Alliance Trust PLC
Annual Report for the year ended
31 December 2016
Investing for
Generations
Section I
Strategic Report
The Year in Review
2016 Strategic Review
Our New Business Model
Investment Objective and Policy
Chairman’s Statement
Board Strategy Q&A
Key Performance Indicators
Investment Manager’s Report
Non-core Investments
Contribution Analysis
Alliance Trust Investments
Alliance Trust Savings
Portfolio Listing
Costs and Financial Measures
Risk Management
Corporate Responsibility
Section II
Directors’ Report
Board of Directors
Corporate Governance
Board Evaluation
Management Engagement Committee
Nomination Committee
Audit and Risk Committee
Going Concern Statement
Viability Statement
Remuneration Committee
Other Governance
1
1
2
5
5
6
8
10
11
15
15
16
17
18
20
22
25
26
26
28
30
31
32
33
37
37
38
45
Section III
48
Financial Statements
48
Independent Auditors’ Report
54
Consolidated income statement
Consolidated statement of comprehensive income 54
55
Company income statement
Company statement of comprehensive income
55
Statement of changes in equity
56
57
Balance sheet
58
Cash flow statement
59
Notes
Information for shareholders
10 year record
91
93
Investing for Generations
Alliance Trust has been investing for
generations since 1888. It provided access
to scarce and compelling investment
opportunities then and continues to build
on this heritage today.
Following a Strategic Review, the Directors
concluded that the optimum way to deliver
an unchanged objective – generating a real
return through capital and dividend growth
– is to invest with a selection of the world’s
best-in-class* global equity managers. Each
of these managers will build a portfolio of
only their best stock selections – the ‘best of
the best’. The Board believes this approach is
in the best interests of shareholders, whether
investing for this generation or the next.
*as rated by Willis Towers Watson (WTW)
www.alliancetrust.co.uk
The Year in Review
Strategic developments
Shareholders voted in favour of the new investment approach at our recent General Meeting.
Key elements of this approach, in the process of being implemented, include:
• Alliance Trust to remain a global equity investment trust offering returns through capital
and income growth over the medium to long term
• Target for our equity portfolio to outperform MSCI All Country World Index doubled from
1% to 2% p.a., net of costs, over rolling three-year periods
• Seeking outperformance at a competitive cost, below 0.65%
• A new approach adopted for our investment management to increase the likelihood of
delivering consistently the enhanced performance target
• Aim to build on Alliance Trust’s 50-year track record of year-on-year ordinary dividend growth
• Move from a single manager to multiple equity managers, each rated ‘best-in-class’ by WTW
• All of the managers to focus on high conviction stock selection with almost all of their
portfolios having only 20 stocks
• An active programme of share buybacks introduced with the aim of achieving a significantly
narrower discount
Read about the Strategic Review
in full on page 2
Financial highlights
Share price (pence)
Net asset value (pence)*
Ongoing charges ratio (%)
638.0p
+23%
667.5p
+19%
0.43%
0
.
8
3
6
9
.
8
7
4
1
.
0
5
4
0
.
7
1
5
3
.
5
7
3
.
8
4
4
5
.
0
9
5
5
.
5
6
1
5
.
9
4
4
4
.
5
7
6
6
5
7
0
.
7
6
0
.
0
6
0
.
9
5
0
.
3
4
0
.
2012 2013 2014 2015 2016
2012* 2013* 2014* 2015* 2016*
2012 2013 2014 2015 2016
Source: Factset
Source: Factset
*with debt at fair value
Source: Alliance Trust
Alliance Trust PLC | Annual Report and Financial Accounts 2016
1
I Strategic Report IIIII 2016 Strategic Review
Investing for this generation
and the next
Since May 2016, the Board has engaged
with shareholders and evaluated carefully
a broad range of options, with an open
mind on how best we could improve the
Trust’s performance. We are confident that
the approach resulting from this Review will
improve Alliance Trust’s performance on a
consistent basis.
Existing objectives
Clear investment mandate
to improve performance
Policy of progressive
dividends
Commitment to
narrow the discount
Providing good value
Simplifying our structure
Alliance Trust PLC | Annual Report and Financial Accounts 2016
2
Strategic Report Developments resulting from the Review
A new approach to investment management to be adopted to increase the likelihood of delivering
consistently the performance target:
• Move from a single manager to multiple equity managers, each rated ‘best-in-class’ by WTW
• Each equity manager to create a focused portfolio of their top investment selections (more detail of this
approach can be found on the next page)
• Equity portfolio outperformance target doubled to 2% p.a. net of costs over rolling three-year periods
• The Board reaffirms its commitment to its progressive dividend policy
• Aiming to build on Alliance Trust’s 50-year track record of year-on-year ordinary dividend growth
• An active programme of share buybacks has been introduced with the aim of achieving a significantly
narrower discount reflecting the Board’s determination to narrow materially the discount
• Since announcing this programme the discount has reduced to below 5% and has been around this level
since the end of 2016
• Increased value: the previous equity portfolio’s outperformance target above the MSCI All Country World
Index (‘ACWI’) was 1% net of 0.45% ongoing costs increased to 2% outperformance with ongoing costs
below 0.65% over rolling three-year periods
• The Board is setting a target of total annual costs of under 0.65% which is below the median for the
investment trusts in the AIC global sector
• Alliance Trust Investments to be sold to Liontrust Asset Management PLC representing an expected gain
of over £5m from its valuation at 30 June 2016
• Alliance Trust Savings continues to make good progress and remains part of the Group; it has reported
a profit in 2016 and is well placed to develop further
Alliance Trust PLC | Annual Report and Financial Accounts 2016
3
I Strategic Report IIIII 2016 Strategic Review continued
The Investment Manager
Willis Towers Watson
Willis Towers Watson is a leading investment group that is
focused on creating financial value for investors through
its expertise in risk assessment, strategic asset allocation,
manager evaluation and investment management. It has over
900 investment associates worldwide, assets under advisory of
around US$2.3 trillion and over US$87 billion of assets under
management. It is part of Willis Towers Watson (NASDAQ:
WLTW) which has over 39,000 employees in more than
120 territories and has roots dating to 1828.
They have worked, for many years, with equity managers to
create tailored high-conviction portfolios for large institutional
clients, with notable success over more than ten years for
a large charitable foundation. More recently it launched
an open-ended, high-conviction multi-manager vehicle for
institutional investors, the Global Equity Focus Fund, which
has outperformed its benchmark by 2.2% per annum net of
underlying managers’ fees since the fund’s inception on
17 August 2015 to 28 February 2017.
The Equity Managers
Blackcreek Investment Management
Bill Kanko is founder and President. Between 1999 and 2004 Bill
was the lead manager for the AIM Trimark Fund and Trimark Select
Growth Fund which had outstanding performance during that time.
Bill is a long-term investor, looking for companies that are
growing, are leaders in their markets and gaining market share.
These companies tend to benefit from huge barriers to entry
and sustainable competitive advantages.
First Pacific Advisers
Pierre Py and Greg Herr are co-portfolio managers with an
average of 20 years investing experience.
Pierre and Greg typically employ a long-term value investment
approach, investing in companies that they believe have
sustainable business models, exhibit financial strength, are run
by operationally strong managers and whose stocks trade at a
significant discount to the FPA team’s estimate of intrinsic value.
GQG Partners
Rajiv Jain founded GQG Partners in June 2016, having previously
worked at Vontobel Asset Management for 22 years as lead
portfolio manager, Head of Equities, CIO and Co-CEO,
responsible for over £30bn of assets.
Rajiv looks for high-quality and sustainable businesses through
a fundamental investment process utilising both traditional and
non-traditional sources of information. Ideally, these quality
businesses have enduring underlying strengths, which manifest
in a variety of economic environments. The result has been
portfolios designed to provide capital protection in down markets
and attractive returns to long-term investors over a full market
cycle. In addition, GQG will manage a global portfolio for the
Company with particular focus on emerging market companies.
Jupiter Asset Management
Ben Whitmore has over 20 years of experience and joined
Jupiter in 2006. Ben worked at Schroders, managing both retail
and institutional portfolios and around £2 billion of assets. Ben
will be supported by Dermot Murphy, Assistant Fund Manager.
Ben is well known as a long-standing practitioner of contrarian
value investing, investing in companies he considers to be
out-of-favour and under-valued. This approach has proved
successful, with the Jupiter UK Special Situations Fund being
top quartile in its sector over one, three, five and ten years.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
4
Lyrical Asset Management
Lyrical Asset Management’s investment management team is led
by Co-Founder and Chief Investment Officer, Andrew Wellington.
Value matters most to Lyrical and the team also maintains a strict
discipline of investing in quality companies that they believe are
relatively easy to analyse. They believe the combination of value,
quality and straightforward business model creates resiliency in
the portfolio and the greatest likelihood of long-term absolute
performance and outperformance.
River and Mercantile Asset Management
Hugh Sergeant is the CIO of Equities having previously been in
a similar role at Societe Generale Asset Management (‘SGAM’)
and prior to that at UBS/Phillips & Drew and Gartmore.
The team invests in Recovery Equities, through an investment
philosophy called PVT (Potential, Valuation & Timing) and a
process that helps them identify value at different stages of a
company’s lifecycle and to give signals from a timing perspective
as to when that value might be unlocked.
Sustainable Growth Advisers
SGA was founded in 2003 by George Fraise, Gordon
Marchand and Rob Rohn. They average over 30 years of
investment experience.
SGA focuses on building concentrated portfolios of unique,
high quality global growth businesses that possess strong pricing
power, offer recurring revenue generation and benefit from
attractive, long runways of growth.
Veritas Asset Management
Andy Headley is Head of Global strategies at Veritas Asset
Management. Andy has over 20 years investment experience
and is supported by Charles Richardson, co-portfolio manager
who has 30 years’ experience.
Veritas focuses on active equity management, utilising its
proprietary Real Return Approach since inception of the firm.
Veritas employs an absolute mind-set when valuing companies
and dispenses with any reference to indices when constructing
the portfolio. Veritas describes the firm’s overall approach as
investing in a concentrated portfolio of good quality companies
at the right price.
Strategic Report
Our New Business Model
Focused on equities
Global equities
Subsidiary entities
Non-core investments
What we will do
Invest in:
• Global equities
We have investments in:
• Our subsidiary business – Alliance Trust Savings
• Non-core investments*
– Mineral Rights
– Private Equity
– Funds
*These will be disposed of at the appropriate time
How we will do it
• A multiple manager approach, each rated best-in-class by WTW with oversight by them
• Each equity manager creates its own focused portfolio of its top investment selections
• Equity portfolio outperformance target of the MSCI All Country World Index by 2% p.a. net of costs over rolling three-year periods
•
One of only four FTSE All-Share Index companies with a record of increasing their ordinary dividend for the last 50 years.
How we create an attractive return for our shareholders
• Capital growth in our investment portfolio
•
Progressive income growth funded by dividends and income received from our investments
• Competitive costs
Investment Objective and Policy
The existing Investment Objective and Policy allows the Board to pursue the new
investment approach.
Alliance Trust is an 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 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.
The Company pursues its objective by investing in both quoted and
unquoted equities across the globe in different sectors and industries;
investing internationally in fixed income securities; investing in other
asset classes and financial instruments, either directly or through
investment vehicles and investing in subsidiaries and associated
businesses which allow us to expand into other related activities.
Where market conditions permit, the Company will use gearing of not
more than 30% of its net assets at any given time. The Company can
use derivative instruments to hedge, enhance and protect positions,
including currency exposures.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
5
I Strategic Report IIIII Chairman’s Statement
We care about
the long-term
interests of
all of our
shareholders
Alliance Trust PLC | Annual Report and Financial Accounts 2016
6
During 2016 the Board spent a great deal of time consulting with
shareholders on the future of Alliance Trust and what investors really
wanted from their investment in the Trust. We evaluated a broad
range of options to decide on the best way to improve the Trust’s
performance and to position the Trust as a core holding for investors.
As I have commented before, it was clear that the appetite for a global
equity investment trust remained strong, but that change was required
to better differentiate Alliance Trust’s investment proposition and to
improve performance.
Looking ahead, the Board and the new investment manager will now
focus on delivering real returns for shareholders through a combination
of capital growth and a rising dividend.
Strategic Review
With the aim of building on the progress achieved following last year’s
AGM, the Board announced in May 2016 that it would conduct a
Strategic Review of the Trust. As part of this, we assessed the potential
courses of further action open to the Trust and the best way forward.
On 15 December 2016, the Board announced the outcome of its
review and set out a proposed new approach to managing the Trust’s
equity portfolio.
This will see the adoption of a high conviction, multi-manager
approach overseen by Willis Towers Watson (WTW), a leading
investment group, targeting outperformance of the MSCI All Country
World Index by 2% per annum, net of costs, over rolling three-year
periods. WTW will be the overall investment manager of the Trust’s
equity portfolio, providing access to and selecting and managing the
sub-managers who in turn will create concentrated portfolios for the
Trust. By leveraging the scale of Alliance Trust and WTW, total annual
costs will also be targeted to be below 0.65%. This is highly competitive
for an investment trust targeting such outperformance.
The aim of the new approach is to:
• deliver consistently the outperformance target, which has
been doubled;
• maintain our long track record of growing dividends; and
• maintain the Trust’s competitive cost ratio.
Whilst it was not required, the Board wanted to provide shareholders
with the opportunity to vote on the new approach to investment.
We were delighted with the strong support at the General Meeting
in February 2017 when over 96% of the votes cast by shareholders
favoured the change. The transition to the new portfolio is well
underway and I look forward to telling you more about this at our
AGM in April, when WTW will also make a presentation.
Strategic Report During 2016 Alliance Trust Investments (ATI) made good progress.
An independent Board was established, third-party funds under
management increased, costs were reduced and the business recorded
a profit for the year. As part of the Strategic Review, the Board reached
agreement to sell ATI to Liontrust Asset Management PLC, a specialist
independent fund management group. This transaction is expected to
complete in April. As a result, Alliance Trust’s structure will be simplified
and ATI will be provided with an exciting opportunity to continue to
develop its third party fund management business.
Significant Event
During the year the Board received an unsolicited approach from RIT
Capital Partners plc (RIT) with an informal proposal for a merger of
the two companies. No detailed terms were provided by RIT with
regard to the proposal. The Board of Alliance Trust announced that
it would incorporate any formal merger proposal received from RIT
into its Strategic Review, alongside the other options being considered.
RIT subsequently withdrew their interest.
Board Changes
Since my appointment as Chairman last year there have been three
changes to the Board. Following the conclusion of the AGM held in
2016, John Hylands retired as a Director of the Company. I would like
to thank John for his contribution and consistent support to the
Company over nine years.
In May, we welcomed Clare Dobie to the Board. Clare, who has had a
successful career in marketing and client service in asset management
companies, has made an excellent contribution to our Strategic Review.
Finally, and very sadly, Rory Macnamara passed away on 17 December
2016 after a period of illness. Rory, who joined the Board in June 2015,
played a significant role during the Strategic Review.
The last two years have seen considerable change for Alliance Trust
and we are very appreciative of the high level of support shareholders
have shown. I am also extremely grateful for the commitment and
diligence with which all of my fellow Directors have set about the task
to establish a compelling and refreshed strategy for the Trust. With a
clear course of direction and a settled shareholder register, we believe
that Alliance Trust is well placed for the future.
Lord Smith of Kelvin
Chairman
Alliance Trust Savings also made significant progress during the
last year and remains part of the Group, headquartered in Dundee.
Assets under administration have grown by 60%, reflecting the
benefit of the Stocktrade acquisition. In the year ended December
2016 ATS achieved a profit before tax of £1.2m, compared to a
loss of £5.2m in the prior year.
When we announced the outcome of the Strategic Review, we
introduced a more active approach to share buybacks, reflecting
our determination to narrow the Trust’s discount to Net Asset Value
(NAV). This has helped to narrow the discount to 4.4% as at the end
of December 2016. We also announced in January 2017 that the
Board had reached agreement with Elliott, the Company’s largest
shareholder, to repurchase the shares in which it had a disclosable
interest (approximately 20% of the issued share capital as at
December 2016). Given the size of its shareholding Elliott was unable
to participate in the share buyback programme without obtaining
the approval of other, independent shareholders. This approval was
granted at the General Meeting in February and the repurchase
of Elliott’s shares has now been completed. The impact of this
repurchase has been an uplift in the NAV for other shareholders
of around 1%, as well as the removal of a share overhang, allowing
the Trust to move forward with a more stable shareholder register.
Performance in 2016
Over 2016 the Trust delivered a Total Shareholder Return of 26.4%
and a NAV Total Return of 21.5%. The Trust’s share price rose 23% to
638p, while the NAV increased 19% to 667.5p, resulting in a discount
at the year-end of 4.4%. The Equity portfolio underperformed the
benchmark, which returned 29.4%, primarily through stock selection.
The Board is delighted that the Trust has achieved 50 years of
consecutive dividend growth, with a total declared dividend for the
year of 12.774p per ordinary share.
As regards our objective to reduce costs, we fulfilled our commitment
to reduce the OCR, which stood at 0.43% at the end of the year,
below our target of 0.45%. This reflects the level of cost we expected
under the old investment management approach. Going forward we
will see this increasing to just under 0.65% which we believe provides
excellent value for the targeted level of outperformance.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
7
I Strategic Report IIIII Board Strategy Q&A
We met with hundreds of our shareholders to explain, and answer questions on, the changes
we are making. Here are some of the questions that were asked and answered during
these meetings.
Q Who are Willis Towers Watson?
A WTW is a leading investment group. The investment business
at Willis Towers Watson has global assets under advice of more
than US$2.3 trillion and assets under management of more than
US$87bn. Willis Towers Watson’s clients include some of the largest
and most sophisticated investors in the world including pension
funds, sovereign wealth funds, endowments and foundations.
as stock pickers. Through asking each manager to focus on their
Q What is the benefit of this approach?
A The underlying investment managers are chosen for their skill
highest conviction ideas, we gain exposure to only the best ideas
from each manager. This is achieved without increasing overall risk
through the diversification of using multiple managers with different
approaches to investing that are expected to perform differently in
various market environments.
Q How did you choose WTW as your investment manager?
A The Board ran a competitive process and WTW was selected
to become the investment manager, as announced on 15th
December 2016.
Q What experience do Willis Towers Watson have of
managing multi‐manager equity portfolios?
A For more than 20 years WTW has provided advice on the
management of equity portfolios to large sophisticated
investors and has had a key role to play in managing multi‐manager
portfolios for more than a decade.
Q How will the Trust’s portfolio be designed?
A It is anticipated that the Trust’s portfolio will have approximately
200 stocks held across the eight underlying equity managers.
The Company’s equity portfolio will be shared broadly equally between
the eight equity managers. WTW believes that the combination of
these managers’ best stock ideas will create a highly compelling
equity portfolio for the Trust, where the long-term return relative
to benchmark will be primarily driven by stock selection rather than
macroeconomic factors.
Q By moving to a multi‐ manager approach are you not moving
the portfolio closer to the index and hence reducing the
expected outperformance?
A Although the number of stocks in the overall portfolio increases
from around 60 to around 200 (and hence the stock specific risk
reduces), every single stock is now one of the managers’ very best
ideas, which is not possible in a single manager approach, where
a number of stocks are inevitably held for risk control purposes.
Q What would cause you to review a manager?
A The most likely reason to replace a manager is if the research or
portfolio management team feels that the skill of the manager
has eroded over time. This could be in an absolute sense or relative
to other managers that would be suitable for inclusion in the portfolio.
It is unlikely that poor performance, on its own, would be a reason
for removing a manager except if that poor performance was caused
by reduced skill from the manager. Poor performance (relative to a
benchmark) that is attributable to style, size or sector weightings
that were known features of the investment approach would not
necessarily change our view of the manager’s skill.
The other reason a manager could be replaced is an inability to meet
the terms of the mandate such as maintaining a very high level of
active share and the restricted number of stocks. It is possible that we
will be able to identify managers who combine better with the other
managers in the portfolio than one initially chosen and therefore the
portfolio management team may make changes for this reason.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
8
Strategic Report will be built:
Q Can you describe how the multi‐manager portfolio
A The portfolio can be thought of as being the result of two
complementary components. The assets are all managed
by a group of focused active equity managers with varying styles.
In addition there is risk control, oversight, manager selection,
operational due diligence and monitoring performed by WTW.
dividend policy?
Q What will be the target yield on the portfolio and the
A The underlying yield on the stocks in the current proposed
multi‐manager portfolio is roughly the same as the existing
portfolio. This leaves the strategy well placed to support the existing
level of dividend payments and to continue the record of 50 years of
consecutive dividend growth into the future.
The first component is a group of highly active (active share typically
90%+) concentrated, ‘best‐in‐class’, active equity managers. Each
underlying portfolio usually has a named lead portfolio manager
overseeing a portfolio of around 20 of their best equity ideas.
The second component is used to balance the risks within the active
managers’ portfolios. It is the role of WTW to source appropriate
managers from around the world, look at their risk and return
characteristics and how they can be combined to minimise risks that
can be diversified away whilst maximising the impact of the stock
selection skills of the managers.
Q Why use concentrated mandates?
A There is significant evidence supporting better returns from
concentrated mandates over more diversified portfolios.
Research supports the view that over 90% of risk associated with
individual stocks is diversified away within the first 20‐30 holdings
and there is little incremental benefit beyond this.
successful track records at either their existing or previous asset
Q Will the managers have track records and does the strategy?
A All the portfolio managers selected for the Trust have long,
management firms. The managers’ track records and the quality of
their investment approach is examined as part of the rating process
conducted by WTW. The vast majority of the managers have also
managed concentrated mandates similar to those intended for
Alliance Trust, in many cases only for WTW clients.
Q How many stocks will be in the portfolio?
A Up to 200 stocks will be contained in the portfolio. The developed
market managers typically have around 20 holdings each and
one manager also manages a dedicated emerging markets mandate
which can hold up to 50 stocks.
the Trust?
Q What will be the target level of performance and risk of
A The Trust is targeting 2% p.a. outperformance for the equity
rolling periods. The forecast tracking error of the Trust is expected to
be 2‐4% (a guide, not a limit).
portfolio over the MSCI World ACWI, net of fees, over three year
how does this break down?
Q What will be the target total annual costs of the Trust and
A The Trust’s OCR will be targeted to be below 0.65%. The fees
payable to WTW are detailed on page 46.
emerging markets?
Q Is the Trust intended to invest in developed or
A The Trust is benchmarked against the MSCI ACWI (an index that
covers both developed and emerging markets). Each manager is
allowed to invest across both developed and emerging markets within
their 20 stock portfolio, but one manager also has a specialist emerging
market mandate which may have around 50 stocks.
Q What level of manager turnover is expected?
A A 10‐15% per annum manager turnover could be expected as
a long‐term guide.
sub‐manager’s underlying portfolios?
Q What level of portfolio turnover is expected in the
A Overall we would expect average turnover to be in the range
20% to 40% per annum.
Q What will be the approach to gearing?
A The approach is unchanged. The Board is ultimately responsible
for setting the strategic level of gearing and WTW will then have
an element of discretion around this target.
We would not anticipate the level of gearing changing at all at
the time of transition to the new arrangements.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
9
I Strategic Report IIIII Key Performance Indicators – 2016
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 (%)
NAV* Total Return (%)
Equity Portfolio Total Return (%)
.
1
1
1
1
.
2
2
0
1
.
2
2
0
1
.
4
3
8
.
2
2
0
1
.
5
8
8
.
1
3
5
.
5
9
4
4
.
9
2
4
.
6
2
.
5
9
4
3
.
8
3
4
.
9
2
5
.
1
2
.
5
9
4
9
.
6
3
4
.
9
2
9
.
2
2
1 Year
3 Year
5 Year
1 Year*
3 Year*
5 Year*
1 Year
3 Year
5 Year
MSCI ACWI
Alliance Trust
MSCI ACWI
Alliance Trust
MSCI ACWI
Alliance Trust
Why this is important
Why this is important
Why this is important
This demonstrates the real return our
shareholders receive through dividends
paid and capital growth.
This demonstrates the growth of our total
portfolio including non-core investments.
*NAV calculated with debt at fair value.
This measures how our equity portfolio
investment managers perform. The equity
portfolio accounted for 93% of our net
asset value at the year end.
Read more in the Investment
Manager’s Report on page 11
Read more in the Investment
Manager’s Report on page 11
Read more in the Investment
Manager’s Report on page 11
8
.
2
1
Discount* (%) as at 31 Dec
1
.
2
1
5
.
7
6
.
5
6
.
4
6
.
4
4
.
4
2014*
2015*
2016*
Global sector Weighted Average
Alliance Trust
Why this is important
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.
*Discount calculated using debt at fair value.
Ongoing Charges Ratio (%)
as at 31 Dec
Total Dividend (pence)
year to 31 Dec
0
6
.
0
9
5
.
0
3
4
.
0
2014
2015
2016
4
7
7
.
2
1
8
3
.
2
1
5
5
.
2
3
4
.
2
1
6
4
.
1
3
8
.
9
7
9
.
0
1
4
7
7
.
2
1
2014
2015
2016
Ordinary Dividend
Special Dividend
Why this is important
Why this is important
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.
The figures shown are the total dividends
paid, ordinary and special dividends.
Read more in Costs and Financial
Measures on page 20
Read more in Costs and Financial
Measures on page 20
Read more in Costs and Financial
Measures on page 20
Alliance Trust PLC | Annual Report and Financial Accounts 2016
10
Strategic Report
Investment Manager’s Report – 2016
Summary
During 2016, the Trust’s equity portfolio delivered a Total Return of
22.9%. Taking into account the performance of non-core investments,
the impact of buybacks and a one-off contribution to the pension
scheme the Trust’s overall NAV Total Return was 21.5%. The Total
Shareholder Return, which takes account of discount narrowing,
was 26.4%.
