongoing Charges Ratio of 0.45% or less by the
end of 2016.
• Investment mandate to be awarded to Alliance Trust
Investments at a rate of 0.35% on average NAV –
one of the lowest in the industry.
Simplifying the structure
• Board to become fully independent, consisting solely of
non-executive directors.
• Creation of independent boards for Alliance Trust Investments
and Alliance Trust Savings to increase focus and accountability.
• Cost reduction plan under way. On track to deliver savings
across the investment business of at least £6m for 2016
targeting an Ongoing Charges Ratio of 0.45% or less.
• We have entered into an Investment Management Agreement
with Alliance Trust Investments at an annual management
charge of 0.35%.
• The Board now comprises only Non-Executive Directors.
• We have created independent boards for Alliance Trust
Investments and Alliance Trust Savings.
Strategic Report
Chairman’s Statement
Business Description and KPIs
Portfolio Manager’s Report
Financial Performance
Risk
Corporate Responsibility
2
4
6
14
18
20
Corporate Governance
Directors
Audit and Risk Committee
Remuneration Committee
Auditor’s Report
Financial Statements
22
29
34
47
52
Dec 2014
March 2015
June 2015
Sept 2015
Dec 2015
Dec 2014
March 2015
June 2015
Sept 2015
Dec 2015
£
5.25
5.00
4.75
4.50
4.25
£
6.00
5.75
5.50
5.25
5.00
%
-16
-12
-8
-4
0
Dec 2014
March 2015
June 2015
Sept 2015
Dec 2015
p
14
12
10
8
6
4
2
0
2.55p
9.83p
2014
1.46p
10.97p
2015
Share price
MSCI ACWI
rebased as at
31 December
2014
Source: Factset
NAV
MSCI ACWI
rebased as at
31 December
2014
Source: Factset
Alliance Trust
Global
investment
trust sector
Source:
Morningstar
Special dividend
Ordinary dividend
Source:
Alliance Trust
Share
Price
Net Asset
Value
Discount
Total
Dividend
517.0p
at 31 Dec 15
478.9p
at 31 Dec 14
562.4p
at 31 Dec 15
546.8p
at 31 Dec 14
8.1%
at 31 Dec 15
12.4%
at 31 Dec 14
12.43p
at 31 Dec 15
12.38p
at 31 Dec 14
Ongoing
Charges
Ratio
0.59%
at 31 Dec 15
0.60%
at 31 Dec 14
10.7%*
*Total
Shareholder
Return
5.4%†
†NAV Total
Return
-35.0%
0.4%
-1.7%
2 | Alliance Trust PLC Report & Accounts 2015
Chairman’s Statement
I am pleased to be writing my first statement as Chairman of
Alliance Trust. Alliance Trust is an important business with a
long and proud history in Scotland and around the world. I am
looking forward to playing my part in delivering the changes
that are necessary to return the Trust to the levels of performance
upon which it has earned its reputation and success.
We believe that there is an appetite among shareholders for a
global equity investment trust offering strong and consistent
investment returns through a combination of capital growth
and a growing dividend at a low cost. We aim to deliver this
for our shareholders through a focus on investment in those
companies which demonstrate sound business models and
strong management in order to generate returns over the long-
term at an acceptable level of risk. Our performance in 2015
demonstrates that we can do so:
• A Total Shareholder Return of 10.7% and a Net Asset Value
Total Return for the Trust of 5.4%, compared to the 3.8%
return of the MSCI All Country World Index in Sterling
(MSCI ACWI)
• A year-end discount of 8.1%, compared to 12.4% a
year earlier
• An increase in our total dividend to 12.43p, which
represents a yield of 2.4% at 31 December 2015 and is the
49th consecutive year of dividend growth
• An Ongoing Charges Ratio of 0.59%, compared to 0.60%
for 2014.
2015 was an eventful year for Alliance Trust and the extensive
media commentary has perhaps overshadowed the positive
developments during the year. However the events around our
AGM clearly demonstrated that our shareholders expected the
Board to make changes.
After the 2015 AGM we undertook an extensive consultation
exercise, listening to the views of our shareholders, and
following our annual Board strategy review we announced
a package of changes on 1 October intended to enhance
shareholder value. These were:
• Clarifying the investment mandate to improve
performance, with a focus on global equities and the
appointment of our subsidiary Alliance Trust Investments
to manage the portfolio, against a target to outperform
the benchmark
• A commitment to narrow the discount into single figures,
supported by the use of share buybacks
• Clarifying our dividend policy, with the aim of maintaining
our commitment to a progressive dividend and distributing
all net income earned in the form of ordinary dividends
• Reducing costs, with a cost-reduction programme to
deliver savings of £6m across the investment business
during 2016 in order to target an Ongoing Charges Ratio of
0.45% by the end of 2016
Chairman’s Statement
Alliance Trust PLC Report & Accounts 2015 | 3
• Simplification of the structure, with a non-executive Board
for the Trust and independent boards for our two subsidiary
investments, Alliance Trust Investments and Alliance Trust
Savings, to increase their accountability and focus.
Good progress has been made against all of these objectives
which reflect the first steps in our aim of improving the
performance of the Trust.
We have not changed our investment objective – to be a core
investment for investors seeking increasing value over the long
term – and our investment policy allows us to invest in a wide
range of asset classes throughout the world. When market
conditions are favourable we can use gearing to increase equity
exposure, in order to enhance returns from the portfolio. We
believe that moderate structural gearing at a cost effective rate is
beneficial for shareholders over the long term. At the year end,
with total assets of £3.4bn and net gearing of 13%, our equity
portfolio represented 102% of net assets and in normal markets
we would expect our equity portfolio to represent at least 100%
of NAV.
The performance of our equity portfolio has continued to be
strong following the change to the investment management team
in 2014 and is already well ahead of the benchmark. At the same
time we have reduced our non-equity investments, with our fixed
income portfolio reduced to £73.3m and the sale of our remaining
commercial property. We initiated the sale of our mineral rights
portfolio prior to the year end. Since then, oil prices have slumped,
depressing the marketability of our holdings, and no satisfactory
offers were received. We will therefore continue to hold these
assets until we perceive a positive change in the market. The
improved investment performance has had a positive impact on
Board changes
The Board at the start of 2016 is significantly different from
12 months ago. Anthony Brooke, Rory Macnamara, Chris
Samuel and Karl Sternberg (Senior Independent Director) were
appointed as non-executive directors during the year. These
Directors bring with them the skills and expertise we believe
will contribute to the success of the Company under our new
structure and details of their skills and experience can be found
on pages 22 and 23. I welcome the contribution which all have
made to the strategic changes which we announced in October
and their subsequent implementation. Gregor Stewart took on
the role of Deputy Chairman in February 2016 and will chair the
Audit and Risk Committee after our AGM.
A number of directors have left the Board since the last AGM.
My predecessor, Karin Forseke, and Alastair Kerr both left the
Board at the year end, having overseen the transition to the
new governance arrangements. I would like to thank them both
for their contribution during a period in which Alliance Trust has
faced a number of challenges but has also made good progress
in its long-term aims. Alan Trotter, Chief Financial Officer, also
left following the changes which we announced in October,
having played a key role throughout the review process for
which I am grateful. I wish all three well for the future.
Susan Noble and Katherine Garrett-Cox left the Alliance Trust
PLC Board in February 2016. Susan became Chairman of
Alliance Trust Investments and I look forward to working with
Susan in her new role. Katherine Garrett-Cox will leave Alliance
Trust Investments on 11 March 2016. Katherine has done much
over the past nine years to refocus the investment performance
to its traditional strengths in global equities. I, and the rest of
our discount which narrowed to 8.1% at the year end. We bought
the Board, wish her every success in the future.
back 4.9% of the Company’s shares in the period between the
announcement on 1 October and 31 December 2015, which also
helped the discount to narrow.
John Hylands will retire as a director at the 2016 AGM following
eight years as a director and Chairman of the Audit Committee. I
and my Board colleagues will miss his wise counsel and consistent
We have completed the process of appointing Alliance
support throughout his time as a member of the Board.
Trust Investments to manage the portfolio at an investment
management charge of 0.35% of NAV – one of the lowest in
the investment trust sector. We are comfortable that Alliance
Trust Investments has the resources to provide us with the
service we require from our asset manager. We have established
a Management Engagement Committee, as recommended by
Finally, I am acutely aware of the lack of gender diversity on the
current board as a result of the recent changes. Alliance Trust has
long been a leader in the area of board diversity, and this is an
issue which I am determined to address at the earliest opportunity.
I report on wider corporate governance issues on page 24.
the AIC Code of Corporate Governance, to oversee and review
I am pleased with the progress to date on the initiatives
the performance of the investment manager.
announced on 1 October and look forward to delivering further
New independent boards have been appointed for Alliance
improvements in the coming years.
Trust Savings and Alliance Trust Investments. Alliance Trust
I hope you find the rest of this report interesting and informative.
Investments has seen an increase in assets under management
and, with the addition of the Trust’s mandate, has a strong base
for future growth and improved profitability in 2016. Alliance
Trust Savings, with its acquisition of the assets and business
of Stocktrade and new technology platform, is positioned to
deliver a profit in 2016. We anticipate both of these investments
Lord Smith of Kelvin
will provide positive returns to the Trust in the future.
Chairman
4 | Alliance Trust PLC Report & Accounts 2015
Business Description
Alliance Trust focuses on maximising the capital and income return on our shareholders’ investment while
seeking to protect its value in more challenging economic conditions. Our aim is to deliver strong and
sustainable investment performance for our shareholders over the longer term. We may invest in a range of
assets. Through borrowing we can enhance returns when market conditions permit.
During the year we announced we would concentrate on global equities to generate capital growth and dividend
income and would dispose of our non-core assets as soon as practicable. After the year end our subsidiary,
Alliance Trust Investments, has been given a mandate to manage the Trust’s portfolio. We have reflected this
change in approach in our business model.
What we do
We invest in:
• Global equities
•
Subsidiary entities
-
-
Alliance Trust Investments
Alliance Trust Savings
• Non-core investments*
-
Fixed Income
- Mineral Rights
Private Equity
-
* These will be disposed of over time, subject to market conditions.
Global equities
Subsidiary entities
Non-core investments
Why we are distinctive
• We focus on quality companies with good governance and business fundamentals that we are
prepared to hold for the long term.
• Our emphasis is on stock selection on a global basis based on our thematic approach.
• We are one of only four FTSE All-Share Index companies with a record of increasing their ordinary
dividend for the last 49 years.
• Our appointment of Alliance Trust Investments is intended to deliver good investment performance
at a competitive cost to the Trust.
• We invest in our subsidiaries to generate capital growth and future dividend income.
How we create a return for our shareholders
• Capital growth in our investment portfolio.
• Progressive income growth funded by dividends and income received from our investments.
• Through improved investment performance, creating increased demand for our shares in order to
narrow the discount.
Key Performance Indicators
Alliance Trust PLC Report & Accounts 2015 | 5
Our Key Performance Indicators measure how well we are achieving our objectives of capital and income growth, investment
performance and a narrowing discount.
Total Shareholder Return
MSCI ACWI
NAV Total Return
MSCI ACWI
1 year
3 year
5 year
Description
10.7%
3.8%
5.4%
3.8%
48.3%
39.9%
34.5%
39.9%
57.1%
46.6%
39.6%
46.6%
as at 31
Dec 15
as at 31
Dec 14
as at 31
Dec 13
This demonstrates the real return our
shareholders receive through dividends
paid and capital growth.
This demonstrates the performance of our
managers in growing the net asset value.
Discount
Global Investment Trust Sector
weighted average
8.1%
4.6%
12.4%
12.9%
5.6%
7.7%
This is the difference between the share
price of the Company and its net asset
value and is an indicator of demand for
our shares.
Ongoing Charges Ratio
0.59%
0.60%
0.75%
This is the cost of running the Company
as a percentage of the average net assets
of the Trust. It is an indicator of how
efficiently the Company is managed.
year to
31 Dec 15
year to
31 Dec 14
year to
31 Dec 13
Total Dividend
12.43p
12.38p
10.83p
- Ordinary
- Special
10.97p
1.46p
9.83p
2.55p
9.55p
1.28p
The figures shown are the total dividends
paid, ordinary and special dividends.
You can read more about our performance during 2015 at:
Total Shareholder Return
and NAV Total Return
Portfolio
Manager’s Report
pages
6 to 9
Discount, Ongoing Charges
Ratio and Dividend
Financial
Performance
pages 14
and 15
Investment objective and policy
Alliance Trust is a self-managed investment company with
investment trust status. The Company’s objective is to be a core
investment for investors seeking increasing value over the long
term. The Company has no fixed asset allocation benchmark
and it invests in a wide range of asset classes throughout
the world to achieve its objective. The Company’s focus is to
generate a real return for shareholders over the medium to long
term by a combination of capital growth and a rising dividend.
The Company pursues its objective by:
•
investing in subsidiaries and associated businesses which
allow us to expand into other related activities.
The Company is prepared to invest any proportion of the total
corporate capital in any of the above asset classes, subject only
to the restrictions imposed on the Company by the regulatory
or fiscal regime within which we operate. However, the
Company would expect equities to comprise at least 50% of
its portfolio. Changes to the asset allocation will be dependent
upon attractive investment opportunities being available.
•
investing in both quoted and unquoted equities across the
globe in different sectors and industries;
Where market conditions permit, the Company will use gearing
of not more than 30% of its net assets at any given time.
•
•
investing internationally in fixed income securities;
investing in other asset classes and financial instruments,
either directly or through investment vehicles; and
The Company can use derivative instruments to hedge, enhance
and protect positions, including currency exposures.
6 | Alliance Trust PLC Report & Accounts 2015
Portfolio Manager’s Report
Summary
The NAV return for 2015 was 5.4% versus the benchmark
MSCI ACWI return of 3.8%.This is a result of the investment
returns of the global equity portfolio; investments in fixed
income, private equity and mineral rights; and the value of the
subsidiary companies.
Over 2015 the total shareholder return was 10.7%, which
captures the benefit of a reduction in the discount.
Equities, at 89% of our total investments at the year end, are by
far the most significant asset class. Overall gearing through the
year was 13%.
Contribution
Analysis (%)
Equity Portfolio
Fixed Income
Other Investments
Cash & Accruals
Gearing
Total
Expenses
Buybacks
NAV Total Return
Effect of Discount
Share Price Total Return
MSCI ACWI Total Return
Source: Alliance Trust and FactSet
Global Equities
Average
Weight
Total
Return
Contribution
to Total
Return
98.7
5.2
7.6
2.2
(13.7)
100.0
6.0
2.6
4.1
N/A
2.1
6.0
0.1
0.3
(0.4)
(0.3)
5.7
(0.8)
0.5
5.4
5.3
10.7
3.8
The investment process for the Global Equities portfolio aims to
outperform the MSCI ACWI by a minimum of 1% per annum
net of fees on a three year rolling basis. The prime driver of
investment returns is stock selection. We identify high quality
companies which are undervalued relative to their earnings and
dividend growth prospects. There are three elements to our
definition of quality:
• Ability to maintain high returns on equity from a strong
capital position
• Benefits from long-term societal trends
• Exhibits strong governance and management of all
material factors
We construct a portfolio of between 60 and 80 of these so as to
diversify market, country and industry sector risks.
Market Review
The global equity market endured a turbulent year over 2015.
Concerns centred on slowing economic growth in China,
uncertainty over the ability of monetary policy to stimulate
growth in Europe and Japan, the rise in the dollar hurting both
US exporters and emerging market economies, and lastly the
dramatic deflation in oil and commodity prices.
These macro economic pressures led to low returns in global
equities with the MSCI ACWI returning only 3.8%. Corporate
bonds were similarly lacklustre with the iBoxx Corporate Bond
Index just breaking positive ground at 0.6%.
Our Performance
The equity portfolio finished the year 2.2% ahead of the MSCI
ACWI, delivering a 6.0% absolute return against 3.8% for the
benchmark. As we anticipate with our investment process, the
outperformance was primarily driven by strong stock selection,
which contributed 1.6% to our relative outperformance, with
sector less significant but still contributing 0.6%.
Our top five stock contributors were as follows:
• Visa – the world’s largest payment card processor, which
benefited from the move from cash to cards in developed
markets and increased penetration of credit cards in
developing markets.
• Equinix – a leading data centre, providing collocation,
interconnection and managed services to enterprises,
content companies and Telco network providers. It benefits
from the rapid growth in worldwide demands for data.
• Accenture – one of the leading IT service and consulting
firms. It benefits from organisations adapting to structural
changes such as the rise of cloud computing and big data.
• Walt Disney – one of the largest media and content
companies with leading channels such as ESPN, Disney
Channel and ABC.
• Nasdaq – a diversified global exchange which offers trading
and clearing services, market data products, technology
products, financial index products, listing services and
public security services. It benefits from the regulatory drive
to increase transparency in financial markets.
Our biggest negative contributor was Delta Lloyd where despite
improving operational efficiencies within its business, the price
of the Dutch insurer suffered as it became apparent that its
balance sheet position was much weaker than the market had
anticipated and we therefore exited the position in December.
Other detractors were Enterprise Product Partners which
suffered from the fall in oil prices; and Ambev with its exposure
to a weakening Brazilian economy.
Our favoured stocks in healthcare performed well and
contributed positively to performance. We like this sector
because it delivers positive growth even in tough economic
environments. We focus on healthcare companies which deliver
differentiated, life-saving therapies, such as Novo Nordisk; and
products and solutions that make healthcare more affordable
and more accessible, such as Amerisource Bergen.
Alliance Trust PLC Report & Accounts 2015 | 7
Within the technology sector the focus is on thematic drivers such
as the growth in cloud computing and the need to invest in digital
infrastructure. Accenture and SAP were examples of companies
which benefit from these themes. Visa, which we regard as a
technology company, performed well and, as the portfolio’s
largest position, was a strong contributor to performance.
Portfolio Activity
The investment team continued to reduce the number of
holdings in the portfolio from 74 at the end of 2014 to 61 at
the end of 2015, reflecting increased conviction in a portfolio of
“best in class” global companies.
New entries to the top 10 holdings are:
Wells Fargo – a best-in-class US bank, and one which has
illustrated a prudent and responsible lending policy. It is almost
exclusively domestically exposed in the US, so is well positioned
to take advantage of the improving housing and labour markets
there, and will also see improving profitability as interest rates rise.
CSL – the leading global producer of blood plasma products that
benefits from steady demand growth from an ageing population.
National Grid – an electricity and gas company that
connects consumers to energy sources through its networks
in the northeast US. In the UK it runs the gas and electricity
distribution systems.
New holdings in the year were:
Ecolab – the global leader in the development of hygiene, water
and energy solutions across a wide range of end markets. It can
grow its business in almost any macro-economic environment,
given the defensive nature of its revenue streams and its ability
to provide innovative solutions that enable its customers to
reduce input costs.
Orix – is a Japanese financial company which specialises in
lending to small businesses and in automobile leasing. It
also has a developing business which finances the growth in
renewable energy in Japan, which we see as a crucial solution to
the long-term issues facing Japan and its energy needs post the
Fukushima nuclear accident.
Arm Holdings – this licensing business remains strong, despite
headwinds in smart-phone growth, and has the ability to
use their technology in new products, such as servers and
automobile end markets. The energy efficiency of their chip
designs gives them a very strong competitive advantage.
There were two sales worthy of note:
Qualcomm – Qualcomm’s semi-conductor business is facing
competitive pressures and its profitability is suffering. The
growth in their licensing business has been unable to offset that
weakness and we decided to switch the Qualcomm position
into UK-listed Arm Holdings.
HSBC – We sold our position in HSBC due to concerns around
their Hong Kong franchise. The economy and property market
in Hong Kong faces a number of challenges, as it is positioned
between a weakening Chinese economy, high US interest
rates and a delicate political situation. We recycled part of the
proceeds from HSBC into existing Financials positions with
better prospects such as Wells Fargo and Nasdaq.
Attribution analysis
Equity Portfolio Only
(look through basis)
Average
Weight
Consumer Discretionary
Consumer Staples
Energy
Financials
Health Care
Industrials
Information Technology
Materials
Telecommunication Services
Utilities
Source: Alliance Trust and Factset
8.3
8.2
5.0
25.4
16.8
8.0
18.5
4.5
1.9
3.4
100.0
Alliance Trust
MSCI AC World Index
Contribution
to Total
Return
Average
Weight
Total
Return
Allocation
Effect
Total
Return
20.6
5.9
(16.0)
2.4
14.2
7.3
10.7
1.5
0.4
(0.8)
0.6
2.3
0.6
1.9
(11.7)
(0.6)
2.8
(1.9)
0.1
0.0
6.0
Attribution
Stock
Selection
Effect
0.8
(0.5)
0.1
0.5
0.2
0.3
0.2
0.0
0.0
0.0
1.6
Total
Effect
0.5
(0.6)
0.5
0.4
0.6
0.3
0.4
0.1
0.0
0.0
2.2
12.6
9.9
7.2
21.5
12.2
10.5
13.9
4.9
3.7
3.2
10.6
11.8
(17.1)
0.3
13.0
3.2
9.7
(11.5)
4.5
(2.1)
3.8
(0.3)
(0.1)
0.4
(0.1)
0.4
0.0
0.2
0.1
0.0
0.0
0.6
8 | Alliance Trust PLC Report & Accounts 2015
Portfolio Manager’s Report
Active Share and Portfolio Risk
Non-core Investments
The chart below shows the change in the number of stocks held
As announced last year we have been working to reduce our
in the portfolio and also the active share, which is an indicator
non-core investments. We sold the last of our direct property
of the level of divergence of our portfolio from the MSCI ACWI
investments in the year for £5.6m, a profit on the holding value
at a stock level. Despite continuing to reduce the number
of 15.6%. We initiated the sale of our mineral rights holdings,
of stocks in the portfolio over the year the risk profile of the
which provided income of £3.3m during the year and at the
portfolio is largely unchanged relative to the benchmark.
year end was valued at £17.5m. In light of the continued drop
Active Share
100
90
80
70
60
50
Sept
2014
Dec
2014
March
2015
June
2015
Sept
2015
Dec
2015
Number of stocks
Active Share (%)
Source: Alliance Trust and MSCI
We construct the portfolio to deliver strong risk-adjusted
returns for our investors. We measure the level of risk in our
portfolio against that of our benchmark and at the start of
2015 our predicted benchmark relative risk was 2.5%. At the
start of the year, we would therefore expect that our portfolio
return over the year would likely be within 2.5% of the
benchmark return. This “active risk” is continually monitored
using industry-standard models and analytics, to identify both
portfolio behaviour and structure. As we track this active risk
in oil prices the offers we received were unsatisfactory and a
decision was taken to hold these assets until the market for such
assets shows signs of recovery. We reduced our fixed income
exposure by 58% to £73.3m through the realisation of holdings
in the Alliance Trust Investments Fixed Income funds. In the year
they contributed 0.1% to our performance.
We continue to hold seven externally managed private equity
funds, largely mid-market European buyout funds, through our
two fund of fund partnerships. Together with our other legacy
private equity investments they provided positive returns and
contributed 0.4% to our performance this year. The value of our
private equity investments is £125.3m and the total committed
to private equity investments is £166.4m with outstanding
commitments totalling £43.9m. We have made no new private
equity investments since 2014 and we have realised other
small legacy direct investments in companies and other limited
partnerships as opportunities to do so have arisen. Other than
funding commitments already made, no more private equity
investments will be made.
Portfolio Positioning and Outlook
over time, we can also track the ability of our process to deliver
The outlook for 2016 is for both weak global economic growth
outperformance and ensure that we have a balanced and
and ongoing uncertainty around the direction and impact
diversified portfolio of global companies.
of governments’ and central banks’ policies. We therefore
Benchmark relative risk
%
3.00
2.75
2.50
2.25
2.00
expect to see increased volatility in the returns from all asset
classes as we go through the year. In this environment we
believe our approach is well positioned. Having a diversified
portfolio of equities with growth prospects which are relatively
independent of economic growth should enable us to continue
to outperform on a longer term basis.
Sept
2014
Dec
2014
March
2015
June
2015
Sept
2015
Dec
2015
Predicted Tracking Error
Source: MSCI Barra
We believe our portfolio is concentrated enough to deliver our
investment objective, but diversified enough to deliver volatility
similar to that of the benchmark.
Portfolio Manager’s Report
Alliance Trust PLC Report & Accounts 2015 | 9
Top 10 holdings
We look to hold our stocks for the long term. Other than Walt Disney, which we purchased in 2013, and CSL, which we purchased
in 2014, we have held all of our top 10 holdings for more than three years.
Visa is the world’s largest payment card processor, significantly larger than Mastercard, its closest competitor.
It benefits from multiple long-term drivers such as increasing credit card penetration in emerging markets and
e-commerce growth. The company also benefits from strong barriers to entry, driving high margins and good
free cash flow generation. The recent acquisition of Visa Europe should ensure margins grow over the next few
years, as efficiencies are extracted from the new combined entity.
Pfizer is a global pharmaceuticals company that has done an excellent job of managing its business through a
period of significant patent expiries while continuing to grow earnings per share. It is a highly cash generative
business which returns significant amounts of cash to shareholders via a growing dividend and share
repurchases. From 2016, sales growth should turn positive and earnings growth should accelerate as recently
approved products begin to contribute meaningfully and we are past the majority of patent expiries. Recent
acquisitions of Hospira and Allergan will provide opportunities to run the combined business more efficiently,
something Pfizer excels at.
Accenture is one of the leading IT service and consulting firms. It benefits from organisations adapting their IT
systems driven by increasingly demanding regulatory systems, mergers and acquisitions and the need to adapt
and reduce costs. Important structural changes are occurring in the enterprise technology world, such as the
emergence of cloud computing and big data, and Accenture helps their clients understand and adopt these
technologies.
Prudential has a solid business in the UK, a slowly growing business in the US, and is a good asset manager;
the long term growth and focus for the company though is on Asia. The middle class population in emerging
economies (principally in Asia) is expected to nearly double from 2010 to 2020 - health and life insurance are
high on the desire list of the newly affluent. This is a structural feature of Asian markets and should continue
regardless of equity or currency volatility.
% of
equity
portfolio
%
Contribution
to return
4.0
0.9
3.4
0.4
3.0
0.7
2.9
0.2
Walt Disney is one of the most attractive media content and entertainment companies with winning cable
channels such as ESPN, Disney Channel and ABC. Its creative content can be leveraged across all assets of the
group; in its theme parks, Disney stores and cable networks. Disney protects its franchise over the long term.
2.8
0.7
Amgen is a global biotechnology company with a strong portfolio of mature biologic products. Although some
of these will face competition in the second half of this decade, the complexity of biologic drugs mean this will
not be as severe as typically seen when a small molecule drug loses patent protection. Amgen should see good
earnings and cash flow growth over the next few years, but more importantly their late stage drug pipeline is
coming to fruition and contains several potential blockbusters.
Wells Fargo is a leading US bank, with a best-in-class mortgage franchise, and a leading deposit taker. It
has little investment banking or international exposure, and is considered to have the most prudent lending
standards, and strongest balance sheets, of all the big US banks. It will benefit from rising interest rates in the
US, and this will feed directly into its earnings. It is also well placed to benefit from a recovery in the US housing
market and demand for mortgages.
2.6
0.3
2.6
0.2
CVS Health is one of the largest drug retailers in the US with over 7,700 stores and a leading pharmacy benefit
manager. The company is well positioned to benefit from growth in drug expenditure driven by the ageing
population and the US move to a more consumer centric healthcare system. CVS Health should continue to
return significant cash flow to shareholders through their rapidly growing dividend and share repurchases.
2.5
0.3
CSL is an Australian healthcare company and is a global leader in the manufacturing and distribution of blood
plasma products. It provides life saving products to patients with immune deficiencies and diseases such as
haemophilia. Product demand grows at a multiple of GDP, driven by an ageing population and the growth in
lifestyle related diseases such as diabetes. Barriers to entry for supply are high, given the high risk to patients
of blood borne contaminants, where CSL’s reputation for leading edge technology and strong track record on
safety sets it apart. CSL provides sustainable earnings and dividend growth, with best in class assets and a high
quality management team.
2.4
0.3
National Grid is a leading UK regulated power business, with operations in both the UK and the US. Virtually
all of National Grid’s business is regulated, so there is no exposure to volatile commodity prices. It means there
exists a high degree of visibility to returns and to cash flow. National Grid is an efficient operator, and cost
savings flow through into returns to investors. This, combined with the need for investment in transmission in
the UK and their assets in the US, underpin a solid dividend and growth outlook.
2.2
0.2
10 | Alliance Trust PLC Report & Accounts 2015
Investment process: investment criteria
Growth
Quality
Business fundamentals including metrics such as:
• Returns – Return on Equity (ROE) • Return on Capital
• Resilience • Quality of Earnings • Growth • Dividend Income
Income
A Sustainability Matrix is used to identify companies aligned with sustainable
development. Companies are assessed and rated on:
• Product Sustainability • Management Quality
Each stock is assessed relative to its sector. Using a standard template, consensus
forecasts are flexed. We use our own research and assumptions supplemented by
independent research, company meetings, site visits and sell-side analysis.
The investment team
has a disciplined and
systematic approach to
the sale of stocks in
which we are invested.
This is based on one
and three year price
targets and a sale will
be initiated when the
price of a stock has
attained its estimate
of fair value or when
the team loses its
conviction in a
particular stock. This
can be due to a change
in the company’s
Company
Analysis
Sell
Discipline
Investment
Process
Portfolio
Construction
Stock selection and
position sizes are
based on three key
parameters:
underlying volatility
of the stock, strength
of conviction and the
degree of
diversification
associated with the
stock’s position in the
portfolio.
product sustainability or
business fundamentals.
Risk
Management
The portfolio is monitored by senior management. All
risks in the portfolio are analysed, measured, reported,
and considered. Risk is measured on an absolute and
relative basis. Quarterly meetings are held between the
portfolio manager and the Performance and
Investment Risk team.
Investment process: focus on quality
Alliance Trust PLC Report & Accounts 2015 | 11
Quality is the critical characteristic of a company in which we
We therefore look very carefully at these factors which help us to
invest. We look to find it in the management of the business,
identify overall quality. We tailor our analysis to the key risks for
the products and the strategy adopted. We are looking for
the individual companies. For instance with financial companies
companies that are dependable and predictable in what
we look not only at balance sheet strength and returns on
they do. We need to have confidence that the company’s
equity but also culture, incentives, and the appropriateness of
future prosperity is clear and that it will be able to deliver the
the products. For oil and gas companies, alongside returns on
combination of income and capital growth that we require for
invested capital and reserve replacement rates, we also look at
the portfolio.
We believe that the companies that will be successful over
the long term tend to have better quality management. Our
the health and safety record, political risk, incidents of bribery
and corruption. We believe these are strong predictors of
future success.
analysis shows that this factor is often under-appreciated by
We combine our best ideas into a portfolio of investments
the broader investment community. Over time, these positive
such that we minimise unwanted risk from foreign exchange,
characteristics become evident in the financial performance of
country and industry sector exposures. This allows the impact
these companies. By constructing a portfolio made up of high
of stock selection to dominate investment returns relative to
quality companies, which have strong business fundamentals
the benchmark. Macro-economic views, such as on foreign
and sustainable business models and which we believe are
exchange, are generally taken into account directly at a stock
undervalued, we will deliver strong investment returns.
level rather than through a ‘top down’ adjustment of the
Three factors help us establish the existence of quality:
portfolio. We may determine that some form of currency
hedging is necessary to protect returns, however this is likely to
• Long-term economic trends of increasing resource
be used infrequently.
efficiency and improving quality of life. These trends
offer areas of structural growth relatively independent of
economic cycles.