The equity portfolio finished the year 6.5% behind the MSCI ACWI.
This was driven largely by stock selection although sectoral allocation
also contributed to the lag in performance. In the latter half of the
year mid- and small-cap value stocks outperformed the larger, quality
growth companies that constitute the Trust’s portfolio.
The investment team maintained the number of holdings within the
portfolio to around 60, reflecting our continued conviction in the
benefits of holding a portfolio of best-in-class global companies.
Review of Performance
After a turbulent start to the year share prices rebounded in February
as fears of a Chinese hard landing and a US industrial slow down faded.
Despite some significant shocks to financial markets, such as Brexit,
markets continued to make progress, driven by increasing signs of
self-sustaining global growth and continued monetary laxity.
Over the year our decisions to increase our weightings in Industrials
and remain overweight in Technology benefited performance. However,
our decisions to improve the quality of holdings in Financials and Energy
in 2015 did not continue to provide the uplift in performance achieved
that year as lower quality companies rebounded strongly in 2016,
outperforming our stock selections. The most important sectoral
decision we got wrong in 2016 was to remain overweight in Health
Care ahead of the US elections, during which investor concerns over
the sustainability of drug pricing increased.
Industrials were the strongest contributor to performance in 2016.
We increased our exposure to these stocks, ending the year overweight
against the index. The star performers were Daikin and Melrose.
Information Technology was also a positive contributor to performance.
The portfolio benefited from the significant Merger and Acquisition
activity in the semi-conductor market, notably the sale of ARM which
returned 61% and contributed just over 1% to the portfolio’s return.
Holdings in Linear Tech and NXP are also subject to takeovers by ADI
and Qualcomm respectively. The growth in electric and hybrid electric
vehicles has translated to strong growth for the semi-conductor industry
in the auto segment, as the car of the future requires significantly more
electronic content to deliver improvements in safety and fuel efficiency.
We also focus on thematic drivers within the technology sector such
as the increase in Cloud computing and the need to invest in digital
infrastructure. We believe that these are important drivers of
performance and why we hold Accenture, Microsoft and SAP.
The Health Care sector reversed the strong gains of 2015 and was
the second-worst performing sector in 2016. The investment process
targets companies which deliver differentiated, life-saving therapies
and products that makes healthcare more accessible or affordable.
We believed that this sector and these sorts of companies would be
able to deliver defensive growth in a tough economic environment
and therefore maintained an overweight position during the year.
In the US, the source of the majority of global healthcare profits,
the Election raised questions on the sustainability of drug pricing,
and this hurt performance over 2016. Our holding in GlaxoSmithKline
did relatively well in the year thanks to its more diversified business,
with its Consumer and Vaccine divisions providing opportunities for
growth. Roche was out of favour over 2016, due to pricing pressure in
the US, combined with investor concern over the results in early 2016
of the important “Aphinity” trial. The trial results are considered key
to Roche’s global leadership in breast cancer and the nature of
the news led to weakness in the stock. We believe that their approach
of meeting unmet medical need across its whole portfolio and its
innovative record of discovering new molecules with breakthrough
potential, will be rewarded and command improved pricing.
The Financial sector contributed negatively to portfolio performance over
the year. A substantial portion of the underperformance came from our
position in the Italian bank Intesa Sanpaolo as investor concerns around
its non-performing loans in Italy, and political uncertainty, led to large
declines in the share prices of Italian financials. We decided to sell the
position and switch the proceeds into DNB. Our underperformance
came from the absence of investment banks which underwent a strong
re-rating from a very low base. Visa, however, performed well and,
as one of the portfolio’s largest positions, was a strong contributor
to performance. We increased the portfolio’s exposure to Financials
during the year.
Energy was again a focus for the market in 2016. After the turbulent
markets in 2015 oil rallied from below US$30 a barrel in the first
quarter of 2016 to above US$50 when producers reached an
agreement to reduce their output. The Energy sector rallied
impressively and delivered 54%. The portfolio’s underweight position
through 2016 contributed negatively to asset allocation as did stock
selection: lower quality companies rallied the most in response to
higher oil prices. Our investment process’ focus on quality companies
attracts us to companies with higher quality hydrocarbon assets that
can deliver better investment returns from lower oil prices. We believe
that over the medium term this will be a winning investment strategy
for businesses that sell this volatile commodity.
Going into 2017 the portfolio remains overweight in Health Care,
Information Technology and underweight in Consumer Discretionary,
Consumer Staples and Energy.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
11
I Strategic Report IIIII Investment Manager’s Report – 2016
continued
Portfolio Activity
In 2016 we added the Norwegian bank DNB and Microsoft to our
portfolio. We believed that DNB’s valuation was attractive following
market concerns related to oil-related economies as it remained one
of the best capitalised banks in Europe. Microsoft is embracing the
Cloud through Azure, which provides developers and IT professionals
with a collection of integrated cloud services through a global network
of data centres, and the shift in the sale of its Office software suite to
a subscription model.
Significant sales in 2016 included Novo Nordisk and ARM. The former
continues to benefit from innovations in insulin design but the weaker
outlook for insulin sales, due to concerns about the sustainability of
its US pricing model, resulted in lower profit expectations. ARM was
sold following a bid by Softbank, a Japanese telecom and technology
company. The proceeds from these sales were invested in the US
company Cadence which develops electronic design automation
software. We continued to use market weakness to add to positions
where the team have strong long-term convictions such as Acuity
Brands and Roche.
Our Top 10 holdings at the end of the year included for the first time
Acuity Brands, Ecolab, Blackstone Group, Macquarie Infrastructure
and the Toronto & Dominion group. Acuity is the US lighting market
leader with a diversified product mix. It has steadily gained market
share in an already relatively consolidated industry. It offers a full array
of technologies, including LED, which suit the needs of its customers.
Ecolab is a global leader in water, hygiene and energy technologies
which are used across different industries to maintain clean and safe
environments. Blackstone is possibly the best positioned ‘alternative’
asset manager globally and should benefit from the shift to that style
of management.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
12
Investment case: Health Care
The treatment of cancer
remains one of the key areas
in healthcare where innovation
is increasingly important.
Immuno-oncology is an innovation that is set to revolutionise
cancer treatment. The ability to utilise the body’s immune
system to fight a cancer tumour, rather than directly targeting
the tumour itself, has produced some promising results.
Long term survival in metastatic cancer is now a reality.
The Trust’s portfolio has exposure to this innovation through
Roche and Pfizer, both of whom are key players in the immune
oncology revolution. We see Roche as remaining a global leader
in the broader oncology setting however it was out of favour
in 2016 and made a small relative contribution in the year.
Pfizer is developing an exciting suite of treatments, including
both immuno-oncology treatments and the recently launched
Ibrance, in breast cancer. Pfizer also acquired Medivation, which
has promising complementary products in the oncology setting
which should allow it to build a profitable and growing oncology
suite of products.
Health Care stocks provided around one-tenth of the equity
portfolio’s total return and this part of the portfolio outperformed
the MSCI ACWI in the year.
(%)
Pfizer
Roche
Relative Contribution
2015
0.31
0.07
2014
0.24
0.02
2016
0.60
0.03
Source: Alliance Trust
Strategic Report
Investment case: Technology
The acquisition of both ARM
and Linear Technology in 2016
was confirmation that within the
technology sector, digitalisation
is spreading to new areas.
The ‘Internet of Things’, Advanced Driver Assistance Systems
(ADAS) and Electric Vehicles are all examples of areas where
technology is penetrating new areas. The Internet of Things
enables a refrigerator to manage its power usage to optimise
the use of lower cost energy. ADAS will help reduce the number
of casualties on the road through the use of predictive algorithms
using data generated from radars, lidars and cameras. Electric
vehicles will reduce CO2 emissions, make our cities cleaner
and improve energy efficiency.
All these are admirable goals but they do require significant
processing power as well as software capability. Our exposure
to digitalisation, beyond ARM and Linear Technology, has
been through Cadence and, to a lesser extent, Accenture.
Technology stocks provided around one-third of the equity
portfolio’s total return in 2016.
(%)
Accenture
ARM
Cadence
Linear Technologies
Relative Contribution
2015
0.59
0.08
0.16
0.00
2014
0.36
0.01
0.34
0.12
2016
0.98
0.99
0.63
0.84
Source: Alliance Trust
Portfolio Risk
We maintained the number of stocks in the portfolio at around 60,
reflecting the conviction we had in those stocks which we considered
to be best-in-class. The portfolio’s active share, which is the weighting
of the stocks in the portfolio that is different from the stock weightings
in the MSCI ACWI, was above 90%, a level that demonstrates that the
portfolio was very structurally different to the index with just a 10%
weighting overlap. The portfolio was sufficiently concentrated to
deliver meaningful levels of outperformance yet diversified enough
through only the highest quality global companies that there was the
expectation of lower volatility than that of the index.
The portfolio started 2016 with a tracking error of 2.61% against the
MSCI ACWI, finishing the year largely unchanged at 2.91%.
Benchmark relative risk (%)
3.0
2.9
2.8
2.7
2.6
Dec
2015
Mar
2016
Jun
2016
Sep
2016
Dec
2016
Predicted tracking error
Source: MSCI Barra
Alliance Trust PLC | Annual Report and Financial Accounts 2016
13
I Strategic Report IIIII
Investment Manager’s Report – 2016
continued
Stewardship
In 2016 we voted at 161 meetings. For 123 of these meetings we
voted against, withheld or abstained on one or more resolutions.
These votes related to concerns about matters including: excessive
or opaque remuneration arrangements; auditors tenure and
non audit fee; tenure and board and committee independence;
and effectiveness or lack of transparency around lobbying activities
and fair business policies. We added the issue of gender diversity on
boards to our voting policy during the year and we voted against the
company’s report & accounts where there were less than 15% women
on the board and abstained from voting on report & accounts where
there were less than 30% women on the board. This applied to just
under one third of eligible meetings. The Financial Reporting Council
awarded Alliance Trust Investments with a Tier 1 status on the quality
of reporting against the Stewardship Code. Alliance Trust Investments
is a signatory to the UN Principles for Responsible Investment (PRI),
where representatives from the investment team sit on the PRI
Sustainable Palm Oil Investor working group, PRI Engagement on
Water Risks group, PRI Global Investor Taskforce on Corporate Tax
Responsibility group. Alliance Trust Investments is also a signatory
to the Paris Pledge for Action: Climate Change, PRI Montreal pledge.
Asset Allocation and Gearing in 2016
Asset allocation is undertaken to enhance or protect the returns of
the core investment portfolio. When strong returns are anticipated
from equity markets the exposure to equities is increased by
increasing borrowing. In contrast when equity valuations appear full
and the outlook uncertain then exposure to equities is reduced.
Overall gearing levels were limited by the Board in the year to
a maximum of 18%.
In 2016 four significant moves were implemented at an asset
allocation level.
The year started with gearing on the core portfolio of 13%. In March,
having ascertained that the UK Referendum on Leaving the EU could
lead to a fall in the Pound, we hedged Sterling against the US Dollar
equivalent to 5% of the portfolio. This mitigated the overweight of
the equity portfolio towards Sterling.
Then in May gearing was reduced following a six month rally in
global equities and mounting political and economic uncertainties.
This brought gearing down to 10.2% of the equity portfolio.
Following the referendum result on 24 June the concern was to
protect the portfolio from a disorderly fall in equity markets. To this
end we sold FTSE 100 index futures to hedge the UK exposure of the
portfolio – representing 4% of the overall portfolio. The position was
closed on 1 July as it became apparent that currency markets were
taking the impact while the FTSE 100 appreciated.
In October gearing was reduced further to 6%, given the risks
surrounding the US election, anticipated US interest rate hikes and
very strong equity market performance. In November the FX hedge
was closed following Sterling’s 15% depreciation versus the US Dollar.
Overall the net impact of being geared into a rising market enhanced
the return from the core investments, and while the index future short
post the referendum had a negative impact this was more than covered
by the positive contribution from the FX hedge.
Attribution analysis (%)
Equity Portfolio Only
(look through basis)
Consumer Discretionary
Consumer Staples
Energy
Financials
Health Care
Industrials
Information Technology
Materials
Real Estate
Telecommunication Services
Utilities
Source: Alliance Trust and Factset
Alliance Trust
MSCI AC World Index
Attribution
Average
Weight
Total
Return
Contribution
to Total
Return
Average
Weight
Total
Return
Contribution
to Total
Return
Allocation
Effect
Selection
Effect
Total
Effect
8.4
8.3
4.9
17.8
16.7
8.5
20.0
4.7
4.6
3.2
2.9
10.8
11.7
44.8
19.6
9.3
39.7
33.3
32.3
25.5
6.1
0.6
0.7
1.5
2.2
3.1
1.8
3.1
7.1
1.5
1.5
0.2
0.2
12.3
10.4
6.7
17.3
12.0
10.6
15.5
4.9
3.2
3.8
3.3
23.0
21.9
53.4
32.9
11.6
34.1
34.7
48.5
22.9
26.2
27.3
100.0
22.9
100.0
2.8
2.7
3.4
4.9
1.6
3.6
5.3
2.2
0.8
1.1
1.0
29.4
0.2
0.1
-0.4
0.0
-0.7
-0.1
0.2
-0.1
-0.1
0.0
0.1
-0.8
-0.8
-0.7
-0.3
-2.1
-0.3
0.4
-0.2
-0.6
0.1
-0.5
-0.7
-5.7
-0.6
-0.6
-0.7
-2.1
-1.0
0.3
0.0
-0.7
0.0
-0.5
-0.6
-6.5
Alliance Trust PLC | Annual Report and Financial Accounts 2016
14
Strategic Report Non-core Investments
Whilst the Board is committed to reducing its exposure to these assets, they provided good
returns and a strong income stream during the year.
The divestment of non-core investments continued to gather
momentum in 2016. Fixed interest investments were sold in their
entirety by mid–year. The Trust has £9.5m in indirect property held
through investments in Limited Partnerships. There are no direct
property investments left in the portfolio although the Trust still owns
its registered office, 8 West Marketgait, Dundee, DD1 1QN which
was valued at £4.5m as at the end of 2016 (unchanged from 2015).
This office accommodates Alliance Trust Savings’ operations and the
Trust’s small executive function in Dundee. The Trust acts as landlord
for Alliance Trust Savings on a commercial basis.
A sale process of the mineral rights holdings was held in the early
part of the year but bids received were considered unacceptable in
a distressed market environment of very weak oil prices. The sale of
the holdings remains part of the divestment strategy for non-core
assets but this is unlikely until there is a sustained period of energy
price stability. At the year end, the mineral rights holdings were
valued at £13.2m compared with a valuation of £17.5m in 2015.
The majority of investments in the private equity portfolio are held in
seven externally managed private equity funds. These seven funds are
largely mid-market European buyout funds and are held in our own
fund of fund limited partnerships. These investments are now delivering
strong returns. In 2016 the Trust saw a marked improvement in
portfolio valuations and we experienced an increase in realisations
resulting in healthy distributions back to the Trust. The value of our
private equity investments is £103.5m. The unfunded commitment to
private equity investments, which includes recallable distributions, is
£28.5m. We have made no new private equity investments since 2014
and anticipate a continuation of the trend of further realisations within
the private equity portfolio in 2017 generating more distributions
back to the Trust.
For the non-core investments of private equity, property, fixed income
and the mineral rights holdings, which together represents 3.7% of the
total assets of the Trust, a positive contribution of 0.5% to investment
returns was recorded in 2016.
Contribution Analysis – 2016
Contribution Analysis (%)
Contribution to Total Return
Equity Portfolio*
FX Contracts and Index Futures
Non-core Investments
Net Gearing Effect
Investment Portfolio Total
Subsidiaries
Pension Fund Adjustments
Effect of Change to Fair Value of Debt
Share buybacks, Cash and Accruals
Total Operating Costs
NAV Cum Income Total Return
Effect of Discount
Share Price Total Return
MSCI ACWI Total Return
*includes investments in Funds
Source: Alliance Trust and Factset
22.9
0.2
0.5
0.2
23.8
-0.2
-0.8
-0.5
-0.3
-0.5
21.5
4.9
26.4
29.4
The NAV total return for 2016 was 21.5% versus the benchmark MSCI
ACWI return of 29.4%. This is a result of the investment returns from
the global equity portfolio, investments in fixed income, private equity
and mineral rights and the change in value of the subsidiary companies.
Over 2016 the shareholder total return was 26.4%, outstripping
the NAV total return so capturing the benefit of a narrowing in the
discount. Equities, at 93% of our total investment at the year end, are
by far the most significant asset class and contributor to total return.
The decision taken to fund the Company’s Final Salary Pension Scheme
to allow it to buy in its liabilities through a bulk annuity policy had a
negative effect on performance in the year.
Average gearing was 10.7% over 2016, this had the effect of enhancing
the return from the equity portion of the portfolio over 2016.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
15
I Strategic Report IIIII
Alliance Trust Investments
Alliance Trust Investments is a specialist fund management business offering open-ended
funds and investment solutions. Agreement was reached in December 2016 to sell this
business representing an expected gain of over £5m from its valuation at 30 June 2016.
This is expected to be completed in April 2017.
The focus of Alliance Trust Investments has been on managing the
Trust’s investment portfolio and promoting its range of Sustainable
Future (SF) equity and corporate bond funds alongside the Monthly
Income Bond fund. These are open to both institutional and retail
investors.
The business operates in a competitive marketplace and in the year was
successful in continuing to attract net inflows of £51m into its funds.
Key Performance Indicators
for the year to 31 December
Fair value
£28.3m
+43%
During the year it carried out a significant reorganisation which
reduced ongoing costs while maintaining its team of experienced
investment professionals.
2016
£28.3m
2015
£19.8m
2016 saw strong performance from the SF Corporate Bond and
Monthly Income Bond funds, with the former ending the year in
the top quartile over 1, 2 and 5 years. Against the full Corporate
Bond sector the Monthly Income Bond fund ended the year just
below median.
Alliance Trust Investments saw net revenue grow to £22.0m, making
an operating profit in the year of £3.1m, and a profit, after one-off and
exceptional costs, of £0.4m, compared to its loss of £2.1m last year.
The total investment in the business by the Trust was £45.4m.
At the end of 2016 the Directors had attributed a fair value to the
business of £28.3m.
In December 2016 the Board announced that the Board had reached
agreement to sell ATI to Liontrust Asset Management PLC (Liontrust),
a specialist fund management group that has been listed on the
London Stock Exchange since 1999. It is expected that net proceeds
will be not less than £25m, before any future contingent consideration.
The actual value which the Trust will finally receive will be dependent
on the movement in the price of the Liontrust shares acquired as part
of the consideration. This compares to its fair value of £19.8m as at
the end of June 2016.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
16
Funds above median over 3 years
67%
2016
2015
-14%
67%
78%
Third party assets under management*
£2.3bn
+11.5%
2016
2015
£2.3bn
£2.1bn
Third party net inflows*
£51m
2016
2015
-37%
£51m
£81m
*Excludes effect of Alliance Trust mandate in February 2016.
Net revenue
Ongoing expenses
Operating profit/(loss)
One-off expenses
Profit/(loss) before tax
2016 (£m)
2015 (£m)
22.0
(18.9)
3.1
(2.7)
0.4
10.5
(12.6)
(2.1)
-
(2.1)
Strategic Report Alliance Trust Savings
Alliance Trust Savings is a platform business offering a range of investment and pension
products, with broad investment choice.
The focus of Alliance Trust Savings during the last year has been
on the completion of the Stocktrade acquisition and re-platforming,
both seen as important in growing the profitability of the business.
Key Performance Indicators
for the year to 31 December
The business has three distribution channels: direct, intermediary
and corporate partnerships. The emphasis during the year has been
on its intermediary channel where good growth has been achieved.
Growth in Assets under Administration has been achieved in all channels
which has seen Alliance Trust Savings end the year with almost £14bn
of assets on its platform. Customer numbers have increased due to the
Stocktrade acquisition. Although there was a price increase earlier in
the year the flat rate pricing model, with no increased costs for those
customers with more valuable portfolios, remains very competitive for
customers holding investments in excess of £50,000.
The acquisition of Stocktrade has meant that there is now a mature
corporate partnership channel which we believe will deliver asset and
account growth in 2017.
The management structure of the business has been strengthened
and the separation of the business from other group companies is
almost complete. Alliance Trust Savings now has its own executive
function and three experienced non-executives to provide a greater
sense of direction and challenge.
Alliance Trust Savings saw net revenue grow during the year to £21.6m,
an increase of 58%, and made a profit in the year of £1.2m after a gain
on discontinued operations compared to its loss of £5.2m last year.
This profit was achieved despite higher than expected expenditure on
the new technology, which is expected to be available for all customers
in 2017, and the cost of implementing a revised management and
board structure.
The Trust made a further investment in the business this year of £15m
giving a total investment since the business was established in 1986
of £107.9m. The Directors attributed a fair value to this business at
31 December 2016 of £61.5m, an increase of £7.5m on its value
last year. Further details of the methodology used and the approach
adopted can be found in Note 23.8 on pages 83 to 86.
Fair value
£61.5m
+14%
2016
2015
£61.5m
£54.0m
Assets under administration
£13.6bn
+60%
2016
2015
£13.6bn
£8.5bn
Customer accounts
110,962
+31%
2016
2015
110,962
84,746
Number of trades
673,486
+25%
2016
2015
Net revenue*
Ongoing expenses
Operating profit/(loss)
One-off gains and non-recurring expenses**
Profit/(loss) before tax
673,486
539,222
2016 (£m)
2015 (£m)
21.6
(20.4)
1.2
(0.1)
1.2
13.7
(16.8)
(3.1)
(2.1)
(5.2)
*Operating income per ATS Financial Statement.
**In 2016 this is the net of the gain on discontinued operations of £1.7m
and non-recurring expenses of £1.8m. The 2015 expense (£2.1m) related
to a provision for discontinued operations.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
17
I Strategic Report IIIII Portfolio Listing
All quoted equity holdings as at 31 December 2016
Stock
Pfizer Inc.
Walt Disney Company
Visa Inc. Class A
Accenture Plc
Ecolab Inc.
Macquarie Infrastructure Corporation
Amgen Inc.
Toronto-Dominion Bank
Acuity Brands, Inc.
Microsoft Corporation
Blackstone Group L.P.
Roche Holding Ltd Genusssch.
Daikin Industries, Ltd.
DNB ASA
Prudential plc
American Tower Corporation
Deutsche Telekom AG
First Republic Bank
Danaher Corporation
Thermo Fisher Scientific Inc.
Swedbank AB Class A
Norsk Hydro ASA
Eli Lilly and Company
Total SA
National Grid plc
Statoil ASA
Tencent Holdings Ltd.
WPP Plc
Nasdaq, Inc.
NXP Semiconductors NV
Cadence Design Systems, Inc.
Enterprise Products Partners L.P.
ASML Holding NV
Activision Blizzard, Inc.
CVS Health Corporation
TJX Companies Inc
SS&C Technologies Holdings, Inc.
Equinix, Inc.
Wells Fargo & Company
ORIX Corporation
SAP SE
Alphabet Inc. Class A
GlaxoSmithKline plc
Vodafone Group Plc
Reckitt Benckiser Group plc
CSL Limited
Henkel AG & Co. KGaA Pref
Legal & General Group Plc
Melrose Industries PLC
Schneider Electric SE
Unilever PLC
Valeo SA
AmerisourceBergen Corporation
Dentsu Inc.
Roper Technologies, Inc.
Ambev SA Sponsored ADR
Keyence Corporation
Bangkok Bank Public Company Limited (Alien Mkt)
Sector
Health Care
Consumer Discretionary
Information Technology
Information Technology
Materials
Industrials
Health Care
Financials
Industrials
Information Technology
Financials
Health Care
Industrials
Financials
Financials
Real Estate
Telecommunication Services
Financials
Health Care
Health Care
Financials
Materials
Health Care
Energy
Utilities
Energy
Information Technology
Consumer Discretionary
Financials
Information Technology
Information Technology
Energy
Information Technology
Information Technology
Consumer Staples
Consumer Discretionary
Information Technology
Real Estate
Financials
Financials
Information Technology
Information Technology
Health Care
Telecommunication Services
Consumer Staples
Health Care
Consumer Staples
Financials
Industrials
Industrials
Consumer Staples
Consumer Discretionary
Health Care
Consumer Discretionary
Industrials
Consumer Staples
Industrials
Financials
Alliance Trust PLC | Annual Report and Financial Accounts 2016
18
Country of listing
United States
United States
United States
United States
United States
United States
United States
Canada
United States
United States
United States
Switzerland
Japan
Norway
United Kingdom
United States
Germany
United States
United States
United States
Sweden
Norway
United States
France
United Kingdom
Norway
China
United Kingdom
United States
Netherlands
United States
United States
Netherlands
United States
United States
United States
United States
United States
United States
Japan
Germany
United States
United Kingdom
United Kingdom
United Kingdom
Australia
Germany
United Kingdom
United Kingdom
France
United Kingdom
France
United States
Japan
United States
Brazil
Japan
Thailand
% of
quoted equities
Value
£m
2.8
2.6
2.5
2.5
2.4
2.4
2.3
2.3
2.3
2.3
2.2
2.1
2.1
2.1
2.1
2.1
2.0
2.0
2.0
2.0
1.9
1.9
1.9
1.9
1.9
1.9
1.9
1.8
1.8
1.7
1.7
1.7
1.7
1.7
1.6
1.6
1.6
1.5
1.5
1.5
1.4
1.3
1.3
1.3
1.3
1.3
1.2
1.2
1.1
1.1
1.0
1.0
1.0
1.0
1.0
1.0
0.9
0.9
88.2
83.4
80.1
79.0
76.4
75.3
74.1
74.0
73.2
71.5
69.8
67.3
66.3
65.7
65.6
64.8
63.8
63.0
62.4
62.1
61.0
60.2
60.1
59.4
59.2
58.6
58.6
57.5
57.1
55.2
53.9
53.1
52.5
52.4
50.3
49.6
49.2
47.9
46.4
45.9
42.8
41.8
41.6
40.8
40.7
39.9
38.4
37.3
35.7
35.2
33.0
33.0
31.5
31.0
30.8
30.4
29.9
29.0
100.0% Total Value 3,156.9
Strategic Report Funds as at 31 December 2016
Alliance Trust Investment Funds
Sustainable Future Pan-European Equity Fund
Sustainable Future Cautious Managed Fund
Sustainable Future Defensive Managed Fund
Country of registration
Luxembourg
United Kingdom
United Kingdom
Investments in operating subsidiary companies as at 31 December 2016
Investment
Alliance Trust Savings
Alliance Trust Investments
Region
United Kingdom
United Kingdom
Non-core investments as at 31 December 2016
Investment
Private Equity
Mineral Rights
Indirect Property
Other
Foreign Currency Exchange Contract
Region
United Kingdom/Europe
North America
United Kingdom
United Kingdom
Total investments as at 31 December 2016
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 www.alliancetrust.co.uk
Value
£m
69.5
11.9
11.7
Total Value 93.1
Value
£m
61.5
28.3
Total Value 89.8
Value £m
103.6
13.2
9.5
1.2
6.9
Total Value 134.4
Value
£m
3,156.9
93.1
89.8
134.4
Total Value 3,474.2
Alliance Trust PLC | Annual Report and Financial Accounts 2016
19
I Strategic Report IIIII
Costs and Financial Measures – 2016
We provide here a breakdown of how our Ongoing Charges Ratio is calculated and cost
savings achieved across the investment business.
Ongoing Charges Ratio (OCR)
In October 2015 we announced a targeted Ongoing Charges Ratio
(‘OCR’) of 0.45% or less by the end of 2016 (compared to 0.59%
in 2015 and 0.60% in 2014).
The actual 2016 OCR which is calculated on ongoing expenses
was 0.43%. This reduction in OCR has been achieved through
the appointment of Alliance Trust Investments (ATI) to manage
the portfolio at an investment management charge of 0.35% of
an adjusted NAV (excluding holdings in ATI managed funds and
the fair value of ATS and ATI), effective management of ongoing
direct expenses for the Trust and the Group reorganisation whereby
direct expenses of ATI and Alliance Trust Savings are now borne
directly by these entities.
Ongoing expenses exclude non-recurring expenses relating to the
Strategic Review and restructuring costs. Non-recurring costs in 2016
relating to the Strategic Review, indirect ATI sale costs and reorganisation
costs are £3.4m.
The Trust implemented a new cost allocation policy in 2016. Where
consistent with AIC SORP guidelines we now allocate management
fees and other indirect expenditure one third to revenue profits and
two thirds to capital profits. In prior years, with the exception of
capital incentives, all expenses were recorded against revenue
profits. The 2016 OCR of 0.43% is based on total ongoing costs,
the corresponding OCR on total ongoing costs would have been
0.63% rather than the reported 0.59% based on revenue costs.
Cost savings across the Investment Business
In October 2015 we announced targeted cost savings of £6m,
equivalent to more than 20% of the combined recurring costs borne
by the Trust and ATI in 2015. By Investment Business we mean the
combined costs of the investment manager, ATI, and the direct costs
of the Trust after the Group reorganisation implemented in the last
quarter of 2015.
The targeted £6m of costs savings were achieved and in total we
reduced annual costs by over £9m; achieved through a combination
of the initial cost target savings and an additional £3m cost saving in
ATI as the business moved to profitability. The cost base of ATI was
restructured in 2016 through staff reductions, a change in premises
and management of discretionary spend; this enabled ATI to generate
monthly profits from July 2016.
The ongoing costs of the Trust are now driven by a variable
management fee. Other costs of running the Trust are directly
under the control of the Board. In 2016 the Board sought to reduce
ongoing costs to a level consistent with running the Trust efficiently
and restoring shareholder value.
Dividends
Alliance Trust has increased the ordinary dividend in each of the last
50 years and is one of only four companies in the FTSE All-Share index
with such a track record. The Board’s current policy is to pay a
progressive dividend and under normal market conditions to pay
all net income received as ordinary dividends.
As in prior years the OCR excludes one-off or non-recurring costs.
Non-recurring costs in 2016 were £3.4m (2015: £5.2m). Further
disclosure of non-recurring costs is on the next page.
The ordinary dividend for 2016 will rise by 16% to 12.774p. A fourth
interim dividend of 3.274p will be paid on 31 March 2017 to shareholders
who were on the Company’s share register on 10 March 2017.
Discount
Our policy is to buyback shares where we judge it to be beneficial to
shareholders. Through the use of our share buyback programme we
narrowed the discount significantly at the year end closing the year
at 4.4% slightly less than the AIC Global Sector’s average of 4.6%.
Since the year end the discount has remained on or around 5%.
All the shares bought back have been cancelled.
Ongoing charges ratio (%)
5
7
.
0
7
6
.
0
0
6
.
0
9
5
.
0
3
4
.
0
2012 2013 2014 2015 2016
Source: Alliance Trust
Alliance Trust PLC | Annual Report and Financial Accounts 2016
20
Strategic Report
Alliance Trust PLC
Ongoing Charges Ratio (OCR) Summary 2016
£'000
Average net assets
Total administrative expenses
Non-recurring expenses
Ongoing expenses
Non-recurring expenses
Reorganisaton
Strategic Review
Indirect disposal costs of ATI
AGM requisition
2016
Revenue
Capital
Total
2015
Revenue
7,960
(1,782)
6,178
556
457
769
-
8,810
(1,590)
7,220
179
1,221
189
-
3,111,711
16,770
(3,372)
13,398
735
1,678
959
-
1,782
1,590
3,372
22,835
(5,233)
17,602
2,880
-
-
2,353
5,233
OCR ongoing expenses*
Total Expenses Ratio (TER)*
0.43%
0.54%
0.59%
0.77%
Capital
Total
2,983,253
23,968
(5,233)
18,735
1,133
-
1,133
-
-
-
-
-
2,880
-
-
2,353
5,233
0.63%
0.80%
*We have not shown an OCR or TER for 2016 revenue expenses because from 1 January 2016 these measures are calculated on total expenses.
The expenses relating to Alliance Trust Investments and Alliance Trust Savings can be found on pages 16 and 17.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
21
I Strategic Report IIIII Risk Management
This section of the report deals with the
structure of the Group’s Risk Management
Framework and risk reporting.
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 Market and Prudential, Operational, Strategic and Regulatory
and Conduct Risk. The Risk Management Framework supports two
key processes:
• the ICAAP (Internal Capital Adequacy Assessment Process), which
helps to determine the capital requirements (including potential
stress points) of the Group; and
• the ILAAP (Internal Liquidity Adequacy Assessment Process), which
helps to determine the liquidity requirements (including potential
stress points) of the Group.
Market and Prudential Risks
Risk
Description
Mitigating activities
Change in year
Investment
under-
performance
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 by the Board
Liquidity
The Company does not have sufficient
liquid resources to ensure that it can meet
its liabilities as they fall due during normal
and stressed times.
• Majority of investments are in listed equities
• Daily monitoring of cash positions
• Gearing availability
Operational Risks
Risk
Description
Mitigating activities
Change in year
Cyber attack
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
Change of
Investment
Manager
The Company changed its investment manager
to Alliance Trust Investments in 2016 and will
change it to Willis Towers Watson in 2017.
• Experienced investment managers
• Use of transition manager for the investment switch
to Willis Towers Watson
Alliance Trust PLC | Annual Report and Financial Accounts 2016
22
Strategic Report 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 Market
and Prudential, Operational, Strategic and Regulatory and Conduct
Risks. The Board regularly carried out a robust assessment of the
principal risks that the Group could face and their mitigants.
Risk Appetite
A Risk appetite statement has been approved by the Board and
provides 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. Details of exceptions
to our Risk Appetite are noted on the following page.
Risk Governance Committees
The Audit and Risk Committee comprises all of the Non-Executive
Directors other than the Chairman, 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. Alliance Trust Investments and Alliance Trust Savings both
had their own Audit and Risk committees focused on the risks associated
with their businesses. The Committee received reports of Risk Exposures
and Events, as well as discussing any breaches of the agreed risk appetite.
Strategic Risks
Risk
Description
Mitigating activities
Change in year
Performance
impacted by
external factors
Stock market action involving Alliance Trust
results in uncertainty around the business
model and impact on performance (current
and future).
• 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
The increasing risk is due to continued focus by
shareholders on delivery of the Trust’s strategy.
Subsidiary under-
performance
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
• The sale of Alliance Trust Investments in 2017 will
reduce this risk
Regulatory and Conduct Risks
Risk
Description
Mitigating activities
Change in year
Regulatory
non-compliance
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
• Regulatory developments process to ensure changes
are appropriately implemented
• Verification activities by Depositary as part of AIFM
Directive requirements
Alliance Trust PLC | Annual Report and Financial Accounts 2016
23
I Strategic Report IIIII We undertake an annual assessment of
the effectiveness of the Risk Framework
(see the diagram opposite). The most
recent assessment was presented to the
Audit and Risk Committee following the
year end and noted that there were no
significant concerns to highlight.
An annual report on the effectiveness of
the internal control systems is provided
to the Board. This includes a review of 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 and
Risk Committee following the year end
and no material issues were identified.
Risk Management
continued
Risk framework
Risk universe
Risk appetite
Policies
Governance
Management information
Risk management organisation
Risk measurement
Embed risk practices
Culture
Conduct
Risk Appetite
Risk Appetite measures which at the year end and in each quarter
of 2016 were outside the limits approved by the Board were:
• Net Asset Value relative to MSCI ACWI
• Management of Alliance Trust PLC Direct Costs
The Board believes that the output from the Strategic Review and the
actions being taken to implement a new investment approach will see
these measures return to within our risk appetite limits.
The other measures which breached the agreed risk appetite during
the year were:
• Discount – Breached from Q1 to Q3, with an improvement to
within target following the Strategic Review announcement in
December and the commencement of an active programme of
share buybacks.
• Performance of subsidiaries against business plan – Breached in
Q1 and Q2, with improvements made in the second half of the
year with Alliance Trust Investments moving to operational
profitability; however, Alliance Trust Savings profit finished the
year below budget.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
24
Strategic Report Corporate Responsibility
We report in our Investment Manager’s report how we exercise our
stewardship responsibilities demonstrating our commitment to good
corporate governance.
As an investment trust we have no customers however we do believe
that we should maintain an open dialogue with our shareholders and
during the year we met with our significant shareholders as well as
individual shareholders and their representatives to hear their views
and to update them on the progress of the Trust. This helps the Board
to act fairly between the members of the Company by ensuring that
it captures a range of shareholder views.
We have supported the Alliance Trust Foundation charity, which raises
money through the Alliance Trust Cateran Yomp and fundraising
activities by staff, for 3 years. Over that period the Company has
donated £93,167. The Alliance Trust Foundation distributed £156,034
to charities including £87,423 to 28 charities in 2016. The charities
supported are, in the main, those which are based in the communities
where we have offices or where employees of the Group companies
live i.e. Dundee, Edinburgh and London. We ceased our sponsorship
of the Cateran Yomp after the 2016 event.
The Board believes that a diverse workforce will create the environment
to allow our businesses to thrive and grow. We look for our subsidiaries
to have an inclusive environment where people can develop and
contribute fully. The Group’s employment and recruitment policies
are at all times compliant with relevant EU and UK legislation.
Recruitment, development and promotion is based solely on the
candidate’s suitability for the job to be done and there should be no
discrimination either before or during employment on the basis of
gender, sexual orientation, age, race, nationality, disability, political or
religious belief. Should any employee become disabled they should
not suffer any discrimination and reasonable adjustments will be made
to allow them to continue to have the same opportunities as any
other member of the workforce.
The Board also recognises its responsibilities to its former employees
and has for a number of years looked to de-risk the Trust’s final salary
pension scheme, which has around 200 members, by making additional
contributions. In 2016 the Trust agreed to provide additional funding of
£19.2m to partially fund the purchase of a bulk annuity policy which,
along with existing annuities, now secures the benefits of all of the
Scheme members.
The table below provides the gender split of the Board of the
Company as at 31 December 2016. The Company has no employees.
On 1 January 2016 all staff in the Group were transferred from Alliance
Trust Services, which is the only consolidated subsidiary, to either
Alliance Trust Savings or Alliance Trust Investments and accordingly we
no longer disclose the gender split of the managers and staff of those
companies. Alliance Trust Services has only one director who is a male.
Board
Male
Female
5 (83%)
1 (17%)
Total greenhouse gas emissions data
We report here on all of the emission sources required under the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013.
These sources relate to offices occupied by our subsidiaries and to travel undertaken by their employees. Although these subsidiaries do not fall
within our consolidated financial statements they are wholly owned by the Company and are therefore regarded as under its control for the
purposes of reporting emissions.
Our carbon footprint has been calculated based on the WRI/WBCSD Greenhouse Gas Corporate Accounting and Reporting Standard (GHG Protocol)
and Defra guidelines. We have adopted an operational control approach. The emissions reported below have been verified by Carbon Footprint
Limited. Details of our verification statements are available on our website.
Tonnes CO2e
Scope 1
Scope 2 Location based
Scope 2 Market based
Scope 3
Total all Scopes
Total Scope 1 + 2
Natural gas
Refrigerant loss
Company cars
Purchased electricity
Downstream leased assets
Business travel
Scope 1 + 2 per full employee equivalent (FTE)
Year to
31 Dec 2013
Year to
31 Dec 2014
Year to
31 Dec 2015
Year to
31 Dec 2016
% Change
year-on-year
211
489
–
649
190
535
–
592
1,349
1,316
700
2.76
725
2.63
181
472
112
645
1,298
653
2.07
139
404
66
364
907
543
1.72
-23%
-14%
-41%
-44%
-30%
-17%
-17%
The Strategic Report (comprising the inside cover to page 25 of this document and the viability statement on page 37) has been approved by
the Board and signed on its behalf by
Lord Smith of Kelvin
Chairman
23 March 2017
Alliance Trust PLC | Annual Report and Financial Accounts 2016
25
I Strategic Report IIIII Board of Directors
Lord Smith of Kelvin
Chairman
Gregor Stewart
Deputy Chairman
Karl Sternberg
Non-Executive Director
Senior Independent Director
Appointment to the Board 2016
Appointment to the Board 2014
Appointment to the Board 2015
Committee membership
• Nomination (Chair)
• Management Engagement
• Investment
• Asset Management
• Financial Services
• Business Leadership
Committee membership
• Nomination
• Audit & Risk (Chair)
• Remuneration
• Management Engagement
Non-Executive Director
of Alliance Trust Savings
• Financial and Risk oversight
• Investment Trusts
• Financial Services
• Risk
• Strategic Change
• Corporate Finance
• Distribution
Committee membership
• Nomination
• Audit & Risk
• Remuneration
• Management Engagement (Chair)
• Investment
• Asset Management
• Investment Trusts
• Financial Services
• Business Leadership
• Chairman of UK Green Investment Bank,
• Non-Executive Director of Intrinsic
• Non-Executive Director of Jupiter
IMI PLC and Forth Ports Ltd
FS Group, FNZ UK Ltd and its holding
company
• Honorary Treasurer for the charity
International Alert
Fund Management PLC, JPM Elect plc,
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
• Finance Director at Scottish Widows
• Finance Director for the Insurance
Division of Lloyds Banking Group
• Chartered Accountant with and Partner
• Partner of Oxford Investment Partners
• Global Head of Equities and Chief
Investment Officer Europe and Asia
Pacific at Deutsche Asset Management
of Ernst & Young
• Chief Executive Morgan Grenfell
Asset 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
• Member of the Financial Reporting
Council
Subsidiary
Board
responsibilities
Skills and
experience
External
appointments
Previous
experience
Alliance Trust PLC | Annual Report and Financial Accounts 2016
26
Directors’ Report Anthony Brooke
Non-Executive Director
Clare Dobie
Non-Executive Director
Chris Samuel
Non-Executive Director
Appointment to the Board 2015
Appointment to the Board 2016
Appointment to the Board 2015
Committee membership
• Nomination
• Audit & Risk
• Remuneration (Chair)
• Management Engagement
Committee membership
• Nomination
• Audit & Risk
• Remuneration
• Management Engagement
• Investment
• Asset Management
• Financial Services
• Corporate Finance
• Marketing
• Asset Management
• Investment Trusts
• Financial Services
• Marketing and Distribution
Committee membership
• Nomination
• Audit & Risk
• Remuneration
• Management Engagement
Non-Executive Director
of Alliance Trust Investments
• Asset Management
• Investment Trusts
• Financial Services
• Business Leadership
• Financial Oversight
• Corporate Finance
• Non-Executive Director of
Quintessentially (UK) and
Bourne Park Capital Ltd
• Member of the Investments Committee
of Christ’s College, Cambridge
• Member of the Investment Committee
of the National Portrait Gallery, London
• Investment advisor to a number of
charitable endowments
• Non-Executive Director of Aberdeen
New Thai Investment Trust PLC,
F&C Capital and Income Investment
Trust PLC and Schroder UK Mid Cap
Fund PLC
• Trustee of Essex and Herts Air
Ambulance Trust
• Chairman of Defaqto
• Non-Executive Director of JP Morgan
Japanese Investment Trust PLC,
UIL Limited, UIL Finance Limited,
BlackRock Throgmorton Trust Plc
• Non-Executive Director and member
of Executive Committee and Chair of
the Finance and Investment Committee
of London Community Foundation
• Vice-Chairman of S G Warburg & Co. Ltd
• Partner of Fauchier Partners
• Non-Executive Director of
• Group Head of Marketing at GAM
• Head of Marketing and Clients at
Barclays Global Investors
Huntsworth plc
• City Editor at the Independent
• Director, Braxted Marketing Measures
• Deputy Chair, Southend University
NHS Foundation Trust
• Chief Executive of Ignis
Asset Management
• Chief Operating Officer at Gartmore
• Chief Operating Officer at Hill Samuel
Asset Management
• Partner at Cambridge Place
Investment Management
• Chartered Accountant with KPMG
Alliance Trust PLC | Annual Report and Financial Accounts 2016
27
II Directors’ Report IIII Corporate Governance
Alliance Trust takes good governance seriously. Since the changes that were announced
in 2015 and implemented in 2016 to introduce independent boards for both Alliance Trust
Savings and Alliance Trust Investments and to move to a Non-Executive only Board for
Alliance Trust PLC we have seen quite a radical change in the way in which the Company is run.
We have seen greater accountability from the executives who
were charged with running our subsidiary business as they
were challenged by independent non-executives as well as
a non-executive appointed from the board of the Company.
This is the first time that both of these subsidiaries have reported
profits in the same year, and the first time that Alliance Trust
Investments has reported a profit.
With less distraction from the affairs of the subsidiaries the Board
has been focused on delivering the outcome of its Strategic
Review, reported in more detail on pages 2 and 3, as well as
ensuring that the Company itself is observing good standards of
governance. Over the next few pages we outline the work that the
Board and the Committees have done over the year. I would
highlight that, apart from myself, every Director is a member of
each Committee and has contributed across all areas of our
governance. We took the decision last year that as a small Board it
was more effective for all of the Directors to be involved in the
work of all of the Committees so that everyone was aware of
developments and could contribute from their own areas of
specialist knowledge; we believe that this has led to more informed
decisions and efficient use of the Directors’ time. This does mean
that, on occasions, the Board itself may consider items of business
that would normally come to it as a recommendation from one of
the Board Committees, for example the appointment of a new
director, however that has not detracted from the work of those
Committees which are structured to allow adequate time for
discussing matters in more depth than could be achieved within
a Board meeting. We will be reviewing our Committee structure
again in 2017 in light of experience gained in 2016.
Compliance with AIC Code of
Corporate Governance
The Company has complied with the recommendations of
the AIC Code of Corporate Governance issued in July 2016.
This report describes how the Board applies the principles of
that Code in practice.
Financial Reporting Council
As part of their regulatory responsibilities the Conduct Committee
of the Financial Reporting Council review and investigate the
annual reports and directors’ and strategic reports of public
companies. Our Report and Accounts for 2015 were reviewed and
the Conduct Committee confirmed that they had no questions or
queries which they wished to raise with us. Their review was not
based on the detailed knowledge and understanding of the
business that our Board has however it was conducted by staff
of the Financial Reporting Council who have an understanding
of the relevant legal and accounting framework.
Lord Smith of Kelvin,
Chairman
Alliance Trust PLC | Annual Report and Financial Accounts 2016
28
Directors’ Report Corporate structure
We have a number of Board Committees to ensure good governance
and to enhance accountability and independence. The terms of
reference of the four standing committees reporting to the Board can
be found at www.alliancetrust.co.uk. The diagram below shows the
main committees and reporting lines within the Group that were in
place at the year end. The Board will on occasions constitute ad hoc
committees or working groups for specific purposes and has
constituted a Disclosure Committee which will meet as required to
consider the disclosure of inside information held by the Company.
Structure
Board of Directors
Board Committees
Audit and Risk
Management Engagement
Nomination
Remuneration
Subsidiary Boards
Alliance Trust Investments
Alliance Trust Savings
Since the end of 2015 the Board of the Company does not 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 changes, along with the appointment
of new independent directors, have made the subsidiary boards
more autonomous.
The Board still maintains 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 also have
a non-executive director from the Company sitting as a non-executive
director on their board.
Board Experience
The Board recognises that they require a mix of skills and experience to ensure that the Company is managed and governed effectively.
We set out below the key skills which the Board has identified that it must have. In addition to these key skills the Board also has experience
in Investment, Financial Oversight, Risk, Strategy and Change and Corporate Finance.
Board experience
Lord Smith of Kelvin
Gregor Stewart
Anthony Brooke
Clare Dobie
Chris Samuel
Karl Sternberg
Financial
Services
Business
Leadership
Asset
Management
Investment
Trusts
Marketing and
Distribution
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
Alliance Trust PLC | Annual Report and Financial Accounts 2016
29
II Directors’ Report IIII 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, each year the
Board undertakes a formal review of its own performance and that of
each of its Committees. The Board as a whole meets to assess its own
performance and that of its Committees.
non-executive director search services to the Company and its subsidiaries.
The conclusion of the report they produced 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.
Alliance Trust has a longstanding practice of periodic externally
facilitated board reviews and has now done so four times beginning in
2007. The most recent external evaluation was carried out in December
2015 and the next external evaluation is planned for December 2017.
2015 evaluation
The 2015 evaluation identified that one area of focus should be an
assessment of the skills and competencies of both current and future
board members. An assessment was carried out by the executive
search and board advisory firm Russell Reynolds, who also provide
2016 evaluation
The Board opted to conduct the 2016 performance evaluation
through formal questionnaires and discussion between the Directors,
Chairman and the Audit and Risk Committee Chairman. In summary,
the conclusion was that 2016 was an exceptional year in terms of the
time commitment of the Directors and that all of individual Directors
contributed to the effective operation of the Board and of its
Committees. The evaluation did identify that there was a significant
level of overlap between the work of some of the Committees and
that of the Board and it was agreed that the Committee structure
would be reviewed.
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 2
Internal
Year 1
External
Our three
year
evaluation
cycle
Year 3
Internal
Internal Evaluation
• Agree themes
• Questionnaires
completed by Board
and senior managers
Interviews by
Chairman Report to
the Board
• Agree Actions
•
Implement Actions
Alliance Trust PLC | Annual Report and Financial Accounts 2016
30
Directors’ Report Management Engagement Committee
" The Management Engagement Committee was constituted in 2016 to oversee and review
the performance of the investment manager. During the course of the year the whole
Board decided to consider a number of matters that would normally have been the
responsibility of this Committee. Since all members of the Board are also members of
the Committee, we believed it would be more effective if these matters were considered
directly by the Board rather than by convening a separate meeting of the Committee
to make recommendations to the Board. We report here on our deliberations."
Karl Sternberg
Chairman, Management Engagement Committee
Areas of focus in 2016
Evaluation of the
Investment Manager’s
Performance
The Board considered the performance of Alliance Trust Investments (ATI) during the year, and its contractual
arrangements. We concluded that although ATI had underperformed its objective, we believed that on a longer-term
basis, the manager continued to provide the levels of return that could be expected in current market conditions from
a single manager with ATI’s investment style. Nevertheless, we decided to undertake a Strategic Review to consider
whether a different approach would better suit the objectives of the Trust.
We received a number of submissions from third-party managers offering both global equity and multi-asset
approaches. We considered these submissions, and the continued appointment of Alliance Trust Investments,
on their own merits and then compared them with an unconstrained choice of single managers, whether they had
submitted proposals or not.
After broad consultation, the Board decided that a multi-asset model was not an appropriate choice, so our focus
was on the best way to deliver consistently good performance against the existing global equity benchmark.
We considered single managers and a traditional multi-manager approach with broad mandates spread across a
number of investment houses. We decided, however, that either of these would lead to a portfolio with too many
stocks and lower active money and would not be exclusive to the Trust: we wanted to deliver a conviction portfolio
with fees paid only for active stock selection. As a result, the Board decided that we would appoint multiple managers
with high conviction 20-stock portfolios.