Investment themes
• Strong governance and management. This includes not
only financial metrics but also relevant environmental, social
and governance exposures. It recognises that many recent
examples of loss of shareholder value have been a result of
failings in these areas.
• High returns over the longer term. Typically these
companies are industry leaders which can maintain
their competitive advantage as a result of technological
leadership, or through economies of scale. We want to be
in those companies which can maintain this advantage for
many years to come.
The investment team considers the extent to which potential
investments will benefit from exposure to four key investment
themes. The team expects that companies exposed to
these long-term persistent trends will enjoy superior growth
prospects. These themes provide support to the investment
case, but are not a prerequisite for an investment decision. The
Trust can, and will, also invest in companies where the team
consider that the strategy and quality of the management team
is not fully valued by the market, even though the stock is not a
beneficiary of one of these themes.
Themes
Climate Change and
Energy Efficiency
Quality of Life
Sustainable Consumption
Resilience
Energy efficiency in the
digital age
Affordable healthcare
Industrial energy
efficiency
Ageing population
Technology enabling
resource efficiency
Waste, water and
sanitation
Resilient finance
Resilient systems
Category
Low carbon transport
Education
Renewables
Safety
Transition fuels
Unmet medical needs
12 | Alliance Trust PLC Report & Accounts 2015
Portfolio listing
All quoted equity holdings as at 31 December 2015
Sector
Country of listing
% of
quoted equities
Stock
Visa
Pfizer
Accenture
Prudential
Walt Disney
Amgen
Wells Fargo
CVS Health
CSL
National Grid
Legal & General
Nasdaq
American Tower
Intesa Sanpaolo
Blackstone
Daikin Industries
Reckitt Benckiser
Danaher
Equinix
Continental
Swedbank
Vodafone
Tencent
SAP
TJX Companies
Express Scripts
AmerisourceBergen
Ecolab
Deutsche Telekom
Johnson Matthey
Roche Holding
Alphabet
Information Technology
Health Care
Information Technology
Financials
Consumer Discretionary
Health Care
Financials
Consumer Staples
Health Care
Utilities
Financials
Financials
Financials
Financials
Financials
Industrials
United States
United States
United States
United Kingdom
United States
United States
United States
United States
Australia
United Kingdom
United Kingdom
United States
United States
Italy
United States
Japan
Consumer Staples
United Kingdom
Industrials
Financials
Consumer Discretionary
Financials
United States
United States
Germany
Sweden
Telecommunication Services
United Kingdom
Information Technology
Information Technology
Consumer Discretionary
Health Care
Health Care
Materials
Hong Kong
Germany
United States
United States
United States
United States
Telecommunication Services
Germany
Materials
Health Care
Information Technology
United Kingdom
Switzerland
United States
United States
Denmark
Hong Kong
Japan
Macquarie Infrastructure
Novo Nordisk
ENN Energy
ORIX
Financials
Health Care
Utilities
Financials
Linear Technology
Information Technology
United States
Dentsu
WPP
Consumer Discretionary
Japan
Consumer Discretionary
United Kingdom
Enterprise Products Partners
Energy
Financials
Energy
Information Technology
United States
Japan
United States
United States
Mitsui Fudosan
Schlumberger
SS&C Technologies
GlaxoSmithKline
Health Care
United Kingdom
Cadence Design Systems
Information Technology
United States
Henkel
Deutsche Post
Unilever
ARM Holdings
Total
Norsk Hydro
Toronto-Dominion Bank
Seagate Technology
Roper Technologies
Statoil
Ambev
Consumer Staples
Industrials
Germany
Germany
Consumer Staples
United Kingdom
Information Technology
United Kingdom
Energy
Materials
Financials
Information Technology
Industrials
Energy
Consumer Staples
France
Norway
Canada
United States
United States
Norway
Brazil
4.0
3.4
3.0
2.9
2.8
2.6
2.6
2.5
2.4
2.2
2.2
2.0
2.0
1.9
1.9
1.9
1.8
1.8
1.8
1.8
1.7
1.7
1.7
1.7
1.7
1.7
1.6
1.6
1.6
1.6
1.5
1.5
1.5
1.5
1.5
1.5
1.4
1.4
1.4
1.4
1.3
1.2
1.2
1.2
1.2
1.2
1.1
1.1
1.1
1.1
1.1
1.0
1.0
1.0
1.0
1.0
Value £m
117.1
100.0
89.1
85.1
82.8
77.5
75.6
74.2
69.5
65.5
64.4
59.4
59.0
56.3
56.1
55.4
53.7
53.1
53.0
52.1
51.2
50.7
50.5
49.5
48.7
48.3
46.9
46.7
46.5
46.4
45.0
44.8
44.5
43.8
43.1
43.0
42.2
41.8
40.4
39.6
38.6
36.4
36.0
35.3
34.8
33.9
33.6
33.0
32.7
31.1
30.9
30.6
30.4
30.1
29.1
28.0
Portfolio listing
Alliance Trust PLC Report & Accounts 2015 | 13
All quoted equity holdings as at 31 December 2015 (continued)
Stock
Melrose Industries
VTech
Schneider Electric
Bangkok Bank
Ashmore Global Opportunities
Industrials
Financials
Financials
Sector
Industrials
Country of listing
United Kingdom
Information Technology
Hong Kong
Funds as at 31 December 2015
Alliance Trust Investment Funds
Monthly Income Bond Fund
Sustainable Future Pan-European Equity Fund
Dynamic Bond Fund
Sustainable Future Cautious Managed Fund
Sustainable Future Defensive Managed Fund
France
Thailand
United Kingdom
Country of
registration
United Kingdom
Luxembourg
United Kingdom
United Kingdom
United Kingdom
% of
quoted equities
Value £m
0.8
0.8
0.8
0.6
0.1
24.8
24.6
22.6
18.9
3.0
100.0%
Total value 2,930.9
Value £m
63.2
62.9
10.1
11.0
10.8
Total value 158.0
Investments in operating subsidiary companies as at 31 December 2015
Investment
Region
Alliance Trust Savings
Alliance Trust Investments
United Kingdom
United Kingdom
Value £m
54.0
19.8
Non-core investments as at 31 December 2015
Investment
Region
Private Equity
Mineral Rights
Indirect Property
Other
United Kingdom / Europe
North America
United Kingdom
United Kingdom
Total investments as at 31 December 2015
Investment
Quoted equities
Funds
Investments in operating subsidiary companies
Non-core investments
Source: Alliance Trust
A full portfolio listing, similar to that displayed above, is available on a monthly basis on our website at
http://investor.alliancetrust.co.uk/ati/investorrelations/list-of-stock-holdings.htm
Total value 73.8
Value £m
116.5
17.5
8.7
4.3
Total value 147.0
Value £m
2,930.9
158.0
73.8
147.0
Total value 3,309.7
14 | Alliance Trust PLC Report & Accounts 2015
Financial Performance
Costs
The Ongoing Charges Ratio (OCR) calculated on ongoing
expenses is 0.59%, below the 0.60% reported in 2014.
Ongoing expenses exclude non-recurring expenses relating
to the AGM requisition and restructuring costs. Action taken
by management has reduced the AGM requisition costs to
£2.4m from the £3.0m estimated at the time. Restructuring
costs resulting from the structural and organisation changes
announced in October are £2.8m.
Ongoing Charges Ratio
%
0.8
0.7
0.6
0.5
2011*
2012
2013
2014
2015
Following guidance issued by the Association of Investment
Source: Alliance Trust
Companies (AIC) we have excluded the expenses incurred
by the Company’s subsidiaries, as these do not relate to
running the Company. We include in the OCR the appropriate
proportion of the ongoing charges of all underlying Alliance
Trust Investments managed funds in the portfolio. In 2015 the
* Administrative expenses have been annualised given the reporting period
was for 11 months, except for incentives which were on an actual basis.
OEIC investments represent less than 5% of the portfolio so no
£000
2015
2014
OEIC related expenses are included in the OCR calculation. The
Average net assets
2,983,253
2,952,664
table opposite shows the make-up of the OCR.
In October 2015 we announced targeted cost savings of £6m
across our investment business for 2016 and the intention to
target an OCR of 0.45% or less by the end of 2016 compared
One-off expenses
to 0.59% in 2015 and 0.60% in 2014. We also announced that
Ongoing expenses
Revenue expenses
22,835
19,714
OEIC expenses where investment >5% of
portfolio
0
(5,233)
17,602
232
(2,138)
17,808
in order to reflect the returns from the Trust’s predominantly
equity portfolio, from 2016 onwards two-thirds of administrative
OCR ongoing expenses
0.59%
0.60%
expenses will be allocated to the capital account, rather than
Source: Alliance Trust
the revenue account. This is in line with the AIC SORP and other
trusts in the sector.
Discount and share buybacks
The Board believes that investment performance is the key
Discount
driver of the Company’s share price and that the measures we
announced in October will lead to a narrowing of the discount
into single figures. The Board is committed to the active use of
share buybacks, as required, in pursuit of this aim.
Our policy to buy back shares where we judge it to be beneficial
to shareholders is now well established. We take into account
the Company’s discount relative to the peer group and the
supply and demand for shares in the open market.
%
20
16
12
8
4
0
Dec
2010
Dec
2011
Dec
2012
Dec
2013
Dec
2014
Dec
2015
Alliance Trust
Global Sector Average
In 2015 the discount narrowed substantially and traded at a
narrower level than at any point in the last 10 years.
Source: Morningstar
During the year we bought back 27.0m shares, representing
Share buybacks
4.9% of the Company’s share capital, at a total cost of
£135.5m. 96% of the buybacks took place in the last quarter
of 2015. The weighted average discount of these buybacks
was 10.3%. This action and our continued strong investment
performance has contributed to driving the discount below
10%, a level we are committed to maintain. All the shares
bought back have been cancelled.
m
20
16
12
8
4
0
2011
2012
2013
2014
2015
Source: Alliance Trust
Alliance Trust PLC Report & Accounts 2015 | 15
Dividends
Alliance Trust has a long and proud tradition of annual increases
Dividends
in the ordinary dividend. We have increased the ordinary
dividend in each of the last 49 years and are one of only
four companies in the FTSE All-Share index with such a track
record. Our dividend policy aims to pay a sustainable and rising
dividend and will pay out all net income earned in the year as
an ordinary dividend.
The ordinary dividend for 2015 will rise by 11.6% to 10.97p
p
13
12
11
10
9
8
7
2011
2012
2013
2014
2015
and we have already distributed a special dividend of 1.46326p
Ordinary dividend
Special dividend
Source: Alliance Trust
which was paid on 31 December 2015. That special dividend
was paid from funds received on the liquidation of one of our
subsidiary companies, Alliance Trust (Finance) Limited. This
was a repayment of capital, rather than income, and has not
reduced the Company’s capital reserves from the prior year
end. A fourth interim dividend of 3.3725p will be paid on 31
March 2016 to shareholders on the Company’s share register on
18 March 2016. The total dividend in 2015 of 12.43p is 0.05p
higher than 2014.
Looking forward to 2016, subject to market conditions, we
intend to continue our dividend policy to target an ever
increasing dividend per share from revenue earnings. All net
income will be paid out as ordinary dividends. As such, future
dividend progression will be measured through increases in
ordinary dividends.
16 | Alliance Trust PLC Report & Accounts 2015
Alliance Trust Investments
Alliance Trust Investments is a specialist fund management
business offering open-ended funds and investment solutions.
The focus of Alliance Trust Investments has been on targeting
institutional and wholesale businesses using its range of
sustainable investment and fixed income funds, which are open
to both institutional and retail investors, and a small number of
segregated mandates.
The business operates in a competitive marketplace and
has a team of experienced professionals which is delivering
consistently good investment returns for the Trust and its other
clients. The Company has made a further investment of £1m in
the business this year for regulatory capital purposes, giving a
total investment since it was established of £43.4m.
The Directors attributed a fair value to this business at 31
December 2015 of £19.8m. The Directors concluded that it
was appropriate to reduce the value of this business from its
previous valuation of £24.3m during a transitional period for
Alliance Trust Investments. Further details can be found in Note
23.8 on pages 81 to 83.
The decision taken by the Company in October to appoint
Alliance Trust Investments as its investment manager took effect
on 3 February 2016 and so the Trust’s portfolio is not reflected
in the year end assets under management figures. If the value of
the Trust’s portfolio were to be added to the third party assets
managed at the year end, the total assets under management
would have been £5bn.
The investment team delivered strong returns in the year with
11 out of 12 of its funds ranked above median in the year and
seven in the top quartile. Our 12th fund, the Alliance Trust
Monthly Income Bond Fund, delivered an average yield of 6%
in the year. Alliance Trust Investments saw net inflows of £81m
in the year and the business is capable of taking on significant
additional assets without increasing its cost base.
Alliance Trust Investments saw net revenue grow to £10.5m
and reduced its loss to £2.1m from £3.2m last year. The action
taken to reduce costs as well as a focus on the continued
growth of assets under management is expected to improve the
profitability of this business during 2016.
Key Performance Indicators
Year to 31 December
Fair value
2015
2014
£19.8m
-19%
£24.3m
Funds above median
over 3 years
2015
2014
78%
-2%
80%
Third party assets
under management
2015
2014
£2.1bn
£1.9bn
9%
Third party net inflows
2015
2014
£81m
-7%
£88m
2015
2014
Net Revenue
£10.5m
£10.2m
Expenses
£12.6m
£13.4m
Loss before tax
(£2.1m)
(£3.2m)
Alliance Trust Savings
Alliance Trust PLC Report & Accounts 2015 | 17
Alliance Trust Savings is a platform business offering a range
of investment and pension products. The focus of Alliance
Trust Savings during the last year has been on delivery of new
technology and organic growth across all our distribution
channels. There are three channels; direct, intermediary
and corporate partnerships. The emphasis has been on its
intermediary channel while continuing to offer retail clients
access to its award winning products and service.
The Company has made a further investment in the business
this year of £37.1m, which included the conversion of an
existing £7.1m loan. This was used to fund the acquisition of
the Stocktrade business and the need for additional regulatory
capital, giving a total investment since the business was
established in 1986 of £92.9m. The Directors attributed a fair
value to this business at 31 December 2015 of £54.0m, an
increase of 71% on its value last year, after obtaining an external
valuation of this business. Further details of the methodology
used and the approach adopted can be found in Note 23.8 on
pages 81 to 83.
In May 2015 Alliance Trust Savings agreed to acquire the
business and assets of Stocktrade, an execution-only stockbroker
owned by Brewin Dolphin. The Stocktrade retail customers were
successfully transferred onto the Alliance Trust Savings platform
in the autumn, adding £0.7bn of assets under administration,
nearly 9,000 new accounts and over 5,000 certificated trading
accounts. We expect the transaction to complete with the
transfer of the corporate clients in the first half of 2016.
Both customer numbers and assets under administration
have increased significantly during the year as a result of the
acquisition and continued organic growth. Excluding the
impact of Stocktrade, assets under administration grew by 21%
and customer accounts by 6%.
Alliance Trust Savings saw net revenue grow during the year
to £13.7m, an increase of 7%, and made a loss in the year of
£5.2m compared to its loss of £3.9m last year. This loss was
attributable to expenses incurred on new technology, the cost
Key Performance Indicators
Year to 31 December
Fair value
2015
2014
£54.0m
£31.6m
71%
Assets under
administration
2015
2014
£8.5bn*
£6.4bn
32%
*
includes former Stocktrade assets under
administration of £0.7bn
Customer accounts
2015
2014
84,746*
71,762
18%
*
includes 8,991 former Stocktrade accounts
Number of trades
2015
2014
539,222
494,483
9%
2015
2014
Net Revenue
£13.7m
£12.8m
Expenses
£18.9m
£16.7m
of implementing a revised management and board structure
Loss before tax*
(£5.2m)
(£3.9m)
and lower than anticipated revenue.
The acquisition of Stocktrade, together with the investment
in new technology, were key developments for Alliance Trust
Savings and the business is now positioned to deliver a profit
in 2016.
* This includes a provision of £2.2m (2014: £0.4m)
made against the net gain of £6.7m on discontinued
operations in 2013 relating to the sale of the former
Full SIPP business.
2015
WINNER
Best SIPP Provider
18 | Alliance Trust PLC Report & Accounts 2015
Risk Management
This section of the report deals with the structure of the Group’s
controls. Individual risk and control owners are assigned
Risk Management Framework and risk reporting prior to the
with explicit responsibility for the ongoing monitoring and
implementation, after the year end, of the change in structure
management of risks. This is reinforced through minimum
which was announced in October 2015.
standards communicated via the Group Policy Framework.
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
Prudential, Operational, Strategic and Regulatory & Conduct Risk.
Quarterly risk outlook workshops are undertaken to consider
and assess potential changes to the risk profile, including future
risks, of the Group.
Effectiveness of the Risk Management
and Internal Control Systems
We undertake an annual assessment of the effectiveness of the
Risk Framework (see diagram below).
The Risk Management Framework supports two key processes:
The most recent assessment was presented to the Audit & Risk
-
the ICAAP (Internal Capital Adequacy Assessment Process),
Committee following the year end and noted that there were
which helps to determine the capital requirements
(including potential stress points) of the Group; and
no significant concerns to highlight.
An annual report on the effectiveness of the internal control
-
the ILAAP (Internal Liquidity Adequacy Assessment Process),
systems is provided to the Board. This includes a review of
which helps to determine the liquidity requirements
(including potential stress points) of the Group.
Risk Appetite
all material financial, prudential, operational and compliance
controls. The report builds on the reporting of each line of
defence that is provided across the course of the year through
the governance committees up to the Board.
The latest report was presented to the Audit & Risk Committee
Risk appetite statements have been approved by the Board and
following the year end and no material issues were identified.
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 comprised 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 Finance
Director and comprising members of the senior management
of the Group, ensured that the key risks were identified,
monitored, assessed and controlled.
The Committees received reports of Risk Exposures and Events,
as well as discussing any breaches of the agreed risk appetite.
Our new structure now combines Audit and Risk into one
committee whose primary focus will be the current and future
risks of the Company rather than those of the Group and
we believe that the framework is appropriate for our new
governance arrangements.
Risk and Control Self-Assessment (RCSA)
The RCSA is the methodology that allows the Group to identify
Risk
universe
Risk
appetite
Policies
Governance
Management
information
Risk
management
organisation
Risk
measurement
Embed
risk practices
Culture
Conduct
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 Prudential, Operational, Strategic and Regulatory
& Conduct Risks. The Board carried out a robust assessment of
the principal risks that the Group could face, their mitigants and
the trend of the likelihood of the risk materialising. The arrows
in the table show whether the risks are regarded as increasing
(s), decreasing (t) or unchanged ( ) compared to the
previous year. The results of this assessment (which forms part
tt
and assess risks, and define and perform quarterly testing of
of the Group ICAAP) are noted on the next page.
Alliance Trust PLC Report & Accounts 2015 | 19
Prudential Risks
Risk
Change
Description
Mitigating activities
Investment
under-
performance
Liquidity
shortage
Investment performance fails to deliver sufficient capital
growth due to poor stock selection, sector allocation or
wider market movements.
• Asset allocation strategy and governance
• Robust investment process
• Compliance with investment parameters regularly
tested
• Stress and scenario testing of portfolios
• Risk and performance management information
regularly reviewed at Executive and Board level
The Company or its subsidiaries do not have sufficient
liquid resources to ensure that they meet their liabilities
as they fall due during normal and stressed times.
• Majority of investments are in listed equities
• Daily monitoring of cash and bond positions
• Asset and Liability Committee regularly reviews
exposures
• Gearing availability
Operational Risks
Risk
Change
Description
Mitigating activities
Failure to ensure that the business is adequately
protected against the threat of cyber attack, which may
lead to significant business disruption or external fraud.
Despite action taken by management to improve
systems the increasing trend is due to the general
growth in cyber related incidents across the industry.
• Systems and controls to protect the business
regularly tested
• Ongoing monitoring of environment to understand
threat landscape
• Programme of enhancements to keep pace with latest
defence strategies
• Business continuity plans in place should an incident
occur
Failure to manage projects effectively, leading to issues
with cost, quality and reputational impact.
• Change management framework rigorously applied
• Regular Management Information on projects provided
to Executive and Board level
Cyber attack
Ineffective
change
delivery
Strategic Risks
Risk
Change
Description
Mitigating activities
Performance
impacted
by external
factors
Subsidiary
under-
performance
Stock market action involving Alliance Trust results in
uncertainty around the business model and impact on
performance (current and future).
The increasing risk trend is due to continued focus by
shareholders on delivery of the Trust’s strategy.
• Continuous monitoring against KPIs at Board level
• Regular meeting with shareholders
• Regular reviews of business model and strategy
• Ongoing review of political and economic environment
Alliance Trust Savings or Alliance Trust Investments do
not meet their business plans, causing the Company to
fail to make a return on its investment.
• Regular reporting to Board of performance against plan
• Active management of costs
• Reviews of threats to revenue streams and
management of key clients
• Diversified proposition
Regulatory and Conduct Risks
Risk
Change
Description
Mitigating activities
Regulatory
non-
compliance
Customer
detriment
Failure to ensure that systems and controls are adequate
to allow compliance with all relevant regulatory
requirements.
• Risk Control Self-Assessment process regularly assesses
robustness of control environment
• First line assurance and second line compliance
monitoring programme
• Regulatory developments process to ensure changes
are appropriately implemented
• Verification activities by Depositary as part of AIFM
Directive requirements
Risk of significant customer impact as a result of poor
customer service caused by operational stretch or
compounded strategic change.
• Culture puts customer at heart of the business
• Customer outcome Management Information regularly
reviewed at operational, Executive and Board level
20 | Alliance Trust PLC Report & Accounts 2015
Corporate Responsibility
Last year we reported in detail on what the Company and
committed to creating an inclusive environment where our
its employees were doing to demonstrate its commitment to
people can develop and contribute fully.
growing the business in a way that is responsible and ensures
a sustainable future for our shareholders, customers and
communities. This year we highlight some of the main actions.
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
Stewardship: We have now had a full year under the stewardship
suitability for the job to be done. We will not discriminate either
of our current investment management team and our investment
before or during employment on the basis of gender, sexual
process is described on pages 10 and 11. We also look to vote
orientation, age, race, nationality, disability, political or religious
whenever possible and in 2015 we voted at 80 meetings, 95%
belief. Should any of our people become disabled we will ensure
of the meetings at which we were eligible to vote. For 59 of
that they do not suffer any discrimination and we will make
these meetings we voted against, withheld or abstained on
reasonable adjustments to allow them to continue to have the
one or more resolutions. These votes related to concerns about
same opportunities as any other member of our workforce.
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.
We are a signatory to the UN Principles for Responsible
Investment (PRI) and one of our investment managers is
Chairman of the PRI’s ESG Integration working group. We are
also members of the World Business Council for Sustainable
Development which seeks to promote sustainability both
in business and through its work with UN Habitat and the
The table below provides the gender split at different levels
within the business as at 31 December 2015.
Board
Senior Managers
Total Workforce
Male
7 (70%)
46 (75%)
Female
3 (30%)
15 (25%)
156 (49.5%)
159 (50.5%)
Total Greenhouse Gas emissions data
International Union for Conservation of Nature (IUCN) World
We report here on all of the emission sources required under the
Conservation Congress.
Customers: We aim to have straightforward and open
communication with our customers. In 2015 we carried out a
customer perception audit which identified that Alliance Trust
was seen as reliable, consistent, dependable, safe and secure.
Companies Act 2006 (Strategic Report and Directors’ Report)
Regulations 2013. These sources fall within our consolidated
financial statements. We do not have responsibility for any
emission sources that are not included in our consolidated
financial statements.
However it was felt that our communication on how we invest
Our carbon footprint has been calculated based on the Defra
could be improved as could our investment performance. We
Environmental Reporting Guidelines (including mandatory
report on pages 10 and 11 the process that our managers
greenhouse gas emissions reporting guidance). We have adopted
follow and on page 6 how our investment performance
an operational control approach. The emissions reported
has exceeded benchmark. We provide a dedicated website,
opposite have been verified by Carbon Footprint Limited.
Investment Focus, to provide useful information and articles on
many aspects of investment.
Details of our verification statements are available on our website:
www.alliancetrust.co.uk/pdfs/CarbonActionVerification
Communities: We continued to support the communities
Statement.pdf
in which we operate. The Alliance Trust Foundation, which
raises money through the Alliance Trust Cateran Yomp and
fundraising activities by staff, distributed £27,000 to six charities
nominated by staff as part of our annual grant process. In
addition each month we make smaller donations to local
charities and groups and in the year this amounted to £10,000.
In December the Foundation donated over £2,000 to support
foodbanks and other charities seeking to alleviate poverty at
Christmas in Dundee, Edinburgh and London.
In the year the Company was identified as a UK leader for
the quality of climate change related information that it has
disclosed to investors and the global marketplace through the
Carbon Disclosure Project (CDP), which is an international
not-for-profit organisation that drives sustainable economies.
It was awarded a position on the FTSE 350 Climate Disclosure
Leadership Index (CDLI), in the United Kingdom edition of
CDP’s annual global climate change report. The position on the
Index was earned by disclosing high quality carbon emissions
In September, in conjunction with D C Thomson, we launched
and energy data through CDP’s climate change programme.
a schools programme – ‘Tomorrow’s Talent’ – with around 40
The reported data has been independently assessed against
staff assisting in workshops involving over 1,000 pupils in 11
CDP’s scoring methodology and marked out of 100. The
local secondary schools.
Company scored 99. Those organisations graded within the top
People: We believe that a diverse workforce will create the
environment to allow our business to thrive and grow. We are
10% constitute the CDLI.
Alliance Trust PLC Report & Accounts 2015 | 21
Tonnes C02e
Scope 1
Scope 2
– Location based
Scope 3
• Direct energy consumption
• Company owned road vehicles
• Refrigerant loss at all facilities where
Alliance Trust has operational control
• Indirect energy consumption
• Business travel
• Energy used at downstream property
investments
Year to
31 Dec
2013
Year to
31 Dec
2014
Year to
31 Dec
2015
%
Change
year on
year
211
190
181
-5%
489
649
535
592
472
-12%
645
9%
Key Performance
Indicator (KPI)
Scope 1 + 2 normalised to per full-time
employee equivalent (FTE)
2.76
2.63
2.07
-21%
Strategic Report
The Strategic Report (comprising the inside cover to page 21
of this document and the viability statement on page 33) has
been approved by the Board and signed on its behalf by
Lord Smith of Kelvin
Chairman
3 March 2016
22 | Alliance Trust PLC Report & Accounts 2015
Directors
Lord Smith of Kelvin
Chairman
Gregor Stewart
Deputy Chairman
Anthony Brooke
Non-Executive Director
John Hylands
Non-Executive Director
Appointment to the Board 2016
Appointment to the Board 2014
Appointment to the Board 2015
Appointment to the Board 2008
Committee membership
Committee membership
Committee membership
Committee membership
• Nomination (Chair)
• Management Engagement
Skills and experience
•
Financial Services
• Business Leadership
• Asset Management
•
Investment
External appointments
• Chairman of IMI PLC, UK Green
Investment Bank and Forth Ports
Limited
Previous experience
Management
• Chairman of The Weir Group PLC and
SSE PLC
• Non-Executive Director of Standard
Bank Group Limited
• Chairman of the Scottish Devolution
Commission
• Chairman of the Glasgow 2014
Commonwealth Games organising
company
• Nomination
• Audit & Risk
• Remuneration
• Nomination
• Audit & Risk
• Nomination
• Audit & Risk (Chair)
• Remuneration (Chair)
• Remuneration
• Management Engagement
• Management Engagement
• Management Engagement
Skills and experience
Skills and experience
Non-Executive Director
of Alliance Trust Savings
Skills and experience
•
•
Financial Oversight
Financial Services
• Risk
•
Strategy Change
• Corporate Finance
External appointments
• Non-Executive Director of Intrinsic
Financial Services, Intrinsic Mortgage
Planning and Intrinsic Wealth Group,
FNZ UK Limited and its holding
company.
• Honorary Treasurer for the charity
•
Investment
• Asset Management
• Corporate Finance
External appointments
• Non-Executive Director of
Quintessentially (UK)
• Member of the Investments
Committee of Christ’s College,
Cambridge
• Member of the Investment
Committee of the National Portrait
Gallery, London
• Investment advisor to Charitable
endowments
Previous experience
International Alert
• Vice-Chairman of S G Warburg
Previous experience
• Finance Director for the Insurance
Division of Lloyds Banking Group
• Chartered Accountant with and
Partner of Ernst & Young
& Co. Ltd
• Partner of Fauchier Partners
• Non-Executive Director of
Huntsworth plc
•
•
Financial Oversight
Financial Services
• Marketing and Distribution
• Risk
• Corporate Finance
External appointments
• Non-Executive Director of
Ecclesiastical Insurance Group
• Non-Executive Director of Scottish
Widows and other companies in
Lloyds Banking Group
• Chairs the trustees of the BOC
pension scheme
Previous experience
• Finance Director at Standard Life
• Actuarial, finance and management
positions within Standard Life
• Chairman of the Standard Life
pension scheme
• Chief Executive Morgan Grenfell Asset
• Marketing and Distribution
Gender Diversity
Board Skills and Experience
We are proud of our strong record of diversity at Board level.
In the selection of our Board Members we use a skills matrix
While we have an all male Board for the first time in 15 years,
to identify areas of required competencies of the Board. The
and a male Chairman for the first time since 2004, we remain
measures we used in the year, both those that we regard as
supportive of, and are committed to, improving gender balance
Essential for the Board as a whole to have and those which are
on our Board. Over time the Board intends to achieve at least
Supplementary are listed below. In the text under each director
25% female representation on the Board. We have initiated a
we highlight which of these skills each possesses. In light of the
search to appoint an additional director with the intention of
new structure of the Group, the desirability of having experience
improving the gender diversity while also strengthening the
in some of the Supplementary areas, such as Human Resources
existing Board’s skills and experience.
and Information Technology, is considerably diminished.
Alliance Trust PLC Report & Accounts 2015 | 23
Rory Macnamara
Non-Executive Director
Chris Samuel
Non-Executive Director
Karl Sternberg
Non-Executive Director
(Senior Independent Director)
Appointment to the Board 2015
Appointment to the Board 2015
Appointment to the Board 2015
Committee membership
Committee membership
Committee membership
• Nomination
• Audit & Risk
• Remuneration
• Nomination
• Audit & Risk
• Remuneration
• Nomination
• Audit & Risk
• Remuneration
• Management Engagement
• Management Engagement
• Management Engagement (Chair)
Skills and experience
• Strategy/Change
• Corporate Finance
External appointments
• Chairman of Dunedin Income &
Growth Investment Trust PLC
• Non-Executive Director of Augean
PLC, Mears Group PLC, and C & C
Group PLC
Previous experience
• Chairman of Mecom Group, Dragon-
Ukrainian Properties & Development,
Carpathian, Izodia and Goshawk
Insurance Holdings
• Non-Executive Director of Private
Equity Investor
• Deputy Chairman of Deutsche
Morgan Grenfell
Non-Executive Director
of Alliance Trust Investments
Skills and experience
• Asset Management
• Financial Oversight
• Business Leadership
• Corporate Finance
External appointments
• Chairman of Defaqto
• Non-Executive Director of JP Morgan
Japanese Investment Trust PLC
• Non-Executive Director bio-bean Ltd,
Scrubbys Food Limited, UIL Limited,
UIL Finance Limited
• Non-Executive Director London
Community Foundation
Skills and experience
• Investment
• Asset Management
• Business Leadership
External appointments
• Chairman of JP Morgan Income and
Growth Trust PLC
• Non-Executive director of Monks
Investment Trust PLC, Lowland
Investment Company PLC, Herald
Investment Trust PLC, Railpen
Investments and Clipstone Logistics
REIT PLC
• Member of Governing Body of Christ
Church, Oxford
• Fellow of St Catherine’s College,
Oxford.