In order to implement this new approach, we took two decisions:
1. To sell Alliance Trust Investments to a firm better able to exploit its natural advantages in sustainable investment; and
2. After a competitive tender, to appoint Willis Towers Watson (WTW) as our new investment manager.
The Board believes that its new focused multi-manager approach to be implemented by WTW is an opportunity to
provide investors with a genuinely innovative and distinctive equity portfolio. It will both be high conviction and
have a lower risk of disappointment. We also believe that the new approach will provide access to managers that are
not otherwise accessible to retail investors.
The Board decided not to include performance fees as part of the remuneration structure for the underlying managers
or for WTW. This is not just to avoid complexity, but is also designed to reduce the likelihood of managers replicating
the benchmark index and rewarding managers for achieving performance levels they are already obligated to deliver.
The Board also agreed that the appointment of WTW would be on six months’ notice. This is the same notice period
as was included in the agreement with Alliance Trust Investments.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
31
II Directors’ Report IIII 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 2016.”
Lord Smith of Kelvin
Chairman, Nomination Committee
Areas of focus in 2016
Re-election of Directors
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 or
re-election.
Diversity Policy
The Committee approved the following Diversity Policy:
Alliance Trust recognises the benefits of having a diverse Board, and sees diversity at Board level as important in
maintaining good corporate governance and Board effectiveness. The Board members should include different skills,
regional and industry experience, background, race and gender. These differences will be considered in determining
the composition of the Board and when possible should be balanced appropriately.
All Board appointments must be made on merit, in the context of the skills, experience, independence and knowledge
which the Board as a whole requires to be effective.
The Nomination Committee (‘the Committee’) will review and assess Board composition on behalf of the Board
and recommend the appointment of new Directors. In reviewing Board composition, the Committee will consider
the benefits of all aspects of diversity including, but not limited to, those described above, in order to enable it to
discharge its duties and responsibilities.
In identifying suitable candidates for appointment to the Board, the Committee will consider candidates on merit
against objective criteria and with due regard for the benefits of diversity on the Board. As part of the selection
process, where search agents are used, they will be required in preparing their long list to include female candidates
of at least 25% of the number submitted for consideration. Over time the Board intends to achieve at least 25%
female representation on the Board.
As part of the annual performance evaluation of the effectiveness of the Board, Board Committees and individual
Directors, the experience, independence and knowledge of the Directors and the diversity representation of the
Board, how the Board works together, and other factors relevant to its effectiveness will be considered.
Non-Executive Directors
The Board after approving its Diversity Policy agreed that action should be taken to address the lack of women on
the Board and initiated a search for an additional director with the intention of improving gender diversity while also
strengthening the existing Board’s skills and experience. The search that was undertaken led to the appointment of
Clare Dobie to the Board in May.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
32
Directors’ Report Audit and Risk Committee
“ In this section we provide information on the main areas focussed on by the Audit and
Risk Committee over the year. The Committee plays a significant role in ensuring that the
Company’s financial statements are properly prepared and that the systems of internal
controls in place are effective and appropriate. The Committee monitors how effective
management is in managing risk in the business. In addition, the Committee reviews and
challenges the appropriateness of the Company’s Risk Appetite, its application within the
business and the investment manager’s assessment of the risk outlook for the portfolio.
We provide more detail on these matters on the next pages. The key areas of focus and
the decisions taken during the year are summarised in the table below.”
Gregor Stewart
Chairman, Audit and Risk Committee
Areas of focus in 2016
Risk Appetite
Cyber Risk
The Committee considered and updated its risk appetite and this is reported on in more detail on pages 22 to 24.
The Committee received reports on how cyber risk impacted on the Company and assessed the steps being taken
by the boards of the subsidiary companies to protect their businesses through increased IT security measures
implemented during the year.
Final Salary
Pension Scheme
The Committee received updates on the progress of the Trustees of the Company’s final salary pension to derisk the
scheme through the purchase of a bulk annuity policy. The Trustees completed the buy in of the scheme’s liabilities on
31 May 2016.
Valuation of Fixed rate
Loan Notes
The Committee, to provide the market with greater transparency and to move towards market convention, approved a
change in the accounting policy for the valuation of its £100m of unsecured long term fixed rate notes, to include both par
and fair value. Further detail can be found in Note 2 on page 63.
Long Term Incentive Plan
The Committee received a report of the external independent review that had been commissioned into the process,
controls and ownership of the process to determine the causes of errors arising in previous years. New procedures were
approved and introduced to provide greater assurance that errors would be prevented in the future. The Committee
requested the external auditors to ensure that their procedures are sufficiently robust in this regard.
Regulatory Compliance
The Committee approved a number of submissions to the regulators. These included the consolidated Group Internal
Capital Adequacy Process (ICAAP) and the consolidated Group Individual Liquidity Assessment Process (ILAAP) which
involved analysing the risks to the business and the level of capital required to reflect those risks and the way in which
any liquidity concerns would be addressed.
Internal and External
Auditors
The Committee considered both its internal and external audit requirements. In the third quarter of 2016,
the investment manager (ATI) adopted a revised combined risk assurance and internal audit approach with the
agreement of the Committee. During the year the Group outsourced certain internal audit services in relation to
its subsidiaries. The Committee evaluated the performance of the external auditor and determined that it would
be inappropriate to carry out a tender in a year of significant business change, a change in governance structures
and a rotational change in audit partner.
Valuation of Unlisted
Investments
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 took advice from an external valuer and an internally
prepared paper in arriving at the fair value for Alliance Trust Savings. The Committee challenged the range of
values provided and after fully reviewing the methodology and assumptions adopted. In respect of Alliance Trust
Investments, the Committee assessed the year end valuation on the expected disposal proceeds excluding the
contingent consideration.
Review of Annual and
Interim Accounts
The Committee considered the content of the Interim Accounts and the Annual Report and Accounts of the
Company before recommending approval to the Board. The Committee concluded that the Company’s accounts
were fair, balanced and understandable.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
33
II Directors’ Report IIII Audit and Risk Committee
continued
The Committee received reports from the Risk and Compliance
functions of its investment manager (ATI) and ATS during the year.
The External Auditor reports on the details of any significant internal
control issues relating to the Company. The Committee, in conjunction
with the equivalent committees of its subsidiaries, provided independent
oversight and challenge of the Risk and Compliance functions to ensure
that they were providing the level of scrutiny expected by the relevant
Committees and the Board.
In the third quarter of 2016, ATI adopted a revised combined risk
assurance and internal audit approach overseen by its Director of
Risk & Compliance. This approach to providing assurance combines
the use of resource from the ATI’s Risk and Compliance team
supplemented with co-sourced assurance testing from an external
third party.
The ATI Director of Risk and Compliance presents the output of
the review assignments to the Audit and Risk Committee of ATI,
with any Trust specific reports provided to the Company’s Audit and
Risk Committee. The Director of Risk and Compliance has a direct
reporting line to the Chairman of both the ATI and Company’s Audit
and Risk Committees.
Alliance Trust Savings continues to operate a three lines of defence
model, where the third line of defence is comprised of the Internal
Audit function and the Board Audit and Risk Committee. The Internal
Audit function, which is outsourced, provides independent assurance
of the suitability and effectiveness of the firm’s risk management
arrangements, including execution of responsibilities to ensure an
effective risk and control environment. This is executed through the
Internal Audit programme which adopts a risk based audit approach
to provide a regular review of key processes and activities.
The Audit and 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 assurance 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 in the ongoing development of the risk management tools
which are in place to enhance the control environment of the business
and to ensure the business continues to be well positioned to comply
with operational and regulatory changes.
Internal controls
The Group has a clear governance structure for the control and
monitoring of its business, including defined lines of responsibility
and delegation of authority. The Group has a comprehensive 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 framework and internal control systems.
The Audit and Risk Committee assists the Board in fulfilling this
responsibility through regular review of their effectiveness, including
all material financial, operational and compliance controls. The Board
has an established ongoing process for the identification, evaluation
and management of the significant risks faced by the Company
recognising that the now independent Boards of the subsidiary
companies had their own Audit and Risk Committees to consider
the risks specific to their businesses. The process helps the Board to
carry out a robust assessment of the principal risks to the business.
The Company relies on the systems of internal control employed
by its manager, Alliance Trust Investments (ATI), to facilitate effective
and efficient operations and to ensure the assets of the Company 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. In 2016, the Board is not aware of any such material matters
having occurred.
The Company has appointed a Depositary, National Westminster
Bank plc. The Depositary is responsible for the safekeeping of all
custodial assets of the Company, ensuring its cash flows are properly
monitored, for verifying and maintaining a record of all 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
FCA FUND Sourcebook, the Company’s Articles of Association and
the AIFM Directive.
Having carried out such procedures as the Depositary considers
necessary to discharge their responsibilities as Depositary, it is
their opinion, based on the information available to them and the
explanations provided, that in all material respects the Company
has been managed in accordance with the rules in the FUND
sourcebook, the Articles of Association of the Company and as
required by the AIFM Directive.
During 2016 the Committee provided challenge on the risk reporting
provided in respect of the Company and in relation to subsidiaries
ATI and ATS. The reviews undertaken included consideration of 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.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
34
Directors’ Report
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 Financial Accounting Policies 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:
• A formal review and sign-off of the annual accounts by Alliance
Trust Investments’ management including verification of any
statements made;
• Adoption and review of appropriate accounting policies by the
Board;
• Review and approval of accounting estimates by the Board.
The Committee also considered whether the Annual Report, taken
as a whole, was fair, balanced and understandable, 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:
• The involvement of senior members of the management of
Alliance Trust Investments in drafting meetings;
• The establishment of a working group of the Board and members
of the management of Alliance Trust Investments to review drafts
prior to consideration by the Committee;
• Verification of all factual statements contained within the narrative
section of the Annual Report, with evidence required from the author;
• Statements which cannot be verified – typically opinions or
forward-looking statements – specifically brought to the
Committee’s attention;
•
Independent internal review by a senior manager not involved in
the preparation of the Annual Report.
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 required standard and recommended approval to
the Board.
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
£10,500 was paid to the Auditor, in respect of work on a review of the
interim audit and audit of the annual accounts of the Pension Scheme.
Each year the Committee considers the independence of the Auditor.
It has done so this year and confirms the Auditor’s independence.
Effectiveness of Audit process
During the course of the year the audit engagement partner and other
members of the engagement team met with the Committee Chair and
management, both together and separately. These meetings provide an
opportunity for matters relating to the conduct of the audit, including
the performance of the External Auditor, to be raised and addressed at
the time.
Following completion of the external audit of the financial statements
for the period ended 31 December 2015 an evaluation of the External
Auditor’s effectiveness was undertaken. The Committee concluded
that it was generally satisfied with the performance of the External
Auditor. At last year’s Annual General Meeting it was identified that
there had been a management error in calculating the level of Long
Term Incentive Plan awards that would vest, which was not identified
by the Auditor. The Committee commissioned an independent
external review of both the role of management and the Auditor with
a focus on ensuring that procedures were strengthened to ensure no
such errors recur. Given the changes in Deloitte’s audit approach and
the rotational change in audit partner, the Committee concluded that
it was satisfied with the performance and independence of the
External Auditor.
Appointment of Auditor
Following a tender, Deloitte LLP were appointed after approval of 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.
In the course of the year the Chair of the Committee has met with the
Auditor outwith the formal structure of Committee meetings. The
Committee has considered the performance of 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 guidance, Deloitte LLP change the
audit partner every five years. The former partner, Calum Thomson,
carried out his final audit for the Trust last year and his replacement,
Andrew Partridge, has been appointed. The Board considered
whether, during this period of change, this was an appropriate point
to carry out a tender exercise and decided to remain with Deloitte.
The Committee will continue to review the appropriate timing of a
future tender.
The Company confirms its compliance with the provisions of
The Statutory Audit Services for Large Companies Market Investigation
(Mandatory Use of Competitive Tender Processes and Audit Committee
Responsibilities) Order 2014 for the year to 31 December 2016.
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.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
35
II Directors’ Report IIII Audit and Risk Committee
continued
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.
In preparing the financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information;
• provide additional disclosures when compliance with the specific
requirements in IFRSs are insufficient to enable users to understand
the impact of particular transactions, other events and conditions
on the entity’s financial position and 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.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
36
Directors’ Report Going Concern Statement
The Group’s business activities are set out on page 5 with the
principal risks which could impact on performance set out on pages
22 and 23. The Group’s financial position and cash flows are set out
on pages 54 to 58 along with an analysis of its borrowings in Note 15
on page 75. As regards Going Concern the Directors have considered
both liquidity and solvency risks.
Liquidity is concerned with our ability to liquidate assets or 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 2016 we also
had £330m of unused committed funding lines.
Solvency is concerned with our ability to meet our liabilities in full.
This involves managing our capital by maintaining a business model
which is capable of delivering over time a continuing economic return
to our shareholders whilst absorbing the impact of any risks which
crystallise. As at 31 December 2016 the Group’s total net assets were
£3.3bn. Our investment policy restricts gearing to 30% of net assets
at any given time (6% at 31 December 2016).
Given that most of the likely liquidity requirements such as loan
payments and dividends are timetabled and as such readily
foreseeable, while others such as share buybacks are subject to the
Company’s discretion, the Directors are satisfied that unexpected
liquidity and solvency needs are not significant relative to the size of
the Company’s portfolio and that they could be readily met without
compromising normal portfolio management practice.
Sensitivities to market, credit, liquidity and gearing risk are set out in
Note 23 on pages 79 to 83.
The Directors, who have reviewed projections 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 preparing the financial statements.
Viability Statement
The Directors have assessed the viability of the Company and Group
over a longer period than the 12 months required by the Going
Concern statement. The Board concluded an appropriate period to be
five years, a period which aligns with our long-term planning horizon.
This assessment has been made taking account of the current position
of the Group, corporate planning process and the Group’s principal
risks, both current and medium and long-term, as detailed in the
Strategic Report on pages 22 and 23.
The corporate planning process includes our budget, strategy cycle
and consolidated Group Internal Capital Adequacy Assessment Process
(“ICAAP”).
The strategy provides long-term direction and is reviewed on,
at least, an annual basis, including five year forecasts showing
expected financial impact. The resilience of the strategy is further
tested in a series of severe but plausible downside financial scenarios
as part of the annual review of the ICAAP. The ICAAP, covering a five
year period, is prepared to identify and quantify the Group’s risks
and level of capital which should be held to cover those risks. As part
of the assessment the Board has also considered the sustainability of
the Company’s dividend and it believes that our progressive dividend
policy is also sustainable over the same time frame.
The ICAAP includes a risk assessment carried out to identify the
principal risks that may adversely impact the Group. These include
Market and Prudential, Operational, Strategic and Regulatory and
Conduct Risks. An internal Risk Control Self-Assessment (RCSA) and
modelling approaches are used to quantify these risks, which ensure
that the Group holds sufficient regulatory capital to mitigate the
impact of these risks. Alongside the corporate planning and scenario
tests, the supporting risk management framework and controls have
various regular early warning indicator and risk outlook signposts
(trends) and triggers (events) alert the Board to the potential advent
of a scenario.
This approach ensures a link to our business model and strategy and
allows a robust identification and assessment of the principal risks,
and mitigating actions, for the Group.
The Directors have therefore concluded, based on the extent of the
corporate planning process, its strong financial position and long term
investment horizon and financing, that there is a reasonable expectation
that the Company and the Group have adequate resources and will
continue to operate and meet its liabilities as they fall due over the
period of their assessment and for the foreseeable future, taken to
mean until at least 2022.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
37
II Directors’ Report IIII Remuneration Committee
“ Set out here is the Directors’ Remuneration Report for the year ended
31 December 2016. The Report includes our current Remuneration Policy,
which was approved at the Annual General Meeting in 2016, and gives details
of how this Policy has been implemented during the year. It also includes
details of contractual payments made to former Executive Directors.”
Anthony Brooke
Chairman, Remuneration Committee
Consideration of Shareholder Views
We regularly engage with our shareholders on all aspects of performance
and governance. Due to the level of Director activity this year we have
not sought the views of our principal shareholders on remuneration
issues. However, any comments received will be considered. This Report
will be subject to approval at the Annual General Meeting and we
welcome the opportunity to discuss matters of remuneration with
our shareholders at that meeting.
Non-Executive Directors’ Contracts
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 AGM. Non-Executive Directors are
appointed subject to annual re-election at the Company’s AGM and
their appointment may be terminated at any time by notice given by
three-quarters of the other Directors.
Remuneration Policy approved on 6 May 2016
The Board’s Remuneration Policy is designed to ensure that the
remuneration of Directors is set at a reasonable level commensurate
with the duties and responsibilities of each Director and the time
commitment required to carry out their 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 review. Directors will be reimbursed for travel and
subsistence expenses incurred in attending meetings or in carrying out
any other duties incumbent upon them as Directors of the Company.
In the event that any such payments are regarded as 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.
The Committee also reserves the right to make payments outside
the Policy in exceptional circumstances. The Committee would only
use this right where it believes that this is in the best interests of the
Company, and when it would be disproportionate to seek specific
approval from a General Meeting. Any such payments would be fully
disclosed on a timely basis.
The full text of the previous policy can be found on our website.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
38
Directors’ Report Non-Executive Directors’ Fees
In 2017 annual fees will be:
Chairman*
Deputy Chairman
In 2016 annual fees were:
£120,000
Chairman
£80,000
Deputy Chairman*
Basic Non-Executive Director Fee and payable to each Director
(other than the Chairman)
Basic Non-Executive Director Fee
£35,000
Chairman of Audit and Risk Committee*
Committee Membership**
Chairman of Audit and Risk Committee***
Chairman of Remuneration Committee***
Senior Independent Director
Subsidiary Board Director’s Fee^
£6,000
£8,000
£4,500
£5,000
Chairman of Remuneration Committee
Chairman of Audit Committee**
Chairman of Board Risk Committee***
Chairman of Management Engagement Committee
£35,000
Chairman of any other Committee
*
Inclusive of membership of all Board Committees
** All Directors are members of all Board Committees
and this is a composite fee for all Board Committees
*** This fee is additional to the Committee membership fee
^ Payable to Chris Samuel in respect of his appointment to Alliance Trust Investments
and to Gregor Stewart in respect of his appointment to Alliance Trust Savings
Senior Independent Director
Membership of Audit and Risk Committee*
Membership of Remuneration Committee
Membership of Audit Committee**
Membership of Board Risk Committee***
Membership of Management Engagement Committee
Membership of any other Committee
Subsidiary Board Director’s Fee
The Remuneration Committee comprises all of the members of the
Board other than the Chairman.
*
From 4 February 2016
** Audit Committee until 4 February 2016
*** To 4 February 2016
£120,000
£80,000
£35,000
£11,000
£7,500
£11,000
£7,500
Nil
Nil
£5,000
£3,000
£3,000
£3,000
£3,000
Nil
Nil
£35,000
The Committee reviewed the fees paid to Directors this year and agreed
that they should remain unchanged. The Committee did, however,
agree to make a one off payment of £30,000 to Karl Sternberg to
reflect the time spent over and above what could reasonably have been
expected on the proposed investment manager changes and other
aspects of the Strategic Review. In addition to the fees received from
Alliance Trust PLC where a Non-Executive Director also sits on the Board
of a subsidiary company the Director is also paid a fee for that role, the
level of fee is set by the subsidiary company. The Chairman’s statement
on Corporate Governance refers to a review of the Committee structure
which will take place in 2017. The Remuneration Committee will also
review in 2017 the fee structure for Directors.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
39
II Directors’ Report IIII Implementation Report – Current Remuneration
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.
Last year we provided details of remuneration paid to Group (Alliance
Trust PLC and Alliance Trust Services Limited) employees including
directors. In 2016 there were no Group employees and accordingly
the remuneration figure for 2016 only includes payments made to
Directors and former Directors.
Directors Shareholdings (audited)
All Directors are required to hold 3,000 shares in the Company.
Details of the shareholdings of all Directors and their connected
persons, together with details of shares acquired, are shown below.
None of these shares are subject to performance conditions.
The Company has issued no options to subscribe for shares.
For most of 2016, as a result of their involvement in the Strategic
Review, the Directors were unable to add to their holdings.
(£m)
200
150
100
50
0
.
5
2
9
.
1
8
.
6
7
*
*
3
.
6
6
8
.
5
9
1
5
.
6
3
1
Directors’
shareholdings
Lord Smith
Anthony Brooke
Clare Dobie
Karin Forseke
As at 1 Jan
2016 or
date of
appointment
if later
As at 31
Dec 2016
or date of
leaving
if earlier
Acquired
between
31 Dec 2016
– 28 Feb 2017
nil
18,000
3,000
nil
3,000
3,030
108,576
108,576
Remuneration*
Dividend
Buybacks
2015
2016
*This includes payments made to the former Chief Executive Officer,
former Chief Financial Officer and the Directors. The single figure of
remuneration for Alan Trotter for 2016 was £198,000. Remuneration prior
to 2016 also included payments made to other employees in the Group.
**This includes dividends paid in the year and does not include the value
of the third interim dividend for 2016 which was paid on 3 January 2017.
Single total figure of remuneration (audited)
£000
Non-Executive
Director*
Lord Smith
Anthony Brooke
Clare Dobie
John Hylands
Rory Macnamara
Susan Noble**
Chris Samuel
Karl Sternberg
Gregor Stewart
2016
Fees for
Subsidiary
Company
appointment
–
–
–
29
–
7
35
–
29
Company
Fees
109
46
25
18
41
5
41
76
106***
Katherine Garrett-Cox**
446,975
450,158
John Hylands***
Alistair Kerr*
Rory Macnamara
Susan Noble**
Chris Samuel
Karl Sternberg
Gregor Stewart
86,567
87,771
8,875
3,000
8,875
3,030
15,392
15,512
5,000
3,000
5,096
3,041
24,758
24,843
*Resigned 1 January 2016
**Resigned 3 February 2016
***Resigned 6 May 2016
†Rory Macnamara passed away on 17 December 2016
2015
Fees for
Subsidiary
Company
appointment
Company
Fees
–
23
–
51
23
48
10
10
59***
–
–
–
–
–
–
–
–
–
Total
109
46
25
47
41
12
76
76
135
nil
nil
nil
–
–
–
–
–
–
48
37
84
Total
–
23
–
51
23
48
10
10
59
*Karin Forseke and Alistair Kerr both resigned as Directors on 1 January 2016. They received no payments in 2016.
**The fees shown represent only those paid for the period that Susan Noble was a Non-Executive Director of Alliance Trust PLC.
***Includes payment for part of year as Interim Chairman to cover the period of transition between the Board Meeting held in November 2015 and Lord Smith’s appointment in
February 2016.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
40
Directors’ Report Advisors
The Remuneration Committee received no independent advice in respect of remuneration during the year.
Performance graph
The graph below shows the Total Shareholder Return (TSR) for holders of Alliance Trust PLC Ordinary Shares, measured against the MSCI All
Country World Index rebased to 100 at 31 January 2009. 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
93% of the Net Asset Value.
300
200
100
0
31 Jan 2009
31 Jan 2010
†
31 Jan 2011
31 Dec 2011
31 Dec 2012
31 Dec 2013
31 Dec 2014
31 Dec 2015
31 Dec 2016
Alliance Trust TSR
MSCI ACWI
†11 months 31 January to 31 December 2011.
Chief Executive Officer’s remuneration
The table below shows the remuneration for the Director undertaking the role of Chief Executive Officer during each of the last eight financial
periods. The Company ceased to have Executive Directors on 3 February 2016 when Katherine Garrett-Cox left the Board. Katherine-Garrett-Cox
was still entitled to receive payments due under her contract during 2016.
Single figure of remuneration
£692,484
£700,232
£1,037,175
£1,800,326
£1,378,444
£1,342,859
£1,376,076
£1,213,577
31 Jan 2010 31 Jan 2011† 31 Dec 2011 31 Dec 2012 31 Dec 2013 31 Dec 2014 31 Dec 2015 31 Dec 2016
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%
nil
0%
0%
0%
51.7%
33.9%
12.5%
27.1%
38.9%
†11 months 31 January to 31 December 2011.
The Company no longer has a Chief Executive Officer and all payments made in 2016 reflected those required to be made under her contract.
The total remuneration paid to the Chief Executive Officer was 11% less in 2016 than it was in the previous year. As there were no employees
within the Group (Alliance Trust PLC and Alliance Trust Services Limited) during 2016 there is no comparator for any increase in remuneration
for employees.
Voting at Annual General Meeting
At the Annual General Meeting held on 6 May 2016, votes cast by proxy and at the meeting in respect of Directors’ remuneration policy and
report were as follows
Resolution
Directors’ remuneration report
(excluding remuneration policy)
Approval of Remuneration Policy
Votes for
%
Votes
Against
Total
%
votes cast
Votes withheld
(abstentions)
180,793,307
182,111,330
97.44
98.29
4,752,612
3,164,092
2.56
1.71
185,545,919
185,275,422
1,800,624
2,039,521
Alliance Trust PLC | Annual Report and Financial Accounts 2016
41
II Directors’ Report IIII Implementation Report – Historic Remuneration
The information in this part of the Implementation Report details
the payments made in 2016 to Katherine-Garrett-Cox, the former
Chief Executive Officer who left the Board on 3 February 2016,
and also to Alan Trotter the former Chief Financial Officer who left
on 30 September 2015.
Executive Directors’ Service Contracts
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 circumstances, such as
death, injury or disability, redundancy, retirement or other circumstances
at the discretion of the Committee (taking into account the individual’s
performance and the reasons for their departure), ‘good leaver’ status
could be applied. There have been no accelerated payments. Awards
are normally pro-rated for length of service.
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 a 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 is offset. The monthly payment is based on
the then 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.
Payments to Former Directors
In last year’s Implementation Report we detailed the payments to
which both Katherine-Garrett-Cox and Alan Trotter were entitled
and here we report on the payments actually made to them during
2016. All of these payments were within the terms of the Company’s
Remuneration Policy which had been approved by shareholders
on 1 May 2014. Details of this can be found on our website.
No discretionary payments were made to either of the former
Directors in 2016 and all payments made were in accordance with
those detailed in the 2015 Remuneration Implementation Report.
Katherine Garrett-Cox
Payment
Redundancy
Compensation payment for any claim
Bonus in respect of year ending 31 December 2015
Bonus in respect of year ending 31 December 2016
£5,225
£78,335
£410,000
Nil
Salary and payments in respect of pension during notice period
£532,158
Payment in lieu of contractual benefits
LTIP awards made in 2016
Value of LTIP awards vested in 2016
Value of LTIP awards vesting in 2017*
AESOP award
Alan Trotter
Payment
Redundancy
Compensation payment for any claim
Bonus in respect of year ending 31 December 2015
Bonus in respect of year ending 31 December 2016
£9,007
None
£379,079
£587,352
£1,500
£3,563
£66,437
£110,000
Nil
Salary and payments in respect of pension during notice period
£125,840
Contractual Benefits
LTIP awards made in 2016
Value of LTIP awards vested in 2016
Value of LTIP awards vesting in 2017*
AESOP award
£872
None
£198,380
£234,262
£1,500
*based on a share price of £5.943 being the average share price in the last quarter of 2016.
Single total figure of remuneration (audited)
£000
2016
2015
Non-Executive
Director
Salary
Taxable
Benefits**
Annual
Bonus†
Long
Term
Awards^ Pension***
Total
Salary
Taxable
Benefits**
Annual
Bonus†
Long
Term
Awards
Pension***
Total
Katherine
Garrett-Cox
425#
93
2
587
106
1,213
450
23
412
379*
112
1,376
*incorrectly reported in 2015 Accounts as £438,000.
**includes redundancy, compensation payments, payment in lieu of contractual benefits as well as accommodation allowance, medical and life assurance
***this is a cash payment instead of a pension contribution
†includes AESOP award (£1,500)
^based on a share price of £5.943 being the average share price in the last quarter of 2016
#under the terms of the agreement reached with Katherine Garrett-Cox a full payment of salary was not made for the month of March 2016
Alliance Trust PLC | Annual Report and Financial Accounts 2016
42
Directors’ Report Long-Term Incentive Plans
No awards were made under the LTIPs in respect of the financial
years ended 31 December 2015 and 31 December 2016 and no
further awards will be made. Awards made in prior years will still
be paid subject to the rules of the Plan and to the achievement of
performance targets.
The table below shows the payout for the awards which were made
in 2014 and will vest in 2017, based on the three year performance
period ending 31 December 2016. An additional holding period of
two years has been applied to these awards. This applies to both
shares purchased from the deferred bonus and those vesting after
the end of the three year performance period.
Summary of 2014 Policy: Long-Term Incentive Plans
There were two categories of awards that Executive Directors could
receive. These were:
Matching Awards: these entitled the participant to receive shares at nil
cost with the number of shares being calculated with reference to the
amount of the individual’s deferred annual bonus which was used to
purchase shares in the Company and which were deposited in the plan.
The maximum that could be received was twice the number of shares
that could be purchased with the gross value of the annual bonus.
Performance Awards: these were based on a multiple of salary.
The maximum number of shares which could be awarded was calculated
on twice the annual salary of the participant at the date of the award.
Peer Group^ Ranking out of 22
TSR Rank*
NAV Rank*
8
12
TSR payout
NAV payout
Combined payout
%
77.82
0.00
38.91
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 on the
Company website).
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
The Committee can make minor changes to the performance
conditions. Any significant changes would require shareholder approval.
Vesting between median and top quartile is based on a vesting curve.
A vesting curve was chosen to align the interests of LTIP participants
to those of shareholders reflecting the belief that consistent median
to top quartile performance would, over time, lead to top quartile
performance without incentivising excessive risk taking.
Peer Group Ranking
LTIP awards (from 2011 onwards)
)
%
(
g
n
i
t
s
e
V
100
75
50
25
0
Q4
Q3
Q2
Q1
Peer Group Ranking
^ The Peer Group can be found on our website www.alliancetrust.co.uk
*Calculated using the average of the Company’s NAV in respect of weekdays (excluding
Saturdays and Sundays) falling during the 30 day period ending on the day before
the start and end of the Performance Period. This has been calculated using data as
at 26 January 2017, provided by Factset.
Details of the awards made to the Executive Directors can be found
on the next page. As both Katherine Garrett-Cox and Alan Trotter
were made redundant, their existing awards under the LTIP did not
lapse on cessation of employment but will vest subject to reduction/
pro rating as set out under the Plan’s rules. The rules of the LTIP
provide that the number of shares that will vest will be proportionate
to the number of days within the three year performance period that
the individual was an eligible employee; in the case of Katherine
Garrett-Cox this was until 11 March 2016 and in the case of Alan
Trotter until 3 June 2016.
An error was made in the calculation of LTIP vesting as reported
in the 2015 Annual Report. This was identified and corrected before
any payments were made so no one received more than they were
due. The error was the inclusion of one Investment Trust (Hansa)
which was not in the peer group for the whole of the three year
period (moving into the peer group in April 2014). This meant that
calculations of the payments were based on a group of 35 rather
than 34 Trusts. This led to a higher proportion of the award vesting
(65.02% rather than the 54.14% that was actually due). Our ranking
was 15th under both calculations. This meant a reduction in the value
of the LTIP award as reported in the 2015 Accounts from £438,000 to
£379,000 for Katherine Garrett-Cox and from £229,000 to £198,000
for Alan Trotter. This error had not been not identified by our managers
when they prepared the calculation and was not identified by our
Auditors in the course of their audit. We commissioned an external
review of the process to prevent a recurrence. The LTIP awards reported
this year have been subject to significant additional scrutiny.
All Employee Share Ownership Plan
Executive Directors also participated in the Company’s All Employee
Share Ownership Plan (AESOP). The award made in 2016 for the
previous financial year was for shares to the values of £1,500.
This award was made to all full time participants in the AESOP.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
43
II Directors’ Report IIII
Implementation Report – Historic Remuneration
continued
Long-Term Incentive Plan Awards (audited)
This table provides detail of awards made to the former Executive Directors under the Long-Term Incentive Plan in the year ended 31 December
2016 and earlier years. All awards are subject to performance conditions as described on the preceding page. If the minimum performance
condition is met 12.5% of the awards detailed in the table below will vest. No awards were made in 2016.
Katherine Garrett-Cox
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)
At 1 Jan
2016
223,471
177,514
160,086
187,458
75,273
196,148
Awards
granted
in year
Awards
vested
in year
Awards
lapsed
in year
At 31 Dec
2016
Market price
of share on
date of award
Vesting date
–
–
–
–
–
–
–
–
45,524*
(will vest)
53,307*
(will vest)
–
–
–
–
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
20,376
54,897
53,097
143,051
–
–
£4.336
16 April 2016
£4.336
16 April 2016
*The number of shares that will vest has been reduced to reflect the fact that the former Director was not an eligible employee for the whole of the three year performance period.
Alan Trotter
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)
At 1 Jan
2016
42,475
96,646
26,275
99,184
38,256
103,782
Awards
granted
in year
Awards
vested
in year
Awards
lapsed
in year
At 31 Dec
2016
Market price
of share on
date of award
Vesting date
–
–
–
–
–
–
–
–
8,255*
(will vest)
31,163*
(will vest)
–
–
–
–
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
10,356
27,900
28,094
75,688
–
–
£4.336
16 April 2016
£4.336
16 April 2016
*The number of shares that will vest has been reduced to reflect the fact that the former Director was not an eligible employee for the whole of the three year performance period.
Approval
The Remuneration Report comprising pages 38 to 44 and the Implementation Report, comprising pages 40 to 44, have been approved by the
Board and signed on its behalf by
Anthony Brooke
Chairman, Remuneration Committee
23 March 2017
Alliance Trust PLC | Annual Report and Financial Accounts 2016
44
Directors’ Report Other Governance
Re-election of Directors
Details of the current Directors can be found on pages 26 and 27.
Clare Dobie was appointed during the year and her appointment
falls to be confirmed by shareholders at the Annual General Meeting.
Directors in 2016
Name
Lord Smith
Designation
Chairman
The Board has decided that 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 has sufficient time available to meet what is expected of them.
Anthony Brooke
Non-Executive Director
Clare Dobie
Non-Executive Director
Karin Forseke*
Chairman
Katherine Garrett-Cox**
Chief Executive Officer
John Hylands***
Non-Executive Director
Alastair Kerr*
Non-Executive Director
Rory Macnamara†
Non-Executive Director
Susan Noble**
Non-Executive Director
Chris Samuel
Non-Executive Director
Karl Sternberg
Gregor Stewart
Non-Executive Director
Non-Executive Director
*Resigned 1 January 2016
**Resigned 3 February 2016
***Resigned 6 May 2016
†Rory Macnamara passed away on 17 December 2016
Appointed
3/2/16
24/6/15
26/5/16
1/3/12
1/5/07
22/2/08
1/10/12
24/6/15
11/7/12
23/9/15
23/9/15
1/12/14
Major shareholders
As at 21 March 2017 the Company had received the following notification from shareholders holding an interest in more than 3% of the voting
rights of the ordinary shares in issue of the Company:
Shareholder
DC Thomson & Company Limited
Nature of interest
Shares
Number of shares
16,000,000 (4%)
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
121,164,239 (33%)
Alliance Trust PLC | Annual Report and Financial Accounts 2016
45
II Directors’ Report IIII Other Governance
continued
Board and Committee attendances
In addition to the scheduled Board and Committee meetings below, all or some of the Directors met on over 20 occasions to consider matters
arising between the scheduled meetings and to progress the Strategic Review. As reported on page 31, the Board undertook the work of the
Management Engagement Committee during the year so no separate Management Engagement Committee meetings took place.
Meeting attendances
Board
Audit and Risk
Remuneration
Nomination
Director
Lord Smith
Anthony Brooke
Clare Dobie
Katherine Garrett-Cox*
John Hylands*
Rory Macnamara
Susan Noble**
Chris Samuel
Karl Sternberg
Gregor Stewart
*Resigned 6 May 2016
**Resigned 3 February 2016
Actual
Possible
Actual
Possible
Actual
Possible
Actual
Possible
6
6
3
0
3
4
0
6
6
6
6
6
3
0
3
6
0
6
6
6
-
5
2
-
3
3
0
4
4
5
-
5
2
-
3
5
0
4
4
5
-
2
1
-
1
1
0
2
2
2
-
2
1
-
1
2
0
2
2
2
2
2
0
-
1
1
0
2
2
2
2
2
0
-
1
2
0
2
2
2
Directors’ and Officers’ indemnification
The Company provides insurance for legal action brought against its
Directors as a consequence of their position. In addition separate deeds
of indemnity have been agreed with each Director indemnifying them
as permitted by company law. The indemnity and insurance does not
extend to cover claims brought by the Company itself which are
upheld by the Courts, nor to criminal 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.
on the Company’s website at www.alliancetrust.co.uk. Disclosures on
Remuneration as required under the AIFMD can also be found on
our website.
Investment Management Agreement
Under the terms of the proposed Management Agreement with
Towers Watson Investment Management (Ireland) Limited (‘the
AIFM’), the AIFM will be entitled to a management fee together with
reimbursement of reasonable expenses incurred. The fee equates to
the sum of (i) £1.5m per annum (increasing in line with UK Consumer
Prices Index (‘CPI’) each year) plus 0.055% per annum of the market
capitalisation of the Company after deduction of (a) the value of
non-core assets, (b) the value of the Company’s subsidiaries; (ii) such
fees as are agreed from time to time by the Company in respect of
third party managers; and (iii) fees paid to the managers/
administrators of non-core assets.
Investment Trust Status
HM Revenue and Customs have confirmed that Alliance Trust PLC has
investment trust status for all financial periods from 1 January 2012.
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 has been Alliance Trust Investments Limited. It is intended
that upon completion of the sale of Alliance Trust Investments that
Towers Watson Investment Management (Ireland) Limited will be
appointed manager.
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
The AIFM will also receive a fixed administration fee in respect of
the provision of certain underlying administration services which
is capped at £0.92m per annum (increasing in line with the CPI).
The Management Agreement may be terminated by either party on
not less than six months’ notice or, if terminated by the Company
earlier, upon the payment of compensation. The Management
Agreement may also be terminated earlier by either party with
immediate effect and without compensation on the occurrence
of certain events. On termination the AIFM is entitled to receive its
fees pro rata to the date of termination.
Under the investment management agreement with Alliance Trust
Investments (ATI) they were entitled to receive a fee for its services
equal to 0.35% of the Company’s adjusted net asset value (excluding
holdings in ATI managed funds and the fair value of ATS and ATI).
The agreement could also be terminated by either ATI or the Company
giving to the other not less than six months’ written notice.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
46
Directors’ Report Director development
Every new director receives an individually tailored induction.
The Board as a whole received updates on Market Abuse Regulations
and other relevant topics.
Annual General Meeting
In addition to formal business, 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:
Share capital and waiver of dividends
The Company’s issued share capital as at 31 December 2016 comprised
492,703,932 Ordinary 2.5p shares of which 698,062 have been
acquired by the Trustee of an Employee Benefit Trust (‘the Trustee’)
with funds provided by the Company in connection with its employee
share plans. The Trustee has elected to waive all dividends payable in
respect of those shares. The Trustee holds a further 226,161 shares
deposited by 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
37,056,046 shares for £195m.
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
At the last Annual General Meeting the shareholders renewed the
authority for them repurchase of up to 14.99% of the issued shares
and also authorised that shares repurchased may be held in treasury.
These authorities fall to be renewed at the next Annual General Meeting.
The Company made use of this provision during the course of the
year as detailed above. The Company will seek the renewal of these
authorities at the Annual General Meeting. The Company also
received authority from the shareholders at the General Meeting on
28 February 2017 to repurchase up to a further 5% of the shares in
issue on that date. This authority will lapse at the AGM in April 2017.
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 2017. Procedures
are in place to allow Directors to request authority should it be
required outwith the normal Board meeting schedule.
• 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.
At the meeting we hope that shareholders will have the opportunity
to meet with some of our new equity managers.
Greenhouse gas (GHG) emissions
Our mandatory disclosure of total GHG emissions data for the year
ended 31 December 2016 can be found on page 25. We report there
on all of the emission sources required under the Companies Act 2006
(Strategic Report and Directors’ Reports) 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.
Our carbon footprint has been calculated based on the Defra
Environmental Reporting Guidelines (including mandatory greenhouse
gas emissions reporting guidance). We have adopted an operational
control approach. The emissions reported on page 25 have been
verified by Carbon Footprint Limited.
Report of Directors and Responsibility Statement
The Report of the Directors, including the Directors’ responsibility
statement, on pages 28 to 36, the going concern statement on
page 37 and pages 45 to 47 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 uncertainties that they face; and
• the Annual Report and financial statements, taken as a
whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess the
Company’s position, performance, business model and strategy.
Lord Smith of Kelvin
Chairman
23 March 2017
Alliance Trust PLC | Annual Report and Financial Accounts 2016
47
II Directors’ Report IIII Financial Statements
Independent Auditor’s Report to the members
of Alliance Trust PLC
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 Company’s affairs as at 31 December 2016 and of the Group’s
and the 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 that we have audited comprise the Group and Company:
income statements;
•
• statements of comprehensive income;
• statements of changes in equity;
• balance sheets;
• cash flow statement; and
• related notes 1 to 27.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union.
Summary of our audit approach
Key risks
The key risks that we identified in the current year were:
• valuation and ownership of listed investments; and
• valuation of unlisted investments.
All risks within this report are in line with prior year.
Materiality
The materiality that we used in the current year was £32.8m which was determined on the basis of 1% of
net asset value.
Significant changes
in our approach
There have been no significant changes to our audit approach since the prior year.
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 contained within the Directors Report on page 37.
We are required to state whether we have anything material to add or draw attention to in relation to:
• the directors’ confirmation on page 37 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 pages 22 to 23 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; and
• the directors’ explanation on page 37 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 confirm that we have
nothing material to add
or draw attention to in
respect of these matters.
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.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
48
I
II
III Financial Statements
Independence
We are required to comply with the Financial Reporting Council’s Ethical Standards for Auditors and
confirm that we are independent of the Group and we have fulfilled our other ethical responsibilities in
accordance with those standards.
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 of the
prohibited non-audit
services referred to in
those standards.
Our assessment of risks of material 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. 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.
Risk Title
Risk Description
How the scope of our audit
responded to the risk
Key observations
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 £3,257m (2015: £3,089m)
represented 92% of total assets of
the Group at 31 December 2016
(2015: 87%) (see notes 9 and 23).
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.
There is a risk over the recording and
custody of listed investments and
whether listed investments recorded
are the property of the Group.
We assessed the design and
implementation controls over
valuation and existence of listed
investments.
We reviewed Controls Reports
relating to Custody and Investment
Accounting provided by Bank of
New York Mellon.
We confirmed 100% of the portfolio
of listed investments to confirmations
received directly from the custodian
and depositary.
We confirmed 100% of the valuation
of the listed investments to
independent pricing sources.
No misstatements were
identified which required
reporting to those charged
with governance in regards
to the valuation of the
listed investments.
We did not identify any
differences when agreeing
the Group’s investment
portfolio to the confirmation
received directly from the
custodian and depositary.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
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49
49
Financial Statements
Independent Auditor’s Report to the members
of Alliance Trust PLC continued
Risk Title
Risk Description
How the scope of our audit
responded to the risk
Key observations
No misstatements
were identified which
required reporting to those
charged with governance
in regards to the valuation
of the unlisted investments.
Valuation
of unlisted
investments
Unlisted investments of £217m
(2015: £221m) are valued at
the Directors’ best estimate of 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 and may take
account of recent arm’s length
transactions. (see Audit and Risk
Committee report on page 33 and
notes 9 and 23)
There are key inputs to the valuation
calculations which reflect the
Directors, external valuers and
Investment Manager’s judgement
(see note 23.8).
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 assessed 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).
Subsidiaries
We reviewed and challenged
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). We also
considered how recent developments
and actual performance are reflected
in the future projections. As part
of our testing we liaised with our
internal valuation experts.
Unlisted Equities
We obtained valuation papers for the
unlisted investments and reviewed
the minutes of the Valuation
Committee. We considered and
challenged whether the assumptions
made by the Manager were
reasonable and confirmed that the
unlisted investments had been valued
on a consistent basis.
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 £32.8m (2015: £29.5m), which is 1% (2015: 1%) of net assets. Net assets has been chosen as
a benchmark as it is considered the most relevant benchmark for investors and is a key driver of shareholder value.
We agreed with the Audit and Risk Committee that we would report to the Committee all audit differences in excess of £657,000 (2015: £589,000),
as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit and Risk
Committee on disclosure matters that we identified when assessing the overall presentation of the Financial Statements.
An overview of the scope of our audit
There were no changes to the scope of our audit since the prior year. Our audit was scoped by obtaining an understanding of the entity and its
environment, including internal control, and assessing the risks of material misstatement. 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 2016 and was performed directly by the audit engagement team Audits
were performed for local statutory purposes at a local materiality level calculated by reference to the scale of the business concerned.
As part of our audit we assessed the controls in place at Alliance Trust Investments Limited (“the Manager”) who prepares the financial
statements of the Group.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
50
I
II
III Financial Statements
Opinion on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
• the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006;
• 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; and
• the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and its environment obtained in the course of the audit, we have not identified
any material misstatements in the Strategic Report and the Directors’ Report.
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
We have nothing
to report in respect
of these matters.
• adequate accounting records have not been kept by the Company, or returns adequate for our audit
have not been received from branches not visited by us; or
• the Company financial statements are not in agreement with the accounting records and returns.
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.
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.
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:
• materially inconsistent with the information in the audited 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 and Risk Committee which we consider should have been disclosed.
We have nothing to
report arising from
these matters.
We have nothing to
report arising from
these matters.
We confirm that
we have not
identified any such
inconsistencies
or misleading
statements.
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 Group’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 | Annual Report and Financial Accounts 2016
Alliance Trust PLC | Annual Report and Financial Accounts 2016
51
51
Independent Auditor’s Report to the members
of Alliance Trust PLC continued
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 from material misstatement, whether caused by fraud or error. This includes an assessment of: whether
the accounting policies are appropriate to the Group’s and the 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.