Previous experience
Previous experience
• Chief Executive of Ignis Asset
• Partner of Oxford Investment Partners
Management
• Chief Operating Officer at Gartmore
• Chief Operating Officer at Hill Samuel
Asset Management
• Partner at Cambridge Place
Investment Management
• Chartered Accountant with KPMG
• Global Head of Equities and Chief
Investment Officer Europe and Asia
Pacific at Deutsche Asset Management
Essential
Supplementary
Investment
Direct management of equity/fixed income investments
Business Leadership
Current or past CEO of a standalone business
Asset Management
Senior role in a business managing third party assets
Risk
Experience of management of risk, including regulatory issues
Financial Oversight
Leadership of the finance function of a large business
OR partner in major accountancy firm
Financial Services
Senior role in a business offering retail financial products
Marketing and Distribution
Marketing to retail consumers, both direct and intermediated
Strategy/Change
Development of strategy and management of change
Corporate Finance
Experience of M&A and financing activity
Human Resources
Experience of development and delivery of people strategies
Information Technology
Experience of development and delivery of IT strategies
24 | Alliance Trust PLC Report & Accounts 2015
Corporate Governance
Alliance Trust is committed to good corporate governance. The
The Board sets the long-term objectives of the Company
Board believes that this is best achieved by considering how the
and approves its business plans and strategic direction. It is
various corporate codes should be applied to the running of the
responsible for ensuring that a framework of prudent controls
Company, rather than simply following checklists. As explained
is in place to enable risk to be managed effectively. It provides
earlier in the Report, this year we announced radical changes to
leadership and reviews business performance.
the way in which the Company will operate going forward. The
Board believes this will simplify the business and also make it
Details of the Board members can be found on pages 22 and 23.
easier for shareholders to understand our strategy and how we
During 2015 the Board delegated certain decisions to
work to provide shareholder returns.
The following pages describe the work of the Board and its
committees comprising Non-Executive Directors, Executive
Directors or a combination of these and management.
various committees during 2015. We also outline the structure we
The areas of decision-making that the Board reserved to
will have in the future following the restructure of the Group.
itself were:
Both of our subsidiaries, Alliance Trust Savings and Alliance Trust
•
strategy and investment policy
Investments, operate subject to regulatory supervision. However
the way in which they operate is also monitored by the Board
• new subsidiary businesses and joint ventures
of the Company. We have now set up independent Boards for
• annual budget
both Alliance Trust Savings and Alliance Trust Investments and
while the Board of the Company can exert control through its
shareholdings in each of the subsidiaries, it will no longer have
a significant influence in the decisions taken by either of these
businesses. We set out on the next page how our new structure
will operate.
At each Board meeting, the Board scrutinises KPI reports
covering all aspects of the business, including investment and
operational performance and customer outcomes. This enables
the Board to satisfy itself that good progress is being made
against the agreed business plan and allows it to take early
corrective action where required. In addition the Board receives
regular in-depth presentations from investment managers
and also from the Alliance Trust Savings and Alliance Trust
Investments management teams. These presentations give the
Board the opportunity to provide both support and challenge to
management across all areas of the business.
• approval of treasury policies, banking counterparties and
counterparty exposure limits
• group borrowing limits and the maximum amounts and
nature of new bank borrowing facilities
• major contracts
• asset classes in which any Group company may invest
• derivative instruments which any Group company may use
• material changes to gearing and the percentage mix of
asset allocation by class and geography
• major changes in employment and remuneration structures
• political and charitable donations
• any material litigation or civil proceedings
The Boards of the Company’s subsidiaries are required to seek
endorsement from the parent Board for a range of matters.
Compliance with UK Corporate
Governance Code
The FRC published a new edition of the UK Corporate
During the year these included:
• business plans and annual budgets
• approval of directors and officers
Governance Code in September 2014 that applies to reporting
• acquisition or disposal of part of any business
periods beginning on or after 1 October 2014 (“the Code”).
The Company has complied throughout 2015 with the Code.
This report describes how the Board applies the principles of the
Code in practice.
•
launch of new or material changes to existing funds
or products
•
significant contracts
We also comply with the principles of the AIC Code of
The page opposite shows our new structure and the way in
Corporate Governance issued in February 2015. In future years
which the Board of the Company and those of its subsidiaries
we will only report on compliance against the AIC code.
will operate.
Lord Smith of Kelvin, Chairman
Corporate Governance
Alliance Trust PLC Report & Accounts 2015 | 25
Corporate structure
We have a number of Board Committees to ensure good governance and management and to enhance accountability and
independence. After our announcement regarding the changes to governance we restructured our Board Committees. The terms
of reference of the four committees reporting to the Board can be found at http://investor.alliancetrust.co.uk/ati/investorrelations/
board.htm. The chart below shows the main committees and reporting lines within the Group that are in place for the future and as
it was at the year end.
New
structure
Old structure
Board of Directors
Board Committees
Audit & Risk
Management
Engagement
Nomination
Remuneration
Subsidiary Boards
Alliance Trust Investments
Alliance Trust Savings
Board of Directors
Board Committees
Board Risk
Nomination
Remuneration
Audit
Chief Executive
Key Management Committees
Asset Allocation
Executive
Authorisation
Risk Management
Portfolio Oversight
Subsidiary Boards
Alliance Trust Investments
Alliance Trust Savings
In the future the Board of the Company will no longer require the subsidiary boards to seek endorsement for their business plans,
budgets, the launch of new funds or products or approval of major business expenditure. These, along with the appointment of
new independent directors, are part of the changes introduced to make the subsidiary boards more autonomous.
The Board will still maintain an element of oversight and it has to be consulted before either of the subsidiaries takes any action
which could impact adversely on the reputation or long-term financial interests of the Company. Each of the subsidiary companies
will also have a non-executive director from the Company sitting as a non-executive director on its board.
26 | Alliance Trust PLC Report & Accounts 2015
Board Evaluation
We believe that boards should regularly review their
own performance as part of a programme of continuous
improvement. In addition to regular discussions in the course
of board meetings, the Board undertakes a formal review of its
own performance each year and, in addition, each of the four
board committees undertakes its own review, the results of
which are reported to the Board.
Alliance Trust has a longstanding practice of periodic externally
facilitated board reviews and has now done so four times
beginning in 2007. In last year’s report we also indicated our
intention to undertake an externally-facilitated evaluation in 2015.
2014 evaluation
Last year’s report outlined a series of actions to be taken in
2015 to address findings from the 2014 evaluation, which was
internally facilitated, covering:
•
Investment performance reporting
• The process for review of policy documents
• Management reporting
• Use of video-conferencing
•
Involvement of other directors in committee meetings
• Board visibility across the organisation
and all of these were progressed during the year.
2015 evaluation
The Board decided that the 2015 evaluation should be
externally facilitated, and that one area of focus should be
an assessment of the skills and competencies of both current
and future board members. It was also agreed that the timing
of the exercise should be brought forward so that the Board
could consider the results of that assessment in finalising the
specification for an additional non-executive director.
The evaluation was carried out by the executive search and board
advisory firm Russell Reynolds, who also provide non-executive
director search services to the Company and its subsidiaries,
and they attended the July 2015 Board meeting to present
their findings. In preparing their report they met all directors
(including those appointed following the 2015 AGM), the
Company Secretary and members of the Executive Committee.
The conclusion of the report was that, overall, the Board
had robust governance practices and a good, diverse mix of
directors with strong values alignment and orientation; the
Board and committees functioned well with strong processes
and diligent focus.
Russell Reynolds identified five priorities for the Board:
• Performance focus – to drive increased performance across
all parts of the business and discussion of strategic options
at Board level
•
Investor engagement – to increase engagement with both
institutional and individual shareholders
• Board culture – to ensure that all perspectives are fully
discussed before moving to closure
•
Investment management experience – broadening the
investment management experience on the Board
• Management development – to ensure continuing focus
on high potential talent within the organisation and aligning
strategy with their capabilities and not overly stretched
Following the July Board meeting the Board agreed a series of
actions to address these and also the more detailed findings.
These were reflected in the subsequent search which led to the
appointment of Chris Samuel and Karl Sternberg as additional
non-executive directors.
Separately, each of the Board committees undertook its own
performance evaluation, with members of the committees
completing questionnaires focusing on whether each
committee had performed in accordance with its terms of
reference during the year. The results of these evaluations were
discussed by the committees concerned and then reported to
the Board.
External Evaluation
Agree focus and timing
Agree external evaluator
Outside firm interviews Directors
and senior managers
Outside firm attends Board
meeting
Presentation of findings to Board
Agree Actions
Implement Actions
Year 1
External
Our three
year
evaluation
cycle
Internal Evaluation
Agree themes
Questionnaires completed by
Board and senior managers
Interviews by Chairman
Report to the Board
Agree Actions
Implement Actions
Year 2
Internal
Year 3
Internal
Board Risk Committee
Alliance Trust PLC Report & Accounts 2015 | 27
The Board Risk Committee provided greater scrutiny of the risks involved in a Group comprising an investment
trust, an asset management business and a share trading platform. It monitored and challenged the
effectiveness of risk management across all parts of the Group. In future, risks relating to the Company will
be considered by the Audit and Risk Committee. Matters relating to the other companies in the Group will be
considered by the Audit and Risk Committees of those companies. We set out on pages 18 and 19 how the
business managed risk in the year and below we provide the areas of focus of the Committee during the year. This
committee was chaired by Susan Noble during the year and was discontinued in February 2016.
Areas of focus in 2015
Risk appetite
The Committee considered the risk appetites recommended by management in relation to the Company
and the subsidiary companies and agreed a number of changes reflecting the new structure of the
Group and changes to the business environment in which they operate.
Risk monitoring
and reporting
The Committee received quarterly risk reports and continued the ongoing development of these reports
as a tool for management to measure risk and the effectiveness of the mitigating actions that had been
put in place. Monitoring included an Internal Capital Adequacy Assessment Process (which involves
analysing the risks, including solvency and liquidity, to businesses and the level of capital the business
should hold to reflect those risks) for the Company and the other businesses in the Group, Recovery and
Resolution Plans for Alliance Trust Savings (which considers how that business should react to extreme
stresses), and an Internal Liquidity Adequacy Assessment Process.
Investment risk
The Performance and Investment Risk Manager reports at each meeting how the investment managers
are managing risk within their portfolios. In the course of the year the Committee extended the scope of
reporting to provide increased levels of oversight.
Regulatory
compliance
The Committee considered and recommended for approval by the Board a number of submissions
to the Regulator. The Committee receives regular reports on new legislation that will impact on the
business and the risks associated with non-compliance with regulatory requirements.
Cyber Risk
The Committee received regular reports on the activities of the IT department to improve and enhance
IT security. The Committee heard that the Group had tested the effectiveness of its Business Continuity
Plan during the year and the security measures already in place have been further enhanced to reduce
future risk.
Pension scheme
The Committee considered the ongoing risks associated with funding the closed defined benefit pension
scheme and agreed to investigate removal of this risk by looking at a buyout of the scheme liabilities.
28 | Alliance Trust PLC Report & Accounts 2015
Nomination Committee
The Nomination Committee exists to assess the skills and experience of the individual directors of the Company in
order to ensure that they are sufficient to provide effective direction and oversight of the Company’s strategy and
operation. We set out below the main areas of focus of the Committee during 2015.
Lord Smith of Kelvin, Chairman, Nomination Committee
Areas of focus in 2015
Non-Executive
Director succession
planning
The Committee discussed the need for the recruitment of an additional non-executive early in the year
and agreed that this process should continue, notwithstanding the addition of two new non-executive
directors following the Annual General Meeting. The independent search firm used, Russell Reynolds,
which was also used this year for board evaluation, has no other connection with the Company.
The appointed search firm sourced two strong candidates and, after consultation with major
shareholders, the Committee decided to recommend to the Board the appointment of both Karl
Sternberg and Chris Samuel, as they both complemented the skills of the existing directors.
Re-election of
Directors
Subsidiary
Company Non-
Executive Director
and Chairman
appointments
Since 2011 each Director has been subject to annual re-election by shareholders. The Committee
considered each continuing Director for their independence, contribution, commitment and time
availability and concluded that each Director satisfied these criteria and recommended their re-election.
The Committee also assessed each director appointed since the last AGM and also assessed them under
the same criteria and recommended their election.
Following upon the Board’s decision to support an independent board for Alliance Trust Savings
the Committee instructed Russell Reynolds to carry out a search. Candidates were identified
and appointments subsequently made. In the case of Alliance Trust Investments the Committee
recommended the appointment of Susan Noble as the Chairman of Alliance Trust Investments.
In the case of both subsidiaries the Committee considered the most appropriate Company Director to
serve in a non-executive capacity on the Board of the subsidiaries. It was agreed that Chris Samuel would
join the Board of Alliance Trust Investments and Gregor Stewart the Board of Alliance Trust Savings.
Chairman
appointment
Following upon the resignation of Karin Forseke as Chair, the Committee appointed Russell Reynolds to
carry out a search for her replacement. After the end of the year the decision, on the recommendation of
the Committee, was taken to appoint Lord Smith as Chairman.
Deputy Chairman
Appointment
As part of the consideration of the appointment of Lord Smith, and in light of the Board being wholly
non-executive, the Committee considered the need for a Deputy Chairman. The Committee felt that,
while unusual for an investment trust, this would provide support to the Chairman during a period likely
to involve a greater than usual workload.
Board and
Committee
composition
The Committee considered the impact of the restructured Group and recommended changes to the
membership of the different Board Committees to reflect the new makeup of the Board.
Audit and Risk Committee
Alliance Trust PLC Report & Accounts 2015 | 29
In this section we set out the main areas of focus of the Committee during the year. Like the Board Risk
Committee the Audit Committee had responsibility for oversight of all companies within the Group. The Audit
Committee became the Audit and Risk Committee on 4 February 2016. The Audit and Risk Committee now
considers audit and risk matters relating to the Company. Minutes of the subsidiaries’ committees are reviewed
by this Committee to maintain an overview of audit and risk issues arising in the subsidiaries.
John Hylands Chairman, Audit and Risk Committee
Areas of focus in 2015
Critical Accounting
Policy
The Committee was presented with a detailed paper on the implications of changing the allocation of
administrative expenses. The Committee considered the proposal to allocate one-third of such expenses to
revenue and the balance to capital and agreed the change. The Committee welcomed the change which brought
the policy of the Company into line with the AIC Statement of Recommended Practice and was consistent with the
approach of other investment trusts.
Investment
portfolio valuation
and oversight of
listed investments
Valuation
of unlisted
investments
Listed investments represent the most significant item on the balance sheet and are the main driver of investment
performance. The Committee received management reports on the controls and procedures of the external
custodian/administrator. These allowed the Committee to assess that the controls in place to ensure the
ownership, valuation and liquidity of these investments were effective.
The valuation methodology used to value the investments in the subsidiaries and private equity investments
can be found in Note 23.8 on pages 83 to 86. The Committee recognised that Alliance Trust Savings was now
of a scale that consideration needed to be given to having an external valuation carried out and an external
valuation was instructed. The Committee challenged the range of values provided and after fully reviewing the
methodology and assumptions adopted, the Committee approved a value which fell in the midpoint of the
range of values proposed. In respect of Alliance Trust Investments, the Committee debated the initial valuation
methodology and outputs provided by management prior to the final valuations of the subsidiaries being
recommended to the Board for approval.
UK Corporate
Governance Code
The Committee considered the adoption of the amendments to the UK Corporate Governance Code and in
particular the need to include a viability statement in the Accounts. Management provided a number of papers
on this aspect of the changes to assist the Committee reaching the conclusions detailed on page 24.
Internal Audit
function
In the early part of the year the Committee concluded that it was appropriate to outsource the Internal Audit
function. The Committee will consider the need for the Company to continue to have its own dedicated internal
audit function under the new Group structure.
Review of Annual
and Interim
Accounts
The Committee considered the content of the Interim Accounts and the Report and Accounts of the Company
and the accounts of Alliance Trust Investments and Alliance Trust Savings before recommending approval
to their respective Boards. The Committee concluded that the Company’s accounts were fair, balanced and
understandable.
External Auditor
The Committee considered the independence and performance of the External Auditor before arriving at the
conclusions on page 31.
Project controls
The Committee considered the progress of the implementation of the new technology platform for Alliance
Trust Savings and agreed the criteria for the system going live. The Committee also reviewed the progress being
made on the acquisition of the Stocktrade business and its integration into the Alliance Trust Savings business.
Other items
In addition to the above the Committee reviewed the whistleblowing policy, regular reports from the Head of
Compliance and Head of Internal Audit and the implications of new accounting standards.
30 | Alliance Trust PLC Report & Accounts 2015
Internal controls
their opinion, based on the information available to them and the
explanations provided, that in all material respects the Company
The Group has a clear governance structure for the control and
has been managed in accordance with the rules in the FUND
monitoring of its business, including defined lines of responsibility
sourcebook, the Articles of Association of the Company and as
and delegation of authority. The Group has a comprehensive
required by the AIFM Directive.
system for reviewing, monitoring and reporting to the Board,
including a detailed financial review against forecast.
The Board is responsible for determining its appetite for the level
of risk it is willing to take in achieving its strategic objectives and
for the Group’s risk management and internal control systems.
Throughout 2015, the Audit and the Board Risk Committees
assisted the Board in fulfilling this responsibility through regular
review of their effectiveness, including all material financial,
operational and compliance controls. In 2016, under the new
organisational structure, responsibility for these two functions
were combined into a single Audit & Risk Committee.
The Board has an established ongoing process for the
identification, evaluation and management of the significant
risks faced by the Group. The Board Risk Committee regularly
reviewed this process, which is in accordance with the “Guidance
on Risk Management, Internal control and Related Financial and
Business Reporting” issued in September 2014. The process helps
the Board to carry out a robust assessment of the principal risks to
the business as outlined on pages 18 and 19.
The Group’s system of internal control is designed to facilitate
effective and efficient operations and to ensure the assets of the
Group and its customers are safeguarded, proper accounting
records are maintained, and the financial information used
within the business and for reporting to stakeholders is reliable.
Any system of risk management and internal control is designed
to manage, rather than eliminate, the risk of failure to achieve
business objectives and can only provide reasonable assurance
and not absolute assurance against regulatory breach, material
misstatement or loss.
The Audit Committee asked management to undertake a detailed
review of the current arrangements for client assets as well as
the implementation of outsourcing to ensure that appropriate
controls were in place for current business and for any change in
the regulatory regime for client assets.
During 2015 the Board Risk Committee reviewed the
effectiveness of the Group’s Risk Management Framework and
reviewed and challenged the results of each of the Group’s
quarterly Risk and Control Self- Assessment process which
considers the effectiveness of internal control in managing the
significant risks to which the Group is exposed. These reviews
included the Risk Appetite of the Company and of its subsidiaries
as well as whether any of the trigger points set by the Board
against each measure had been breached
During 2015 the Audit Committee regularly received reports
from the Group’s Compliance and Internal Audit functions
and from the External Auditor which include details of all
significant internal control issues relating to the Group. The Audit
Committee provided independent oversight of Internal Audit
and Compliance to ensure that they were providing the level of
scrutiny expected by the relevant Committees and the Board. In
arriving at their conclusions, and to allow reports to be made to
them without management presence, the Audit Committee had
private sessions with each of the Head of Internal Audit, Director
of Compliance and the External Auditor during the year.
The Audit & Risk Committee performed an assessment for the
purpose of this annual report, which considered all significant
aspects of risk management and internal control arising
during the period of the report, including the work of the Risk,
Compliance and Internal Audit functions. The Committee then
reported its findings to the Board.
As a result of the annual review and the ongoing processes
for review, monitoring and reporting of the Group’s risk
management and internal controls, the Board did not identify
any significant weaknesses or failings and remains satisfied with
the effectiveness of the Group’s risk management and internal
control systems. The Board recognises that the environment in
which the Company and its subsidiaries operate is complex and
constantly evolving. The Board supports and guides the business
The Company has appointed a Depositary, National Westminster
in the ongoing development of the risk management tools which
Bank plc. The Depositary is responsible for the safekeeping of
are in place to enhance the control environment of the business
all custodial assets of the Company, ensuring its cash flows are
and to ensure the business continues to be well positioned to
properly monitored, for verifying and maintaining a record of all
comply with operational and regulatory changes.
other assets of the Company and for the collection of income that
arises from the Company’s assets. It is the duty of the Depositary
to take reasonable care to ensure that the Company is managed
in accordance with the FUND Sourcebook, the Company’s
Articles of Association and the AIFM Directive.
From 3 February 2016 Alliance Trust Investments is the alternative
investment fund manager of the Trust under the AIFM Directive
and has responsibility for a number of areas, such as investment
risk, which formerly were considered by the Board Committees.
In future years the nature of this report will change; however as at
Having carried out such procedures as the Depositary considers
the year end the Group structure was unchanged we report here
necessary to discharge their responsibilities as Depositary, it is
on the controls, processes and structures in place at that time.
Alliance Trust PLC Report & Accounts 2015 | 31
Internal controls over financial
reporting
One of the risks to the Group is Financial and Prudential
Reporting – the risk of misstatement of the accounting policies
and ineffective controls over financial and regulatory reporting.
The Group has a Financial Accounting Policy and an Accounting
Manual to enable the Group to comply with all relevant
accounting standards to ensure that the financial statements
provide a true and fair view.
This risk and the mitigating controls are assessed regularly by
management. Controls over the preparation of the consolidated
accounts include but are not limited to:
Independence of Auditor
The Committee’s policy is to allow the audit firm to be
instructed to undertake non-audit work only where there is no
threat to independence. Any assignment must be approved
on behalf of the Committee by its Chair. Such assignments
are normally put out to tender. Last year £4,000 was paid to
the Auditor, in respect of work on the audit of the solvency
statement for the proposed termination of the Alliance Trust
Global Thematic Opportunities Fund.
Each year the Committee considers the independence of the
Auditor. It has done so this year and confirms the Auditor’s
independence.
• A formal review and sign-off of the annual accounts by
management including verification of any statements made;
Effectiveness of Audit process
• Adoption and review of appropriate accounting policies by
During the course of the year the audit engagement partner
the Board;
• Review and approval of accounting estimates by the Board.
and other members of the engagement team met with the
Audit Committee Chair and management, both together and
separately. These meetings provide an opportunity for matters
The Audit & Risk Committee also considered whether the Annual
relating to the conduct of the audit, including the performance
Report, taken as a whole, was fair, balanced and understandable,
of the External Auditor, to be raised and addressed at the time.
and provides the information necessary for shareholders to assess
the Company’s performance, business model and strategy. In
arriving at their conclusion that the Annual Report satisfied this
standard the Committee took into account the process adopted
in the preparation of the document which included:
Following completion of the external audit of the financial
statements for the period ended 31 December 2014 a
formal evaluation of the External Auditor’s effectiveness was
undertaken. The evaluation was conducted by way of a survey,
completed by Audit Committee members and members of
• The involvement of Executive Committee members, the
management within the businesses and the control functions.
Company Secretary, the Head of Performance and Risk, the
Director of Risk, the Financial Controller and the Head of
Investor Relations in regular drafting meetings;
• All subsidiary company executive directors and the
Company Secretary provide sign-off on the draft issued to
the Board for approval;
• Verification of all factual statements contained within the
narrative section of the Annual Report, with evidence
required from the author;
The survey assessed the External Auditor’s performance against
the following criteria: independence and objectivity, audit
strategy, communication with management, and how the audit
was finalised. The Audit Committee considered the results of
the evaluation and concluded that it was satisfied both with
the performance and with the independence of the External
Auditor. No material issues were identified. During the year
action was taken to ensure effective communication between
management and the External Auditor.
• Statements which cannot be verified – typically opinions
or forward-looking statements – specifically brought to the
Tender of Audit
Committee’s attention;
During 2010 the Board carried out a tender exercise for the role
•
Independent internal review by a senior manager not
of Auditor. The Committee decided that it would be appropriate
involved in the preparation of the Annual Report.
to change Auditor and recommended the appointment of
The Committee considered the steps outlined above and the
content of the document. After review the Committee were
satisfied, taking care to ensure that the narrative parts of the
Annual Report were consistent with the numerical disclosures
in the audited accounts, that the Annual Report satisfied the
Deloitte LLP to the Board who in turn recommended their
appointment to the members at the 2011 Annual General
Meeting. Deloitte LLP have been reappointed at subsequent
AGMs and are proposed for reappointment in 2016. The
recommendation to reappoint Deloitte LLP is not automatic.
required standard and recommended approval to the Board.
In the course of the year the Chair of the Committee has met
32 | Alliance Trust PLC Report & Accounts 2015
with the Auditor outwith the formal structure of Committee
In preparing the financial statements, the Directors are
meetings. The Committee has considered the performance of
required to:
the Auditor and is satisfied with the rigour that they apply to
the audit process and have recommended the reappointment of
Deloitte LLP for a further year. In accordance with professional
•
select suitable accounting policies and then apply them
consistently;
guidance, Deloitte LLP change the audit partner every five
• present information, including accounting policies, in a
years. The current partner, Calum Thomson, will this year be
manner that provides relevant, reliable, comparable and
carrying out his final audit for the Trust and a replacement has
understandable information;
been agreed.
• provide additional disclosures when compliance with the
The Committee has decided that it will put the role of Auditor
specific requirements in IFRSs are insufficient to enable users
out to tender at least every 10 years in accordance with the
to understand the impact of particular transactions, other
UK Corporate Governance Code and taking into account new
events and conditions on the entity’s financial position and
rules from the Competition and Markets Authority and the
financial performance; and
• make an assessment of the Company’s ability to continue as
a going concern.
The Directors are responsible for keeping proper accounting
records that disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure
that its financial statements comply with the Companies Act
2006. They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company
and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Directors’ Report and a Strategic
Report that complies with that law and those regulations.
European Commission.
Disclosure of information to Auditor
The Directors who held office at the date of approval of this
Directors’ Report confirm that, so far as they are each aware,
there is no relevant audit information of which the Auditor
is unaware; and each Director has taken all steps they ought
to have taken as a Director to make themselves aware of any
relevant audit information and to establish that the Auditor is
aware of that information.
Directors’ responsibilities statement
The Directors are responsible for preparing the financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial period. By law, the Directors
are required to prepare the group financial statements in
accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union (EU) and Article 4
of the IAS Regulation and have elected to prepare the parent
company financial statements under IFRSs as adopted by the EU.
The financial statements are required by law and IFRSs as
adopted by the EU to present fairly the financial position of the
Company and the performance for that period; the Companies
Act 2006 provides, in relation to such financial statements, that
references in the relevant part of that Act to financial statements
giving a true and fair view are references to their achieving a
fair presentation.
Going concern
Alliance Trust PLC Report & Accounts 2015 | 33
The Group’s business activities are set out on page 4 with the
a continuing economic return to our shareholders whilst
principal risks which could impact on performance set out on
absorbing the impact of any risks which crystallise. As at 31
page 19. The Group’s financial position and cash flows are set
December 2015 the Group’s total net assets were £2.95bn. Our
out on pages 52 to 56 along with an analysis of its borrowings
investment policy restricts gearing to 30% of net assets at any
in Note 15 on page 73. As regards going concern the Directors
given time (12.4% at 31 December 2015).
have considered both liquidity and solvency risks.
Sensitivities to market, credit, liquidity and gearing risk are set
Liquidity is concerned with our ability to liquidate assets or
out in Note 23 on pages 77 to 84.
access new sources of short-term funds in the time needed to
meet our liabilities as they fall due. The majority of the Group’s
assets are in listed securities on recognised stock exchanges
which are readily realisable even in volatile markets. At 31
December 2015 we also had £160m of unused committed
funding lines.
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 at least 12 months from the date
of these Accounts. Accordingly the Directors believe that it is
appropriate to continue to adopt the going concern basis for
Solvency is concerned with our ability to meet our liabilities
preparing the financial statements.
in full. This involves managing our capital by maintaining
a business model which is capable of delivering over time
Viability statement
In accordance with provision C.2.2 of the UK Corporate
As part of the ICAAP, a risk assessment is carried out to identify
Governance Code, the Directors have assessed the viability
the principal risks that may adversely impact the Group. These
of the Company and Group over a longer period than the 12
include Prudential, Operational, Strategic and Regulatory and
months required by the Going Concern Statement. The Board
Conduct Risks. An internal Risk Control Self-Assessment (RCSA)
concluded an appropriate period to be five years to December
and modelling approaches are used to quantify these risks,
2020, a period which aligns with our long-term planning
which ensures that the Group holds sufficient regulatory capital
horizon. This assessment has been made taking account of the
to mitigate the impact of these risks. Alongside the corporate
current position of the Group, corporate planning process and
planning and scenario tests, the supporting risk management
the Group’s principal risks, as detailed in the strategic report on
framework and controls have various regular early warning
page 19.
The corporate planning process includes our budget, strategy
indicator and risk outlook signposts (trends) and triggers
(events) alert the Board to the potential advent of a scenario.
cycle and Internal Capital Adequacy Assessment Process
This approach ensures a link to our business model and
(“ICAAP”).
The strategy provides long-term direction and is reviewed on,
at least, an annual basis, including five year forecasts showing
strategy and an interconnected approach in applying a
robust identification and assessment of the principal risks, and
mitigating actions, for the Group.
expected financial impact. The resilience of the strategy is
The Directors have therefore concluded, based on the extent of
further tested in a series of severe but plausible downside
the corporate planning process and strong financial position,
financial scenarios as part of the annual review of the ICAAP. The
that there is a reasonable expectation that the Company and
ICAAP, covering a five year period, is prepared to identify and
the Group have adequate resources and will continue to operate
quantify the Group’s risks and level of capital which should be
and meet its liabilities as they fall due over the period of their
held to cover those risks.
assessment and for the foreseeable future.
34 | Alliance Trust PLC Report & Accounts 2015
Remuneration Committee
Set out below is the Directors’ Remuneration Report for the year ended 31 December 2015. This Report
provides a summary of the Company’s current Remuneration Policy and gives details of how this Policy has
been implemented during the year.
At the Annual General Meeting a new Remuneration Policy will be proposed. This reflects changes to the
Company’s board structure to one comprising only Non-Executive Directors. Details of this new policy are
set out below.
As a result of these changes no further long-term incentive awards will be made under the Company’s Long-
Term Incentive Plan. In addition, no changes have been made to the salaries of the Executive Directors. The
fees for Non-Executive Directors, and for their participation as members of Committees, have also remained
unchanged. After the year end we agreed a fee for the new role of Deputy Chairman.