Andrew Partridge (Senior Statutory Auditor) for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor,
Edinburgh, United Kingdom
23 March 2017
Alliance Trust PLC | Annual Report and Financial Accounts 2016
52
Alliance Trust PLC | Annual Report and Financial Accounts 2016
53
III Financial Statements IIIFinancial StatementsConsolidated income statement for year ended 31 December 2016Consolidated statement of comprehensive incomeCompany income statement for year ended 31 December 2016Company statement of comprehensive incomeStatement of changes in equity for year ended 31 December 2016Balance sheet as at 31 December 2016Cash flow statement for year ended 31 December 2016Notes Alliance Trust PLC | Annual Report and Financial Accounts 2016
54
Financial StatementsConsolidated income statement for the year ended 31 December 2016Year to December 2016Year to December 2015£000NoteRevenueCapitalTotalRevenueCapital*TotalIncome384,788-84,788114,386-114,386Profit on fair value designated investments9-593,997593,997-85,13785,137Profit on investment property9----720720(Loss)/Profit on fair value of debt *-(9,800)(9,800)-1,2001,200Total*84,788584,197668,985114,38687,057201,443Administrative expenses4(7,972)(8,810)(16,782)(44,460)(1,585)(46,045)Finance costs 5(2,586)(5,107)(7,693)(3,972)(5,281)(9,253)(Loss)/Gain on revaluation of office premises-(40)(40)-175175Foreign exchange losses -(2,527)(2,527)-(84)(84)Profit before tax*74,230567,713641,94365,95480,282146,236Tax6(8,367)(2,248)(10,615)(5,362)-(5,362)Profit for the year*65,863565,465631,32860,59280,282140,874All profit for the year is attributable to equity holders of the parent.Earnings per share attributable to equity holdersof the parentBasic (p per share)*812.77109.66122.4311.0514.6425.69Diluted (p per share)*12.75109.50122.2511.0314.6125.64Consolidated statement of comprehensive incomeYear to December 2016Year to December 2015£000RevenueCapitalTotalRevenueCapital*TotalProfit for the year*65,863565,465631,32860,59280,282140,874Items that will not be reclassified subsequently to profitor loss:Defined benefit plan net actuarial Loss (note 25)-(26,637)(26,637)-(22)(22)Retirement benefit obligations deferred tax-4,4784,478-(96)(96)Other comprehensive loss -(22,159)(22,159)-(118)(118)Total comprehensive income for the year*65,863543,306609,16960,59280,164140,756All total comprehensive income for the year is attributable to equity holders of the parent.* 2015 restated to reflect reporting of fixed rate loan notes at fair value - refer to note 2 (Basis of accounting) for further information. Alliance Trust PLC | Annual Report and Financial Accounts 2016
55
III Financial Statements IIICompany income statement for the year ended 31 December 2016Year to December 2016Year to December 2015£000NoteRevenueCapitalTotalRevenueCapital*TotalIncome384,783-84,78392,348-92,348Profit on fair value designated investments9-591,755591,755-87,33487,334Profit on investment property9----720720(Loss)/Profit on fair value of debt*-(9,800)(9,800)-1,2001,200Total*84,783581,955666,73892,34889,254181,602Administrative expenses4(7,960)(8,810)(16,770)(22,835)(1,133)(23,968)Finance costs 5(2,586)(5,107)(7,693)(3,968)(5,281)(9,249)(Loss)/Gain on revaluation of office premises-(40)(40)-175175Foreign exchange losses -(2,527)(2,527)-(84)(84)Profit before tax*74,237565,471639,70865,54582,931148,476Tax6(8,367)(2,248)(10,615)(5,360)-(5,360)Profit for the year*65,870563,223629,09360,18582,931143,116All profit for the year is attributable to equity holders of the parent.Earnings per share attributable to equity holdersof the parentBasic (p per share)*812.77109.23122.0010.9715.1226.09Diluted (p per share)*12.76109.06121.8210.9515.0926.04Company statement of comprehensive incomeYear to December 2016Year to December 2015£000RevenueCapitalTotalRevenueCapital*TotalProfit for the year*65,870563,223629,09360,18582,931143,116Items that will not be reclassified subsequently to profitor loss:Defined benefit plan net actuarial loss (note 25)-(26,637)(26,637)-(22)(22)Retirement benefit obligations deferred tax-4,4784,478-(96)(96)Other comprehensive loss -(22,159)(22,159)-(118)(118)Total comprehensive income for the year*65,870541,064606,93460,18582,813142,998All total comprehensive income for the year is attributable to equity holders of the parent.* 2015 restated to reflect reporting of fixed rate loan notes at fair value - refer to note 2 (Basis of accounting) for further information. Alliance Trust PLC | Annual Report and Financial Accounts 2016
56
Financial StatementsStatement of changes in equity for the year ended 31 December 2016GroupCompany£000Dec 16Dec 15*Dec 16Dec 15*Called up share capitalAt 1 January13,16013,83513,16013,835Own shares purchased and cancelled in the year(841)(675)(841)(675)At 31 December12,31913,16012,31913,160Capital reserveAt 1 January*2,160,1422,223,7152,163,0262,223,950Profit for the year565,46580,282563,22382,931Defined benefit plan actuarial net loss (22,159)(118)(22,159)(118)Own shares purchased and cancelled in the year(195,841)(136,479)(195,841)(136,479)Share based payments110521110521Dividends paid-(7,779)-(7,779)At 31 December*2,507,7172,160,1422,508,3592,163,026Merger reserveAt 1 January and at 31 December645,335645,335645,335645,335Capital redemption reserveAt 1 January5,8385,1635,8385,163Own shares purchased and cancelled in the year841675841675At 31 December6,6795,8386,6795,838Revenue reserveAt 1 January112,565120,916111,921120,679Profit for the year65,86360,59265,87060,185Dividends paid(66,329)(68,982)(66,329)(68,982)Unclaimed dividends (redistributed)/returned(12)39(12)39At 31 December112,087112,565111,450111,921Total Equity at 1 January*2,937,0403,008,9642,939,2803,008,962Total Equity at 31 December*3,284,1372,937,0403,284,1422,939,280* 2015 restated to reflect reporting of fixed rate loan notes at fair value - refer to note 2 (Basis of accounting) for further information. Alliance Trust PLC | Annual Report and Financial Accounts 2016
57
III Financial Statements IIIBalance sheet as at 31 December 2016GroupCompany£000NoteDec 16Dec 15*Dec 16Dec 15*Non-current assetsInvestments held at fair value93,474,1653,307,3973,474,1973,309,671Property, plant and equipment: Office premises94,5004,5404,5004,540 Other fixed assets92429924299Intangible assets11-917-917Pension scheme surplus25836,882836,882Deferred tax asset12721,238721,2383,478,8443,321,2733,478,8763,323,547Current assetsOutstanding settlements and other receivables139,76012,1259,8219,428Recoverable overseas tax2,9971,4832,9971,483Cash and cash equivalents2151,09425,15349,43016,96763,85138,76162,24827,878Total assets3,542,6953,360,0343,541,1243,351,425Current liabilitiesOutstanding settlements and other payables14(15,627)(17,570)(14,051)(7,818)Tax payable12(3,991)(3,991)(3,991)(3,991)Bank loans15(120,000)(290,000)(120,000)(290,000)(139,618)(311,561)(138,042)(301,809)Total assets less current liabilities3,403,0773,048,4733,403,0823,049,616Non-current liabilitiesUnsecured fixed rate loan notes*15(118,800)(109,000)(118,800)(109,000)Deferred tax liability12(72)(1,238)(72)(1,238)Amounts payable under long term Investment IncentivePlan(68)(1,195)(68)(98)(118,940)(111,433)(118,940)(110,336)Net assets*3,284,1372,937,0403,284,1422,939,280EquityShare capital1612,31913,16012,31913,160Capital reserve*172,507,7172,160,1422,508,3592,163,026Merger reserve17645,335645,335645,335645,335Capital redemption reserve176,6795,8386,6795,838Revenue reserve17112,087112,565111,450111,9213,284,1372,937,0403,284,1422,939,280Total Equity* All net assets are attributable to equity holders of the parent*2015 restated to reflect reporting of fixed rate loan notes at fair value - refer to note 2 (Basis of accounting) for further information.Net Asset Value per ordinary share attributable toequity holders of the parentBasic (£)*£6.67£5.59£6.67£5.59Diluted (£)*£6.67£5.58£6.67£5.58The financial statements were approved by the Board of Directors and authorised for issue on 23 March 2017.They were signed on its behalf by:Lord Smith of KelvinChairman Alliance Trust PLC | Annual Report and Financial Accounts 2016
58
Financial StatementsCash flow statement for the year ended 31 December 2016GroupCompany£000Dec 16Dec 15Dec 16Dec 15Cash flows from operating activitiesProfit before tax641,943146,236639,708148,476Adjustments for:Gains on investments(593,997)(85,857)(591,755)(88,054)Losses/(Gains) on fair value of debt9,800(1,200)9,800(1,200)Foreign exchange losses2,527842,52784Depreciation5719357193Disposals and transfers of fixed assets(174)-(174)-Amortisation of intangibles-329-329Loss/(Gain) on revaluation of office premises40(175)40(175)Share based payment expense110521110521Finance costs7,6939,2537,6939,249Movement in pension scheme surplus(15,360)(1,707)(15,360)(1,707)Operating cash flows before movements in working capital52,63967,67752,64667,716Decrease/(increase) in receivables2,3663,367(392)7,585(Decrease)/Increase in payables(3,311)10,0675,9621,037Net cash flow from operating activities before income taxes51,69481,11158,21676,338Taxes paid(12,129)(5,948)(12,129)(5,948)Net cash inflow from operating activities39,56575,16346,08770,390Cash flows from investing activitiesProceeds on disposal at fair value of investments through profit andloss1,481,4351,325,8591,481,4351,325,859Purchases of fair value through profit and loss investments(1,054,086)(1,206,841)(1,054,086)(1,206,841)Purchase of plant and equipment(6)(25)(6)(25)Proceeds on transfer/(purchases) of other intangible assets toGroup companies917(214)917(214)Proceeds on transfer of property, plant and equipment to Groupcompanies395-395-Net cash inflow from investing activities428,655118,779428,655118,779Cash flows from financing activitiesDividends paid - Equity(66,329)(76,761)(66,329)(76,761)Unclaimed dividends(redistributed)/returned(12)39(12)39Purchase of own shares(195,841)(136,479)(195,841)(136,479)Bank loans and unsecured fixed rate loan notes raised-10,000-10,000Repayment of borrowing(170,000)-(170,000)-Finance costs paid(7,570)(9,606)(7,570)(9,602)Net cash outflow from financing activities(439,752)(212,807)(439,752)(212,803)Net cash increase/(decrease) in cash and cash equivalents28,468(18,865)34,990(23,634)Cash and cash equivalents at beginning of year25,15344,10216,96740,685Effect of foreign exchange rate changes(2,527)(84)(2,527)(84)Cash and cash equivalents at end of year51,09425,15349,43016,967 Alliance Trust PLC | Annual Report and Financial Accounts 2016
59
III Financial Statements IIINotes1General InformationAlliance Trust PLC was incorporated in the United Kingdom under the Companies Acts 1862-1886. The address of the registered office isgiven on page 91. The nature of the Group’s operations and its principal activity is as a global investment trust company investing in aportfolio of global equities and other assets. The following notes refer to the year ended 31 December 2016 and the comparatives, whichare in brackets, for the year ended 31 December 2015.The financial statements are presented in pounds sterling which is the currency of the primary economic environment in which the Groupoperates.Critical accounting estimates and judgementsThe preparation of the financial statements necessarily requires the exercise of judgement, both in application of accounting policies, whichare set out below, and in the selection of assumptions used in the calculation of estimates. These estimates and judgements are reviewedon an ongoing basis and are continually evaluated based on historical experience and other factors. However, actual results may differ fromthese estimates. The most significantly affected components of the financial statements and associated critical judgements are as follows:Valuation of unlisted investmentsInvestments which are not listed or which are not frequently traded are stated at the Directors’ best estimate of fair value. In arriving at theirestimate, the Directors make use of recognised valuation techniques and may take account of recent arm’s length transactions in the sameor similar instruments. Investments in subsidiary investments are valued in the Company and Group accounts at the Directors' estimate oftheir fair value, using the guidelines and methodologies on valuation published by the International Private Equity and Venture CapitalAssociation issued in December 2015 and, where relevant the use of external advice. With respect specifically to investments in privateequity, whether through funds or partnerships, the Directors rely on unaudited valuations of the underlying investments as supplied by themanagers of those funds or partnerships. The Directors regularly review the principles applied by the managers to those valuations toensure they are in compliance with the above policies.Defined benefit pension schemeThe Alliance Trust Companies’ Pension Fund (‘the Scheme’) is a funded defined benefit pension scheme which closed to future accrual on2 April 2011. In May 2016 the Board decided to pay £19.2m into the Scheme to fund the purchase of an annuity policy with Legal &General to match the Scheme’s liabilities to its members. The annuity was purchased by the Trustees of the Scheme on 31 May 2016. It isintended that the Scheme will be wound up in 2017. The actuarial assumptions of the Scheme are set out in note 25 of the financialstatements.2Summary of Significant Accounting PoliciesBasis of accountingThe directors have, at the time of approving the financial statements, a reasonable expectation that the Company and Group haveadequate resources to continue in operational existence for the foreseeable future. They therefore continue to adopt the going concernbasis of accounting in preparing the financial statements in accordance with International Financial Reporting Standards (IFRS's), asadopted by the European Union (“Adopted IFRS's”). Further detail can be found on page 37.The financial statements have been prepared on the historical cost basis, except that investments and investment properties and financialinstruments are stated at fair value and office premises are revalued on a periodic basis. The principal accounting policies adopted are setout below. Where presentational guidance set out in the Statement of Recommended Practice (‘SORP’) “Financial Statements ofInvestment Trust Companies” issued by the Association of Investment Companies (‘AIC’) in November 2014, is consistent with therequirements of IFRS, then the Directors have sought to prepare the financial statements on a basis consistent with the recommendationsof the SORP.The same accounting policies, presentations and methods of computation are followed in these financial statements as were applied in theGroup’s last annual audited financial statements, other than those stated below.Change of accounting policyDuring 2016, the Group changed its accounting policy for the measurement of unsecured fixed rate loan notes: in particular changing frommeasuring at amortised cost to fair value. The Directors believe this change results in a more appropriate treatment in line with marketpractice. As a result of this change, in accordance with IFRS, the amended policy has been applied retrospectively and prior periodsrestated. As at 31 December 2014 the impact of this change in accounting policy would have led in to an an increase in liabilities of £10.2million and a £10.2 million loss on fair value of debt, decreasing net assets and closing capital reserves by £10.2 million for both the Groupand Company. For the year ended 31 December 2014 this would have resulted in a decrease in Basic EPS attributable to Capital and on atotal basis of 1.84p.As at 31 December 2015 this would have led to a decrease in liabilities of £1.2 million and a £1.2 million gain on fair value of debt,increasing net assets and closing capital reserves by £1.2 million for both the Group and Company. For the year ended 31 December 2015this would have resulted in an increase in Basic EPS attributable to Capital and on a total basis of 0.22p.Change in basis of expenses allocationFrom 1 January 2016 the Company, where consistent with the AIC SORP, has attributed indirect expenditure including management feesand finance costs one third to revenue and two thirds to capital profits. This excludes costs which under the AIC SORP are chargeable torevenue profits. In prior periods the Company allocated all indirect expenditure against revenue profits save two thirds of finance costswhich were allocated against capital profits.Group consolidationThe Company qualifies as an investment entity under IFRS 10 meeting all the key characteristics in the definition of an investmentcompany and as such does not consolidate the majority of its subsidiaries. Alliance Trust PLC | Annual Report and Financial Accounts 2016
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Financial Statements2Summary of Significant Accounting PoliciesThe 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 arerecorded at fair value through the income statement. They are included within the "Investments at fair value" on the Consolidated BalanceSheet as they are no longer consolidated on a line by line basis. ATSL was the employer of all staff within the Group until 31 December2015 and also acted as paymaster company. In 2016 all costs were incurred directly by the applicable legal entity, however ATSL hascontinued to provide services that relate directly to the investment activities of the Company and as such continues to be consolidated.The following subsidiaries and related companies have not been consolidated into the Group results and have been valued at fair valuethrough the income statement:NameSharesheldCountry ofincorporationPrincipal ActivityAlliance Trust Savings Limited('ATS')OrdinaryScotlandProvision and administration ofinvestment and pension productsAlliance Trust Savings (England) Limited ('ATS (England)')OrdinaryEnglandInactiveAT2006 Limited('AT2006')OrdinaryScotlandIntermediate holding companySecond Alliance Trust Limited('SATL')OrdinaryScotlandInactiveAlliance Trust Real Estate Partners (GP) Limited('ATREP GP')OrdinaryScotlandReal estate general partnerAlliance Trust Real Estate Partners LP('ATREP LP')-ScotlandLimited partnershipAlliance Trust Investments Limited('ATI')OrdinaryScotlandInvestment managementAlliance Trust Investments (England) Limited ('ATI (England)')OrdinaryEnglandInactiveAlliance Trust Equity Partners Limited('ATEPL')OrdinaryScotlandInvestment managementAlbany Venture Managers GP Limited('AVMGP')OrdinaryScotlandPrivate equity general partnerATEP 2008 GP Limited('ATEP 2008GP')OrdinaryScotlandPrivate equity general partnerATEP 2009 GP Limited('ATEP 2009GP')OrdinaryScotlandPrivate equity general partnerAllsec Nominees LimitedOrdinaryScotlandNomineeAlliance Trust Savings Nominees LimitedOrdinaryScotlandNomineeAlliance Trust Investment Funds ICVC('ATIF')OrdinaryScotlandUK domiciled Open Ended InvestmentCompanyAlliance Trust Sustainable Future ICVC('ATSF')OrdinaryScotlandUK domiciled Open Ended InvestmentCompanyAlliance Trust (Finance) Limited, Second Alliance Leasing Limited, Alliance Trust Equity Partners (Holdings) Limited and Alliance Trust (PEManco) Limited were liquidated during 2016 and any remaining assets were returned to the Company.Adopted IFRS'sAmendments to the following IFRS's were applicable for the year ended 31 December 2016;IFRS 10Amendments regarding the application of the consolidation exceptionIAS 1Disclosure initiativeIAS 27Separate Financial Statements (amendments)FRS's not yet appliedThe Group and the Company have not applied the following new and revised IFRS that have been issued but are not yet effective and insome cases had not been adopted for the year ended 31 December 2016:IAS 7Cashflow disclosure initiative (amendments)IAS 12Income taxesIFRS 2Share based payments (amendments)IFRS 9Financial InstrumentsIFRS 15Revenue from contracts with customersIFRS 16LeasesAny required changes will be applicable to the financial statements of the Company and Group for the year ended 31 December 2017 andfuture years and are expected to impact the Company and Group’s accounting for financial assets and liabilities and the disclosuresthereof. The Directors do not believe that the adoption of the other standards listed above will have a material impact on the financialstatements of the Company or the Group in future years.Basis of consolidationThe consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (itssubsidiaries) made up to 31 December each year. Control is achieved where the Company has the power to govern the financial andoperating policies of an invested entity so as to obtain benefits from its activities. Net gains or losses attributable to these investments aretreated as profit on fair value of investments in the income statement and are disclosed in note 9 of the financial statements. All intra-Grouptransactions, balances, income and expenses are eliminated on consolidation. Alliance Trust PLC | Annual Report and Financial Accounts 2016
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III Financial Statements III2Summary of Significant Accounting PoliciesPresentation of income statementIn order to reflect the activities of an investment trust more accurately, and in accordance with guidance issued by the AIC, supplementaryinformation which analyses the income statement between items of a revenue and capital nature have been presented alongside theincome statement. Net capital returns are not generally distributed by way of a dividend but a dividend was paid out of capital reserves inthe prior year (note 17).Revenue recognitionDividend income from investments is recognised when the shareholders’ 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 dividendforegone is recognised as income. Any excess in the value of shares received over the amount of cash dividend foregone is recognised asa 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 rateapplicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to thatasset’s 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 currenciesTransactions in currencies other than Sterling are recorded at the rates of exchange applicable to the dates of the transactions. At eachbalance sheet date, monetary items and non-monetary assets and liabilities that are fair valued and are denominated in foreign currenciesare restated at the rates prevailing on the balance sheet date. Gains and losses arising on restatement are included as capital net profit orloss for the period where investments are classified as fair value through profit or loss.ExpensesAll expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within theincome statement, from 1 January 2016 the Company, where consistent with the AIC SORP is attributing indirect expenditure includingmanagement fees and finance costs one third to revenue and two thirds to capital profits, specifically: 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 theachievement of other corporate targets or job performance objectives against revenue profits.Expenses which under the AIC SORP are chargeable to revenue profits are recorded directly to revenue.Operating leasesCharges for operating leases are debited to the income statement on an accruals basis. Note 26 “Operating lease commitments” disclosesthe commitments to pay charges for leases expiring within 1 year, between 2-5 years and over 5 years.Share based paymentsThe Group operates three share based payment schemes, the All Employee Share Ownership Plan (AESOP), the Long Term IncentivePlans (LTIP) and the Deferred Bonus Award. The cost of the AESOP is recognised as a revenue cost in the year. The fair value of optionsgranted to employees under the LTIP is recognised as staff costs, with a corresponding increase in equity, over the year in which theemployees become unconditionally entitled to the options. The amount recognised as an expense may be adjusted to reflect the actualnumber of share options that vest. For share based compensation schemes settled by the Company a recharge equal to the cost duringthe year is made to subsidiary companies.Investment incentive planThe Equity Annual Incentive Plan ("the Plan") was a discretionary plan for members of the investment team applicable for 2015. Itconsisted of matching awards which were based upon the proportion of annual bonus set aside in the the Plan by the participants either inthe 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 periodsubject to meeting predefined performance targets.Pension costsFrom 1 January 2016 employer contributions to pension arrangements for staff have been charged one third to revenue and two thirds tocapital. For periods prior to 31 December 2016 these contributions have been charged to revenue costs. Contributions in respect of the defined benefit pension scheme are calculated by reference to actuarial valuations carried out for theTrustees 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.TaxationThe Company carries on its business as an investment trust and conducts its affairs so as to qualify as such under the provisions ofSection 1158 and 1159 of the Corporation Tax Act 2010. 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Financial Statements2Summary of Significant Accounting PoliciesThe tax expense 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 statementbecause it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are nevertaxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted bythe balance sheet date.In line with the recommendations of the SORP, the allocation method used to calculate tax relief on expenses presented against capitalreturns in the supplementary information in the income statement is the ‘marginal basis’. Under this basis, if taxable income is capable ofbeing offset entirely by expenses presented in the revenue return column of the income statement, then no tax relief is transferred to thecapital return column.Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extentthat it is probable that taxable profits will be available against that deductible temporary differences which can be utilised. Such assets andliabilities are not recognised if the temporary differences arise from the initial recognition of goodwill or from the initial recognition (otherthan 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 interestsin joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporarydifference will not reversed 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 probablethat 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 period 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 whichcase 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 taxliabilities and where they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assetsand 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 investmenttrust status of the Company means no tax is due on the capital profits, or losses, of the Company.Financial instrumentsFinancial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractualprovisions of the financial instrument. The Group will only offset financial assets and financial liabilities if it has a legally enforceable right ofset off and intends to settle on a net basis.Derivative financial instrumentsThe Group’s activities expose it primarily to the financial risks of changes in market prices, foreign currency exchange rates and interestrates. Derivative transactions which the Group may enter include futures, forwards and swaps. Derivative financial instruments are initially recorded at fair value on the date on which the derivative contract is entered into and aresubsequently remeasured at fair value. The fair value of forward currency contracts are calculated by reference to current forwardexchange rates for contracts of similar maturity dates. Changes in fair value of derivatives financial instruments are recognised in theIncome Statement. InvestmentsInvestments are recognised and derecognised on the trade date where a purchase or sale is made under a contract whose terms requiredelivery 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 initialrecognition (not including transaction costs). Listed investments are measured at subsequent reporting dates at fair value, which is eitherthe 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 thereporting date, with changes in fair value recognised through the income statement. Disposals of investment property are recognised whencontracts 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 theirestimate, the Directors make use of recognised valuation techniques and may take account of recent arm's length transactions in the sameor similar instruments.Investments in subsidiary companies are valued in the Company’s accounts at the Directors’ estimate of their fair value, using theguidelines and methodologies on valuation published by the International Private Equity and Venture Capital Association issued inDecember 2015 and where relevant the use of external valuers. For investments in private equity, the Directors make use of unauditedvaluations of the underlying investments as supplied by the managers of those private equity funds. The Directors regularly review theprinciples applied by those managers to ensure they are in compliance with the Company’s policies.Valuation of mineral rights, included in unlisted investments is based upon the net income received from the asset in the previous twelvemonths 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 equivalentsCash and cash equivalents are defined as short term, highly liquid investments that are readily convertible to known amounts of cash. Alliance Trust PLC | Annual Report and Financial Accounts 2016