Anthony Brooke, Chairman, Remuneration Committee
Proposed Remuneration Policy from the AGM in 2016
In future the Board will comprise only Non-Executive Directors and, as a result, the Remuneration Policy of the Company will be
simple and straightforward. The text of the Remuneration Policy to be put to shareholders for approval at the Company’s Annual
General Meeting on 6 May 2016 is set out below:
The Board’s Remuneration Policy is to ensure that the
the best interests of the Company, and when it would be
remuneration of Directors is set at a reasonable level
disproportionate to seek specific approval from a General
commensurate with the duties and responsibilities of each
Meeting. Any such payments would be fully disclosed on a
Director and the time commitment required to carry out their
timely basis.
roles effectively. Remuneration will be such that the Company
is able to attract and retain Directors of appropriate experience
and quality. The fees paid to Directors will reflect the experience
of the Board as a whole, will be fair, and will take account of
the responsibilities attaching to each role given the nature
of the Company’s interests, as well as the level of fees paid
by comparable investment trusts. Secretarial assistance will
be provided to the Chairman to assist in the execution of his
duties. Additional payments may be made to Directors for time
expended over and above that envisaged on appointment and
for serving on or chairing committees or for service as directors
of subsidiary boards, or other additional responsibilities. The
level of such fees and payments will be subject to periodic
The new Policy will be effective from the date of approval.
Consideration of shareholder views
We regularly engage with our shareholders on all aspects
of performance and governance, including remuneration
issues. In the course of the year the former Chairman of the
Remuneration Committee had meetings with a number of
the Company’s larger shareholders. He attended the AGM to
explain the Company’s policy, to hear direct from shareholders
and to answer questions.
Alignment with our employees
review. Directors will be reimbursed for travel and subsistence
Many of the Group’s employees are also shareholders in the
expenses incurred in attending meetings or in carrying out
Company, and we actively encourage share ownership.
any other duties incumbent upon them as Directors of the
Company. In the event that any such payments are regarded as
Non-Executive Directors’ Contracts
taxable, Directors may receive additional payments to ensure
that they suffer no net cost in carrying out their duties. The level
of Directors’ fees paid will not exceed the limit set out in the
Company’s Articles of Association.
Each Non-Executive Director’s appointment is governed
by written terms which are available for inspection at the
Company’s registered office and are also available at the Annual
General Meeting. Non-Executive Directors are appointed
The Committee also reserves the right to make payments
subject to annual re-election at the Company’s AGM and their
outside the Policy in exceptional circumstances. The Committee
appointment may be terminated at any time by notice given by
would only use this right where it believes that this is in
three-quarters of the other Directors.
Alliance Trust PLC Report & Accounts 2015 | 35
Non-Executive Directors’ Fees
In 2015 annual fees were:
Chairman
Basic Non-Executive Director fee
Chairman of Audit Committee
Chairman of Remuneration Committee
Chairman of Board Risk Committee
Chairman of Nomination Committee
Senior Independent Director
Membership of Audit Committee
Membership of Remuneration Committee
Membership of Board Risk Committee
Membership of Nomination Committee
Gregor Stewart received an Interim Chairman’s fee of £120,000 pro rata for
the period from 26 November 2015 to 4 February 2016.
In 2016 annual fees will be:
£120,000
Chairman
£35,000
£11,000
£7,500
£7,500
nil
£5,000
£3,000
£3,000
£3,000
nil
Deputy Chairman*
Basic Non-Executive Director fee
Chairman of Audit and Risk Committee**
Chairman of Remuneration Committee
Chairman of Board Risk Committee***
Chairman of Nomination Committee
Chairman of Management Engagement Committee*
Senior Independent Director
Membership of Audit and Risk Committee**
Membership of Remuneration Committee
Membership of Board Risk Committee***
Membership of Nomination Committee
Membership of Management Engagement Committee*
* From 4 February 2016
** Audit Committee until 4 February 2016
*** To 4 February 2016
£120,000
£80,000
£35,000
£11,000
£7,500
£7,500
nil
nil
£5,000
£3,000
£3,000
£3,000
nil
nil
The Company’s Remuneration Policy as it applied during
circumstances, such as death, injury or disability, redundancy,
the year was approved by shareholders on 1 May 2014
retirement or other circumstances at the discretion of the
(the ‘2014 Policy’) and was not due to be reconsidered by
Committee (taking into account the individual’s performance
the shareholders, absent any proposed changes, until the
and the reasons for their departure) ‘good leaver’ status could be
2017 Annual General Meeting. The full text of the previous
applied. Individuals must wait until the normal date of vesting and
policy can be found at http://investor.alliancetrust.co.uk/ati/
awards will normally be pro-rated for length of service.
investorrelations/pdfs/remuneration-policy-2015.pdf.
Remuneration strategy
The principle behind the historic reward strategy for Executive
Directors was to link performance to pay outcomes, thereby
aligning the interests of Executive Directors and employees with
those of shareholders and clients. The remuneration packages of
the Executive Directors were structured to promote sound and
effective risk management within the Company’s risk appetite.
To ensure that the reward structures did not encourage excessive
risk taking a clawback mechanism had been introduced to allow
awards under the long-term incentive plan to be recovered in the
exceptional event of: misstatement or misleading representation
of performance; a significant failure of risk management and
control; or serious misconduct by an individual.
The rules of the Company’s Long-Term Incentive Plan contain
a change of control clause, which crystallises the share awards,
subject to pro-rating of awards within the three year cycle
based on days worked and on the participant giving up their
entitlement for replacement shares in any new company.
Contracts contained specific mitigation provisions should they
be terminated. These mitigation provisions are structured to
provide monthly payments, during the notice period, against
which any income received during the period will be offset.
The monthly payment is based on current salary, pension
allowance and benefits. A Director’s service contract could be
terminated without notice and without any further payment
or compensation, except for sums accrued up to the date of
termination, on the occurrence of certain events such as gross
misconduct.
Executive Directors’ Service Contracts
External directorships
The Executive Directors had service contracts which could be
terminated on twelve months’ notice from the Company or
six months’ notice from the Director. Service contracts did not
contain a default normal retirement age.
Share-based entitlements granted to an Executive Director under
the Group’s share plans are based on the relevant plan rules.
The default position was that any outstanding awards lapsed
on cessation of employment. However, in certain prescribed
The Company had a policy of permitting Executive Directors to
hold one paid external directorship in another company where
this did not conflict with their duties to the Company. Katherine
Garrett-Cox became a member of the Supervisory Board of
Deutsche Bank AG in 2011 for which an annual fee is payable
and is retained by the Director. In 2015 she received a fee of
€100,000 in respect of the year ending 31 December 2014.
36 | Alliance Trust PLC Report & Accounts 2015
Implementation Report
This section of the Report refers to payments made under the Remuneration Policy in place during 2015.
Payments for loss of office (audited)
Katherine Garrett-Cox
Alan Trotter
The service contract of the Chief Financial Officer, Alan Trotter,
was terminated (on notice) on 30 September 2015 on the
grounds of redundancy. The Committee took into account the
terms of the service contract with Mr Trotter and that there
was to be no further role within the Group at the seniority and
salary that had been previously paid. The Committee agreed
that Mr Trotter was redundant. The following table sets out the
compensation provisions as set out in his contract:
Date of
contract
01/02/10
Notice
from the
Company
Notice
to the
Company
Twelve
months
Six
months
Provision of compensation
Loss of office up to one year’s
salary, pension allowance and
benefits
Mr Trotter will continue to receive contractual benefits and
payment of salary and payments in respect of pension for
the notice period under his contract of twelve months. Such
payments and benefits will cease on Mr Trotter entering new
employment.
In addition the Committee considered the appropriate level
of compensation and agreed a total payment of £180,000
comprising:
The service contract of the former Chief Executive, Katherine
Garrett-Cox, will terminate by mutual agreement with effect
from 11 March 2016 on the grounds of redundancy. The Board
of Alliance Trust Investments (ATI) took into account the nature
of the Chief Executive’s role within ATI and agreed that, in
the light of changes since October 2015, there was no longer
a requirement for the role. The following table sets out the
compensation provisions as set out in her contract:
Date of
contract
20/04/07
Notice
from the
Company
Notice
to the
Company
Twelve
months
Six
months
Provision of compensation
Loss of office up to one year’s
salary, pension allowance and
benefits
Mrs Garrett-Cox will receive payment of salary and payments
in respect of pension for the notice period under her contract
of twelve months. She will also receive a payment in lieu of her
contractual benefits.
The above payments will be reduced (or will cease if the level of
salary or earnings reaches the level of her current salary) by any
new earnings received by Mrs Garrett-Cox during the notice
period under her contract.
In addition ATI considered the appropriate level of
compensation and agreed a total payment of £83,560, which
will be accounted for in the financial year ending 31 December
• Bonus in respect of the financial year 2015 of £110,000
2016, comprising:
to be paid in March 2016. This was assessed against the
Company’s performance and Mr Trotter’s performance
against his personal objectives. It took into account that
Mr Trotter was only in employment for part of the year. His
maximum bonus for the year would have been £245,000;
and
• Compensation payment of £70,000 comprised (a) £3,562
(redundancy); and (b) £66,438 (compensation payment for
any claim).
The Committee considered whether they had to exercise any
discretion under the Long-Term Incentive Plan to treat Mr
Trotter as a ‘good leaver’. The Committee considered all the
•
•
(a) £5,225 (redundancy); and
(b) £78,335 (compensation payment for any claim)
to be paid on or after 11 March 2016).
The Remuneration Committee of Alliance Trust PLC considered
whether they had to exercise any discretion under the Long-
Term Incentive Plan to treat Mrs Garrett-Cox as a ‘good
leaver’. The Committee considered all the circumstances and
concluded that she was redundant. There was therefore no
need to apply discretion and her existing awards under the
Long-Term Incentive Plan will not lapse on the cessation of her
employment but will, instead, vest subject to reduction/pro
circumstances and concluded that he was redundant. There was
rating all as set out under the Plan’s rules.
therefore no need to apply discretion and his existing awards
under the Long-Term Incentive Plan will not lapse on the
cessation of his employment but will, instead, vest subject to
reduction/pro rating all as set out under the Plan’s rules.
Alliance Trust PLC Report & Accounts 2015 | 37
Summary of 2014 Policy: Salary
Salary
Salaries are reviewed annually and increases are effective
from 1 April.
During 2015 the Remuneration Committee made no changes to
Executive Directors’ salaries:
Summary of 2014 Policy: Long-term incentives
All employees can receive shares under a HMRC approved
All Employee Share Ownership Plan dependent upon the
performance of the business in each year and can elect to
purchase up to the HMRC limit of Partnership shares from
pre-tax income each tax year.
Salary
Period from
1 April 2014
Increase
Katherine Garrett-Cox
£450,000
Alan Trotter
£245,000
nil
nil
Period from
1 April 2015
£450,000
£245,000
All Employee Share Ownership Plan
Executive Directors and employees may participate in the
Company’s All Employee Share Ownership Plan (AESOP).
All participants are treated in the same way and each may:
1) elect to purchase shares in the Company from pre-tax
income up to a maximum of £1,800 per tax year;
2) receive Dividend Shares purchased from dividends paid in
respect of shares held by the participant in the Scheme;
3) receive up to £3,600 worth of shares in each year; and
4) receive Matching shares to the value of £20 each month.
This year all full-time participants who were in the Plan for
the full year will receive an award of shares, valued at £1,500.
Part-time employees and those that joined the Plan part way
through the year will receive a pro-rated award.
38 | Alliance Trust PLC Report & Accounts 2015
Summary of 2014 Policy: Annual Incentives
For Executive Directors, individual awards are currently
assessed at least 50% against Corporate KPIs and no more
than 50% against a set of business objectives linked to the
Company strategy.
The annual bonus is currently capped at 150%.
Annual Bonus
The following bonus in respect of the period ending 31 December
2015 was awarded and was payable after the period end:
Maximum
as a % of
Salary
Bonus
% of max
Katherine Garrett-Cox
150%
£410,000
60.7%
Last year advance disclosure of the Chief Executive Officer’s annual bonus criteria for 2015 was made. Set out below is how performance was assessed
against those objectives and others which were agreed by the Remuneration Committee during the year:
Criteria
Measurement
% of
Max Bonus
Assessment
Bonus awarded
TSR against Global sector peer
group for the financial year
0% for median performance
rising to 100% for upper quartile
performance
12.5%
Performance was
11th out of 35.
NAV total return against
Global sector peer group for
the financial year
0% for median performance
rising to 100% for upper quartile
performance
Dividend Progression
Against previously announced
indications of dividend
Achievement of group cost
budget including subsidiaries
Against actual achievement
against budget
25%
7.5%
5.0%
Performance was 17th out
of 35.
Ordinary Dividend has
increased by 11%.
If exceptional items of
expenditure are excluded,
savings of around £2m were
achieved.
11.3%
5.3%
7.5%
5.0%
Four key objectives were outlined namely strong and consistent investment performance; driving business growth and capitalising on market
opportunities; risk culture and shared values; and successful brand campaigns and attracting new generations of investors. These were reformulated
into three main categories Business Strategy, Risk and Governance and Leadership and People and a number of objectives within each were set.
Criteria
Measurement
% of
Max Bonus
Assessment
Bonus awarded
Alliance Trust Investments to
show significant progress
Achievement of budget and the
performance of the managed
funds
Alliance Trust Savings to meet
budget and grow business
Achievement of budget and
developement of the business
10%
10%
Budget had been met. 75% of
funds achieved above median
performance. However it was
felt that progress did not merit
a full award.
Budget had not been met.
However it was assessed that
her role in the acquisition of
Stocktrade was positive and
moved the company towards
profitability.
Developing broader
institutional shareholder base
Oversight and governance
Risk Appetite
Investment Risk
Expanded shareholder base
10%
Not achieved.
Ensuring a robust oversight
governance framework
Developing appropriate risk
environment
Enhancing and improving the
monitoring and reporting of
investment performance and risk
3.3%
3.3%
Assessed that this had been
done well.
Assessed that the Company
was strong in this area and a
full award was made.
3.3%
Achieved.
Business Strategy and
Leadership
Developing leadership within the
business
10%
Strong leadership verified by
external review.
This produced a total bonus of 60.7% of the maximum available.
8.5%
4.0%
nil
2.5%
3.3%
3.3%
10%.
Alliance Trust PLC Report & Accounts 2015 | 39
Long-Term Incentive Plans
No awards were made in respect of the financial year ended
Summary of 2014 Policy: Long-Term Incentive Plans
31 December 2015 and no further awards will be made. Awards
• To drive the execution of the Company’s long-term
made in prior years will still be paid subject to achievement of
the performance targets and the rules of the Plan.
strategy through close alignment of performance
criteria.
The table below shows the payout for the awards which were
made in 2013 and will vest in 2016, based on the three year
performance period ending 31 December 2015.
Peer Group ranking out of 35
TSR Rank*
NAV Rank*
15
21
TSR payout
NAV payout
Combined payout
%
65.02
0
32.51
* 30 day average at start and end of performance period.
An additional holding period of two years has been applied to
awards made in 2015. This applies to both shares purchased
from the deferred bonus and those vesting after the end of the
three year performance period.
Details of the awards made to the Executive Directors can be
found on the next page.
• To incentivise long-term value creation.
Matching Awards: these entitle the participant to receive
shares at nil cost with the number of shares being calculated
with reference to the amount of deferred bonus which is
used to purchase shares in the Company and which are
deposited in the plan. The maximum that can be received is
twice the number of shares that could be purchased with the
gross value of the annual bonus.
Performance Awards: these are based on a multiple of salary.
The maximum number of shares which can be awarded is
calculated on twice the annual salary of the participant at the
date of the award.
Both awards are based on a combination of two separate
performance measures – one relating to growth in NAV and
another to TSR – over three consecutive financial years and
then compared to a comparator group comprising global
investment trusts (these can be found at
www.alliancetrust.co.uk/pdfs/peergroup.pdf).
TSR/NAV Performance against Peer Group % of share
awards that vest
Below Median
Median
Between Median and Top Quartile
Top Quartile
0
25
25-100
100
These targets have been selected as they are the key financial
metrics which determine value creation for our shareholders.
The Committee can make minor changes to the
performance condition. Any significant change will require
shareholder approval.
Vesting between median and top quartile is based on a
vesting curve. We have chosen a vesting curve to align the
interests of LTIP participants to that of the shareholders
reflecting our belief that consistent median to top quartile
performance will, over time, lead to top quartile performance
without incentivising excessive risk taking.
LTIP awards (from 2011 onwards)
Q4
Q3
Q2
Q1
Peer Group Ranking
)
%
(
g
n
i
t
s
e
V
100
75
50
25
0
100
75
50
25
0
31
29
27
25
23
21
19
17
15
13
11
9
7
5
3
1
40 | Alliance Trust PLC Report & Accounts 2015
Long-Term Incentive Plan Awards (audited)
This table provides detail of awards made to the Executive Directors who held office during the year under the Long-Term Incentive Plan
in the year ended 31 December 2015 and earlier years. All awards are subject to performance conditions as described on the opposite
page. If the minimum performance condition is met 12.5% of the awards detailed in the table below will vest.
Katherine Garrett-Cox
At
1 Jan 15
-
-
160,086
187,458
75,273
196,148
84,997
233,846
Awards
granted
in year
223,471
177,514
-
-
-
-
Awards
vested
in year
Awards
lapsed
in year
At
31 Dec 15
Market price
of share on
date of award
Vesting date
-
-
-
-
-
-
-
-
-
-
-
-
223,471
£5.07
6 May 2020
177,514
£5.07
6 May 2020
160,086
£4.537
11 April 2017
187,458
£4.537
11 April 2017
75,273
£4.336
16 April 2016
196,148
£4.336
16 April 2016
10,625
74,372
29,231
204,615
-
-
£3.637
2 May 2015
£3.637
2 May 2015
Scheme and year of award
LTIP 6 May 2015
(Matching Award)
LTIP 6 May 2015
(Performance Award)
LTIP 11 April 2014
(Matching Award)
LTIP 11 April 2014
(Performance Award)
LTIP 16 April 2013
(Matching Award)
LTIP 16 April 2013
(Performance Award)
LTIP 2 May 2012
(Matching Award)
LTIP 2 May 2012
(Performance Award)
Alan Trotter
Scheme and year of award
At
1 Jan 15
Awards
granted
in year
Awards
vested
in year
Awards
lapsed
in year
At
31 Dec 15
Market price
of share on
date of award
Vesting date
LTIP 6 May 2015
(Matching Award)
LTIP 6 May 2015
(Performance Award)
LTIP 11 April 2014
(Matching Award)
LTIP 11 April 2014
(Performance Award)
LTIP 16 April 2013
(Matching Award)
LTIP 16 April 2013
(Performance Award)
LTIP 2 May 2012
(Matching Award)
LTIP 2 May 2012
(Performance Award)
-
-
42,475
96,646
26,275
99,184
38,256
103,782
52,112
123,728
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
42,475
£5.07
6 May 2020
96,646
£5.07
6 May 2020
26,275
£4.537
11 April 2017
99,184
£4.537
11 April 2017
38,256
£4.336
16 April 2016
103,782
£4.336
16 April 2016
6,514
45,598
15,466
108,262
-
-
£3.637
2 May 2015
£3.6370
2 May 2015
Alliance Trust PLC Report & Accounts 2015 | 41
Remuneration Code disclosures
Directors’ shareholdings (audited)
The following table sets out fixed and variable remuneration
All Directors are required to hold 3,000 shares in the Company.
paid to the Senior Managers and other Remuneration Code staff
Details of the shareholdings of all Directors and their
whose actions have a significant impact on the risk profile of
connected persons, together with details of shares acquired, are
the Company.
Senior managers’ annual bonuses are based on performance
against business and individual objectives during the year, with
shown below. None of these shares are subject to performance
conditions. The Company has issued no options to subscribe for
shares.
the long-term element based on corporate and/or business
Lord Smith, who joined the Board in the close period between our
performance measures.
Year end
31 Dec 2015
31 Dec 2014
Fixed remuneration
Variable remuneration
Number of beneficiaries
£3.8m
£3.4m
30
£3.4m
£1.9m
22
Relative importance of spend on pay
The chart below shows, in respect of this and the preceding
financial year, the actual expenditure of the Company on
remuneration and distributions to shareholders by way of
dividend and share buybacks.
£m
150
120
90
60
30
0
Remuneration for
all employees
(including Directors)
2014
2015
Dividends
Special dividends
Buybacks
financial year end and publication of our results for the year ended
31 December 2015, intends to buy shares as soon as he is free to
do so.
Directors’
shareholdings
Karin Forseke
As at1 Jan
2015 or
date of
appointment
if later
As at 31
Dec 2015
or date of
leaving if
earlier
101,999
108,576
Katherine Garrett-Cox
606,022
446,975
Anthony Brooke
John Hylands
Alistair Kerr
Rory Macnamara
Susan Noble
Win Robbins
Chris Samuel
Karl Sternberg
Gregor Stewart
Alan Trotter
3,000
84,481
8,875
3,000
15,019
12,013
-
-
3,000
86,567
8,875
3,000
15,392
12,069
5,000
3,000
24,611
24,758
121,895
145,524
Acquired
between
31 Dec 2015 -
5 March 2016 or
date of leaving if
earlier
N/A
3,183
nil
652
N/A
30
120
N/A
38
22
48
N/A
Percentage change in remuneration
of Chief Executive Officer
The table below sets out the percentage change in the
remuneration of the Chief Executive Officer compared to that
of the average of all of the Group’s employees taken as a whole
between the financial years ended 31 December 2014
and 31 December 2015.
Change in
annual
salary
Change in
taxable
benefits
Change in
annual bonus
Chief Executive Officer
All employees
0%
+5.9%
+13%
-28%
-29%
+8%
42 | Alliance Trust PLC Report & Accounts 2015
Summary of 2014 Policy: Benefits and Pension
The 2014 Policy provided that Executive Directors could receive benefits including subsistence allowances, subscriptions to
professional bodies or other relevant organisations as well as private health, permanent health, travel and life insurance. Cash
payments of up to 25% of salary instead of a pension contribution could also be made. The value of these benefits can be found
in the table below.
Single total figure of remuneration (audited)
£000
Salary/Fees
Taxable
benefits*
Annual
bonus#
Long-term
awards†
Pension**
Total
Executive Director
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
Katherine Garrett-Cox
Alan Trotter
Non-Executive Director
Karin Forseke
Anthony Brooke
John Hylands
Rory Macnamara
Susan Noble
Win Robbins
Chris Samuel
Karl Sternberg
Gregor Stewart
450
245
450
245
23
1
20
1
411
111
576
216
438
229
184
102
112
49
112
49
1,435
1,378
634
613
120
120
23
51
23
48
7
10
10
59
49
48
41
3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
120
120
23
51
23
48
7
10
10
59
49
48
41
3
* Taxable benefits include the value of accommodation allowance, medical and life insurance.
# Annual Bonus includes the AESOP Award.
† This comprises 24,464 matching share awards and 63,748 performance share awards which will vest in 2016.
The share price used is £4.9652 being the average share price in the last quarter of 2015.
** This is a cash payment instead of a pension contribution.
Alliance Trust PLC Report & Accounts 2015 | 43
Performance graph
The graph below shows the TSR for holders of Alliance Trust PLC Ordinary Shares, measured against the MSCI All Country World
Index*. Prior to 2015 we did not benchmark the Company’s performance against any index however this index is now used to
measure performance. The Company believes that this is the most appropriate index as it represents the performance of listed
equities across a range of global markets. The Company’s equity portfolio is global in nature and at the year end comprised 102% of
the Net Asset Value.
* Rebased to 100 at
31 January 2009
† 11 months 31 January
to 31 December 2011
240
220
200
180
160
140
120
100
80
Alliance Trust PLC
MSCI All Country World Index
Chief Executive Officer remuneration
31 Jan 2010
31 Jan 2011†
31 Dec 2011
31 Dec 2012
31 Dec 2013
31 Dec 2014
31 Dec 2015
Single figure of remuneration
£692,484
£700,232
£1,037,175
£1,800,326
£1,378,444
£1,342,859
£1,435,076
Annual bonus (as percentage
of maximum opportunity)
LTIP vesting (as percentage
of maximum opportunity)
58.4%
50.0%
90.3%
81.5%
57.5%
85%
60.7%
0%
0%
0%
51.7%
33.9%
12.5%
32.5%
The table above shows the remuneration for the Director undertaking the role of Chief Executive Officer during each of the last seven financial periods.
Voting at Annual General Meeting
At the Annual General Meeting held on 29 April 2015, votes cast by proxy and at the meeting in respect of the Directors’
remuneration report as follows:
Resolution
Votes for
%
Votes Against
%
Total
votes cast
Votes withheld
(abstentions)
Directors’ remuneration
report (excluding
remuneration policy)
Audit statement
248,045,822
93.29
17,849,548
6.71
265,895,370
11,406,508
The tables on pages 36, 40, 41 and 42 indicated as ‘audited’ together with the related footnotes have been audited by the Auditor
whose report is on pages 47 to 50.
Advisers
The Remuneration Committee, whose members are listed on pages 22 and 23, received independent advice from McLagan and
PwC. PwC abide by the Remuneration Consultants’ Code of Conduct, which requires them to provide objective and impartial
advice. McLagan were appointed by the Committee and they do not provide other services to the Group. PwC were also appointed
by the Committee; however they do provide other services to management including internal audit and compliance support.
Total fees charged by McLagan for the year were £26,370 and PwC were £50,000. The Committee also receives advice from the
Company Secretary and the Human Resources Director.
Approval
The Remuneration Report comprising pages 34 to 43 including the proposed new Remuneration Policy on page 34 and the
Implementation Report, comprising pages 36 to 43, has been approved by the Board and signed on its behalf by
Anthony Brooke
Chairman, Remuneration Committee
3 March 2016
44 | Alliance Trust PLC Report & Accounts 2015
Other Governance
Re-election of Directors
Details of the current Directors can be found on pages 22 and
23. Anthony Brooke, Rory Macnamara, Chris Samuel and Karl
Sternberg were appointed during the year. Lord Smith of Kelvin
was appointed after the year end. Their appointments fall to be
confirmed by shareholders at the Annual General Meeting.
John Hylands announced his intention to retire from the Board
after the AGM and accordingly is not standing for re-election.
The Board has decided that, in line with the UK Corporate
Governance Code, all of the Directors will be subject to re-
election every year.
The individual performance of each Director and their ongoing
suitability for election or re-election was considered and
endorsed by the Nomination Committee. All are recommended
for election or re-election at the forthcoming Annual General
Meeting. Each of our Directors has confirmed that they remain
committed to their role and have sufficient time available to
meet what is expected of them.
Major shareholders
Name
Designation
Appointed
Lord Smith of Kelvin
Chairman
Karin Forseke***
Chair
Katherine Garrett-Cox****
Chief Executive Officer
Anthony Brooke
Non-Executive Director
John Hylands
Alastair Kerr***
Non-Executive Director
Non-Executive Director
Rory Macnamara
Non-Executive Director
Susan Noble****
Non-Executive Director
Win Robbins*
Chris Samuel
Karl Sternberg
Gregor Stewart
Alan Trotter**
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Chief Financial Officer
* Resigned 19 February 2015
** Resigned 30 September 2015
*** Resigned 1 January 2016
**** Resigned 3 February 2016
03/02/16
01/03/12
01/05/07
24/06/15
22/02/08
01/10/12
24/06/15
11/07/12
14/02/13
23/09/15
23/09/15
01/12/14
01/02/10
As at 3 March 2016 the Company had received notifications from shareholders holding an interest in more than 3% of the voting rights
of the ordinary shares in issue of the Company. The disclosures, updated to reflect known changes in holdings, are:
Shareholder
Elliott International, LP, Liverpool Limited Partnership
Nature of interest
Shares
Contract for difference over shares
DC Thomson & Company Limited and John Leng & Company Limited
Shares
Number of shares
52,881,891 (10.2%)
26,441,928 (5.1%)
29,275,000 (5.6%)
The largest shareholder in the Company is the nominee company for Alliance Trust Savings which holds its shares on behalf of over
21,000 customers.
Alliance Trust Savings Nominees Limited
132,285,881 (25.4%)
Board and Committee attendances
In addition to the scheduled Board and Committee meetings below, the Board and Committees met on a number of other
occasions to consider matters arising between the scheduled meetings. Meetings are structured over two days and take place six
times a year. This allows our Directors to have greater oversight of all parts of the Group.
Meeting attendances
Board
Audit
Remuneration
Nomination
Board Risk
Director
Karin Forseke
Katherine Garrett-Cox
Anthony Brooke
John Hylands
Alastair Kerr
Rory Macnamara
Susan Noble
Win Robbins
Chris Samuel
Karl Sternberg
Gregor Stewart
Alan Trotter
Actual
Possible
Actual
Possible
Actual
Possible
Actual
Possible
Actual
Possible
6
6
3
6
6
2
6
1
2
2
6
5
6
6
3
6
6
3
6
1
2
2
6
5
-
-
-
4
-
-
4
1
-
-
4
-
-
-
-
4
-
-
4
1
-
-
4
-
-
-
-
-
4
-
4
1
-
-
-
-
-
-
-
-
4
-
4
1
-
-
-
-
2
-
-
2
2
-
-
-
-
-
-
-
2
-
-
2
2
-
-
-
-
-
-
-
-
-
-
4
4
-
4
-
-
-
2
-
-
-
-
4
4
-
4
-
-
-
2
-
Alliance Trust PLC Report & Accounts 2015 | 45
Directors’ and Officers’ indemnification
Share capital and waiver of dividends
The Company provides insurance (maximum payable £22m
The Company’s issued share capital as at 31 December 2015
in aggregate) for legal action brought against its Directors as
comprised 526,340,897 Ordinary 2.5p shares of which 886,173
a consequence of their position. In addition separate deeds of
have been acquired by the Trustee of an Employee Benefit
indemnity have been agreed with each Director indemnifying
Trust (‘the Trustee’) with funds provided by the Company in
them as permitted by company law. The indemnity and
connection with its employee share plans. The Trustee has
insurance does not extend to cover claims brought by the
elected to waive all dividends payable in respect of those
Company itself which are upheld by the Courts, nor to criminal
shares. The Trustee holds a further 886,173 shares deposited by
fines or penalties.
Access to advice
All Directors have access to independent professional advice
if necessary.
Relationship with shareholders
All Directors normally attend the AGM where they have the
opportunity to meet shareholders. Meetings also take place
throughout the year with major and institutional shareholders,
such meetings normally being attended by the Chair or Chief
Executive. All Directors receive reports from our public relations
advisers and our corporate broker as an additional way for
recipients of awards under the LTIP. Each Ordinary share of the
Company is entitled to one vote but the Trustee does not vote in
respect of the shares held by it on behalf of the Company.
In the course of the year the Company acquired and cancelled
27,018,249 shares at a total consideration, before costs and
charges, of £135.5m.
There are no preference shares or shares held in treasury.
Agreement in respect of voting rights
There are no agreements in respect of voting rights.
Share buyback authority
them to capture the views of our major shareholders on a non-
At the last AGM the shareholders renewed the authority for the
attributable basis.
Investment Trust Status
repurchase of up to 14.99% of the issued shares. This authority
falls to be renewed at the next AGM. The Company made use
of this provision during the course of the year as detailed above.
The Company will, as part of the authority being sought, include
HM Revenue and Customs have confirmed that Alliance Trust has
that any shares bought back under the authority may be held in
investment trust status for all financial periods from 1 January 2012.
Treasury and reintroduced into the market or cancelled.
Conflicts of interest
The Directors have previously provided details of all interests
which potentially could cause a conflict of interest to arise.
The unconflicted Directors in each case noted the declarations
by the Directors of their other interests and confirmed that
at that time none of the interests disclosed were reasonably
likely to give rise to a conflict. An annual review of all interests
was undertaken as part of the year end process and this was
considered by the Board in February 2016. Procedures are
in place to allow Directors to request authority should it be
required outwith the normal Board meeting schedule.
Alternative Investment Fund
Managers Directive
Until 3 February 2016 the Company was approved by the
Financial Conduct Authority as a manager under the Directive.
Since that date the manager is Alliance Trust Investments Limited.
The Company has appointed National Westminster Bank
Plc as its Depositary under the Directive for the purpose of
strengthening the arrangements for the safe custody of assets.
Regulatory disclosures, including the Company’s Investor
Disclosure Document, are provided on the Company’s website
at http://investor.alliancetrust.co.uk/ati/investorrelations/
AIFMD-disclosures.htm.
Director development
Every new director receives an individually tailored induction.
The Board as a whole received updates on corporate governance,
risk and business issues during the year and specific training on
regulatory matters such as the ICAAP (Internal Capital Adequacy
Assessment Process).
46 | Alliance Trust PLC Report & Accounts 2015
Other Governance
Annual General Meeting
In addition to formal business, the Investment Manager will
present on investment performance and there will be the
opportunity for questions to be put to the Directors. This year, in
addition to the normal business there will be proposals to:
• approval of a new Remuneration Policy;
•
renew the share buyback authority and requesting the
power to hold shares purchased under that authority to be
held in Treasury or cancelled with power to reintroduce any
shares held in Treasury to the market but not at a discount
to net asset value; and
•
confirm the notice period for convening general meetings
other than Annual General Meeting.
Greenhouse gas (GHG) emissions
Our mandatory disclosure of total GHG emissions data for the
year ended 31 December 2015 can be found on page 21. We
report there on all of the emission sources required under the
Report of Directors and
Responsibility Statement
The Report of the Directors, including the Directors’
responsibility statement, on pages 24 to 32, the going
concern statement on page 33 and pages 44 to 46 of
the Annual Report and Accounts has been approved by
the Board.
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
Companies Act 2006 (Strategic Report and Directors’ Reports)
uncertainties that they face; and
Regulations 2013. These sources fall within our consolidated
financial statements. We do not have responsibility for any
emission sources that are not included in our consolidated
financial statements.
•
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 position, performance,
Our carbon footprint has been calculated based on the Defra
business model and strategy.
Environmental Reporting Guidelines (including mandatory
greenhouse gas emissions reporting guidance). We have adopted
Lord Smith of Kelvin
an operational control approach. The emissions reported on page
21 have been verified by Carbon Footprint Limited.
Chairman
3 March 2016
Alliance Trust PLC Report & Accounts 2015 | 47
Independent Auditor’s report to
the members of Alliance Trust PLC
•
the directors’ explanation on page 33 as to how they have
assessed the prospects of the Group, over what period
they have done so and why they consider that period to be
appropriate, and their statement as to whether they have
a reasonable expectation that the Group will be able to
continue in operation and meet its liabilities as they fall due
over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications
or assumptions.
We agreed with the directors’ adoption of the going concern
basis of accounting and we did not identify any such material
uncertainties. However, because not all future events or
conditions can be predicted, this statement is not a guarantee
as to the Group’s ability to continue as a going concern.
Independence
We are required to comply with the Financial Reporting Council’s
Ethical Standards for Auditors and we confirm that we are
independent of the Group and we have fulfilled our other ethical
responsibilities in accordance with those standards. We also
confirm we have not provided any prohibited non-audit services
referred to in those standards.
Misstatement
The assessed risks of material misstatement described below
are those that had the greatest effect on our audit strategy, the
allocation of resources in the audit and directing the efforts of
the engagement team.
The Audit Committee has requested that while not required
under International Standards on Auditing (UK and Ireland), we
include in our report any significant findings in respect of these
assessed risks of material misstatement.
Opinion on financial statements of
Alliance Trust PLC
In our opinion the financial statements:
• give a true and fair view of the state of the Group’s and of
the Parent Company’s affairs as at 31 December 2015 and
of the Group’s profit and the Parent Company’s profit for
the year then ended;
• have been properly prepared in accordance with
International Financial Reporting Standards (IFRSs) as
adopted by the European Union; and
• have been prepared in accordance with the requirements
of the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
The financial statements comprise the Group and Parent
Company balance sheets, the Group and Parent Company
income statements, the Group and Parent Company statements
of comprehensive income, the Group and Parent Company
statements of changes in equity, the Group and Parent
Company statements of cash flows, and the related notes 1 to
26. The financial reporting framework that has been applied in
their preparation is applicable law and IFRSs as adopted by the
European Union.
Going concern and the directors’
assessment of the principal risks
that would threaten the solvency or
liquidity of the group
As required by the Listing Rules we have reviewed the directors’
statement regarding the appropriateness of the going concern
basis of accounting contained within note 2 to the financial
statements and the directors’ statement on the longer-term
viability of the Group on page 33.
We have nothing material to add or draw attention to in
relation to:
•
the directors’ confirmation on page 34 that they have
carried out a robust assessment of the principal risks facing
the group, including those that would threaten its business
model, future performance, solvency or liquidity;
•
the disclosures on page 19 that describe those risks and
explain how they are being managed or mitigated;
•
the directors’ statement in note 2 to the financial
statements about whether they considered it appropriate to
adopt the going concern basis of accounting in preparing
them and their identification of any material uncertainties
to the Group’s ability to continue to do so over a period
of at least twelve months from the date of approval of the
financial statements;
48 | Alliance Trust PLC Report & Accounts 2015
Risk
How the scope of our audit
responded to the risk
Findings
Valuation and ownership of listed investments
Listed investments represent the most
significant number on the balance
sheet and are the main driver of the
Group’s performance. Listed investments
represented 87% of total assets of the
Group at 31 December 2015 (see notes 9
and 23).
Valuation was assessed by understanding
the design and implementation of key
controls around listed investments and by
the testing of 100% of the valuations of
listed investments directly with independent
pricing sources. Any differences over 1%
were investigated further.
We did not identify any differences that
exceeded 1% between the prices used
by the Group for valuing their listed
investments and the independent pricing
sources used in our testing.
There is a risk that the prices quoted in
respect of the listed investments held by
the Group may not be reflective of fair
value (see note 23).
There is a risk over the recording and
custody of listed investments, and whether
listed investments recorded are the
property of the Group.
No findings were identified from our testing
performed on the SSAE16 controls report.
No unexplained differences were identified
from our testing of the custodian
confirmation.
We reviewed the SSAE16 controls report
to understand the controls in place at
the custodian over the ownership of
investments. We have also assessed whether
the service auditors were professionally
competent and that the scope of the
controls tested were appropriate to give us
assurance over the risk identified.
We tested ownership of 100% of listed
investments by confirming the holdings at
year end with the independent custodian
and reconciling the confirmation to the
Group’s accounting records. Any differences
were investigated further.
Valuation of unlisted investments
Unlisted investments are valued using
methodologies agreed by management
and there are key inputs to the valuation
calculations which reflect management’s
judgement (see note 23). There is a risk
that the application of an inappropriate
valuation methodology and/or the use of
inappropriate assumptions could result in
the valuation of unlisted investments being
materially misstated.
We tested the design and implementation
of controls around the valuation of unlisted
investments. In addition we tailored our
substantive testing to reflect the different
categories of unlisted investments held in
the portfolio (see note 23). This testing
included reviewing and challenging
management’s and external valuations for
a sample of unlisted investments, focusing
on the appropriateness of the valuation
methodology and assumptions used within
the calculations (e.g. cash flow projections;
growth projections; discount rate used).
Investments in subsidiaries
In respect of the valuation of an investment
in a subsidiary we identified an assumption
used by the external valuer which was
unsupported. We assessed the impact of this
assumption on the valuation and concluded
that it did not result in a significant
difference in the determination of fair
value or the overall results recognised. If
this assumption had been excluded from
the valuation, the net asset position of the
Group would be approximately £5m higher
as at 31 December 2015.
Private Equity
We found an instance where management
had applied an incorrect price in the
valuation of a fund-to-fund private equity
investment. In addition, we identified an
instance where management had not
reflected a drawdown cash flow in its roll
forward of the most recent fair value for a
direct private equity investment. We assessed
the impact of these errors and concluded that
they did not result in a significant difference
in the determination of fair value or the
overall results recognised. If the correct prices
had been used, the net asset position of the
Group would be approximately £1.1m lower
at 31 December 2015.
Mineral rights
No adjustments were identified from the
testing performed.
Alliance Trust PLC Report & Accounts 2015 | 49
Last year our report included one other risk which is not
included in our report this year: Application of IFRS 10
Consolidated Financial Statements, incorporating Investment
Entities (Amendments to IFRS 10, IFRS 12 and IAS 27). As the
initial application of this accounting standard was completed
in the prior year we have assessed that this does not represent
a material risk of misstatement in the current year and it is not
considered to have had the greatest effect on our audit strategy,
the allocation of resources in the audit and directing the efforts
of the engagement team.
The description of risks above should be read in conjunction
with the significant issues considered by the Audit Committee
discussed on page 29.
These matters were addressed in the context of our audit
of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on
these matters.
Our application of materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be
changed or influenced. We use materiality both in planning
the scope of our audit work and in evaluating the results of
our work.
We determined materiality for the Group to be £29.5 million
(2014: £30.2 million), which is approximately 1% (2014: 1%)
of net assets.
We agreed with the Audit Committee that we would report
to the Committee all audit differences in excess of £589,000
(2014: £603,900), as well as differences below that threshold
that, in our view, warranted reporting on qualitative grounds.
We also report to the Audit Committee on disclosure matters
that we identified when assessing the overall presentation of the
financial statements.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding
of the Group and its environment, including Group-wide
controls, and assessing the risks of material misstatement at
the Group level. Our Group audit scope included the audit of
all subsidiaries and these were subject to a full scope audit for
the year ended 31 December 2015. Audits were performed for
local statutory purposes at a local materiality level calculated by
reference to the scale of the business concerned.
Opinion on other matters prescribed
by the Companies Act 2006
In our opinion:
•
•
the part of the Directors’ Remuneration Report to be
audited has been properly prepared in accordance with the
Companies Act 2006; and
the information given in the Strategic Report and the
Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the
financial statements.
Matters on which we are required to
report by exception
Adequacy of explanations received and
accounting records
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
• we have not received all the information and explanations
we require for our audit; or
• adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have not
been received from branches not visited by us; or
•
the parent company financial statements are not in
agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report
if in our opinion certain disclosures of directors’ remuneration
have not been made or the part of the Directors’ Remuneration
Report to be audited is not in agreement with the accounting
records and returns. We have nothing to report arising from
these matters.
Corporate Governance Statement
Under the Listing Rules we are also required to review part
of the Corporate Governance Statement relating to the
company’s compliance with certain provisions of the UK
Corporate Governance Code. We have nothing to report
arising from our review.
50 | Alliance Trust PLC Report & Accounts 2015
Our duty to read other information in the
Annual Report
Under International Standards on Auditing (UK and Ireland), we
are required to report to you if, in our opinion, information in
the annual report is:
Scope of the audit of the financial
statements
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
• materially inconsistent with the information in the audited
from material misstatement, whether caused by fraud or
financial statements; or
• apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group acquired in
the course of performing our audit; or
• otherwise misleading.
In particular, we are required to consider whether we have
identified any inconsistencies between our knowledge
acquired during the audit and the directors’ statement
that they consider the annual report is fair, balanced and
understandable and whether the annual report appropriately
discloses those matters that we communicated to the audit
committee which we consider should have been disclosed. We
confirm that we have not identified any such inconsistencies or
misleading statements.
error. This includes an assessment of: whether the accounting
policies are appropriate to the Group’s and the Parent
Company’s circumstances and have been consistently applied
and adequately disclosed; the reasonableness of significant
accounting estimates made by the directors; and the overall
presentation of the financial statements. In addition, we read all
the financial and non-financial information in the annual report
to identify material inconsistencies with the audited financial
statements and to identify any information that is apparently
materially incorrect based on, or materially inconsistent with,
the knowledge acquired by us in the course of performing
the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications
for our report.
Calum Thomson (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
3 March 2016
Respective responsibilities of directors
and auditor
As explained more fully in the Directors’ Responsibilities
Statement, the directors are responsible for the preparation of
the financial statements and for being satisfied that they give
a true and fair view. Our responsibility is to audit and express
an opinion on the financial statements in accordance with
applicable law and International Standards on Auditing (UK and
Ireland). We also comply with International Standard on Quality
Control 1 (UK and Ireland). Our audit methodology and tools
aim to ensure that our quality control procedures are effective,
understood and applied. Our quality controls and systems
include our dedicated professional standards review team and
independent partner reviews.
This report is made solely to the Company’s members, as
a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so
that we might state to the Company’s members those matters
we are required to state to them in an auditor’s report and for
no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the
Company and the Company’s members as a body, for our audit
work, for this report, or for the opinions we have formed.
Alliance Trust PLC Report & Accounts 2015 | 51
Financial Statements
Consolidated income statement for the year ended 31 December 2015
Consolidated statement of comprehensive income
Company income statement for the year ended 31 December 2015
Company statement of comprehensive income
Statement of changes in equity for the year ended 31 December 2015
Balance sheet as at 31 December 2015
Cash flow statement for the year ended 31 December 2015
Notes
52
52
53
53
54
55
56
57
52 | Alliance Trust PLC Report & Accounts 2015
Financial Statements
Consolidated income statement for the year ended 31 December 2015
£000
Revenue
Income
Profit on fair value designated investments
Profit on investment property
Total revenue
Administrative expenses
Finance costs
Gain on revaluation of office premises
Foreign exchange losses
Profit before tax
Tax
Profit for the year
Year to December 2015
Year to December 2014
Note
Revenue
Capital
Total
Revenue
Capital
Total
3
9
9
4
5
6
114,386
-
114,386
110,117
-
-
-
85,137
85,137
720
720
-
-
163,584
284
110,117
163,584
284
114,386
(44,460)
(3,972)
-
-
85,857
(1,585)
(5,281)
175
(84)
200,243
(46,045)
110,117
(34,056)
163,868
(1,154)
273,985
(35,210)
(9,253)
(3,575)
(4,163)
(7,738)
175
(84)
-
-
240
240
(2,752)
(2,752)
65,954
(5,362)
79,082
-
145,036
(5,362)
72,486
(3,666)
156,039
-
228,525
(3,666)
60,592
79,082
139,674
68,820
156,039
224,859
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)
Diluted (p per share)
8
11.05
11.03
14.42
14.39
25.47
25.42
12.39
12.37
28.10
28.04
40.49
40.41
Consolidated statement of comprehensive income
£000
Profit for the year
Year to December 2015
Year to December 2014
Revenue
60,592
Capital
79,082
Total
139,674
Revenue
68,820
Capital
156,039
Total
224,859
Items that will not be reclassified subsequently to profit
or loss:
Defined benefit plan net actuarial loss
Retirement benefit obligations deferred tax
Other comprehensive loss
-
-
-
(22)
(96)
(22)
(96)
(118)
(118)
-
-
-
(1,506)
(1,506)
301
301
(1,205)
(1,205)
Total comprehensive income for the year
60,592
78,964
139,556
68,820
154,834
223,654
All total comprehensive income for the year is attributable to equity holders of the parent.
Alliance Trust PLC Report & Accounts 2015 | 53
Company income statement for the year ended 31 December 2015
£000
Revenue
Income
Profit on fair value designated investments
Profit on investment property
Total revenue
Administrative expenses
Finance costs
Gain on revaluation of office premises
Foreign exchange losses
Profit before tax
Tax
Profit for the year
Year to December 2015
Year to December 2014
Note
Revenue
Capital
Total
Revenue
Capital
Total
3
9
9
4
5
6
92,348
-
-
92,348
(22,835)
(3,968)
-
-
-
87,334
720
88,054
(1,133)
(5,281)
175
(84)
92,348
87,334
720
180,402
(23,968)
(9,249)
175
(84)
95,707
-
95,707
-
-
163,587
163,587
284
284
95,707
(19,714)
(3,575)
163,871
(1,090)
259,578
(20,804)
(4,163)
(7,738)
-
-
240
240
(2,752)
(2,752)
65,545
(5,360)
81,731
-
147,276
(5,360)
72,418
(3,666)
156,106
-
228,524
(3,666)
60,185
81,731
141,916
68,752
156,106
224,858
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)
Diluted (p per share)
8
10.97
10.95
14.90
14.87
25.87
25.82
12.38
12.35
28.11
28.05
40.49
40.40
Company statement of comprehensive income
£000
Profit for the year
Year to December 2015
Year to December 2014
Revenue
Capital
Total
Revenue
Capital
Total
60,185
81,731
141,916
68,752
156,106
224,858
Items that will not be reclassified subsequently to profit
or loss:
Defined benefit plan net actuarial loss
Retirement benefit obligations deferred tax
Other comprehensive loss
-
-
-
(22)
(96)
(22)
(96)
(118)
(118)
-
-
-
(1,506)
(1,506)
301
301
(1,205)
(1,205)
Total comprehensive income for the year
60,185
81,613
141,798
68,752
154,901
223,653
All total comprehensive income for the year is attributable to equity holders of the parent.
54 | Alliance Trust PLC Report & Accounts 2015
Statement of changes in equity for the year ended 31 December 2015
£000
Called up share capital
At 1 January
Own shares purchased and cancelled in the year
At 31 December
Capital reserve
At 1 January
Profit for the year
Defined benefit plan actuarial net loss
Own shares purchased and cancelled in the year
Share based payments
Dividends paid
At 31 December
Merger reserve
At 1 January and at 31 December
Capital redemption reserve
At 1 January
Own shares purchased and cancelled in the year
At 31 December
Revenue reserve
At 1 January
Profit for the year
Dividends paid
Unclaimed dividends returned/(redistributed)
At 31 December
Group
Company
Dec 15
Dec 14
Dec 15
Dec 14
13,835
(675)
14,003
(168)
13,835
(675)
14,003
(168)
13,160
13,835
13,160
13,835
2,233,915
2,108,441
2,234,150
2,108,609
79,082
(118)
(136,479)
521
(7,779)
156,039
(1,205)
(30,208)
848
-
81,731
(118)
(136,479)
521
(7,779)
156,106
(1,205)
(30,208)
848
-
2,169,142
2,233,915
2,172,026
2,234,150
645,335
645,335
645,335
645,335
5,163
675
5,838
4,995
168
5,163
5,163
675
5,838
4,995
168
5,163
120,916
60,592
(68,982)
39
113,381
68,820
(61,275)
(10)
120,679
60,185
(68,982)
39
113,212
68,752
(61,275)
(10)
112,565
120,916
111,921
120,679
Total Equity at 1 January
3,019,164
2,886,155
3,019,162
2,886,154
Total Equity at 31 December
2,946,040
3,019,164
2,948,280
3,019,162
Balance sheet as at 31 December 2015
£000
Note
Dec 15
Dec 14
Dec 15
Dec 14
Group
Company
Alliance Trust PLC Report & Accounts 2015 | 55
Non-current assets
Investments held at fair value
Investment property held at fair value
Property, plant and equipment:
Office premises
Other fixed assets
Intangible assets
Pension scheme surplus
Deferred tax asset
Current assets
Outstanding settlements and other receivables
Recoverable overseas tax
Cash and cash equivalents
Total assets
Current liabilities
Outstanding settlements and other payables
Tax payable
Bank loans
Total assets less current liabilities
Non-current liabilities
Unsecured fixed rate loan notes
Deferred tax liability
Amounts payable under long term Investment Incentive
Plan
Net assets
Equity
Share capital
Capital reserve
Merger reserve
Capital redemption reserve
Revenue reserve
Total Equity
9
9
9
11
25
12
13
21
14
15
15
12
16
17
17
17
17
All net assets are attributable to equity holders of the parent.
3,307,397
3,338,832
3,309,671
3,338,910
-
4,540
299
917
6,882
1,238
4,830
4,365
467
1,032
5,197
1,039
-
4,540
299
917
6,882
1,238
4,830
4,365
467
1,032
5,197
1,039
3,321,273
3,355,762
3,323,547
3,355,840
12,125
1,483
25,153
38,761
15,492
995
44,102
60,589
9,428
1,483
16,967
27,878
17,013
995
40,685
58,693
3,360,034
3,416,351
3,351,425
3,414,533
(17,570)
(3,991)
(290,000)
(11,984)
(3,991)
(280,000)
(7,818)
(3,991)
(290,000)
(10,168)
(3,991)
(280,000)
(311,561)
(295,975)
(301,809)
(294,159)
3,048,473
3,120,376
3,049,616
3,120,374
(100,000)
(1,238)
(100,000)
(1,039)
(100,000)
(1,238)
(100,000)
(1,039)
(1,195)
(173)
(98)
(173)
(102,433)
(101,212)
(101,336)
(101,212)
2,946,040
3,019,164
2,948,280
3,019,162
13,160
13,835
13,160
13,835
2,169,142
2,233,915
2,172,026
2,234,150
645,335
5,838
112,565
645,335
5,163
120,916
645,335
5,838
111,921
645,335
5,163
120,679
2,946,040
3,019,164
2,948,280
3,019,162
Net Asset Value per ordinary share attributable to
equity holders of the parent
Basic (£)
Diluted (£)
£5.61
£5.60
£5.47
£5.46
£5.61
£5.60
£5.47
£5.46
The financial statements were approved by the Board of Directors and authorised for issue on 3 March 2016.
They were signed on its behalf by:
Lord Smith of Kelvin
Chairman
56 | Alliance Trust PLC Report & Accounts 2015
Cash flow statement for the year ended 31 December 2015
£000
Dec 15
Dec 14
Dec 15 Dec 14
Group
Company
Cash flows from operating activities
Profit before tax
Adjustments for:
Gains on investments
Foreign exchange losses
Scrip dividends
Depreciation
Amortisation of intangibles
Gains on revaluation of office premises
Share based payment expense
Interest
Movement in pension scheme surplus
Operating cash flows before movements in working capital
Decrease/(Increase) in receivables
Increase/(Decrease) in payables
Net cash flow from operating activities before income taxes
Taxes paid
145,036
228,525
147,276
228,524
(85,857)
(163,868)
(88,054)
(163,871)
84
-
193
329
(175)
521
9,253
(1,707)
67,677
3,367
10,067
81,111
(5,948)
2,752
256
183
333
(240)
848
7,738
(1,323)
75,204
735
(1,859)
74,080
(3,676)
84
-
193
329
(175)
521
9,249
(1,707)
67,716
7,585
1,037
76,338
(5,948)
2,752
256
183
333
(240)
848
7,738
(1,323)
75,200
(619)
(1,929)
72,652
(3,676)
Net cash inflow from operating activities
75,163
70,404
70,390
68,976
Cash flows from investing activities
Proceeds on disposal at fair value of investments through profit and
loss
1,325,859
1,013,121
1,325,859
1,013,121
Purchases of investments at fair value through profit and loss
(1,206,841)
(965,415)
(1,206,841)
(965,415)
Purchase of plant and equipment
Purchase of other intangible assets
(25)
(214)
(401)
(551)
(25)
(214)
(401)
(551)
Net cash inflow from investing activities
118,779
46,754
118,779
46,754
Cash flows from financing activities
Dividends paid - Equity
Unclaimed dividends returned/(redistributed)
Purchase of own shares
Bank loans and unsecured fixed rate loan notes raised
Repayment of borrowing
Interest payable
(76,761)
(61,275)
(76,761)
(61,275)
39
(136,479)
10,000
-
(9,606)
(10)
(30,208)
100,000
(100,000)
(6,036)
39
(136,479)
10,000
-
(9,602)
(10)
(30,208)
100,000
(100,000)
(6,036)
Net cash outflow from financing activities
(212,807)
(97,529)
(212,803)
(97,529)
Net cash (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
(18,865)
44,102
(84)
19,629
27,225
(2,752)
(23,634)
40,685
(84)
18,201
25,236
(2,752)
Cash and cash equivalents at end of year
25,153
44,102
16,967
40,685
.
Alliance Trust PLC Report & Accounts 2015 | 57
Notes
1 General Information
Alliance Trust PLC was incorporated in the United Kingdom under the Companies Acts 1862-1886. The address of the registered office is
given on page 90. The nature of the Groupʼs operations and its principal activities are a global investment trust. The following notes refer to
the year ended 31 December 2015 and the comparatives, which are in brackets, for the year ended 31 December 2014.
The financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the
group operates.
Critical accounting estimates and judgements
The preparation of the financial statements necessarily requires the exercise of judgement, both in application of accounting policies, which
are set out below, and in the selection of assumptions used in the calculation of estimates. These estimates and judgements are reviewed
on an ongoing basis and are continually evaluated based on historical experience and other factors. However, actual results may differ from
these estimates. The most significantly affected components of the financial statements and associated critical judgements are as follows:
Valuation of unlisted investments
Investments which are not listed or which are not frequently traded are stated at the Directorsʼ best estimate of fair value. In arriving at their
estimate, the Directors make use of recognised valuation techniques and may take account of recent armʼs length transactions in the same
or similar instruments. Investments in subsidiary investments are valued in the Company and Group accounts at the Directors' estimate of
their fair value, using the guidelines and methodologies on valuation published by the International Private Equity and Venture Capital
Association and, where relevant the use of external valuers. With respect specifically to investments in private equity, whether through
funds or partnerships, the Directors rely on unaudited valuations of the underlying investments as supplied by the managers of those funds
or partnerships. The Directors regularly review the principles applied by the managers to those valuations to ensure they are in compliance
with the above policies.
Defined benefit scheme
The estimation of the expected cash flows used in the calculation of the defined benefit pension scheme's liabilities includes a number of
assumptions around mortality and inflation rates applicable to defined benefit pension schemes. More detail is given in note 25 of the
financial statements. The Directors take actuarial advice when selecting these assumptions and when selecting the discount rate used to
calculate the defined benefit pension scheme surplus.
2 Summary of Significant Accounting Policies
The directors have, at the time of approving the financial statements, a reasonable expectation that the Company and Group have
adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of
accounting in preparing the financial statements. Further detail can be found on page 33.
Basis of accounting
The same accounting policies, presentations and methods of computation are followed in these financial statements as were applied in the
Groupʼs last annual audited financial statements, other than those stated below.
Both the parent Company and the Group financial statements have been prepared on a going concern basis in accordance with
International Financial Reporting Standards (IFRSs), as adopted by the European Union (“Adopted IFRSs”).
The financial statements have been prepared on the historical cost basis, except that investments and investment properties are stated at
fair value and office premises are revalued on a periodic basis. The principal accounting policies adopted are set out below. Where
presentational guidance set out in the Statement of Recommended Practice (ʻSORPʼ) “Financial Statements of Investment Trust
Companies” for investment trusts issued by the Association of Investment Companies (ʻAICʼ) in November 2014, is consistent with the
requirements of IFRS, then the Directors have sought to prepare the financial statements on a basis compliant with the recommendations
of the SORP. The Group and the Company have prepared the financial statements under the SORP save for the matters noted below. The
Company allocates direct costs, including expenses incidental to the purchase and sale of investments and incentive awards deemed to be
performance related pursuant to the SORP against capital profits. However, the Company treatment varies with the recommendation of the
SORP that either a proportion of all indirect expenditure or no indirect expenditure is allocated against capital profits. The Company
allocates indirect expenditure against revenue profits save that two thirds of the costs of bank indebtedness, an indirect cost, are allocated
against capital profits save for the costs associated with seeding the fixed income bond fund which are all charged to revenue. The
allocation of the costs of bank indebtedness reflects the long term return expected from the Companyʼs investment portfolio.
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.
The Company qualifies as an investment entity under IFRS 10 meeting all the key characteristics required 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.
The consolidated financial statements therefore incorporate the financial statements of the Company and Alliance Trust Services Limited
('ATSL') as a result of the application of the "Investment Entities" exemption noted above. All other entities controlled by the Company are
recorded at fair value through the income statement. They are included within the "Investments at fair value" on the Consolidated Balance
Sheet as they are no longer controlled on a line by line basis. ATSL acts as a payment agent and employer for all entities within the
corporate structure and as such provides services that relate directly to the investment activities of the Company. All intragroup
transactions, balances, income and expenses with the entity are eliminated on consolidation.
58 | Alliance Trust PLC Report & Accounts 2015
2 Summary of Significant Accounting Policies
The following subsidiaries and related companies have not been consolidated into the Group results and have been valued at fair value
through the income statement:
Name
Shares
held
Country of
incorporation
Alliance Trust Savings Limited ('ATS')
Ordinary
Scotland
Principal Activity
Provision and administration of
investment and pension products
Alliance Trust Savings (England) Limited ('ATS (England)')
Ordinary
England
Inactive
Alliance Trust (Finance) Limited ('ATF')
Ordinary
Scotland
Asset holding (in liquidation)
AT2006 Limited ('AT2006')
Second Alliance Trust Limited ('SATL')
Second Alliance Leasing Limited ('SAL')
Ordinary
Scotland
Intermediate holding company
Ordinary
Scotland
Inactive
Ordinary
Scotland
Inactive (in liquidation)
Alliance Trust Real Estate Partners (GP) Limited ('ATREP GP')
Ordinary
Scotland
Real estate general partner
Alliance Trust Real Estate Partners LP (ATREP LP)
-
Scotland
Limited partnership
Alliance Trust Investments Limited ('ATI')
Ordinary
Scotland
Investment management
Alliance Trust Investments (England) Limited ('ATI (England)')
Ordinary
England
Inactive
Alliance Trust Equity Partners (Holdings) Limited ('ATEP')
Ordinary
Scotland
Intermediate holding company (in
liquidation)
Alliance Trust Equity Partners Limited ('ATEPL')
Ordinary
Scotland
Investment management
Albany Venture Managers GP Limited ('AVMGP')
Ordinary
Scotland
Private equity general partner
Alliance Trust (PE Manco) Limited ('AT PE Manco')
Ordinary
Scotland
Inactive (in liquidation)
ATEP 2008 GP Limited ('ATEP 2008GP')
ATEP 2009 GP Limited ('ATEP 2009GP')
Allsec Nominees Limited
Alliance Trust Savings Nominees Limited
Ordinary
Scotland
Private equity general partner
Ordinary
Scotland
Private equity general partner
Ordinary
Scotland
Ordinary
Scotland
Nominee
Nominee
Alliance Trust Investment Funds ICVC ('ATIF')
Ordinary
Scotland
Alliance Trust Sustainable Future ICVC ('ATSF')
Ordinary
Scotland
UK domiciled Open Ended Investment
Company
UK domiciled Open Ended Investment
Company
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.