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III Financial Statements III2Summary of Significant Accounting PoliciesOther receivablesOther receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimatedirrecoverable amounts.Office premisesOffice premises are valued annually by chartered surveyors on the basis of market value in accordance with the RICS Appraisal andValuation Standards. No depreciation has been charged on these assets as, in the opinion of the Board, any provision for depreciationwould be immaterial.Intangible assetsThe external costs associated with the development and procurement of significant technology systems are capitalised where it is probablethat the expected future economic benefit of that system will flow to the entity. They are stated at cost less accumulated amortisation. Onthe 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 assetsOther fixed assets are held at cost less accumulated depreciation, which is charged to write off the value of the asset over three to fiveyears.ImpairmentAt each balance sheet date, the Group reviews the carrying amounts of its intangible assets to determine whether there is any indicationthat those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated todetermine 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 therecoverable 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 equityFinancial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equityinstrument 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 borrowingsInterest-bearing bank loans and overdrafts are initially 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 anaccruals basis using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they arenot settled in the period in which they arise.Unsecured fixed rate loan notes are initially recorded at the proceeds received. After initial recognition during 2016 and as appliedretrospectively (see change in accounting policy) they are now measured at fair value. Finance charges are accounted for through theincome statement on an accruals basis using the effective interest rate.Other payablesOther payables are not interest bearing and are stated at their nominal value.Buy backs and cancellation of sharesThe 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 reservesA description of each of the reserves follows:Capital reserveThe following are recorded through this reserve:Gains and losses on realisation of investmentsChanges in fair value of investmentsRealised exchange differences of a capital naturePurchases of shares by the Trustee of the Employee Benefit TrustPayment of capital dividendsAmounts recognised in relation to share based payments which are capital in natureAmounts by which other assets and liabilities valued at fair value differ from their book valueBuy back and cancellation of own sharesAmounts recognised in relation to the defined benefit pensions schemeWhere consistent with the AIC SORP, attributing two thirds of indirect expenditure including management fees, finance costs andrelevant administrative expenses are charged to capital profits Alliance Trust PLC | Annual Report and Financial Accounts 2016
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Financial Statements2Summary of Significant Accounting PoliciesRevaluation reserveThis reserve is used to record changes in the valuation of the office premises. A downward revaluation in office premises is charged to theincome statement to the extent that there is no earlier upward revaluation in this reserve for those premises.Merger reserveThis reserve was created as part of the arrangements for the acquisition of the assets of SATL.Capital redemption reserveThis reserve was created on the cancellation and repayment of the Company’s preference share capital. Further movements in this reservereflects the nominal value of the buy back and cancellation of a portion of the share capital of the Company.Revenue reserveNet revenue profits and losses of the Company and its subsidiaries and the fair value costs of share based payments which are revenue innature are recorded within this reserve, together with the dividend payments made by the Company. Alliance Trust PLC | Annual Report and Financial Accounts 2016
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III Financial Statements III3RevenueAn analysis of the Group's and Company's revenue is as follows:GroupCompany£000Dec 16Dec 15Dec 16Dec 15Income from investments Listed dividends - UK18,86619,46418,86619,464Distributions from Collective Investment Schemes1,9138,1611,9138,161Unlisted dividends - Subsidiaries-248-248Listed dividends - Overseas62,12460,37462,12460,37482,90388,24782,90388,247Other incomeProperty rental income-565-565Mineral rights income1,6853,3111,6853,311Deposit interest91746Other interest-219-219Recharged costs*19122,027191-1,88526,1391,8804,101Total income84,788114,38684,78392,348Investment income comprisesListed UK20,77927,62520,77927,625Listed Overseas62,12460,37462,12460,374Unlisted-248-24882,90388,24782,90388,247* In 2016 all costs including staff and administrative costs, were incurred directly by the applicable legal entity resulting in a lower level ofrecharged costs compared to the previous year. ATSL was the employer of all staff within the Group until 31 December 2015 and alsoacted as paymaster company and as such staff costs and all indirect costs for the two trading businesses ATS and ATI until 31 December2015 were included within income and expenses in the Consolidated Income Statement as these were recharged by ATSL.4Profit before tax is stated after charging the following administrative expenses:GroupGroup£000Dec 16RevenueDec 16CapitalDec 16TotalDec 15RevenueDec 15CapitalDec 15TotalStaff costs5099901,49918,0061,58519,591Social security costs1042093132,337-2,337Pension credit - defined benefit scheme (note 25)(146)(292)(438)(207)-(207)Pension costs - defined contribution scheme1231,643-1,6434689091,37721,7791,58523,364GroupGroup£000Dec 16RevenueDec 16CapitalDec 16TotalDec 15RevenueDec 15CapitalDec 15TotalAuditor's remunerationFee payable to the auditor for the audit of the Group'sannual accounts64-6462-62Fee payable to the auditor for subsidiary company audits13-1317-17Total audit fees77-7779-79Audit related assurance services---3-3All other services5-54-4Total non-audit fees5-57-7Fees payable to the Company's auditor in respect ofassociated pension schemes audit5-54-45-54-4Total remuneration87-8790-90 Alliance Trust PLC | Annual Report and Financial Accounts 2016
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Financial Statements4Profit before tax is stated after charging the following administrative expenses:GroupGroup£000Dec 16RevenueDec 16CapitalDec 16TotalDec 15RevenueDec 15CapitalDec 15TotalOperating lease chargesLand and buildings---111-111Other---19-19Total operating lease charges---130-130Investment management fee3,1146,2279,341---Other administrative costs4,3031,6745,97722,461-22,461Total administrative costs7,9728,81016,78244,4601,58546,045CompanyCompany£000Dec 16RevenueDec 16CapitalDec 16TotalDec 15RevenueDec 15CapitalDec 15TotalStaff costs5099901,4997,7101,1338,843Social security costs1042093131,126-1,126Pension credit - defined benefit scheme (note 25)(146)(292)(438)(207)-(207)Pension costs - defined contribution scheme123594-5944689091,3779,2231,13310,356Auditor's remunerationFee payable to the auditor for the audit of the Company'sannual accounts64-6462-62Total audit fees64-6462-62All other services5-54-4Total non-audit fees5-54-4Fees payable to the Company's auditors in respect ofassociated pension schemes audit5-54-4Total pension audit fees5-54-4Total remuneration74-7470-70Operating lease chargesLand and buildings---111-111Other---19-19Total operating lease charges---130-130Investment management fee3,1146,2279,341---Other administrative costs4,3041,6745,97813,412-13,412Total administrative costs7,9608,81016,77022,8351,13323,968In addition to the audit fees paid by the Company and consolidated group disclosed above, fees payable to the company's auditors for theaudit of the non-consolidated subsidiaries amounted to £190,000 (£176,000), with audit related services for these entities amounting to£100,000 (£70,000). Total audit fees of £267,000 (£255,000), non-audit fees of £105,000 (£75,000) and fees payable in respect ofassociated pension schemes of £5,000 (£4,000) were paid to Deloitte LLP. Total remuneration paid to Deloitte LLP amounted to £377,000(£334,000).Total Directors’ remuneration recorded for the year was £1.2m (£2.4m). This includes the current year allocation in respect of contractualawards made to former Executive Directors in prior years. No new awards were granted during 2016. Further details are given in theRemuneration Report on pages 38 to 44. In the year the Group employed no staff as all staff were employed by trading subsidiaries; staffand social security costs represent costs of Non-Executive Directors and the previous CEO. In the prior year staff were employed byAlliance Trust Services Limited and staff costs were included within the Group results. The Group employed an average of Nil (261) full-time and Nil (16) part-time staff, excluding Directors. The average full time equivalents in the year was Nil. Total Company administrative expenses of £16.8m (£23.9m) include non-recurring expenses of £3.4m (£5.2m) as disclosed on page 21.The ongoing charges (OCR) of the Company amounted to 0.43% (0.59%) of the average net assets. The 2016 OCR of 0.43% is based ontotal ongoing expenses. Had the new OCR calculation basis been applied in 2015 the comparable OCR would have been 0.63%. This isfurther outlined in the Costs section on page 20.The basis of the investment management fee is 0.35% of NAV after deducting the value of Trust holdings in ATI managed funds and thefair value of subsidiary companies.The cost of insured benefits for staff including Executive Directors is included in staff costs. Alliance Trust PLC | Annual Report and Financial Accounts 2016
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III Financial Statements III5Finance costsGroupGroup£000Dec 16RevenueDec 16CapitalDec 16TotalDec 15RevenueDec 15CapitalDec 15TotalBank loans and unsecured fixed rate loan notes2,5865,1077,6933,9725,2819,253Total finance costs2,5865,1077,6933,9725,2819,253CompanyCompany£000Dec 16RevenueDec 16CapitalDec 16TotalDec 15RevenueDec 15CapitalDec 15TotalBank loans and unsecured fixed rate loan notes2,5865,1077,6933,9685,2819,249Total finance costs2,5865,1077,6933,9685,2819,249Finance costs include interest of £4.3m (£4.3m) on the £100m 4.28% unsecured fixed rate loan notes which were drawn down in July 2014for 15 years. The basis of apportionment of finance costs between revenue and capital profits is disclosed in note 2 (change of accountingestimates).6TaxationGroupGroup£000Dec 16RevenueDec 16CapitalDec 16TotalDec 15RevenueDec 15CapitalDec 15TotalUK corporation tax at 20.00% (20.25%)------Prior year adjustment(1)-(1)(2)-(2)Overseas taxation6,219-6,2195,460-5,460Recoverable income tax(81)-(81)---6,137-6,1375,458-5,458Deferred taxation2,2802,2484,528(96)-(96)Rate change impact on deferred tax balances(50)-(50)---Tax expense for the year8,3672,24810,6155,362-5,362Corporation tax is calculated at the average rate of 20.00% (20.25%) of the estimated assessable profit for the year. Taxation for overseasjurisdictions is calculated at the rates prevailing in the respective jurisdictions. The charge for the year can be reconciled to the profit perthe income statement as follows:GroupGroup£000Dec 16RevenueDec 16CapitalDec 16TotalDec 15RevenueDec 15CapitalDec 15TotalProfit before tax74,230567,713641,94365,95480,282146,236Tax at the average UK corporation tax rate of 20.00% (20.25%)14,846113,543128,38913,35616,25729,613Non taxable income(14,423)-(14,423)(14,574)(219)(14,793)Losses on investments not taxable-(118,799)(118,799)-(17,386)(17,386)Prior year adjustment(1)-(1)(2)-(2)Foreign exchange adjustments-505505-1717Effect of changes in tax rates(452)(397)(849)(100)-(100)Effect of overseas tax6,219-6,2195,460-5,460Deferred tax assets not recognised(192)5,5515,3591,3831,0452,428Fair value movement in office premises-88-(35)(35)Adjustments arising on the difference betweentaxation and accounting treatment of income andexpenses2,1491,5953,744(127)16437Utilisation of brought forward tax losses---(272)146(126)Expenses not deductible for tax purposes 39024263232611337Expense relief for overseas tax (88)-(88)(91)-(91)Group relief not paid for---3-3Recoverable income tax(81)-(81)---Tax expense for the year8,3672,24810,6155,362-5,362 Alliance Trust PLC | Annual Report and Financial Accounts 2016
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Financial Statements6TaxationCompanyCompany£000Dec 16RevenueDec 16CapitalDec 16TotalDec 15RevenueDec 15CapitalDec 15TotalUK corporation tax at 20.00% (20.25%)------Prior year adjustment(1)-(1)(4)-(4)Overseas taxation6,219-6,2195,460-5,460Recoverable income tax(81)-(81)---6,137-6,1375,456-5,456Deferred taxation2,2802,2484,528(96)-(96)Rate change impact on deferred tax balances(50)-(50)---Tax expense for the year8,3672,24810,6155,360-5,360Corporation tax is calculated at the average rate of 20.00% (20.25%) of the estimated assessable profit for the year. Taxation for overseasjurisdictions is calculated at the rates prevailing in the respective jurisdictions. The charge for the year can be reconciled to the profit perthe income statement as follows:CompanyCompany£000Dec 16RevenueDec 16CapitalDec 16TotalDec 15RevenueDec 15CapitalDec 15TotalProfit before tax74,237565,471639,70865,54582,931148,476Tax at the average UK corporation tax rate of 20.00% (20.25%)14,847113,094127,94113,27316,79430,067Non taxable income(14,423)-(14,423)(14,574)-(14,574)Losses on investments not taxable-(118,351)(118,351)-(17,831)(17,831)Prior year adjustment(1)-(1)(2)-(2)Foreign exchange adjustments-505505-1717Effect of changes in tax rates(452)(397)(849)(100)-(100)Effects of overseas tax6,219-6,2195,460-5,460Deferred tax assets not recognised(193)5,5525,3591,3831,0452,428Fair value movement in office premises-88-(35)(35)Adjustments arising on the difference betweentaxation and accounting treatment of income andexpenses2,1491,5953,744(20)-(20)Expenses not deductible for tax purposes390242632281038Expense relief for overseas tax(88)-(88)(91)-(91)Group relief not paid for---3-3Recoverable income tax(81)-(81)---Tax expense for the year 8,3672,24810,6155,360-5,3607DividendsDividends Paid £000Dec 16Dec 15Fourth interim dividend for the year ended 31 December 2014 of 2.4585p per shareFirst interim dividend for the year ended 31 December 2015 of 2.5325p per shareSecond interim dividend for the year ended 31 December 2015 of 2.5325p per shareThird interim dividend for the year ended 31 December 2015 of 2.5325p per share- 13,555*- 13,962- 13,965- 13,464 Fourth interim dividend for the year ended 31 December 2015 of 3.3725p per share17,473*-First interim dividend for the year ended 31 December 2016 of 2.825p per share14,528-Second interim dividend for the year ended 31 December 2016 of 2.825p per share14,528-Third interim dividend for the year ended 31 December 2016 of 3.85p per share19,800--66,32954,946Special dividend for the year ended 31 December 2014 of 2.546p per shareSpecial dividend for the year ended 31 December 2015 of 1.463p per share- 14,036- 7,779 66,32976,761We also set out below the total dividend payable in respect of the financial year, which is the basis on which the requirements of Section1158/1159 of the Corporation Tax Act 2010 are considered. Alliance Trust PLC | Annual Report and Financial Accounts 2016
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III Financial Statements III7DividendsDividends Earned £000Dec 16Dec 15First interim dividend for the year ended 31 December 2015 of 2.5325p per shareSecond interim dividend for the year ended 31 December 2015 of 2.5325p per shareThird interim dividend for the year ended 31 December 2015 of 2.5325p per shareFourth interim dividend for the year ended 31 December 2015 of 3.3725p per share- 13,962- 13,965- 13,464- 17,570* First interim dividend for the year ended 31 December 2016 of 2.825p per share14,528-Second interim dividend for the year ended 31 December 2016 of 2.825p per share14,528-Third interim dividend for the year ended 31 December 2016 of 3.85p per share19,800-Fourth interim dividend for the year ended 31 December 2016 of 3.274p per share16,108-64,96458,961Special dividend for the year ended 31 December 2015 of 1.463p per share - 7,779 64,96466,740*31 December 2014 and 31 December 2015 figures have been adjusted to reflect share buy backs.8Earnings per shareThe calculation of the basic and diluted earnings per share is based on the following data:GroupGroupBasic £000Dec 16RevenueDec 16CapitalDec 16TotalDec 15RevenueDec 15CapitalDec 15TotalOrdinary sharesEarnings for the purposes of basic earnings pershare being net profit attributable to equity holdersof the parent65,863565,465631,32860,59280,282140,874Number of sharesWeighted average number of ordinary shares for thepurpose of basic earnings per share515,646,212548,480,531Weighted average number of ordinary shares for thepurpose of diluted earnings per share516,414,688549,465,141CompanyCompanyDiluted £000Dec 16RevenueDec 16CapitalDec 16TotalDec 15RevenueDec 15CapitalDec 15TotalOrdinary sharesEarnings for the purposes of basic earnings pershare being net profit attributable to equity holdersof the parent 65,870563,223629,09360,18582,931143,116Number of sharesWeighted average number of ordinary shares for thepurpose of basic earnings per share515,646,212548,480,531Weighted average number of ordinary shares for thepurpose of diluted earnings per share516,414,688549,465,141The 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 698,062 (886,173) ordinary shares held by the Trustee of theEmployee Benefit Trust. During the year the Trustee increased its holding by Nil (Nil) shares. 188,111 (245,664) shares were transferredfrom 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. Alliance Trust PLC | Annual Report and Financial Accounts 2016
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Financial Statements9Non-current assets Group Company£000Dec 16Dec 15Dec 16Dec 15Investments designated at fair value through profit and loss:Investments listed on a recognised investment exchange3,157,0422,930,8723,157,0422,930,872Forward currency exchange contracts held at fair value through profit andloss6,853-6,853-Unlisted investments47,44447,77847,44447,778Investment in collective investment schemes (note 10)93,027158,00993,027158,009Investments in related and subsidiary companies (note 10)169,799170,738169,831173,0123,474,1653,307,3973,474,1973,309,671Total Investments3,474,1653,307,3973,474,1973,309,671December 2015Group£000ListedInvestmentsInvestmentPropertyRelated andSubsidiaryCompaniesUnlistedInvestmentsTotalOpening book cost at 1 January 20152,515,18710,413197,39350,2812,773,274Opening unrealised appreciation/(depreciation) 591,114(5,583)(24,735)9,592570,388Opening valuation as at 1 January 20153,106,3014,830172,65859,8733,343,662Movements in the yearPurchases at cost**1,160,828-39,1003,8081,203,736Sales - proceeds**(1,280,897)(5,550)(38,147)(1,265)(1,325,859) - realisedgains/(losses)on sales156,042(4,863)5,904(6,859)150,224(Decrease)/Increase in appreciation on assets held(53,393)5,583(8,777)(7,779)(64,366)Closing valuation as at 31 December 20153,088,881-170,73847,7783,307,397Closing book cost2,551,160-204,25045,9652,801,375Closing appreciation/(depreciation)on assets held537,721-(33,512)1,813506,022Closing valuation as at 31 December 20153,088,881-170,73847,7783,307,397December 2016Group£000ListedInvestmentsInvestmentPropertyRelated andSubsidiaryCompaniesUnlistedInvestmentsTotalOpening book cost at 1 January 20162,551,160-204,25045,9652,801,375Opening unrealised appreciation/(depreciation)537,721-(33,512)1,813506,022Opening valuation at 1 January 20163,088,881-170,73847,7783,307,397Movements in the yearPurchases at cost**1,035,577-17,0001,6291,054,206Sales - proceeds**(1,444,127)-(37,121)(187)(1,481,435) - realisedgains/(losses)on sales261,018-14,046(433)274,631Increase/(decrease) in appreciation on assets held315,573-5,136(1,343)319,366Closing valuation at 31 December 20163,256,922-169,79947,4443,474,165Closing book cost2,403,628-198,17546,9742,648,777Closing appreciation/(depreciation)on assets held853,294-(28,376)470825,388Closing valuation as at 31 December 20163,256,922-169,79947,4443,474,165 Alliance Trust PLC | Annual Report and Financial Accounts 2016
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III Financial Statements III9Non-current assetsDecember 2015Company£000ListedInvestmentsInvestmentPropertyRelated andSubsidiarycompaniesUnlistedInvestmentsTotalOpening book cost as at 1 January 20152,515,18710,413197,39350,2812,773,274Opening unrealised appreciation/(depreciation) 591,114(5,583)(24,657)9,592570,466Opening valuation as at 1 January 20153,106,3014,830172,73659,8733,343,740Movements in the yearPurchases at cost**1,160,828-39,1003,8081,203,736Sales - proceeds**(1,280,897)(5,550)(38,147)(1,265)(1,325,859) - realisedgains/(losses) on sales156,042(4,863)5,904(6,859)150,224(Decrease)/increase in appreciation on assets held(53,393)5,583(6,581)(7,779)(62,170)Closing valuation as at 31 December 20153,088,881-173,01247,7783,309,671Closing book cost2,551,160-204,25045,9652,801,375Closing appreciation/(depreciation) on assets held537,721-(31,238)1,813508,296Closing valuation as at 31 December 20153,088,881-173,01247,7783,309,671December 2016Company£000ListedInvestmentsInvestmentPropertyRelated andSubsidiarycompaniesUnlistedInvestmentsTotalOpening book cost as at 1 January 20162,551,160-204,25045,9652,801,375Opening unrealised appreciation/(depreciation) 537,721-(31,238)1,813508,296Opening valuation as at 1 January 20163,088,881-173,01247,7783,309,671Movements in the yearPurchases at cost**1,035,577-17,0001,6291,054,206Sales - proceeds**(1,444,127)-(37,121)(187)(1,481,435) - realisedgains/(losses) on sales261,018-14,046(433)274,631Increase/(decrease) in appreciation on assets held315,573-2,894(1,343)317,124Closing valuation as at 31 December 20163,256,922-169,83147,4443,474,197Closing book cost2,403,628-198,17546,9742,648,777Closing appreciation/(depreciation)on assets held853,294-(28,344)470825,420Closing valuation as at 31 December 20163,256,922-169,83147,4443,474,197** 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 £1.6m (£2.0m) for purchases and £1.5m (£1.5m) for sales. Alliance Trust PLC | Annual Report and Financial Accounts 2016
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Financial Statements9Non-current assets£000Group and CompanyOffice premises freehold / Heritable propertyValuation at 31 December 20144,365Revaluation175Valuation at 31 December 20154,540Revaluation(40)Valuation at 31 December 20164,500At 31 December 2016Cushman & Wakefield, an independent Chartered Surveyor, valued the office premises at 8 West Marketgait,Dundee at £4.50m (£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 2016 was £12.7m (£12.7m).£000 Group and CompanyOther Fixed AssetsOpening book cost at 1 January 2015856Additions25Disposals-Book cost at 31 December 2015881Additions6Disposals(721)Transfers from Group companies323Book cost at 31 December 2016489Opening depreciation at 1 January 2015(389)Depreciation charge(193)Disposals-Depreciation at 31 December 2015(582)Depreciation charge(57)Disposals300Transfers from Group companies(126)Depreciation at 31 December 2016(465)Net book value at 31 December 2015299Net book value at 31 December 20162410Subsidiaries and Related CompaniesThe Group results incorporate the Company and ATSL in full only on the basis ATSL continues to provide services that relate directly to theinvestment activities of the Company, however it is not an investment entity itself. In 2016 all costs including staff and administrative costs,were charged directly to the applicable legal entity resulting in a lower level of recharged costs compared to the previous year. All intra-group transactions, balances, income and expenses within these entities are eliminated on consolidation.At 31 December 2016 the Company owned 100% of ATS, AT2006, ATREP, ATSL, ATI, and ATEPL, AVMGP, ATEP2008GP andATEP2009GP. 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 £169.8m (£170.7m) and Company’s accounts at £169.8m(£173.0m) being the Directors’ estimate of their fair value, using the guidelines and methodologies on valuation published by theInternational Private Equity and Venture Capital Association issued in December 2015 and external valuation inputs. This includes, the twomain trading investments, ATS at £61.5m (£54.0m) and ATI at £28.3m (£19.8m). The key financial results are noted below for both.Alliance Trust Investments Limited£000Year ended31 December 2016Year ended31 December 2015Total income22,00710,545Expenses(18,883)(12,598)Profit/(loss) before exceptional items3,124(2,053)Exceptional expenses(2,772)-Profit/(loss)352(2,053)Fair valuation28,27619,800 Alliance Trust PLC | Annual Report and Financial Accounts 2016
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III Financial Statements III10Subsidiaries and Related CompaniesAlliance Trust Savings Limited£000Year ended31 December 2016Year ended31 December 2015Total income21,62713,695Expenses(20,385)(16,848)Profit/(loss) before non-recurring and discontinued1,242(3,153)Non-recurring and discontinued(68)(2,074)Profit/(loss)1,174(5,227)Fair valuation61,50054,000The Directors have used several valuation methodologies as described in the International Private Equity and Venture Capital Associationguidelines issued in December 2015 to arrive at their best estimate of fair value, including discounted cash flow calculations, revenue andearnings multiples, recent market transactions where available and external valuations. Note 23.8 provides further information on thevaluation methodologies applied, including that the Directors involved an external valuation in their assessment of the fair value of ATS for2015 and 2016. On 15 December 2016 Alliance Trust PLC announced the outcome of the Strategic Review and an agreement to sell Alliance TrustInvestments (ATI) to Liontrust Asset Management PLC. While completion of the deal is subject to conditions and approvals, completion isexpected to take place in early April 2017. The reported fair value of ATI reflects the 30 December 2016 value of Liontrust AssetManagement PLC shares to be used as consideration for the purchase of ATI, the expected net asset value of ATI and excludes anycontingent amounts. The Company has invested in two sub-funds of Alliance Trust Investment Funds ICVC (‘ATIF’) and in two sub-funds in Alliance TrustSustainable Future ICVC ('ATSF'), both ATIF and ATSF are UK domiciled Open Ended Investment Companies (OEIC). In addition theCompany has invested in a sub-fund of Luxcellence, a Luxembourg domiciled Société d’Investissement à Capital Variable (SICAV). TheCompany redeemed its interest in the Monthly Income Bond Fund and Dynamic Bond Fund, sub-funds of ATIF, during 2016. As at 31December 2016 the Company held the following value of shares and proportions of each sub-fund. The value of the shares held by theCompany is also given below:Dec 16Proportion %Dec 16Value £000Dec 15Proportion %Dec 15Value £000ATIF - Monthly Income Bond fund--2063,184ATIF - Dynamic Bond Fund--7510,143ATSF - Sustainable Future Cautious Managed Fund6611,8508010,950ATSF - Sustainable Future Defensive Managed Fund5811,6808010,830Luxcellence - Alliance Trust Sustainable Future Pan-European Equity Fund4469,4974962,902-93,027-158,00911Intangible assetsGroup and Company£000Technology systemsOpening book cost at 1 January 20152,082Additions214Book cost at 31 December 20152,296Additions-Transfers from Group companies(1,749)Book cost at 31 December 2016547Opening amortisation at 1 January 2015-(1,050)Amortisation(329)Amortisation at 31 December 2015(1,379)Amortisation-Transfers from Group companies832Amortisation as at 31 December 2016(547)Carrying amount as at 31 December 2015917Carrying amount as at 31 December 2016-Amortisation is included within administrative expenses in the income statement.Transfers were made to or from non-consolidated subsidiary companies at an arms length basis. Alliance Trust PLC | Annual Report and Financial Accounts 2016
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Financial Statements12Deferred taxThe following are the major deferred tax liabilities and assets recognised by the Group and Company and movements thereon during thecurrent and prior reporting period:Group£000RetirementbenefitobligationsAcceleratedTaxDepreciationLossesForeign TaxOtherTotalAt 1 January 2015 - (liability)/asset (1,039)-1,039---Income statement - deferred tax credit204-303--507Income statement - deferred tax charge(307)-(104)--(411)Equity - deferred tax credit4----4Equity - deferred tax charge(100)----(100)At 31 December 2015 - (liability)/asset (1,238)-1,238---Income statement - deferred tax credit(3,373)-(1,097)-(58)(4,528)Income statement - deferred tax charge119-(69)--50Equity - deferred tax credit4,528----4,528Equity - deferred tax charge(50)----(50)At 31 December 2016 - (liability)/asset (14)-72-(58)-At the balance sheet date, the Group had unused tax losses of £82.7m (£53.8m) available for offset against future profits.There are unrecognised deferred tax assets of £14.1m (£9.7m) in relation to unused tax losses and £3.7m (£0.2m) in relation to fixedassets and other timing differences. The Directors have not recognised this deferred tax asset due to uncertainty over the timing of futureprofits. Tax payable of £3.9m (£3.9m) relates to the taxation of overseas dividends received before July 2009. The amount of the final liability to bepaid is dependent on the outcome of an ongoing class action in which the Company is participating.Company£000RetirementbenefitobligationsAcceleratedTaxDepreciationLossesForeign TaxOtherTotalAt 1 January 2015 - (liability)/asset (1,039)-1,039---Income statement - deferred tax credit204-303--507Income statement - deferred tax charge(307)-(104)--(411)Equity - deferred tax credit4----4Equity - deferred tax charge(100)----(100)At 31 December 2015 - (liability)/asset (1,238)-1,238---Income statement - deferred tax credit(3,373)-(1,097)-(58)(4,528)Income statement - deferred tax charge119-(69)--50Equity - deferred tax credit4,528----4,528Equity - deferred tax charge(50)----(50)At 31 December 2016 - (liability)/asset (14)-72-(58)-At the balance sheet date, the Company had unused tax losses of £79.8m (£47.2m) available for offset against future profits.There are unrecognised deferred tax assets of £13.6m (£9.3m) in relation to unused tax losses and £3.7m (£0.2m) in relation to fixedassets and other timing differences. The Directors have not recognised the deferred tax asset due to uncertainty over the timing of futureprofits. Tax payable of £3.9m (£3.9m) relates to the taxation of overseas dividends received before July 2009. The amount of the final liability to bepaid is dependent on the outcome of an ongoing class action in which the Company is participating.13Outstanding settlements and other receivables Group Company£000Dec 16Dec 15Dec 16Dec 15Dividends receivable6,0215,5146,0215,514Other income receivable4354443544Amounts due from subsidiary companies3667974381,529Other debtors3,3305,2703,3191,8419,76012,1259,8219,428 Alliance Trust PLC | Annual Report and Financial Accounts 2016