Adopted IFRSs
Amendments to the following IFRSs were applicable for the year ended 31 December 2015;
IAS 19
plans
IFRSs not yet applied
Amendments to consider contributions from employees for defined benefit
The following standards and interpretations which have been endorsed by the European Union but are not effective for the year ended 31
December 2015 and have not been applied in preparing the financial statements but are relevant to the financial statements of the Group
and the Company:
Amendments to IFRS 10, IFRS 12 and IAS 28
Investment Entities
IAS 1
IAS 16 and IAS 38
IAS 34
IFRS 9
IFRS 15
IFRS 11
Disclosure initiative
Depreciation and Amortisation
Interim Financial Reporting
Financial Instruments
Revenue from contracts with customers
Accounting for depreciation and amortisation
Any required changes will be applicable to the financial statements of the Company and Group for the year ended 31 December 2016 and
future years and are expected to impact the Company and Groupʼs accounting for financial assets and liabilities and the disclosures
thereof.
The Directors do not believe that the adoption of the standards listed above will have a material impact on the financial statements of the
Company or the Group in future years.
Alliance Trust PLC Report & Accounts 2015 | 59
2 Summary of Significant Accounting Policies
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and Alliance Trust Services Limited as a result
of the application of the ʻInvestment Entitiesʼ exemption from consolidation required by IFRS 10. All other entities controlled by the
Company are recorded at fair value through the income statement. They are included within the ʻInvestments held at fair valueʼ on the
Consolidated Balance Sheet as they are no longer controlled on a line by line basis. Alliance Trust Services Limited acts as a payment
agent and employer for all entities within the corporate structure and as such provides services that relate directly to the investment
activities of the Company. All intragroup transactions, balances, income and expenses with the entity are eliminated on consolidation.
Presentation of income statement
In order to reflect the activities of an investment trust more accurately, and in accordance with guidance issued by the Association of
Investment Companies ("AIC"), supplementary information which analyses the income statement between items of a revenue and capital
nature have been presented alongside the income statement. Net capital returns are not generally distributed by way of a dividend but a
dividend has been paid out of capital reserves in the current year (Note 17).
Revenue recognition
Dividend income from investments is recognised when the shareholdersʼ rights to receive payment have been established, normally the ex-
dividend date.
Where the Group has elected to receive its dividends in the form of additional shares rather than cash, the amount of cash dividend
foregone is recognised as income. Any excess in the value of shares received over the amount of cash dividend foregone is recognised as
a capital gain in the income statement.
Rental income from investment property and income from mineral rights is recognised on a time-apportioned basis.
Interest income is accrued on a time-apportioned basis, by reference to the principal outstanding and at the effective interest rate
applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that
assetʼs net carrying amount.
Special dividends receivable are treated as repayment of capital or as income depending on the facts of each particular case.
Underwriting commission is recognised as earned.
Expenses connected with rental income and mineral rights are included as administrative expenses.
Foreign currencies
Transactions in currencies other than Sterling are recorded at the rates of exchange applicable to the dates of the transactions. At each
balance sheet date, monetary items and non-monetary assets and liabilities that are stated at fair value and are denominated in foreign
currencies are retranslated at the rates prevailing on the balance sheet date. Gains and losses arising on retranslation are included as
capital net profit or loss for the year where investments are classified as fair value through profit or loss.
Expenses
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 that investment.
• Annual bonus and Long Term Incentive Plan costs which relate to the achievement of investment manager performance objectives,
total shareholder return and net asset value performance objectives are allocated against capital profits and those that relate to the
achievement of other corporate targets or job performance objectives against revenue profits save for those costs associated with the
monthly 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 those costs associated with the fixed income bond fund which
are all allocated to revenue costs.
Operating leases
Charges for operating leases are debited to the income statement on an accruals basis. Note 26 “Operating lease commitments” discloses
the commitments to pay charges for leases expiring within 1 year, between 2-5 years and over 5 years.
Share based payments
The Group operates two share based payment schemes, the All Employee Share Ownership Plan (AESOP) and the Long Term Incentive
Plans (LTIP). The cost of the AESOP is recognised as a revenue cost in the year. The fair value of options granted to employees under the
LTIP is recognised as staff costs, with a corresponding increase in equity, over the year in which the employees become unconditionally
entitled to the options. The amount recognised as an expense may be adjusted to reflect the actual number of share options that vest. For
share based compensation schemes settled by the Company a recharge equal to the cost during the year is made to subsidiary
companies.
Investment incentive plan
The Equity Annual Incentive Plan is a discretionary plan for members of the investment team. It consists of matching awards which are
based upon the proportion of annual bonus set aside in the scheme by the participants either in the form of cash or shares in the funds
which they manage. The awards are settled in cash at the end of a three year performance period subject to meeting predefined
performance targets.
60 | Alliance Trust PLC Report & Accounts 2015
2 Summary of Significant Accounting Policies
Pension costs
Employer contributions to pension arrangements for staff are charged to revenue costs.
Contributions in respect of the defined benefit pension scheme are calculated by reference to actuarial valuations carried out for the
Trustees at intervals of not more than three years, and represent a charge to cover the accrued liabilities on a continuing basis.
Actuarial gains and losses are recognised in full in the statement of comprehensive income in the year in which they occur.
Taxation
The Company carries on its business as an investment trust and conducts its affairs so as to qualify as such under the provisions of
Sections 1158 and 1159 of the Corporation Tax Act 2010.
The tax expense predominantly represents the sum of the withholding tax suffered on foreign dividends.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never
taxable or deductible. The Groupʼs liability for current tax is calculated using tax rates that have been enacted or substantively enacted by
the balance sheet date.
In line with the recommendations of the SORP, the allocation method used to calculate tax relief on expenses presented against capital
returns in the supplementary information in the income statement is the ʻmarginal basisʼ. Under this basis, if taxable income is capable of
being offset entirely by expenses presented in the revenue return column of the income statement, then no tax relief is transferred to the
capital return column.
Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent
that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and
liabilities are not recognised if the temporary differences arise from the initial recognition of goodwill or from the initial recognition (other
than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates and interests
in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary
difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settled or the asset is realised. Deferred
tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the
deferred tax is also recorded within equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax
liabilities and where they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets
and liabilities on a net basis.
Neither the Company or the Group recognise deferred tax assets or liabilities on capital profits or losses on the basis that the investment
trust status of the Company means no tax is due on the capital profits or losses of the Company.
Financial instruments
Financial assets and financial liabilities are recognised on the Groupʼs balance sheet when the Group becomes a party to the contractual
provisions of the instrument. The Group will only offset financial assets and financial liabilities if it has a legally enforceable right of set off
and intends to settle on a net basis.
Derivative financial instruments
The Groupʼs activities expose it primarily to the financial risks of changes in market prices, foreign currency exchange rates and interest
rates. Derivative transactions which the Group may enter include interest rate futures and swaps.
Derivative financial instruments are initially recorded at fair value on the date on which the derivative contract is entered into and are
subsequently remeasured at fair value. The fair value of the forward currency contract is calculated by reference to current forward
exchange rates for contracts of similar maturity dates. Changes in fair value of derivatives financial instruments are recognised in the
Income Statement. The effective portion of change in the fair value of derivatives that are designated and qualify as cash flow hedges is
recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss.
Investments
Investments are recognised and derecognised on the trade date where a purchase or sale is made under a contract whose terms require
delivery within the timeframe established by the market concerned, and are initially measured at cost, including transaction costs.
Investments, which include collective investment schemes, are principally designated as fair value through profit and loss upon initial
recognition (not including transaction costs). Listed investments are measured at subsequent reporting dates at fair value, which is either
the bid price or the last traded price, depending on the convention of the exchange on which the investment is quoted.
Investments in property are initially recognised at cost and then valued at fair value based on an independent professional valuation at the
reporting date, with changes in fair value recognised through the income statement. Disposals of investment property are recognised when
contracts for sale have been exchanged and the sale has been completed.
Investments which are not listed or which are not frequently traded are valued at the Directors' best estimate of fair value. In arriving at their
estimate, the Directors make use of recognised valuation techniques and may take account of recent arm's length transactions in the same
or similar instruments.
Alliance Trust PLC Report & Accounts 2015 | 61
2 Summary of Significant Accounting Policies
Investments in subsidiary companies are valued in the Companyʼs accounts at the Directorsʼ estimate of their fair value, using the
guidelines and methodologies on valuation published by the International Private Equity and Venture Capital Association and where
relevant the use of external valuers. For investments in private equity, the Directors make use of unaudited valuations of the underlying
investments as supplied by the managers of those private equity funds. The Directors regularly review the principles applied by those
managers to ensure they are in compliance with the Companyʼs policies.
Valuation of mineral rights, included in unlisted investments is based upon the gross income received from the asset in the previous twelve
months multiplied by appropriate factors for gas and oil. Mineral rights are included in unlisted investments.
Foreign exchange gains and losses for fair-value designated investments are included within the changes in its fair value.
Cash and cash equivalents
Cash and cash equivalents are defined as short term, highly liquid investments that are readily convertible to known amounts of cash.
Other receivables
Other receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated
irrecoverable amounts.
Office premises
Office premises are valued annually by chartered surveyors on the basis of market value in accordance with the RICS Appraisal and
Valuation Standards. No depreciation has been charged on these assets as, in the opinion of the Board, any provision for depreciation
would be immaterial.
Intangible assets
The external costs associated with the development and procurement of significant technology systems are capitalised where it is probable
that the expected future economic benefit of that system will flow to the entity. They are stated at cost less accumulated amortisation. On
the completion of each project amortisation is charged so as to write off the value of these assets over periods up to five years.
Other fixed assets
Other fixed assets are held at cost less accumulated depreciation, which is charged to write off the value of the asset over three to five
years.
Impairment
At each balance sheet date, the Group reviews the carrying amounts of its intangible assets to determine whether there is any indication
that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to
determine the extent of any impairment loss (if any).
If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to the
recoverable amount. An impairment loss is recognised immediately in the income statement, unless the relevant asset is carried at a re-
valued amount, in which case the reversal of the impairment is treated as a revaluation decrease.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity
instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.
Unsecured fixed rate loan notes and bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including
premiums payable on settlement or redemption and direct issue costs, are accounted for through the income statement on an accruals
basis using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled
in the year in which they arise.
Unsecured fixed rate loan notes are recorded at the proceeds received. After initial recognition, they are subsequently measured at
amortised cost using the effective interest method. Finance charges are accounted for through the income statement on an accruals basis
using the effective interest rate method.
Other payables
Other payables are not interest bearing and are stated at their nominal value.
Buy backs and cancellation of shares
The costs of acquiring own shares for cancellation, together with any associated trading costs, are written back to distributable reserves.
Share capital is reduced by the nominal value of the shares bought back with an equivalent entry made to the capital redemption reserve.
Realised and unrealised capital reserves
A description of each of the reserves follows:
Capital reserve
The following are recorded through this reserve:
• Gains and losses on realisation of investments
• Changes in fair value of investments
• Realised exchange differences of a capital nature
•
•
Purchases of shares by the Trustee of the Employee Benefit Trust
Payment of capital dividends
62 | Alliance Trust PLC Report & Accounts 2015
2 Summary of Significant Accounting Policies
•
•
•
•
Amounts recognised in relation to share based payments which are capital in nature
Amounts by which other assets and liabilities valued at fair value differ from their book value
Buy back and cancellation of own shares
Amounts recognised in relation to the defined benefit pensions scheme
Revaluation reserve
This reserve is used to record changes in the valuation of the office premises. A downward revaluation in office premises is charged to the
income statement to the extent that there is no earlier upward revaluation in this reserve for those premises.
Merger reserve
This reserve was created as part of the arrangements for the acquisition of the assets of SATL.
Capital redemption reserve
This reserve was created on the cancellation and repayment of the Companyʼs preference share capital. Further movements in this reserve
reflects the nominal value of the buy back and cancellation of a portion of the share capital of the Company.
Revenue reserve
Net revenue profits and losses of the Company and its subsidiaries and the fair value costs of share based payments which are revenue in
nature are recorded within this reserve, together with the dividend payments made by the Company.
3 Revenue
An analysis of the Group's and Company's revenue is as follows:
£000
Income from investments *
Listed dividends - UK
Distributions from Collective Investment Schemes
Unlisted dividends - Subsidiaries
Listed dividends - Overseas
Scrip dividends
Other income
Property rental income
Mineral rights income
Deposit interest
Other interest
Recharged costs**
Total income
Investment income comprises
Listed UK
Listed Overseas
Unlisted
Other
Alliance Trust PLC Report & Accounts 2015 | 63
Group
Company
Dec 15
Dec 14
Dec 15
Dec 14
19,464
8,161
248
60,374
-
88,247
565
3,311
17
219
22,027
26,139
18,110
12,442
8,000
51,600
256
90,408
710
4,548
32
15
14,404
19,709
114,386
110,117
27,625
60,374
248
-
88,247
30,552
51,600
8,000
256
90,408
19,464
8,161
248
60,374
-
88,247
565
3,311
6
219
-
4,101
92,348
27,625
60,374
248
-
88,247
18,110
12,442
8,000
51,600
256
90,408
710
4,548
26
15
-
5,299
95,707
30,552
51,600
8,000
256
90,408
* Designated at fair value through profit and loss on initial recognition.
**ATSL acts as paymaster company. In the previous year the staff costs for the two trading businesses, ATS and ATI, were included in the
recharged costs figure noted above as these are recharged by ATSL. In the current year all costs, both staff costs and administrative costs,
were recharged through ATSL resulting in a higher level of recharged costs compared to the previous year.
4 Profit before tax is stated after charging the following administrative expenses:
£000
Staff costs
Social security costs
Pension credit - defined benefit scheme*
Pension costs - defined contribution scheme
Dec 15
Revenue
18,006
2,337
(207)
1,643
Group
Dec 15
Capital
1,585
-
-
-
Dec 15
Dec 14
Total
Revenue
19,591
2,337
(207)
1,643
19,014
2,351
(124)
1,710
Group
Dec 14
Capital
1,154
-
-
-
Dec 14
Total
20,168
2,351
(124)
1,710
21,779
1,585
23,364
22,951
1,154
24,105
ATSL acts as paymaster company and as such the staff costs for the two trading businesses, ATS and ATI, are included in the staff costs
figure noted above and are then recharged by ATSL to the appropriate entity.
Auditor's remuneration
Fee payable to the auditor for the audit of the Group's
annual accounts
Fee payable to the auditor for subsidiary company audits
Total audit fees
Audit related assurance services
62
17
79
3
-
-
-
-
62
17
79
3
69
17
86
-
-
-
-
-
69
17
86
-
64 | Alliance Trust PLC Report & Accounts 2015
4 Profit before tax is stated after charging the following administrative expenses:
All other services
Total non-audit fees
Fees payable to the Group's auditor in respect of
associated pension schemes audit
Total pension audit fees
Total remuneration
Operating lease charges
Land and buildings
Other
Total operating lease charges
Other administrative costs
Total administrative costs
£000
Staff costs
Social security costs
Pension credit - defined benefit scheme*
Pension costs - defined contribution scheme
Auditor's remuneration
Fee payable to the auditor for the audit of the Company's
annual accounts
Total audit fees
All other services
Total non-audit fees
Fees payable to the Company's auditors in respect of
associated pension schemes audit
Total pension audit fees
Total remuneration
Operating lease charges
Land and buildings
Other
Total operating lease charges
Other administrative costs
Total administrative costs
4
7
4
4
90
111
19
130
22,461
44,460
-
-
-
-
-
-
-
-
-
4
7
4
4
90
111
19
4
4
3
3
93
81
23
130
22,461
104
10,908
-
-
-
-
-
-
-
-
-
4
4
3
3
93
81
23
104
10,908
1,585
46,045
34,056
1,154
35,210
Dec 15
Revenue
7,710
1,126
(207)
594
Company
Dec 15
Capital
1,133
-
-
-
Dec 15
Dec 14
Total
Revenue
8,843
1,126
(207)
594
7,588
993
(124)
682
Company
Dec 14
Capital
1,090
-
-
-
Dec 14
Total
8,678
993
(124)
682
9,223
1,133
10,356
9,139
1,090
10,229
62
62
4
4
4
4
70
111
19
130
13,412
22,835
-
-
-
-
-
-
-
-
-
-
-
62
62
4
4
4
4
70
111
19
69
69
4
4
3
3
76
81
23
130
13,412
104
10,395
-
-
-
-
-
-
-
-
-
-
-
69
69
4
4
3
3
76
81
23
104
10,395
1,133
23,968
19,714
1,090
20,804
*As a result of the closure of the defined benefit pension scheme to future accrual in the period ended 31 December 2011, the Company
and the Group benefited from a gain to the Income Statement.
As a result of the implementation of Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) which is fully explained in the
basis of accounting note, the Group financial statements no longer include all of the subsidiary entities and as such does not include all
audit fees incurred. In addition to the audit fees paid by the Company and consolidated group disclosed above, fees payable to the
company's auditors for the audit of the non-consolidated subsidiaries amounted to £176,000 (£165,000), with audit related services for
these entities amounting to £70,000 (£31,000).
Total audit fees of £255,000 (£252,000), non-audit fees of £75,000 (£35,000) and fees payable in respect of associated pension schemes
of £4,000 (£3,000) were paid to Deloitte LLP. Total remuneration paid to Deloitte LLP amounted to £334,000 (£290,000).
Total Directorsʼ remuneration was £2.4m (£2.3m). Further details are given on pages 34 to 43. In the year the Group employed an average
of 261 (254) full-time and 16 (14) part-time staff, excluding Directors. The average full time equivalents in the year was 272 (264).
Ongoing charges ratio (OCR) of the Company amounted to 0.59% (0.60%) of the average net assets. Including capital incentives, OCR of
the Company amounted to 0.63% (0.64%) of the average net assets.
The cost of insured benefits for staff including Executive Directors is included in staff costs.
Alliance Trust PLC Report & Accounts 2015 | 65
5 Finance costs
£000
Bank loans and unsecured fixed rate loan notes
Total finance costs
£000
Bank loans and unsecured fixed rate loan notes
Total finance costs
Dec 15
Revenue
3,972
3,972
Dec 15
Revenue
3,968
3,968
Group
Dec 15
Capital
5,281
5,281
Company
Dec 15
Capital
5,281
5,281
Dec 15
Total
9,253
9,253
Dec 15
Total
9,249
9,249
Dec 14
Revenue
3,575
3,575
Dec 14
Revenue
3,575
3,575
Group
Dec 14
Capital
4,163
4,163
Company
Dec 14
Capital
4,163
4,163
Dec 14
Total
7,738
7,738
Dec 14
Total
7,738
7,738
Finance costs include interest of £4.3m (£1.8m) on the £100m 4.28% unsecured fixed rate loan notes which were drawn down in July 2014
for 15 years.
6 Taxation
£000
UK corporation tax at 20.25% (21.5%)
Prior year adjustment
Overseas taxation
Deferred taxation
Tax expense for the year
Dec 15
Revenue
Group
Dec 15
Capital
Dec 15
Dec 14
Total
Revenue
Group
Dec 14
Capital
-
(2)
5,460
5,458
(96)
5,362
-
-
-
-
-
-
-
(2)
5,460
5,458
(96)
5,362
(10)
(21)
3,396
3,365
301
3,666
-
-
-
-
-
-
Dec 14
Total
(10)
(21)
3,396
3,365
301
3,666
Corporation tax is calculated at the average rate of 20.25% (21.50%) of the estimated assessable profit for the year. Taxation for other
jurisdictions is calculated at the rates prevailing in the respective jurisdictions. The charge for the year can be reconciled to the profit per
the income statement as follows:
£000
Profit before tax
Tax at the average UK corporation tax rate of 20.25
% (21.5%)
Non taxable income
Losses on investments not taxable
Prior year adjustment
Foreign exchange adjustments
Effect of changes in tax rates
Effect of overseas tax
Deferred tax assets not recognised
Fair value movement in office premises
Adjustments arising on the difference between
taxation and accounting treatment of income and
expenses
Utilisation of brought forward tax losses
Expenses not deductible for tax purposes
Expense relief for overseas tax
Group relief not paid for
Tax expense for the year
Dec 15
Revenue
65,954
13,356
(14,574)
-
(2)
-
(100)
5,460
1,383
-
(127)
(272)
326
(91)
3
5,362
Group
Dec 15
Capital
79,082
16,014
(219)
(17,386)
-
17
-
-
1,288
(35)
164
146
11
-
-
-
Dec 15
Dec 14
Total
Revenue
Group
Dec 14
Capital
Dec 14
Total
145,036
72,486
156,039
228,525
29,370
(14,793)
(17,386)
(2)
17
(100)
5,460
2,671
(35)
37
(126)
337
(91)
3
15,584
(16,687)
-
(21)
-
-
3,396
1,424
-
(141)
-
122
(11)
-
5,362
3,666
33,548
-
(35,232)
49,132
(16,687)
(35,232)
-
592
-
-
977
(52)
(18)
-
185
-
-
-
(21)
592
-
3,396
2,401
(52)
(159)
-
307
(11)
-
3,666
66 | Alliance Trust PLC Report & Accounts 2015
6 Taxation
£000
UK corporation tax at 20.25% (21.5%)
Prior year adjustment
Overseas taxation
Deferred taxation
Tax expense for the year
Dec 15
Revenue
Company
Dec 15
Capital
Dec 15
Dec 14
Total
Revenue
Company
Dec 14
Capital
(2)
(2)
5,460
5,456
(96)
5,360
-
-
-
-
-
-
(2)
(2)
5,460
5,456
(96)
5,360
(10)
(21)
3,396
3,365
301
3,666
-
-
-
-
-
-
Dec 14
Total
(10)
(21)
3,396
3,365
301
3,666
Corporation tax is calculated at the average rate of 20.25% (21.50%) of the estimated assessable profit for the year. Taxation for other
jurisdictions is calculated at the rates prevailing in the respective jurisdictions. The charge for the year can be reconciled to the profit per
the income statement as follows:
£000
Profit before tax
Tax at the average UK corporation tax rate of 20.25
% (21.5%)
Non taxable income
Losses on investments not taxable
Prior year adjustment
Foreign exchange adjustments
Effect of changes in tax rates
Effects of overseas tax
Deferred tax assets not recognised
Fair value movement in office premises
Adjustments arising on the difference between
taxation and accounting treatment of income and
expenses
Expenses not deductible for tax purposes
Expense relief for overseas tax
Group relief not paid for
Tax expense for the year
Dec 15
Revenue
65,545
13,273
(14,574)
-
(2)
-
(100)
5,460
1,383
-
(20)
28
(91)
3
5,360
Company
Dec 15
Capital
81,731
16,551
-
(17,831)
-
17
-
-
1,288
(35)
-
10
-
-
-
7 Dividends
£000
Fourth interim dividend for the year ended 31 December 2013 of 2.387p per share
First interim dividend for the year ended 31 December 2014 of 2.4585p per share
Second interim dividend for the year ended 31 December 2014 of 2.4585p per share
Third interim dividend for the year ended 31 December 2014 of 2.4585p per share
Fourth interim dividend for the year ended 31 December 2014 of 2.4585p per share
First interim dividend for the year ended 31 December 2015 of 2.5325p per share
Second interim dividend for the year ended 31 December 2015 of 2.5325p per share
Third interim dividend for the year ended 31 December 2015 of 2.5325p per share
Special dividend for the year ended 31 December 2013 of 1.282p per share
Special dividend for the year ended 31 December 2014 of 2.546p per share
Special dividend for the year ended 31 December 2015 of 1.463p per share
Dec 15
Dec 14
Total
Revenue
Company
Dec 14
Capital
Dec 14
Total
147,276
72,418
156,106
228,524
29,824
(14,574)
(17,831)
(2)
17
(100)
5,460
2,671
(35)
(20)
38
(91)
3
15,570
(16,673)
-
(21)
-
-
3,396
1,226
-
57
122
(11)
-
5,360
3,666
33,563
-
(35,232)
49,133
(16,673)
(35,232)
-
592
-
-
977
(52)
(18)
170
-
-
-
Dec 15
-
-
-
-
13,555*
13,962
13,965
13,464
54,946
-
14,036*
7,779
76,761
(21)
592
-
3,396
2,203
(52)
39
292
(11)
-
3,666
Dec 14
13,338*
13,658
13,581
13,577
-
-
-
-
54,154
7,121
-
-
61,275
We also set out below the total dividend payable in respect of the financial year, which is the basis on which the requirements of Section
1158/1159 of the Corporation Tax Act 2010 are considered.
7 Dividends
£000
First interim dividend for the year ended 31 December 2014 of 2.4585p per share
Second interim dividend for the year ended 31 December 2014 of 2.4585p per share
Third interim dividend for the year ended 31 December 2014 of 2.4585p per share
Fourth interim dividend for the year ended 31 December 2014 of 2.4585p per share
First interim dividend for the year ended 31 December 2015 of 2.5325p per share
Second interim dividend for the year ended 31 December 2015 of 2.5325p per share
Third interim dividend for the year ended 31 December 2015 of 2.5325p per share
Fourth interim dividend for the year ended 31 December 2015 of 3.3725p per share
Special dividend for the year ended 31 December 2014 of 2.546p per share
Special dividend for the year ended 31 December 2015 of 1.46326p per share
Alliance Trust PLC Report & Accounts 2015 | 67
Dec 15
-
-
-
-
13,962
13,965
13,464
17,570
58,961
-
7,779
66,740
Dec 14
13,658
13,581
13,577
13,555*
-
-
-
-
54,371
14,036*
-
68,407
* 31 December 2013 and 31 December 2014 figures have been adjusted to reflect share buy backs.
8 Earnings per share
The calculation of the basic and diluted earnings per share is based on the following data:
£000
Ordinary shares
Earnings for the purposes of basic earnings per
share being net profit attributable to equity holders
of the parent
Number of shares
Weighted average number of ordinary shares for the
purpose of basic earnings per share
Weighted average number of ordinary shares for the
purpose of diluted earnings per share
£000
Ordinary shares
Earnings for the purposes of basic earnings per
share being net profit attributable to equity holders
of the parent
Number of shares
Weighted average number of ordinary shares for the
purpose of basic earnings per share
Weighted average number of ordinary shares for the
purpose of diluted earnings per share
Dec 15
Revenue
Group
Dec 15
Capital
Dec 15
Dec 14
Total
Revenue
Group
Dec 14
Capital
Dec 14
Total
60,592
79,082
139,674
68,820
156,039
224,859
548,480,531
549,465,141
555,308,405
556,548,721
Dec 15
Revenue
Company
Dec 15
Capital
Dec 15
Dec 14
Total
Revenue
Company
Dec 14
Capital
Dec 14
Total
60,185
81,731
141,916
68,752
156,106
224,858
548,480,531
549,465,141
555,308,405
556,548,721
The diluted figure is the weighted average of the entire number of shares in issue.
To arrive at the basic figure, the number of shares has been reduced by 886,173 (1,131,837) ordinary shares held by the Trustee of the
Employee Benefit Trust. During the year the Trustee increased its holding by Nil (Nil) shares. 245,664 (206,396) shares were transferred
from the Employee Benefit Trust to participants in the Long Term Incentive Plans in satisfaction of awards.
IAS 33.41 requires that shares should only be treated as dilutive if they decrease earnings per share or increase the loss per share.
68 | Alliance Trust PLC Report & Accounts 2015
9 Non-current assets
Group
Company
£000
Dec 15
Dec 14
Dec 15
Dec 14
Investments designated at fair value through profit and loss:
Investments listed on a recognised investment exchange
2,930,872
2,670,642
2,930,872
2,670,642
Unlisted investments
Investment in collective investment schemes (subsidiaries, note 10)
Investments in related and subsidiary companies (note 10)
Investment property*
Total Investments
47,778
158,009
170,738
59,873
435,659
172,658
47,778
158,009
173,012
59,873
435,659
172,736
3,307,397
-
3,338,832
4,830
3,309,671
-
3,338,910
4,830
3,307,397
3,343,662
3,309,671
3,343,740
*The Company sold the investment property, which was held through a Limited Partnership, ATREP LP in December 2015.
December 2014
£000
Opening book cost at 1 January 2014
Opening unrealised appreciation/(depreciation)
Opening valuation as at 1 January 2014
Movements in the year
Purchases at cost**
Sales - proceeds**
- realised gains/(losses)on sales
Increase in appreciation on assets held
Listed
Investments
Investment
Property
Group
Related and
Subsidiary
Companies
Unlisted
Investments
2,538,328
478,356
3,016,684
950,181
(991,176)
17,854
112,758
10,392
(5,867)
195,781
(45,320)
49,885
(2,644)
Total
2,794,386
424,525
4,525
150,461
47,241
3,218,911
21
-
-
284
9,750
(9,615)
1,477
20,585
9,099
(7,377)
(1,326)
12,236
969,051
(1,008,168)
18,005
145,863
Closing valuation as at 31 December 2014
3,106,301
4,830
172,658
59,873
3,343,662
Closing book cost
Closing appreciation/(depreciation) on assets held
2,515,187
591,114
10,413
(5,583)
197,393
(24,735)
50,281
9,592
2,773,274
570,388
Closing valuation as at 31 December 2014
3,106,301
4,830
172,658
59,873
3,343,662
December 2015
£000
Opening book cost at 1 January 2015
Opening unrealised appreciation/(depreciation)
Opening valuation at 1 January 2015
Movements in the year
Purchases at cost**
Sales - proceeds**
- realised gains/(losses)on sales
(Decrease)/Increase in appreciation on assets held
Closing valuation at 31 December 2015
Closing book cost
Closing appreciation/(depreciation)on assets held
Closing valuation as at 31 December 2015
Listed
Investments
Investment
Property
Group
Related and
Subsidiary
Companies
Unlisted
Investments
2,515,187
591,114
3,106,301
1,160,828
(1,280,897)
156,042
(53,393)
3,088,881
2,551,160
537,721
3,088,881
10,413
(5,583)
197,393
(24,735)
50,281
9,592
Total
2,773,274
570,388
4,830
172,658
59,873
3,343,662
-
(5,550)
(4,863)
5,583
39,100
(38,147)
5,904
(8,777)
3,808
(1,265)
(6,859)
(7,779)
1,203,736
(1,325,859)
150,224
(64,366)
-
-
-
-
170,738
47,778
3,307,397
204,250
(33,512)
45,965
1,813
2,801,375
506,022
170,738
47,778
3,307,397
Alliance Trust PLC Report & Accounts 2015 | 69
9 Non-current assets
December 2014
£000
Listed
Investments
Investment
Property
Company
Related and
Subsidiary
companies
Unlisted
Investments
Opening book cost as at 1 January 2014
Opening unrealised appreciation/(depreciation)
2,538,328
478,356
10,392
(5,867)
195,781
(45,245)
49,885
(2,644)
Total
2,794,386
424,600
Opening valuation as at 1 January 2014
3,016,684
4,525
150,536
47,241
3,218,986
Movements in the year
Purchases at cost**
Sales - proceeds**
- realised gains/(losses) on sales
Increase in appreciation on assets held
950,181
(991,176)
17,854
112,758
21
-
-
284
9,750
(9,615)
1,477
20,588
9,099
(7,377)
(1,326)
12,236
969,051
(1,008,168)
18,005
145,866
Closing valuation as at 31 December 2014
3,106,301
4,830
172,736
59,873
3,343,740
Closing book cost
Closing appreciation/(depreciation) on assets held
2,515,187
591,114
10,413
(5,583)
197,393
(24,657)
50,281
9,592
2,773,274
570,466
Closing valuation as at 31 December 2014
3,106,301
4,830
172,736
59,873
3,343,740
December 2015
£000
Opening book cost as at 1 January 2015
Opening unrealised appreciation/(depreciation)
Opening valuation as at 1 January 2015
Movements in the year
Purchases at cost**
Sales - proceeds**
- realised gains/(losses) on sales
(Decrease)/Increase in appreciation on assets held
Closing valuation as at 31 December 2015
Closing book cost
Closing appreciation/(depreciation)on assets held
Closing valuation as at 31 December 2015
Listed
Investments
Investment
Property
Company
Related and
Subsidiary
companies
Unlisted
Investments
2,515,187
591,114
3,106,301
1,160,828
(1,280,897)
156,042
(53,393)
3,088,881
2,551,160
537,721
3,088,881
10,413
(5,583)
197,393
(24,657)
50,281
9,592
Total
2,773,274
570,466
4,830
172,736
59,873
3,343,740
-
(5,550)
(4,863)
5,583
39,100
(38,147)
5,904
(6,581)
3,808
(1,265)
(6,859)
(7,779)
1,203,736
(1,325,859)
150,224
(62,170)
-
-
-
-
173,012
47,778
3,309,671
204,250
(31,238)
45,965
1,813
2,801,375
508,296
173,012
47,778
3,309,671
** Expenses incidental to the purchase or sale of investments are included within the purchase cost or deducted from the sale proceeds.
These expenses amount to £2.0m (£1.4m) for purchases and £1.5m (£1.3m) for sales.
The investment property was sold in 31 December 2015. The historic cost of the investment property was £10.7m (£10.7m).
£000
Valuation at 31 December 2013
Revaluation
Valuation at 31 December 2014
Revaluation
Valuation at 31 December 2015
Office premises freehold / Heritable property
Group and Company
4,125
240
4,365
175
4,540
At 31 December 2015 DTZ, an independent Chartered Surveyor, valued the office premises at 8 West Marketgait, Dundee at £4.54m on
the basis of market value. The valuation was in accordance with RICS Appraisal and Valuation Standards. The historic cost of the building
as at 31 December 2015 was £12.7m (£12.7m).
70 | Alliance Trust PLC Report & Accounts 2015
9 Non-current assets
£000
Other Fixed Assets
Opening book cost at 1 January 2014
Additions
Disposals
Book cost at 31 December 2014
Additions
Disposals
Book cost at 31 December 2015
Opening depreciation at 1 January 2014
Depreciation charge
Disposals
Depreciation at 31 December 2014
Depreciation charge
Disposals
Depreciation at 31 December 2015
Net book value at 31 December 2014
Net book value at 31 December 2015
10 Subsidiaries and Related Companies
Group
Company
455
401
-
856
25
-
881
(206)
(183)
-
(389)
(193)
-
(582)
467
299
455
401
-
856
25
-
881
(206)
(183)
-
(389)
(193)
-
(582)
467
299
The Group results incorporate the Company and ATSL in full only. In 2014 ATSL acted as a paymaster company and employer for all
entities within the corporate structure. In the current year all costs, both staff costs and administrative costs, were recharged through ATSL.
ATSL provides services that relate directly to the investment activities of the Company, however it is not an investment entity itself. All intra-
group transactions, balances, income and expenses within theses entities are eliminated on consolidation.
At 31 December 2015 the Company owned 100% of ATS, AT2006, ATREP, ATSL, ATI, and ATEPL, AVMGP, ATEP2008GP and
ATEP2009GP. AT2006 owned 100% of SATL. A full list of investments in subsidiary entities is included in the basis of accounting note.
Investments in subsidiary companies are valued in the Group accounts at £170.7m (£172.7m) and Companyʼs accounts at £173.0m
(£172.7m) being the Directorsʼ estimate of their fair value, using the guidelines and methodologies on valuation published by the
International Private Equity and Venture Capital Association. This includes, the two main trading investments, ATS at £54.0m (£31.6m) and
ATI at £19.8m (£24.3m). The key financial results are noted below for both.
Alliance Trust Investments Limited
£000
Total income
Expenses
Loss before tax
Fair valuation
Alliance Trust Savings Limited
£000
Total income
Expenses
Loss before tax
Fair valuation
Year ended
Year ended
31 December 2015
31 December 2014
10,545
(12,598)
(2,053)
19,800
10,153
(13,412)
(3,259)
24,269
Year ended
Year ended
31 December 2015
31 December 2014
13,695
(18,922)
(5,227)
54,000
12,745
(16,659)
(3,914)
31,573
The fair valuation 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 current intention to sell the subsidiary business in the future.
Alliance Trust PLC Report & Accounts 2015 | 71
10 Subsidiaries and Related Companies
The Directors have used several valuation methodologies as described in the guidelines to arrive at their best estimate of fair value,
including discounted cash flow calculations, revenue and earnings multiples, recent market transactions where available and external
valuations. Note 23.8 provides further information on the valuation methodologies applied, including that the Directors used an external
valuation in their assessment of the 2015 fair value of ATS.
The Company has invested in the sub-funds of Alliance Trust Investment Funds ICVC (ʻATIFʼ), a UK domiciled Open Ended Investment
Company (OEIC), in two sub-funds in Alliance Trust Sustainable Future ICVC ('ATSF'), a UK domiciled Open Ended Investment Company
(OEIC), and in a sub-fund of Luxcellence, a Luxembourg domiciled Société dʼInvestissement à Capital Variable (SICAV). As at 31
December 2015 the Company held the following proportions of each fund. The value of the shares held by the Company is also given
below:
ATIF - Monthly Income Bond fund
ATIF - Global Thematic Opportunities Fund
ATIF - Dynamic Bond Fund
ATSF - Sustainable Future Cautious Managed Fund
ATSF - Sustainable Future Defensive Managed Fund
Luxcellence - Alliance Trust Sustainable Future Pan-European Equity Fund
11 Intangible assets
£000
Opening book cost at 1 January 2014
Additions
Impairment
Book cost at 31 December 2014
Additions
Book cost at 31 December 2015
Opening amortisation at 1 January 2014
Amortisation
Impairment
Amortisation at 31 December 2014
Amortisation
Amortisation as at 31 December 2015
Carrying amount as at 31 December 2014
Carrying amount as at 31 December 2015
Dec 15
Dec 15
Dec 14
Dec 14
Proportion %
Value £000
Proportion %
Value £000
20
-
75
80
80
49
-
63,184
-
10,143
10,950
10,830
62,902
158,009
37
99
60
97
98
50
-
122,887
183,152
52,850
10,600
10,600
55,570
435,659
Group
Company
Technology systems
Technology systems
3,185
551
(1,654)
2,082
214
2,296
(2,371)
(333)
1,654
(1,050)
(329)
(1,379)
1,032
917
3,185
551
(1,654)
2,082
214
2,296
(2,371)
(333)
1,654
(1,050)
(329)
(1,379)
1,032
917
Amortisation is included within administrative expenses in the income statement.
72 | Alliance Trust PLC Report & Accounts 2015
12 Deferred tax
The following are the major deferred tax liabilities and assets recognised by the Group and Company and movements thereon during the
current and prior reporting period:
Group
£000
At 1 January 2014 - (liability)/asset
Income statement - deferred tax credit
Income statement - deferred tax charge
Equity - deferred tax credit
At 31 December 2014 - (liability)/asset
Income statement - deferred tax credit
Income statement - deferred tax charge
Equity - deferred tax credit
Equity - deferred tax charge
At 31 December 2015 - (liability)/asset
Retirement
benefit
obligations
Accelerated
Tax
Depreciation
Losses
Foreign Tax
Other
(1,015)
-
(325)
301
(1,039)
204
(307)
4
(100)
(1,238)
-
-
-
-
-
-
-
-
-
-
1,015
24
-
-
1,039
303
(104)
-
-
1,238
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
-
24
(325)
301
-
507
(411)
4
(100)
-
At the balance sheet date, the Group had unused tax losses of £53.8m (£40.8m) available for offset against future profits.
There are unrecognised deferred tax assets of £9.7m (£8.2m) in relation to unused tax losses and £0.2m (£0.2m) in relation to fixed assets
and other timing differences.
The Directors have not recognised the deferred tax asset due to uncertainty over the timing of future profits.
Company
£000
At 1 January 2014 - (liability)/asset
Income statement - deferred tax credit
Income statement - deferred tax charge
Equity - deferred tax credit
At 31 December 2014 - (liability)/asset
Income statement - deferred tax credit
Income statement - deferred tax charge
Equity - deferred tax credit
Equity - deferred tax charge
At 31 December 2015 - (liability)/asset
Retirement
benefit
obligations
Accelerated
Tax
Depreciation
Losses
Foreign Tax
Other
(1,015)
-
(325)
301
(1,039)
204
(307)
4
(100)
(1,238)
-
-
-
-
-
-
-
-
-
-
1,015
24
-
-
1,039
303
(104)
-
-
1,238
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
-
24
(325)
301
-
507
(411)
4
(100)
-
At the balance sheet date, the Company had unused tax losses of £47.2m (£37.9m) available for offset against future profits.
There are unrecognised deferred tax assets of £9.3m (£7.6m) in relation to unused tax losses and £0.2m (£0.2m) in relation to fixed assets
and other timing differences.
The Directors have not recognised the deferred tax asset due to uncertainty over the timing of future profits.
13 Outstanding settlements and other receivables
£000
Dividends receivable
Other income receivable
Amounts due from subsidiary companies
Other debtors
Group
Company
Dec 14
Dec 15
Dec 14
Dec 15
5,514
544
797
5,270
4,636
459
7,270
3,127
12,125
15,492
5,514
544
1,529
1,841
9,428
4,636
459
9,183
2,735
17,013
The Directors consider that the carrying amount of other receivables approximates to their fair value.
Of the amounts due from subsidiary companies in 2014, £7.3m for the Group and £9.2m for the Company, £7.1m was due after more than
one year relating to a perpetual subordinated loan from the Company to ATS. In January 2015 the ATS Board approved, subject to
regulatory approval, repayment of the subordinated loan and the Company Board agreed to use the loan repayment proceeds to subscribe
to additional share capital in ATS. Regulatory approval for cancellation and repayment of the subordinated loan and additional share capital
was granted in November and the capital conversion was made in December 2015.
14 Outstanding settlements and other payables
£000
Purchases of investments awaiting settlement
Amounts due to subsidiary companies
Other creditors
Interest payable
Alliance Trust PLC Report & Accounts 2015 | 73
Group
Company
Dec 15
787
2,226
12,694
1,863
17,570
Dec 14
Dec 15
Dec 14
3,892
624
5,252
2,216
11,984
787
1,971
3,197
1,863
7,818
3,892
664
3,396
2,216
10,168
The Directors consider that the carrying amount of other payables approximates to their fair value.
15 Bank loans and unsecured fixed rate loan notes
Bank loans
£000
Bank loans repayable within one year
Analysis of borrowings by currency:
Bank loans - sterling
The weighted average % interest rates payable:
Bank loans
Group
Company
Dec 15
290,000
Dec 14
280,000
Dec 15
290,000
Dec 14
280,000
290,000
280,000
290,000
280,000
1.33%
1.49%
1.33%
1.49%
The Directors estimate the fair value of the borrowings to be:
Bank loans
290,000
280,000
290,000
280,000
Unsecured fixed rate notes
£000
Unsecured fixed rate loan notes
The effective interest rate payable:
Unsecured fixed rate loan notes
Group
Company
Dec 15
100,000
Dec 14
100,000
Dec 15
100,000
Dec 14
100,000
4.30%
4.30%
4.30%
4.30%
£100m of unsecured fixed loan notes were drawn down in July 2014, over 15 years at 4.28%. The fair value at 31 December 2015 was
£109.0m (£110.2m).
The total weighted average % interest rate
2.09%
2.23%
2.09%
2.23%
16 Share capital
£000
Allotted, called up and fully paid:
- 526,340,897 ordinary shares of 2.5p each
Group
Company
Dec 15
Dec 14
Dec 15
Dec 14
13,160
13,835
13,160
13,835
The Company has one class of ordinary share which carries no right to fixed income.
The Employee Benefit Trust holds 886,173 (1,131,837) ordinary shares, acquired by its Trustee with funds provided by the Company.
During the year the Trustee increased its holding by Nil (Nil) shares. 245,664 (206,396) shares were transferred from the Employee Benefit
Trust to participants in the Long Term Incentive Plans in satisfaction of awards.
Group
Company
£000
Ordinary shares of 2.5p each
Opening share capital
Share buy backs
Closing share capital
Dec 15
Dec 14
Dec 15
Dec 14
13,835
(675)
13,160
14,003
(168)
13,835
13,835
(675)
13,160
14,003
(168)
13,835
74 | Alliance Trust PLC Report & Accounts 2015
16 Share capital
Capital Management Policies and Procedures
The capital of the Company is managed in accordance with its investment policy in pursuit of its investment objective, both of which are
detailed on page 5. This is undertaken by the Asset Allocation Committee within parameters set by the Board.
The Group, Company and the remaining financial services subsidiary investments comply with the capital requirements of their relevant
regulators, including the Capital Requirements Directive and the Alternative Investment Fund Managers Directive.
17 Reserves
Group
£000
Net assets at 31 December 2013
Dividends
Unclaimed dividends returned
Profit for the year
Own shares purchased
Defined benefit plan net actuarial loss
Share based payments
Net assets at 31 December 2014
Dividends
Unclaimed dividends redistributed
Profit for the year
Own shares purchased
Defined benefit plan net actuarial loss
Share based payments
Share
Capital
14,003
Capital
Reserve
2,108,441
Merger
Reserve
645,335
Capital
Redemption
Reserve
4,995
-
-
-
(168)
-
-
13,835
-
-
-
-
-
156,039
(30,208)
(1,205)
848
2,233,915
(7,779)
-
79,082
(675)
(136,479)
-
-
(118)
521
-
-
-
-
-
-
645,335
-
-
-
-
-
-
-
-
-
168
-
-
5,163
-
-
-
675
-
-
Revenue
Reserve
113,381
(61,275)
(10)
68,820
-
-
-
120,916
(68,982)
39
60,592
-
-
-
Total
2,886,155
(61,275)
(10)
224,859
(30,208)
(1,205)
848
3,019,164
(76,761)
39
139,674
(136,479)
(118)
521
Net assets at 31 December 2015
13,160
2,169,142
645,335
5,838
112,565
2,946,040
Company
£000
Net assets at 31 December 2013
Dividends
Unclaimed dividends returned
Profit for the year
Own shares purchased
Defined benefit plan net actuarial loss
Share based payments
Net assets at 31 December 2014
Dividends
Unclaimed dividends redistributed
Profit for the year
Own shares purchased
Defined benefit plan net actuarial loss
Share based payments
Share
Capital
14,003
Capital
Reserve
2,108,609
Merger
Reserve
645,335
Capital
Redemption
Reserve
4,995
-
-
-
(168)
-
-
13,835
-
-
-
-
-
156,106
(30,208)
(1,205)
848
2,234,150
(7,779)
-
81,731
(675)
(136,479)
-
-
(118)
521
-
-
-
-
-
-
645,335
-
-
-
-
-
-
-
-
-
168
-
-
5,163
-
-
-
675
-
-
Revenue
Reserve
113,212
(61,275)
(10)
68,752
-
-
-
120,679
(68,982)
39
60,185
-
-
-
Total
2,886,154
(61,275)
(10)
224,858
(30,208)
(1,205)
848
3,019,162
(76,761)
39
141,916
(136,479)
(118)
521
Net assets at 31 December 2015
13,160
2,172,026
645,335
5,838
111,921
2,948,280
The revenue reserves distributable by way of a dividend are £111.9m (£120.7m). Realised capital reserves of £1,664m (£1,664m) can be
distributed by way of a dividend as was the case this year. Unrealised capital reserves of £ 508m (£ 570m) relate to unrealised appreciation
on investments. Total distributable reserves are £2,172m (£2,234m). Share buy backs are funded through realised capital reserves.
Alliance Trust PLC Report & Accounts 2015 | 75
18 Net Asset Value per Ordinary Share
The calculation of the net asset value per ordinary share is based on the following:
£000
Equity shareholder funds
Number of shares at year end - Basic
Number of shares at year end - Diluted
The diluted figure is the entire number of shares in issue.
Group
Company
Dec 15
Dec 14
Dec 15
Dec 14
2,946,040
3,019,164
2,948,280
3,019,162
525,454,724
552,227,309
525,454,724
552,227,309
526,340,897
553,359,146
526,340,897
553,359,146
To arrive at the basic figure, the number of shares has been reduced by 886,173 (1,131,837) shares held by the Trustee of the Employee
Benefit Trust. During the year the Trustee increased its holding by Nil (Nil) shares. 245,664 (206,396) shares were transferred from the
Employee Benefit Trust to participants in the LTIP in satisfaction of awards.
19 Segmental Reporting
Alliance Trust PLC has identified a single operating segment, the investment trust, whose objective is to be a core investment for investors
seeking increasing value over the long term. The accounting policies of the operating segment, which operates in the UK, are the same as
those described in the summary of significant accounting policies. Alliance Trust PLC evaluates performance based on the total profit
before tax which is shown in the Company Income Statement on page 53.
20 Related Party Transactions
Transactions between the Company and ATSL are eliminated on consolidation.
Other subsidiaries within the Corporate Group may purchase goods or services for other entities within the Group and recharge these costs
directly to the appropriate entity to which the costs relate to.
There are no other related parties other than the members of the Corporate Group.
During the year the following amounts were reimbursed/(repaid) between ATSL and the other entities as it acts as paymaster and employer
for all corporate entities. In the current year all costs were recharged through ATSL, both staff and administrative costs.
Alliance Trust Services
£000
Paid by Alliance Trust PLC (the Company)
Paid to Alliance Trust PLC (the Company)
Due from/(to)ATSL
Paid by Alliance Trust Savings Limited
Paid to Alliance Trust Savings Limited
Due from/(to)ATSL
Paid by Alliance Trust Investments Limited
Paid to Alliance Trust Investments Limited
Due from/(to)ATSL
Paid by Alliance Trust Equity Partners (Holdings) Limited
Paid to Alliance Trust Equity Partners (Holdings) Limited
Due from/(to)ATSL
Paid by Alliance Trust Equity Partners Limited
Paid to Alliance Trust Equity Partners Limited
Due from/(to)ATSL
Paid by Alliance Trust (Finance) Limited
Paid to Alliance Trust (Finance) Limited
Due from/(to)ATSL
Paid by Alliance Trust Real Estate Partners LP
Paid to Alliance Trust Real Estate Partners LP
Due from/(to)ATSL
Year ended
Year ended
31 December 2015
31 December 2014
27,629
(15,787)
417
25,087
(1,983)
252
18,985
(2,890)
392
20
-
-
20
(1)
-
-
-
-
130
(3)
(74)
21,450
(11,699)
1,956
20,913
(478)
9
16,639
(180)
(47)
32
(8)
-
63
(10)
-
4,001
(6,000)
-
240
(16)
-
Transactions with key management personnel
Details of the Non Executive Directors are disclosed on pages 22 to 23. The remuneration and other compensation including pension cost
paid to the directors during the year is summarised below.
For the purpose of IAS 24 ʻRelated Party Disclosures, key management personnel comprised the members of the Executive Committee
(the Chief Executive and senior management) plus the Non Executive Directors of the Company.
loan notes
Net (debt)/cash
Company
£000
76 | Alliance Trust PLC Report & Accounts 2015
20 Related Party Transactions
£000
Total emoluments
Payments to former key management personnel
Post retirement benefits
Equity compensation benefits
Group
Company
Dec 15
2,847
474
61
538
Dec 14
2,952
-
68
730
Dec 15
2,089
474
27
423
Dec 14
2,410
-
43
730
3,920
3,750
3,013
3,183
21 Analysis of change in net cash/(debt)
Group
£000
Dec 13
Cash flow
Exchange
gains
Dec 14
Cash flow
Exchange
gains
Cash and cash equivalents
27,225
19,629
(2,752)
44,102
(18,865)
(84)
Bank loans and unsecured fixed rate
Dec 15
25,153
(380,000)
-
-
(380,000)
(10,000)
-
(390,000)
(352,775)
19,629
(2,752)
(335,898)
(28,865)
(84)
(364,847)
Dec 13
Cash flow
Exchange
gains
Dec 14
Cash flow
Exchange
gains
Dec 15
16,967
Cash and cash equivalents
25,236
18,201
(2,752)
40,685
(23,634)
(84)
Bank loans and unsecured fixed rate
loan notes
Net (debt)/cash
(380,000)
-
-
(380,000)
(10,000)
-
(390,000)
(354,764)
18,201
(2,752)
(339,315)
(33,634)
(84)
(373,033)
22 Financial commitments
Financial commitments as at 31 December 2015, which have not been accrued, for the Group and the Company totaled £43.9m (£48.9m).
These were in respect of uncalled subscriptions in investments structured as limited partnerships (LP) of which £43.9m (£48.9m) relates to
investments in our private equity portfolio. These LP commitments, which can include recallable distributions received, 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.
A maturity analysis of the expiry dates of these LP commitments is presented below:
£000
< 1 year
1-5 years
5-10 years
Group and Company
Dec 15
1,446
33,511
8,930
43,887
Dec 14
215
29,792
18,882
48,889
The Company has provided letters of comfort in connection with banking facilities made available to certain of its subsidiaries. The
Company provided letters to 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 £30.0m over its listed investments to the Trustees of the Alliance Trust
Companies Pension Fund.
Alliance Trust PLC Report & Accounts 2015 | 77
23 Financial instruments and Risk
The Strategic Report details the Companyʼs approach to investment risk management on pages 18 and 19 and the accounting policies on
pages 57 to 62 explain the basis on which currencies and investments are valued for accounting purposes.
The Directors are of the opinion that the fair values of financial assets and liabilities of the Group are not materially different to their carrying
values.
Capital Risk Management
The Group manages its capital to ensure that entities in the Group and the Company will be able to continue as a going concern while
maximising the return to stakeholders through the optimisation of the use of debt and equity balances. The Group's and Companyʼs overall
strategy remains unchanged from the year ended 31 December 2014.
The capital structure of the Group and the Company consists of debt, which includes the borrowings disclosed in Note 15, cash and cash
equivalents and equity attributable to equity holders of the Company comprising issued capital, reserves and retained earnings as
disclosed in Note 17 to the financial statements.
The Board reviews the capital structure of the Company and the Group on an at least semi-annual basis. The Group and the Company
have decided that net gearing should at no time exceed 30% of the net assets of either the Group or the Company.
£000
Debt
Cash and cash equivalents
Net (debt)
Net (debt) as % of net assets
Risk management policies and procedures
Group
Company
Dec 15
(390,000)
25,153
(364,847)
(12.4)%
Dec 14
(380,000)
44,102
(335,898)
(11.1)%
Dec 15
(390,000)
16,967
(373,033)
(12.7)%
Dec 14
(380,000)
40,685
(339,315)
(11.2)%
As an investment trust the Company invests in equities, private equity, financial instruments and its subsidiary businesses for the long term
in order to achieve the investment objectives set out on page 5. In pursuing these objectives the Company is exposed to a variety of risks
that could result in a reduction in the Companyʼs net assets or a reduction in the profits available for payment as dividends.
The principal financial instruments at risk comprise those in the Companyʼs investment portfolio and this note addresses these risks below.
The Group has certain additional risks, and these are detailed in the appropriate sections below.
These risks and the Directorsʼ approach to managing them are set out below under the following headings: market risk (comprising
currency risk, interest rate risk, and other price risk), credit risk, liquidity risk, and gearing risk.
The Group has a risk management framework in place which is described in detail on pages 18 to 19. The objectives, policies and
processes for managing the risks, and the methods used to measure the risks have not changed from the previous accounting year.
23.1 Market Risk
Market risk embodies the potential for both losses and gains and includes currency risk (see note 23.2), interest rate risk (see note 23.3)
and other price risk (see note 23.4). Market risk is managed on a regular basis by the Asset Allocation Committee. The purpose of this
executive committee is to manage the capital of the Company within parameters set by the Directors on investment and asset allocation
strategies and risk.
The Companyʼs strategy on investment risk is outlined in our statement of investment objectives and policy on page 5.
Details of the investment portfolio at the balance sheet date are disclosed on pages 12 to 13.
23.2 Currency Risk
Some of the Groupʼs assets, liabilities and transactions are denominated in currencies other than its functional currency of Sterling.
Consequently the Group is exposed to the risk that movements in exchange rates may affect the Sterling value of those items.
The Groupʼs currency holdings and gains/losses thereon are reviewed regularly by the Directors, and the currency risk is managed on a
regular basis by the Asset Allocation Committee within parameters set by the Directors on investment and asset allocation strategies and
risk. The Group enters into forward exchange contracts to cover specific foreign currency exposure.
The currency exposure for overseas investments is based on the quotation currency of each holding, while the currency exposure for net
monetary assets is based on the currency in which each asset or liability is denominated. At the reporting date the Group and Company
had the following exposures:
78 | Alliance Trust PLC Report & Accounts 2015
23 Financial instruments and Risk
23.2 Currency Risk
Group and Company
Currency Exposure
Overseas
investments
Net monetary
assets
£000
US dollar
Euro
Yen
Other non-sterling
Sensitivity analysis
Dec 15
1,481,269
396,450
178,833
437,114
2,493,666
Total
currency
exposure
Dec 15
Overseas
investments
Net monetary
assets
Dec 14
Dec 14
Dec 15
740
1,482,009
1,328,147
-
-
-
396,450
178,833
437,114
418,567
53,519
377,814
5,560
2,110
-
205
Total
currency
exposure
Dec 14
1,333,707
420,677
53,519
378,019
740
2,494,406
2,178,047
7,875
2,185,922
If Sterling had strengthened by 5% (5%) relative to all currencies, with all other variables held constant, the income statement and the net
assets attributable to equity holders of the parent would have decreased by the amounts shown below. The analysis is performed on the
same basis as for the year ended 31 December 2014. The revenue return impact is an estimated figure for 12 months based on the cash
balances at the reporting date.
£000
Income Statement
Revenue return
Capital return
Net Assets
Group
Company
Dec 15
Dec 14
Dec 15
Dec 14
(2,936)
(124,683)
(2,688)
(108,377)
(2,936)
(124,683)
(2,688)
(108,377)
(127,619)
(111,065)
(127,619)
(111,065)
A 5% (5%) weakening of Sterling against the above currencies would have resulted in an equal and opposite effect on the above amounts,
on the basis that all other variables remain constant.
23.3 Interest Rate Risk
The Group is exposed to interest rate risk in a number of ways. A movement in interest rates may affect the fair value of investments in
fixed interest rate securities, income receivable on cash deposits and interest payable on variable rate borrowings.
The Company finances part of its activities through borrowings at levels which are approved and monitored by the Board. The possible
effects on fair value and cash flows as a result of an interest rate change are taken into account when making investment or borrowing
decisions.
The following table details the Groupʼs and Companyʼs exposure to interest rate risks for bank and loan balances:
Group
Company
£000
Dec 15
Dec 14
Dec 15
Dec 14
Exposure to floating interest rates
Cash at bank
Bank loans repayable within one year
Sensitivity analysis
25,153
(290,000)
44,102
(280,000)
16,967
(290,000)
40,685
(280,000)
(264,847)
(235,898)
(273,033)
(239,315)
If interest rates had decreased by 0.25% (0.25%), with all other variables held constant, the income statement result and the net assets
attributable to equity holders of the parent would have increased by the amounts shown below. The revenue return impact is an estimated
figure for the year based on the cash balances at the reporting date.
£000
Income statement
Revenue return
Capital return
Net Assets
Group
Company
Dec 15
Dec 14
Dec 15
Dec 14
431
233
664
266
344
610
451
233
684
274
344
618
Alliance Trust PLC Report & Accounts 2015 | 79
23 Financial instruments and Risk
23.3 Interest Rate Risk
If interest rates had increased by 0.25% (0.25%) with all other variables held constant, the income statement result and net assets
attributable to equity holders of the parent would have decreased by the amounts shown below.
£000
Income statement
Revenue return
Capital return
Net Assets
23.4 Other Price Risk
Group
Company
Dec 15
Dec 14
Dec 15
Dec 14
(429)
(233)
(662)
(246)
(344)
(590)
(449)
(233)
(682)
(254)
(344)
(598)
Other price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices (other than those
arising from currency risk or interest rate risk), whether caused by factors specific to an individual investment or its issuer, or by factors
affecting all instruments traded in that market.
As the majority of the Groupʼs financial assets are carried at fair value with fair value changes recognised in the income statement, all
changes in market conditions will directly affect gains and losses on investments and net assets.
The Directors manage price risk by having a suitable investment objective for the Company. The Board reviews this objective and
investment performance regularly. The risk is managed on a regular basis by the Asset Allocation Committee within parameters set by the
Directors on investment and asset allocation strategies and risk.
Concentration of exposure to other price risks
A listing of the Companyʼs equity investment portfolio is shown on pages 12 to 13. The largest amount of equity investments by value is in
North America, with significant amounts also in Europe, Asia and the UK. It also shows the concentration of investments in various sectors.
The following table details the Groupʼs exposure to market price risk on its quoted and unquoted equity investments:
Group
Company
£000
Dec 15
Dec 14
Dec 15
Dec 14
Investments at fair value through Profit & Loss
Listed
Unlisted
Investments in Collective Investment Schemes
Investments in Related and Subsidiary Companies
Investment Property
2,930,872
2,670,642
2,930,872
2,670,642
47,778
158,009
170,738
-
59,873
435,659
172,658
4,830
47,778
158,009
173,012
-
59,873
435,659
172,736
4,830
3,307,397
3,343,662
3,309,671
3,343,740
The Company held the investment property through a subsidiary Limited Partnership, ATREP LP.
Sensitivity analysis
93.3% (92.9%) of the Companyʼs investment portfolio is listed on stock exchanges. If share prices had decreased by 10% with all other
variables remaining constant, the income statement result and the net assets attributable to equity holders of the parent would have
decreased by the amounts shown below. The analysis for last year assumed a share price decrease of 10%.
£000
Income statement
Revenue return
Capital return
Net Assets
Group
Company
Dec 15
Dec 14
Dec 15
Dec 14
-
-
-
-
(308,888)
(310,630)
(308,888)
(310,630)
(308,888)
(310,630)
(308,888)
(310,630)
A 10% increase (10% increase) in share prices would have resulted in a proportionate equal and opposite effect on the above amounts, on
the basis that all other variables remain constant.
80 | Alliance Trust PLC Report & Accounts 2015
23 Financial instruments and Risk
23.5 Credit Risk
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into
with the Group.
This risk is managed as follows:
•
•
Investment transactions are carried out with a number of well established, approved brokers.
Investment transactions are carried out on a cash against receipt or cash against delivery basis
The Group minimises credit risk through banking polices which restrict banking deposits to highly rated financial institutions. The policies
also set maximum exposure to individual banks.
The Group has adopted a policy of only dealing with credit worthy counterparties that have been approved by the Asset Allocation
Committee and obtaining sufficient collateral where appropriate (cash and gilts) as a means of mitigating the risk of financial loss from
defaults.
At the reporting date, the Groupʼs and Company's cash and cash equivalents exposed to credit risk were as follows:
£000
Credit Rating
Aa1
Aa2
A3
Baa
Average maturity
Group
Company
Dec 15
Dec 14
Dec 15
Dec 14
15,248
-
9,905
-
25,153
1 day
-
40,426
-
3,676
44,102
1 day
15,248
-
1,719
-
16,967
1 day
-
40,426
-
259
40,685
1 day
The Companyʼs UK listed equities and its overseas listed equities are held by Bank of New York Mellon as custodian. Bankruptcy or
insolvency of the custodian may cause the Groupʼs rights with respect to securities held by the custodian to be delayed or limited.
23.6 Liquidity Risk
Liquidity risk is the risk that an entity will encounter difficulty in meeting its obligations associated with financial liabilities.
This is not a significant risk for the Company as the majority of its assets are investments in quoted equities that are readily realisable. It
also has the ability to borrow, which gives it access to additional funding when required. At the balance sheet date it had the following
facilities:
£000
Committed multi currency facility - RBS
Amount drawn
Committed multi currency facility - RBS
Amount drawn
Dec 15
100,000
Expires
31/12/2018
-
-
-
-
-
Committed multi currency facility - RBS
50,000
31/12/2016
Amount drawn
Committed multi currency facility - RBS
Amount drawn
Committed multi currency facility - Scotiabank
Amount drawn
Committed multi currency facility - Scotiabank
Amount drawn
Committed multi currency facility - Scotiabank
Amount drawn
Unsecured fixed rate loan notes
Amount drawn
Total facilities
Total drawn
-
100,000
90,000
100,000
100,000
-
-
100,000
100,000
100,000
100,000
550,000
390,000
-
31/03/2017
-
27/03/2018
-
-
22/12/2017
-
31/07/2029
-
-
Dec 14
Expires
-
-
100,000
40,000
50,000
-
100,000
90,000
-
-
100,000
100,000
100,000
50,000
100,000
100,000
550,000
380,000
-
31/12/2015
-
31/12/2016
-
31/03/2017
-
-
28/03/2015
-
22/12/2017
-
31/07/2029
-
-
Alliance Trust PLC Report & Accounts 2015 | 81
23 Financial instruments and Risk
23.6 Liquidity Risk
All the facilities are unsecured and have covenants on the maximum level of gearing and minimum net asset value of the Company.
23.7 Gearing Risk
This is the risk that the movement in the fair value of the assets of the Company is amplified by any gearing that the Company may have.
The exposure to this risk and the sensitivity analysis is detailed below.
Group
Company
£000
Investments after gearing
Gearing
Investments before gearing
Sensitivity analysis
Dec 15
3,307,397
(390,000)
Dec 14
3,343,662
(380,000)
Dec 15
3,309,671
(390,000)
Dec 14
3,343,740
(380,000)
2,917,397
2,963,662
2,919,671
2,963,740
If net assets before gearing had decreased by 10%, with all other variables held constant, the income statement result and the net assets
attributable to equity holders of the parent would have further decreased by the amounts shown below. The analysis for last year assumed
a net assets before gearing decrease of 10%.
£000
Income Statement
Revenue return
Capital return
Net Assets
Group
Company
Dec 15
Dec 14
Dec 15
Dec 14
-
-
-
-
(39,000)
(38,000)
(39,000)
(38,000)
(39,000)
(38,000)
(39,000)
(38,000)
A 10% increase (10% increase) in net assets before gearing would have resulted in an equal and opposite effect on the above amounts, on
the basis that all other variables remain constant.
23.8 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.
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 and Company's assets and liabilities measured by the level in the
fair value hierarchy in which the fair value measurement is categorised at 31 December 2015. All fair value measurements disclosed are
recurring fair value measurements.
Group valuation hierarchy fair value through profit and loss
£000
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
As at 31 December 2015
As at 31 December 2014
Listed investments
3,088,881
Unlisted investments
Private equity
Alliance Trust Savings
Alliance Trust Finance
(in liquidation)
Alliance Trust
Investments
Mineral rights
Other
-
-
-
-
-
-
3,088,881
-
-
-
-
-
-
-
-
-
3,088,881
3,106,301
125,254
54,000
125,254
54,000
720
720
19,800
17,535
1,207
19,800
17,535
1,207
-
-
-
-
-
-
218,516
3,307,397
3,106,301
-
-
-
-
-
-
-
-
-
3,106,301
137,679
31,573
137,679
31,573
8,865
8,865
24,269
29,891
254
24,269
29,891
254
232,531
3,338,832
82 | Alliance Trust PLC Report & Accounts 2015
23 Financial instruments and Risk
23.8 Hierarchical Valuation of Financial Instruments
Company valuation hierarchy fair value through profit and loss
£000
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
As at 31 December 2015
As at 31 December 2014
Listed investments
3,088,881
Unlisted investments
Private equity
Alliance Trust Savings
Alliance Trust Finance
(in liquidation)
Alliance Trust
Investments
Mineral rights
Other
-
-
-
-
-
-
3,088,881
-
-
-
-
-
-
-
-
-
3,088,881
3,106,301
125,254
54,000
125,254
54,000
720
720
19,800
17,535
3,481
19,800
17,535
3,481
-
-
-
-
-
-
220,790
3,309,671
3,106,301
-
-
-
-
-
-
-
-
-
3,106,301
137,679
31,573
137,679
31,573
8,865
8,865
24,269
29,891
332
24,269
29,891
332
232,609
3,338,910
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 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 annually by the Audit Committee and
then recommended to the Valuation Committee. The Valuation Committee considers the appropriateness of the valuation models, inputs,
using the various valuation methods in accordance with the Group's valuation policy. The 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.
£000
Group
Company
Balance at 1 January
Net (loss)/gain from financial instruments at fair value through profit or
loss
Purchases at cost
Sales proceeds
Realised (loss)/gain on sale
Balance at 31 December
Dec 15
232,531
(16,556)
42,908
(38,175)
(2,192)
Dec 14
197,702
32,821
18,849
(16,992)
151
Dec 15
232,609
(14,360)
42,908
(38,175)
(2,192)
Dec 14
197,777
32,824
18,849
(16,992)
151
218,516
232,531
220,790
232,609
Investments in subsidiary companies (Level 3) are valued in the Group accounts at £170.7m (£172.7m) and in the Companyʼs accounts at
£173.0m (£172.7m) 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 and where applicable external valuations. This includes ATS at £54.0m
(£31.6m), ATI at £19.8m (£24.3m) and ATF at £0.7m (£8.9m). 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.
Alliance Trust PLC Report & Accounts 2015 | 83
23 Financial instruments and Risk
23.8 Hierarchical Valuation of Financial Instruments
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. For the fair valuation of ATS at 31 December 2015 the Board has
used an external valuation. A discounted cash flow, revenue multiple and an earnings before interest tax
depreciation and amortisation multiple approach have been used for comparative purposes.
• Alliance Trust Investments - This is valued as a trading business. A discounted cashflow, revenue multiple and an earnings before
interest tax depreciation and amortisation multiple valuation approach has been adopted.
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 Companyʼs accounts at £17.5m (£29.9m) 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
Investment
Fair Value
Input
Change in
at Dec 15 Valuation Method
Unobservable inputs
Input
sensitivity +/-
valuation +/-
Alliance Trust Savings
54,000 Average of discounted cash flow DCF discount rate
13.2%
1%
6,000/(6,000)
Alliance Trust Investments
19,800 Average of discounted cash flow DCF discount rate
15%
1%
methodology and comparable
AUA growth
trading multiples.
EBITDA margin
1
1
1
1
Mineral Rights
17,535 Oklahoma Tax Commission
Revenue multiple - gas
methodology and comparable
Revenue multiple
trading multiples
EBITDA multiple
multiples and Lierle US Price
Revenue multiple - oil
report (for non-producing
Revenue multiple -
properties).
products/condensate
Average bonus
multiple non-producing
2
6
7
4
4
1
1
1
1
1
1
12,000/(12,000)
6,300/(6,300)
(600)/600
6,000/(6,000)
470/(470)
1,300/(1,300)
860/(860)
560/(560)
0.5
1,000/(1,000)
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 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 Alliance Trust Investments, 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.
For the 31 December 2015 fair valuation of ATS the Board has used an independent and external valuation to verify the Directors fair
valuation of the business. This approach has been taken subsequent to the purchase of Stocktrade and the decision to adopt an external
valuation is to apply a degree of independence and external challenge into the valuation.
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 Partnerʼs policy in
valuing unlisted investments is to carry them at fair value. The General Partner will generally rely on the fund's investment managerʼs 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.
84 | Alliance Trust PLC Report & Accounts 2015
23 Financial instruments and Risk
23.8 Hierarchical Valuation of Financial Instruments
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.
24 Share Based Payments
The Group operates two share based payment schemes:
All Employee Share Ownership Plan ('AESOP')
Employees may receive up to £3,600 of shares annually under the terms of the AESOP. This amount is pro rated for part time employees.
Individuals receive these shares free of all restrictions after a period of 5 years. For the year ended 31 December 2015 awards of £1,500
(£2,000) per person will be made. The maximum cost of all awards for the year will be £318,000 (£435,000). The charge to the income
statement in the year was £312,000 (£462,000).The total costs for the AESOP for all staff are borne by the Company for the year ended 31
December 2015 as the award is based on key performance metrics and criteria relating to the Company. On this basis the AESOP cost
has not been recharged to subsidiary companies.
Long Term Incentive Plan ('LTIP')
The LTIP is a discretionary plan for Executive Directors and senior managers. It comprises two elements: first it provides for the grant of
matching awards based on the proportion of annual bonus applied by participants in the purchase of shares in the Company and held by
the Employee Benefit Trust; and second it provides for the grant of performance awards. Both awards, granted over shares in the
Company, vest either in full or in part at the end of the three year performance period subject to meeting pre-defined targets.
In the year ended 31 December 2015, participating employees applied a proportion of their annual cash bonuses for the year ended 31
December 2014 to purchase 98,002 (108,007) shares of Alliance Trust PLC at a price of £5.10 (£4.55) per share. Matching awards of up to
317,880 (296,695) shares and performance awards of up to 552,263 (705,417) were granted.
Matching awards and performance awards made during the year were valued at £588,000 (£498,000) and £1,022,000 (£1,184,000)
respectively.
The fair value of awards granted during the year was calculated using a binomial methodology. The assumptions used were a share price
of £5.07 (£4.49), share price volatility of 11% (14%) based on a long term average (3 year weekly average), dividend yield of 2.08%
(2.38%), a risk free interest rate of 0.94% (0.92%) and forfeiture of Nil (Nil).
The cumulative charge to the income statement during the year for the cost of the LTIP awards referred to above was £52,000 (£793,000).
In addition, during the year a £473,000 credit (£55,000 debit) was recognised in the income statement in relation to equalisation of amounts
carried forward from the prior year. These charges related to the Company only.
In accordance with IFRS 2 the costs of matching and performance awards for each plan are expensed over the three year performance
period.
These costs are only adjusted if certain vesting conditions are not met, for example if a participant leaves before the end of the three year
vesting period.
Movements in options
Movements in options granted under the LTIP are as follows:
£000
Outstanding at 1 January
Granted during year
Exercised during year
Forfeited during year
Expired during year
Outstanding at 31 December
Exercisable at 31 December
Group
December 2015
Group
December 2014
Number of
options
2,912,170
870,143
(245,668)
(343,545)
(798,481)
2,394,619
Nil
Weighted average
exercise price
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
Number of
options
3,083,341
1,039,908
(210,588)
(255,572)
(744,919)
2,912,170
98,726
Weighted average
exercise price
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
£0.00
The weighted average remaining contractual life of the options outstanding at 31 December 2015 was 577 days ( 539 days).
The weighted average exercise price of the options is Nil (Nil) as any options which vest at the end of the performance period are satisfied
by shares held on behalf of the Company by the Trustee of the Employee Benefit Trust.
Alliance Trust PLC Report & Accounts 2015 | 85
25 Pension Scheme
The Group sponsors two pension arrangements. The following disclosures apply to both the Group and the Company.
The Alliance Trust Companiesʼ Pension Fund (the ʻSchemeʼ) is a funded defined benefit pension scheme which was closed to future
accrual on 2 April 2011.
Employees, other than Executive Directors, received contributions into their own Self Invested Personal Pension provided by ATS totalling
£1.6m (£1.7m).
The disclosures which follow relate to the Scheme.
Participating Employer
ATSL is the sole Participating Employer and its pension obligations are guaranteed by the Company.
Valuation and Contributions
The last full actuarial valuation of the Scheme was carried out by a qualified independent actuary as at 1 April 2012 although for the
purpose of these calculations the results of the 1 April 2012 valuation have been updated on an approximate basis to 31 December 2015.
Valuations are on the projected unit credit method.
The contribution made by the Company over the financial year was £1.5m (£1.5m).
Risks
The Scheme typically exposes the Group to risks such as:
- Investment risk: The Scheme holds some of its investments in asset classes, such as equities, which have volatile market values and,
while these assets are expected to provide the best returns over the long term, any short-term volatility could cause additional funding to be
required if a deficit emerges.
- Interest rate risk: The Scheme's liabilities are assessed using market rates of interest to discount the liabilities and are therefore subject to
any volatility in the movement of the market rate of interest. The net interest income or expense recognised in profit or loss is also
calculated using the market rate of interest.
- Inflation risk: A significant proportion of the benefits under the Scheme are linked to inflation. Although the Fund's assets are expected to
provide a good hedge against inflation over the long term, movements over the short term could lead to a deficit emerging.
- Mortality risk: In the event that members live longer than assumed the liabilities may turn out to have been understated originally, and a
deficit may emerge if funding has not been adequately provided for the increased life expectancy.
Reconciliation of opening and closing balances of the present value of the defined benefit obligation
£000
Defined benefit obligation at start of year
Interest
Actuarial (gains)/losses
Benefits paid
Defined benefit obligation at end of year
The Group has no unfunded pension obligations.
Reconciliation of opening and closing balances of the fair value of plan assets
£000
Fair value of assets at start of year
Interest income
Actuarial (losses)/gains
Contributions by employer
Benefits paid
Administration costs
Fair value of assets at end of year
31 December 2015
31 December 2014
38,783
1,330
(1,389)
(1,605)
37,119
33,907
1,492
4,123
(739)
38,783
31 December 2015
31 December 2014
43,980
1,537
(1,411)
1,500
(1,605)
-
44,001
38,986
1,716
2,617
1,500
(739)
(100)
43,980
86 | Alliance Trust PLC Report & Accounts 2015
25 Pension Scheme
Total credit recognised in the income statement
£000
Interest on Scheme liabilities
Interest income
Operating cost
Total credit
31 December 2015
31 December 2014
1,330
(1,537)
-
(207)
1,492
(1,716)
100
(124)
Gains/(Losses) recognised in the statement of comprehensive income
£000
31 December 2015
31 December 2014
Difference between expected and actual return on the Scheme assets:
Amount
Percentage of Scheme assets
Experience gains/(losses) arising on the Scheme liabilities:
Amount
Percentage of present value of Scheme liabilities
Effects of changes in the financial assumptions underlying the present value of
the Scheme liabilities:
Amount
Percentage of present value of Scheme liabilities
Effects of changes in the demographic assumptions underlying the present
value of the Scheme liabilities:
Amount
Percentage of present value of Scheme liabilities
Total amount recognised in statement of comprehensive income:
Amount
Percentage of present value of Scheme liabilities
(1,411)
3%
4,857
13%
(1,138)
3%
(2,330)
6%
(22)
-%
2,617
6%
10
-%
(4,446)
11%
313
1%
(1,506)
4%
Assets
£000
Equities
Bonds
Other
31 December 2015
31 December 2014
31 December 2013
17,601
21,120
5,280
44,001
22,395
21,251
334
43,980
15,813
21,983
1,190
38,986
The assets are held independently of the assets of the Group in funds managed by Legal & General. None of the fair values of the assets
shown above include any of the Groupʼs own financial instruments or any property occupied by, or other assets used by, the Group.
Actual return on the Scheme assets
The actual return on the Scheme assets over the year ended 31 December 2015 was a gain of 0.3% (gain of 5%).
Assumptions
%
Retail Price Index Inflation
Consumer Price Index Inflation
Rate of discount
Allowance for pension in payment increases of RPI
(subject to a maximum increase of 5% p.a.)
Allowance for revaluation of deferred pension of RPI
(subject to a maximum increase of 5% p.a.)
31 December 2015
31 December 2014
31 December 2013
3.50
2.60
3.80
3.35
2.20
3.00
2.10
3.50
2.90
2.10
3.40
2.50
4.40
3.30
2.50
Alliance Trust PLC Report & Accounts 2015 | 87
25 Pension Scheme
Assets
Statutory revaluation has used the Consumer Price Index (CPI) for the last four years rather than the Retail Price Index (RPI) which was
previously used.
We have assumed that the long term CPI assumption is 0.9% lower than the corresponding RPI assumption. The mortality assumptions,
adopted at 31 December 2015, follow the S2PA table, using 80% of the base table with CMI_2014 mortality projections with improvement
subject to a 1% minimum to the annual improvement. The assumptions imply the following life expectancy from age 65.
The weighted average duration of the defined benefit obligation is around 25 years.
Mortality assumptions
Male currently age 45 at 65
Female currently age 45 at 65
Male currently age 65
Female currently age 65
Sensitivities
31 December 2015
31 December 2014
Years
26.8
29.0
24.6
26.7
Years
24.2
26.6
22.9
25.3
An estimate of the sensitivities regarding the principal assumptions used to measure the Schemeʼs liabilities are set out below.
Assumption
Change in assumption
Estimated impact on
scheme liabilities
Change in assumption
Estimated impact on
scheme liabilities
Discount rate
RPI
Age of member
Increase
(Decrease)/Increase
Decrease
Increase/(Decrease)
0.5%
0.5%
1 year
(£3,900,000)
£3,700,000
(£990,000)
0.5%
0.5%
1 year
£4,600,000
(£3,600,000)
£980,000
£000
Present value defined benefit obligation
Fair value of Scheme assets
Surplus in Scheme
31 December 2015
31 December 2014
31 December 2013
37,119
44,001
6,882
38,783
43,980
5,197
33,907
38,986
5,079
The cumulative amount of actuarial gains and losses recognised in the statement of comprehensive income of the Company since
adoption of IAS19 is a loss of £3.8m (£3.6m).
All actuarial gains and losses are recognised immediately.
Best estimate of contributions to be paid to scheme for the year ending 31 December 2016
The Scheme closed to accrual on 2 April 2011. The Company paid contributions in the year of £1.5m in line with the recovery plan and
these will be paid annually until June 2016 and then, subject to company agreement, they will continue to be paid until 2026 as set out
under the Scheme's secondary funding objective.
Amounts for the current and previous years
£000
Fair value of assets
Defined benefit obligation
Surplus in Scheme
Experience adjustment on Scheme liabilities
Experience adjustment on Scheme assets
Effects of changes in the demographic and financial
assumptions underlying present value of the Scheme
liabilities
Dec 15
44,001
37,119
6,882
4,857
(1,411)
Dec 14
43,980
38,783
5,197
10
2,617
Dec 13
38,986
33,907
5,079
(41)
1,973
Dec 12
34,616
30,311
4,305
546
383
Dec 11
31,781
28,631
3,150
(374)
575
(3,468)
(4,133)
(2,807)
(1,334)
(968)
88 | Alliance Trust PLC Report & Accounts 2015
26 Operating lease commitments
As at 31 December 2015 the Group and Company had total future minimum lease payments under non cancellable operating leases as
follows:
Group
£000
Lease commitments due
< 1 year
Between 2-5 years
After 5 years
Company
£000
Lease commitments due
Within 1 year
Between 2-5 years
After 5 years
31 December 2015
31 December 2014
Land and
buildings
Other
Land and
buildings
Other
-
787
2,084
3
1
-
-
956
2,084
6
8
-
31 December 2015
31 December 2014
Land and
buildings
Other
Land and
buildings
Other
-
787
2,084
3
1
-
-
956
2,084
1
8
-
Information for shareholders
Alliance Trust PLC Report & Accounts 2015 | 89
Incorporation
Alliance Trust PLC is incorporated in Scotland with the
registered number 1731.
The Company’s Register of Members is held at
Computershare Investor Services PLC,
Leven House, 10 Lochside Place,
Edinburgh Park, Edinburgh EH12 9DF
General Enquiries
If you have an enquiry about the Company, or wish to receive a
paper copy of our Annual Report, please contact the Company
Secretary at our registered office:
8 West Marketgait,
Dundee DD1 1QN
Tel: 01382 321000 Fax: 01382 321185
Email: investor@alliancetrust.co.uk
For security and compliance monitoring purposes telephone
calls may be recorded.
Investor Relations
Information held on the Company’s Register of Members is,
by law, information to which the public may, for a proper
purpose, have access and the Company cannot prevent any
person inspecting it or having copies of it for such purpose, on
payment of the statutory fee.
Annual Report and Electronic
Communications
We only send paper Annual Reports to shareholders who
have asked us to do so. All shareholders receive notices of our
meetings and information on how to access our Annual Report.
Shareholders can opt to receive all notifications electronically by
going to www.alliancetrust.co.uk/ec.htm which will provide a
link to our registrars’ website.
Taxation
If you are in any doubt about your liability to tax arising
from a shareholding in the Company you should seek
professional advice.
Income Tax
Our Director of Investor Relations can be contacted at our
registered office (detailed above).
Dividends paid by the Company carry a tax credit at 10% of the
gross dividend. Dividends are paid net of the tax credit.
Our website www.alliancetrust.co.uk contains information about
the Company, including daily share price and net asset value.
Registrars
Our registrars are:
Computershare Investor Services PLC
PO Box 82, The Pavilions,
Bridgwater Road, Bristol BS99 7NH
Change of address notifications and registration enquiries for
shareholdings registered in your own name should be sent
to the Company’s registrars at the above address. You should
also contact the registrars if you would like the dividends on
shares registered in your own name to be sent to your bank
or building society account. You may check your holdings and
view other information about Alliance Trust shares registered in
your own name at www.computershare.com.
Data Protection
The Company is a data controller as defined under the
Data Protection Act 1998. Information received from or about
shareholders or investors (for example from a stockbroker),
whether by telephone or in writing, by fax or by any other
electronic or digital means of communication may be processed.
If you hold your shares in your own name, the tax voucher
which you need for your tax records will be sent to the address
we have for you on the register maintained by Computershare.
The Registrar will send a consolidated tax voucher to members
after the final dividend during the tax year is paid.
If your dividends are received by a nominee, such as your
stockbroker’s nominee, you must contact that person for the tax
voucher. If you invest in the Company through Alliance Trust
Savings, it will automatically supply you with a consolidated
income tax voucher for income received for you in the
Investment Dealing Account.
Capital Gains Tax
For investors who purchased shares prior to 31 March 1982, the
cost of those shares for capital gains tax purposes is deemed to
be the price of the share on that date. The market value of each
Alliance Trust PLC ordinary 25p share on that date was £2.85
which, when adjusted for the split on a 10 for 1 basis on 21
June 2006, gives an equivalent value of £0.285 per share. The
market value of each Second Alliance Trust PLC ordinary 25p
share on 31 March 1982 was £2.35. Holders of Second Alliance
Trust PLC shares received 8.7453 ordinary 2.5p shares for each
25p ordinary share they held on 20 June 2006 and are treated
as though they acquired these shares at the same time and at
the same cost as the Second Alliance Trust shares they previously
held. This gives an equivalent value of £0.269 per share.
90 | Alliance Trust PLC Report & Accounts 2015
Share investment
Alliance Trust PLC invests primarily in equities and aims to
generate capital growth and a progressively rising dividend
from its portfolio of investments.
recommend that if you wish to sell your shares you only deal
with a financial services firm that is authorised by the FCA.
Annual General Meeting
Alliance Trust currently conducts its affairs so that its shares
can be recommended by IFAs to ordinary retail investors in
accordance with the FCA’s rules in relation to non-mainstream
investment products and intends to continue to do so for the
foreseeable future.
The 128th Annual General Meeting of the Company will be
held at 11.00am on Friday 6 May 2016 at the Gardyne Theatre,
Dundee and Angus College, Gardyne Road, Dundee DD5 1NY.
The Notice of Meeting, detailing the business of the meeting, is
sent to all shareholders.
The shares are excluded from the FCA’s restrictions which apply
to non-mainstream investment products because they are
shares in an investment trust.
The shares in Alliance Trust may also be suitable for institutional
investors who seek a combination of capital and income return.
Private investors should consider consulting an independent
financial adviser who specialises in advising on the acquisition of
shares and other securities before acquiring shares.
Investors should be capable of evaluating the risks and merits of
such an investment and should have sufficient resources to bear
any loss that may result.
Risks
If you wish to acquire shares in the Company, you should take
professional advice as to whether an investment in our shares is
suitable for you. You should be aware that:
•
Investment should be made for the long term.
• The price of a share will be affected by the supply and
demand for it and may not fully represent the underlying
value of the assets of the Company. The price generally
stands below the net asset value of the Company (‘at a
discount’) but it may also stand above it (‘at a premium’).
Your capital return will depend upon the movement of the
discount/premium over the period you own the share, as well
as the capital performance of the Company’s own assets.
• The assets owned by the Company may have exposure
to currencies other than Sterling. Changes in market
movements and in rates of exchange may cause the value
of your investment to go up or down.
• Past performance is not a guide to the future. What you get
back will depend on investment performance. You may not
get back the amount you invest.
Bogus telephone calls
We have become aware of a numbers of telephone calls being
made to shareholders wherein the caller offers to buy the
recipient’s shares at a price significantly above the current
market price. We are prohibited from advising shareholders
on whether to buy or to sell shares in Alliance Trust PLC, but
Financial calendar
Proposed dividend payment dates for the financial year to
31 December 2016 are on or around:
• 30 June 2016
• 30 September 2016
• 30 December 2016
• 31 March 2017
Dividend Tax Allowance
From April 2016 dividend tax credits will be replaced by an
annual £5,000 tax-free allowance across an individual’s entire
share portfolio. Above this amount, individuals will pay tax on
their dividend income at a rate dependent on their income tax
bracket and personal circumstances. Our Registrars will continue
to provide registered shareholders with a confirmation of the
dividends paid by Alliance Trust PLC and this should be included
with any other dividend income received when calculating and
reporting total dividend income received. It is the Shareholder’s
responsibility to include all Dividend Income when calculating
tax requirements.
This change was announced by the Chancellor, as part of the
UK government Budget, in July 2015. If you have any Tax
queries, please contact your Financial Advisor.
Common Reporting Standards
From January 2016 you may receive requests from our Registrar
for personal information to comply with new legal obligations
introduced to reduce tax evasion. To provide HMRC with
information on shareholders. While it is not compulsory that
you complete and return these requests we are required by law
to make these requests and to report on the responses received.
Please note that only a small number of our shareholders fall
into the category where we have to make theses requests and
only those shareholders will receive the request. If you have
any queries on the validity of any document received from our
registrars you can contact them directly on 0870 889 3187.
10 year record
Alliance Trust PLC Report & Accounts 2015 | 91
A ten year record of the Company’s Financial Performance is provided below. Prior to the financial year ended 31 January 2007
there were two trusts, The Alliance Trust and The Second Alliance Trust, and the figures are therefore not directly comparable.
Ten year record
Assets £m as at
Total assets
Loans
Net assets
Net asset value (p)
31 Jan
2007
2,844
0
2,832
31 Jan
2008
31 Jan
2009
31 Jan
2010
31 Jan
2011
31 Dec
2011
31 Dec
2012
31 Dec
2013
31 Dec
2014
31 Dec
2015
2,894
(159)
2,699
2,211
(50)
2,123
2,704
(160)
2,513
3,268
(339)
2,895
2,676
(249)
2,400
2,702
(200)
2,491
3,478
(380)
2,886
3,415
(380)
3,019
3,351
(390)
2,948
NAV per share
421.5
402.3
316.8
377.7
439.0
405.8
444.9
516.5
546.8
562.4
NAV return
on 100p – 10 years*
Share price (p)
Closing price per share
Share price High
Share price Low
Total shareholder return
on 100p – 10 years*
Gearing/net cash (%)
Gearing
Net cash
153.2
160.2
365.5
380.7
316.2
338.0
386.2
321.2
268.0
353.7
218.0
313.0
337.0
233.0
364.0
377.9
293.5
342.8
392.7
310.2
375.3
383.5
337.0
450.1
464.2
375.3
478.9
481.1
426.0
517.0
528.5
440.1
160.0
175.63
-
7
5
-
-
11
5
-
11
-
7
-
7
-
12
-
11
-
13
-
Revenue
2007
2008
2009
2010
2011
Year ended 31 January
11 mths
to 31 Dec
2011
Year ended 31 December
2012
2013
2014
2015
Profit after tax
Earnings per share#
Dividends per share
Special dividend
£52.5m
£61.5m
£69.5m
£61.1m
£63.8m
£61.9m £55.6m
£60.6m
£68.8m
8.66p
7.575p
-
9.17p
7.90p
-
10.37p
8.00p
0.50p
9.14p
8.15p
-
9.67p
8.395p
-
9.87p
9.00p
-
9.74p
9.27p
0.36p
10.83p
12.38p
9.55p
1.28p
9.83p
10.97p
2.546p
1.46p∆
£60.2m
12.43p†
Performance (rebased
at 31 Jan 2007) as at
31 Jan
2007
31 Jan
2008
31 Jan
2009
31 Jan
2010
31 Jan
2011
31 Dec
2011
31 Dec
2012
31 Dec
2013
31 Dec
2014
31 Dec
2015
NAV per share
Closing price per share
Earnings per share
Dividends per share
(excluding special)
Cost of running the
Company
100
100
100
100
95
92
106
104
75
73
120
106
90
86
106
108
104
100
112
111
Year ended 31 January
2007
2008
2009
2010
2011
96
94
117
119
11 mths
31 Dec
2011
106
103
112
122
123
123
125
126
130
131
143
130
133
141
143
145
Year ended 31 December
2012
2013
2014
2015
Administrative expenses
£10.1m
£15.0m
£16.8m
£16.0m
£17.0m
£16.0m £18.7m
£21.5m
£20.8m
£23.9m
Ongoing charges ratio
(excluding capital
incentives***)
Capital incentives
Ongoing charges ratio
(including capital
incentives***)
0.36%
0.02%
0.42%
0.03%
0.60%
0.07%
0.64%
0.05%
0.53% 0.56%**
0.07%
0.04%
0.67%
0.04%
0.75%
0.05%
0.60%
0.04%
0.59%
0.04%
0.38%
0.45%
0.67%
0.69%
0.60% 0.60%**
0.71%
0.80%
0.64%
0.63%
* Source: Morningstar UK Ltd
# 2007 is not adjusted for Second Alliance Trust income prior to merger in June 2006
† Includes capital dividend paid December 2015
∆ Capital dividend paid December 2015
** Administrative expenses have been annualised given the financial reporting period was for 11 months, except for incentives which were on an actual basis
*** The AIC’s recommended methodology for the calculation of an Ongoing Charges figure states that for self-managed companies costs relating to compensation
schemes which are linked directly to investment performance should be excluded from the calculation of the principal Ongoing Charges figure.
Contact
Alliance Trust PLC
8 West Marketgait
Dundee
DD1 1QN
Tel +44 (0)1382 321000
Email investor@alliancetrust.co.uk
www.alliancetrust.co.uk