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III Financial Statements III13Outstanding settlements and other receivablesThe Directors consider that the carrying amount of other receivables approximates to their fair value. 14Outstanding settlements and other payables Group Company£000Dec 16Dec 15Dec 16Dec 15Purchases of investments awaiting settlement907787907787Amounts due to subsidiary companies3,1242,2263,0351,971Other creditors9,61012,6948,1233,197Interest payable1,9861,8631,9861,86315,62717,57014,0517,818The Directors consider that the carrying amount of other payables approximates to their fair value.15Bank loans and unsecured fixed rate loan notesBank loans Group Company£000Dec 16Dec 15Dec 16Dec 15Bank loans repayable within one year120,000290,000120,000290,000Analysis of borrowings by currency:Bank loans - sterling120,000290,000120,000290,000The weighted average % interest rates payable:Bank loans0.96%1.33%0.96%1.33%The Directors estimate the fair value of the borrowings to be:Bank loans120,000290,000120,000290,000Unsecured fixed rate loan notesGroupCompany£000Dec 16Dec 15Dec 16Dec 15Unsecured fixed rate loan notes118,800109,000118,800109,000The effective interest rate payable:Unsecured fixed rate loan notes2.52%3.44%2.52%3.44%£100m of unsecured fixed loan notes were drawn down in July 2014, with 15 years duration at 4.28%. The fair value is estimated bydiscounting future cash flows using quoted benchmark interest yield curves as at the end of the reporting period and by obtaining lenderquotes for borrowings of similar maturity to estimate credit risk margin.Long term fixed rate notesGroupCompany£000Dec 16Dec 15Dec 16Dec 15The total weighted average % interest rate2.47%2.09%2.47%2.09%16Share capital Group Company£000Dec 16Dec 15Dec 16Dec 15Allotted, called up and fully paid:- 492,703,932 ordinary shares of 2.5p each12,31913,16012,31913,160The Company has one class of ordinary share which carries no right to fixed income.The Employee Benefit Trust holds 698,062 (886,173) ordinary shares, acquired by its Trustee with funds provided by the Company. Duringthe year the Trustee increased its holding by Nil (Nil) shares. 188,111 (245,664) shares were transferred from the Employee Benefit Trustto participants in the Long Term Incentive Plans in satisfaction of awards. Alliance Trust PLC | Annual Report and Financial Accounts 2016
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Financial Statements16Share capital Group Company£000Dec 16Dec 15Dec 16Dec 15Ordinary shares of 2.5p eachOpening share capital13,16013,83513,16013,835Share buy backs(841)(675)(841)(675)Closing share capital12,31913,16012,31913,160Capital Management Policies and ProceduresThe capital of the Company is managed in accordance with its investment policy in pursuit of its investment objective, both of which aredetailed on page 5. From February 2016 this function has been undertaken by ATI in its capacity as AIFM within parameters set by theBoard. The Group, Company and the remaining financial services subsidiary investments comply with the capital requirements of theirrelevant regulators, including the Capital Requirements Directive (CRD) and the Alternative Investment Fund Managers Directive (AIFMD). 17ReservesGroup£000ShareCapitalCapitalReserveMergerReserveCapitalRedemptionReserveRevenueReserveTotalNet assets at 31 December 201413,8352,223,715645,3355,163120,9163,008,964Dividends-(7,779)--(68,982)(76,761)Unclaimed dividends returned----3939Profit for the year-80,282--60,592140,874Own shares purchased(675)(136,479)-675-(136,479)Defined benefit plan net actuarial loss -(118)---(118)Share based payments-521---521Net assets at 31 December 201513,1602,160,142645,3355,838112,5652,937,040Dividends----(66,329)(66,329)Unclaimed dividends redistributed----(12)(12)Profit for the year-565,465--65,863631,328Own shares purchased(841)(195,841)-841-(195,841)Defined benefit plan net actuarial loss -(22,159)---(22,159)Share based payments-110---110Net assets at 31 December 201612,3192,507,717645,3356,679112,0873,284,137Company£000ShareCapitalCapitalReserveMergerReserveCapitalRedemptionReserveRevenueReserveTotalNet assets at 31 December 201413,8352,223,950645,3355,163120,6793,008,962Dividends-(7,779)--(68,982)(76,761)Unclaimed dividends returned----3939Profit for the year-82,931--60,185143,116Own shares purchased(675)(136,479)-675-(136,479)Defined benefit plan net actuarial loss -(118)---(118)Share based payments-521---521Net assets at 31 December 201513,1602,163,026645,3355,838111,9212,939,280Dividends----(66,329)(66,329)Unclaimed dividends redistributed----(12)(12)Profit for the year-563,223--65,870629,093Own shares purchased(841)(195,841)-841-(195,841)Defined benefit plan net actuarial loss -(22,159)---(22,159)Share based payments-110---110Net assets at 31 December 201612,3192,508,359645,3356,679111,4503,284,142The Company revenue reserves distributable by way of a dividend are £111.5m (£111.9m). Realised capital reserves of £1,702m(£1,664m) can be distributed by way of a dividend. Unrealised capital reserves of £508m (£508m) relate to unrealised appreciation oninvestments. Total distributable reserves are £2,507m (£2,172m). Share buy backs are funded through realised capital reserves. Alliance Trust PLC | Annual Report and Financial Accounts 2016
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III Financial Statements III18Net Asset Value per Ordinary ShareThe calculation of the net asset value per ordinary share is based on the following: Group Company£000Dec 16Dec 15Dec 16Dec 15Equity shareholder funds3,284,1372,937,0403,284,1422,939,280Number of shares at year end - Basic492,005,870525,454,724492,005,870525,454,724Number of shares at year end - Diluted492,703,932526,340,897492,703,932526,340,897The diluted figure is the entire number of shares in issue.To arrive at the basic figure, the number of shares has been reduced by 698,062 (886,173) shares held by the Trustee of the EmployeeBenefit Trust. During the year the Trustee increased its holding by Nil (Nil) shares. 188,111 (245,664) shares were transferred from theEmployee Benefit Trust to participants in the LTIP in satisfaction of awards.19Segmental ReportingThe Company has identified a single operating segment, the investment trust, whose objective is to be a core investment for investorsseeking increasing capital growth and income over the long term. The accounting policies of the operating segment, which operates in theUK, are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on thetotal profit before tax which is shown in the Company Income Statement on page 55. 20Related Party TransactionsTransactions between the Company and ATSL are eliminated on consolidation.Other subsidiaries held by the Group may purchase goods or services for other entities within the Group and recharge these costs directlyto the appropriate entity to which the costs relate.There are no further related parties other than those stated below.From 1 January 2016 all employee contracts were transferred to either ATI or ATS resulting in lower comparable costs. During 2015amounts were reimbursed/(repaid) between ATSL and the other entities as it acted as paymaster and employer of staff for all corporateentities. Alliance Trust Services£000Year ended31 December 2016Year ended31 December 2015Paid by Alliance Trust PLC (the Company)7,19827,629Paid to Alliance Trust PLC (the Company)(7,217)(15,787)Due from/(to)ATSL(95)417Paid by Alliance Trust Savings Limited30,90625,087Paid to Alliance Trust Savings Limited(2,750)(1,983)Due from/(to)ATSL(58)252Paid by Alliance Trust Investments Limited19,53318,985Paid to Alliance Trust Investments Limited(8,721)(2,890)Due from/(to)ATSL(8)392Paid by Alliance Trust Equity Partners (Holdings) Limited-20Due from/(to)ATSL--Paid by Alliance Trust Equity Partners Limited4520Paid to Alliance Trust Equity Partners Limited(3)(1)Due from/(to)ATSL--Paid by Alliance Trust Real Estate Partners LP108130Paid to Alliance Trust Real Estate Partners LP(10)(3)Due from/(to)ATSL-(74)Transactions with key management personnelDetails of the Non Executive Directors are disclosed on pages 26 to 27. The remuneration and other compensation including pension costpaid to the Directors during the year is summarised overleaf.For the purpose of IAS 24 ‘Related Party Disclosures, key management personnel comprised the Chief Executive and senior management,plus the Non Executive Directors of the Company. In 2015 this also included the Members of the Executive Committee.The 2016 remuneration paid to the previous Chief Executive has been borne by the Company. Details of the remuneration are disclosed inthe remuneration report on pages 38 to 44. Alliance Trust PLC | Annual Report and Financial Accounts 2016
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Financial Statements20Related Party Transactions Group Company£000Dec 16Dec 15Dec 16Dec 15Total emoluments4672,8474672,089Payments to former key management personnel625474625474Post retirement benefits-61-27Equity compensation benefits71538714231,1633,9201,1633,01321Analysis of change in net cash/(debt)Group£000Dec 14Cash flowOthergains /(losses)Dec 15Cash flowOthergains /(losses)Dec 16Cash and cash equivalents44,102(18,865)(84)25,15328,468(2,527)51,094Bank loans and unsecured fixed rateloan notes(390,200)(10,000)1,200(399,000)170,000(9,800)(238,800)Net (debt)/cash(346,098)(28,865)1,116(373,847)198,468(12,327)(187,706)Company£000Dec 14Cash flowOthergains /(losses)Dec 15Cash flowOthergains /(losses)Dec 16Cash and cash equivalents40,685(23,634)(84)16,96734,990(2,527)49,430Bank loans and unsecured fixed rateloan notes(390,200)(10,000)1,200(399,000)170,000(9,800)(238,800)Net (debt)/cash(349,515)(33,634)1,116(382,033)204,990(12,327)(189,370)Other gains/(losses) includes movement on foreign exchange and movements in the fair value of the fixed rate loan notes.22Financial commitmentsFinancial commitments as at 31 December 2016, which have not been accrued, for the Group and the Company totalled £28.5m(£43.9m).These were in respect of uncalled subscriptions in investments in our private equity portfolio structured as limited partnerships(LP). These LP commitments, which can include recallable distributions received, may be called at any time up to an agreed contractualdate. The Company may choose not to fulfil individual commitments but may suffer a penalty should it do so, the terms of which varybetween investments. A maturity analysis of the expiry dates of these LP commitments is presented below: Group and Company£000Dec 16Dec 15< 1 year1,7221,4461-5 years18,20833,5115-10 years8,5558,93028,48543,887The Company has provided letters of comfort in connection with banking facilities made available to certain of its subsidiaries. TheCompany provided letters to AT2006 and ATREP GP confirming ongoing support for at least 12 months from the date the annual financialstatements were signed, to make sufficient funds available if needed to enable them to continue trading, meet commitments and not toseek repayment of any amounts outstanding. The Company provides ongoing regulatory support for ATS in the context of its role as a consolidated bank holding company whenrequired.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 TrustCompanies Pension Fund. The Trustees released the floating charge in December 2016. Alliance Trust PLC | Annual Report and Financial Accounts 2016
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III Financial Statements III23Financial instruments and RiskThe Strategic Report details the Company’s approach to investment risk management on pages 18 and 19 and the accounting policies onpages 59 to 64 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 carryingvalues.Capital Risk ManagementThe Group manages its capital to ensure that entities in the Group and the Company will be able to continue as a going concern whilemaximising the return to stakeholders through the optimisation of the use of debt and equity balances. The Group's and Company’s overallstrategy remains unchanged from the year ended 31 December 2015.The capital structure of the Group and the Company consists of debt, which includes the borrowings disclosed in Note 15, cash and cashequivalents and equity attributable to equity holders of the Company comprising issued capital, reserves and retained earnings asdisclosed in Note 17 to the financial statements.The Board reviews the capital structure of the Company and the Group on an at least a semi-annual basis. The Group and the Companyhave decided that net gearing should at no time exceed 30% of the net assets of either the Group or the Company. Group Company£000Dec 16Dec 15Dec 16Dec 15Debt*(238,800)(399,000)(238,800)(399,000)Cash and cash equivalents51,09425,15349,43016,967Net (debt)(187,706)(364,847)(189,370)(373,033)Net (debt) as % of net assets(5.7)%(12.7)%(5.8)%13.0%* If debt had been valued at par, on a Group and Company basis net debt as a % of net assets would be 5.1% (12.4%) and 5.2% (12.7%)respectively.Risk management policies and proceduresAs an investment trust the Company invests in equities, private equity, financial instruments and its subsidiary businesses for the long termin order to achieve the investment objectives set out on page 5. In pursuing these objectives the Company is exposed to a variety of risksthat could result in a reduction in the Company’s net assets or a reduction in the profits available for payment as dividends.The principal financial instruments at risk comprise those in the Company’s 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 Directors’ approach to managing them are set out below under the following headings: market risk (comprisingcurrency 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 22 to 24. The objectives, policies andprocesses for managing the risks, and the methods used to measure the risks have not changed from the previous accounting year.23.1Market RiskMarket 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 ATI in its role as AIFM. ATI manages the capital of theCompany within parameters set by the Directors on investment and asset allocation strategies and risk. These activities performed by ATIare overseen by the Board Management Engagement Committee.The Company’s 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 18 to 19.23.2Currency RiskSome of the Group’s 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 Group’s currency holdings and gains/losses thereon are reviewed regularly by the Directors, and the currency risk is managed on aregular basis by ATI within parameters set by the Directors on investment and asset allocation strategies and risk. The Group enters intoforward 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 netmonetary assets is based on the currency in which each asset or liability is denominated. At the reporting date the Group and Companyhad the following exposures: Alliance Trust PLC | Annual Report and Financial Accounts 2016
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Financial Statements23Financial instruments and Risk23.2Currency RiskGroup and CompanyCurrency Exposure£000OverseasinvestmentsDec 16Net monetaryassetsDec 16TotalcurrencyexposureDec 16OverseasinvestmentsDec 15Net monetaryassetsDec 15TotalcurrencyexposureDec 15US dollar1,760,9692401,761,2091,481,2697401,482,009Euro399,530-399,530396,450-396,450Yen173,188-173,188178,833-178,833Other non-sterling514,158-514,158437,114-437,1142,847,8452402,848,0852,493,6667402,494,406Sensitivity analysisIf Sterling had strengthened by 10% (5%) relative to all currencies, with all other variables held constant, the income statement and the netassets attributable to equity holders of the parent would have decreased by the amounts shown below. The analysis is performed on thesame basis as for the year ended 31 December 2015. The revenue return impact is an estimated figure for 12 months based on the cashbalances at the reporting date. Group Company£000Dec 16Dec 15Dec 16Dec 15Income StatementRevenue return(5,976)(2,936)(5,976)(2,936)Capital return(284,784)(124,683)(284,784)(124,683)Net Assets(290,760)(127,619)(290,760)(127,619)A 10% (5%) weakening of Sterling against the above currencies would have resulted in an equal and opposite effect on the aboveamounts, on the basis that all other variables remain constant.23.3Interest Rate RiskThe Group is exposed to interest rate risk in a number of ways. A movement in interest rates may affect the fair value of investments infixed 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 possibleeffects on fair value and cash flows as a result of an interest rate change are taken into account when making investment or borrowingdecisions. The following table details the Group’s and Company’s exposure to interest rate risks for bank and loan balances: Group Company£000Dec 16Dec 15Dec 16Dec 15Exposure to floating interest ratesCash at bank51,09425,15349,43016,967Bank loans repayable within one year(120,000)(290,000)(120,000)(290,000)(68,906)(264,847)(70,570)(273,033)Sensitivity analysisIf interest rates had decreased by 0.25% (0.25%), with all other variables held constant, the income statement result and the net assetsattributable to equity holders of the parent would have increased by the amounts shown below. The revenue return impact is an estimatedfigure for the year based on the cash balances at the reporting date. Alliance Trust PLC | Annual Report and Financial Accounts 2016
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III Financial Statements III23Financial instruments and Risk23.3Interest Rate Risk Group Company£000Dec 16Dec 15Dec 16Dec 15Income statementRevenue return6443168451Capital return109233109233Net Assets173664177684If interest rates had increased by 0.25% (0.25%) with all other variables held constant, the income statement result and net assetsattributable to equity holders of the parent would have decreased by the amounts shown below. Group Company£000Dec 16Dec 15Dec 16Dec 15Income statementRevenue return(63)(429)(67)(449)Capital return(109)(233)(109)(233)Net Assets(172)(662)(176)(682)23.4Other Price RiskOther price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices (other than thosearising from currency risk or interest rate risk), whether caused by factors specific to an individual investment or its issuer, or by factorsaffecting all instruments traded in that market.As the majority of the Group’s financial assets are carried at fair value with fair value changes recognised in the income statement, allchanges 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 andinvestment performance regularly. The risk is managed on a regular basis by ATI within parameters set by the Directors on investment andasset allocation strategies and risk.Concentration of exposure to other price risksA listing of the Company’s equity investment portfolio is shown on pages 18 to 19. The largest amount of equity investments by value is inNorth 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 Group’s exposure to market price risk on its quoted and unquoted equity investments: Group Company£000Dec 16Dec 15Dec 16Dec 15Investments at fair value through Profit & LossListed3,157,0422,930,8723,157,0422,930,872Foreign exchange contracts6,853-6,853-Unlisted47,44447,77847,44447,778Investments in Collective Investment Schemes93,027158,00993,027158,009Investments in Related and Subsidiary Companies169,799170,738169,831173,0123,474,1653,307,3973,474,1973,309,671Sensitivity analysis93.7% (93.3%) of the Company’s investment portfolio is listed on stock exchanges. If share prices had decreased by 10% with all othervariables remaining constant, the income statement result and the net assets attributable to equity holders of the parent would havedecreased by the amounts shown below. The analysis for last year assumed a share price decrease of 10%. Alliance Trust PLC | Annual Report and Financial Accounts 2016
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Financial Statements23Financial instruments and Risk23.4Other Price Risk Group Company£000Dec 16Dec 15Dec 16Dec 15Income statementRevenue return----Capital return(325,692)(308,888)(325,692)(308,888)Net Assets(325,692)(308,888)(325,692)(308,888)A 10% increase (10% increase) in share prices would have resulted in a proportionate equal and opposite effect on the above amounts, onthe basis that all other variables remain constant.23.5Credit RiskCredit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered intowith 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 basisThe Group minimises credit risk through banking polices which restrict banking deposits to highly rated financial institutions. The policiesalso set maximum exposure to individual banks.The Group has adopted a policy of only dealing with credit worthy counterparties and obtaining sufficient collateral where appropriate (cashand gilts) as a means of mitigating the risk of financial loss from defaults.At the reporting date, the Group’s and Company's cash and cash equivalents exposed to credit risk were as follows: Group Company£000Dec 16Dec 15Dec 16Dec 15Credit RatingAa147,87915,24847,87915,248A33,2159,9051,5511,71951,09425,15349,43016,967Average maturity1 day 1 day 1 day 1 day The Company’s UK listed equities and its overseas listed equities are held by Bank of New York Mellon as custodian. Bankruptcy orinsolvency of the custodian may cause the Group’s rights with respect to securities held by the custodian to be delayed or limited. 23.6Liquidity RiskLiquidity 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. Italso has the ability to borrow, which gives it access to additional funding when required. At the balance sheet date it had the followingfacilities:£000Dec 16ExpiresDec 15ExpiresCommitted multi currency facility - RBS100,000100,00031/12/2018Amount drawn----Committed multi currency facility - RBS--Amount drawn----Committed multi currency facility - RBS50,00031/12/201650,00031/12/2016Amount drawn----Committed multi currency facility - RBS100,00031/03/2017100,00031/03/2017Amount drawn100,000-90,000-Committed multi currency facility - Scotiabank100,00027/03/2018100,00027/03/2018Amount drawn20,000-100,000- Alliance Trust PLC | Annual Report and Financial Accounts 2016
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III Financial Statements III23Financial instruments and Risk23.6Liquidity Risk£000Dec 16ExpiresDec 15ExpiresCommitted multi currency facility - Scotiabank--Amount drawn----Committed multi currency facility - Scotiabank100,00022/12/2017100,00022/12/2017Amount drawn--100,000-Unsecured fixed rate loan notes*100,00031/07/2029100,00031/07/2029Amount drawn100,000-100,000-Total facilities550,000550,000Total drawn220,000-390,000-All the facilities are unsecured and have covenants on the maximum level of gearing and minimum net asset value of the Company. * The fair value of fixed rate loan notes is shown in note 15.23.7Gearing RiskThis 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£000Dec 16Dec 15Dec 16Dec 15Investments after gearing3,474,1653,307,3973,474,1973,309,671Gearing*(238,800)(399,000)(238,800)(399,000)Investments before gearing3,235,3652,908,3973,235,3972,910,671* Gearing is expressed as debt at fair valueSensitivity analysisIf net assets before gearing had decreased by 10%, with all other variables held constant, the income statement result and the net assetsattributable to equity holders of the parent would have further decreased by the amounts shown below. The analysis for last year assumeda net assets before gearing decrease of 10%. Group Company£000Dec 16Dec 15Dec 16Dec 15Income StatementRevenue return----Capital return(23,800)(39,000)(23,800)(39,000)Net Assets(23,800)(39,000)(23,800)(39,000)A 10% increase (10% increase) in net assets before gearing would have resulted in an equal and opposite effect on the above amounts, onthe basis that all other variables remain constant.23.8Hierarchical Valuation of Financial Instruments The Group refines and modifies its valuation techniques as markets develop. While the Group believes its valuation techniques to beappropriate and consistent with other market participants, the use of different methodologies or assumptions could result in differentestimates 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 liabilitiesLevel 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 thefair value hierarchy in which the fair value measurement is categorised at 31 December 2016. All fair value measurements disclosed arerecurring fair value measurements. Alliance Trust PLC | Annual Report and Financial Accounts 2016
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Financial Statements23Financial instruments and Risk23.8Hierarchical Valuation of Financial Instruments Group valuation hierarchy fair value through profit and lossAs at 31 December 2016As at 31 December 2015£000Level 1Level 2Level 3TotalLevel 1Level 2Level 3TotalListed investments3,250,069--3,250,0693,088,881--3,088,881Foreign exchangecontracts-6,853-6,853----Unlisted investmentsPrivate equity--113,007113,007--125,254125,254Alliance Trust Savings--61,50061,500--54,00054,000Alliance Trust Finance(in liquidation)------720720Alliance TrustInvestments--28,27628,276--19,80019,800Mineral rights--13,18713,187--17,53517,535Other--1,2731,273--1,2071,2073,250,0696,853217,2433,474,1653,088,881-218,5163,307,397Company valuation hierarchy fair value through profit and lossAs at 31 December 2016As at 31 December 2015£000Level 1Level 2Level 3TotalLevel 1Level 2Level 3TotalListed investments3,250,069--3,250,0693,088,881--3,088,881Foreign exchangecontracts-6,853-6,853----Unlisted investmentsPrivate equity--113,007113,007--125,254125,254Alliance Trust Savings--61,50061,500--54,00054,000Alliance Trust Finance(in liquidation)------720720Alliance TrustInvestments--28,27628,276--19,80019,800Mineral rights--13,18713,187--17,53517,535Other--1,3051,305--3,4813,4813,250,0696,853217,2753,474,1973,088,881-220,7903,309,671There have been no transfers of recurring measurements during the year between Levels 1, 2 and 3. Fair Value Assets in Level 1The quoted market price used for financial investments held by the Group is the current bid price. These investments are included withinLevel 1 and comprise equities, bonds and exchange traded derivatives.Fair Value Assets in Level 2The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined byusing valuation techniques. These valuation techniques maximise the use of observable market data where it is available and with minimalreliance on entity specific estimates.Fair Value Assets in Level 3Level 3, excluding the valuations of the subsidiaries, are reviewed at least annually by the Valuation Committee of ATI. The valuations ofthe two trading subsidiaries, ATI and ATS are reviewed at least annually by the Audit and Risk Committee with valuations recommended tothe Board of the Company. The ATI Valuation Committee considers the appropriateness of the valuation models, inputs, using the variousvaluation methods in accordance with the Group's valuation policy. The Committee will determine the appropriateness of any valuation ofthe underlying assets.The following table shows the reconciliation from the beginning balances to the ending balances for fair value measurement in Level 3 ofthe fair value hierarchy. Alliance Trust PLC | Annual Report and Financial Accounts 2016
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III Financial Statements III23Financial instruments and Risk23.8Hierarchical Valuation of Financial Instruments £000 Group CompanyDec 16Dec 15Dec 16Dec 15Balance at 1January218,516232,531220,790232,609Net (loss)/gain from financial instruments at fair value through profit orloss3,793(16,556)1,551(14,360)Purchases at cost18,62942,90818,62942,908Sales proceeds(37,308)(38,175)(37,308)(38,175)Realised (loss)/gain on sale13,613(2,192)13,613(2,192)Balance at 31 December217,243218,516217,275220,790Investments in subsidiary companies (Level 3) are valued in the Group accounts at £169.8m (£170.7m) and in the Company’s accounts at£169.8m (£173.0m) being the Directors' estimate of their fair value, using the guidelines and methodologies on valuation published by theInternational Private Equity and Venture Capital Association issued in December 2015 and where applicable external valuations. Thisincludes a valuation of ATS at £61.5m (£54.0m). This represents the Directors' view of the amount for which the subsidiary could beexchanged between knowledgeable willing parties in an arm's length transaction. This does not assume that the Company currently hasany intention to sell the subsidiary business in the future. The Directors have used several valuation methodologies as prescribed in theguidelines to arrive at their best estimate of fair value including discounted cash flow calculations, revenue and earnings multiples andrecent market transactions where available.For 31 December 2016 the fair valuation of ATI is based on the recently announced transaction to sell ATI to Liontrust Asset ManagementPLC. The valuation is based on the fair value of Liontrust shares to be used to fund the transaction and the expected net asset value ofATI excluding any contingent amounts. (note 10)The following key assumptions are relevant to the fair valuation of our investment in our subsidiary companies, and are consistent with prioryears:• Alliance Trust Savings - This is valued as a trading business. For the fair valuation of ATS at 31 December 2016 the Audit and RiskCommittee took advice from an external valuer in arriving at the fair value of ATS. The Audit and Risk Committee challenged the range of values provided and after fully reviewing the methodology and assumptions the Committee approved the reported valuation. An internal model prepared by management using a discounted cash flow has been used for comparative purposes. The multiples applied in valuing our subsidiary are derived from comparable companies sourced from market data. Mineral rights are carried at fair value and are valued in the Company’s accounts at £13.2m (£17.5m) being the Directors' estimate of theirfair value, using the guidelines and methodologies on valuation published by the Oklahoma Tax Commission and for non-producingproperties, 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 relevantLevel 3 assets.£000InvestmentFair Valueat Dec 16 Valuation MethodUnobservable inputsInputInputsensitivity +/-Change invaluation +/-Alliance Trust Savings61,500Discounted cash flowDCF discount rate12.5%0.53,800/(3,500)Mineral Rights13,187Oklahoma Tax CommissionRevenue multiple - gas71933/(933)multiples and Lierle US PriceRevenue multiple - oil41363/(363)report (for non-producingRevenue multiple -41760/(760)properties).products/condensateAverage bonus10.51,158/(1,158)multiple non-producingThe change in valuation disclosed in the above table shows the direction an increase or decrease in the respective input variables wouldhave on the valuation result. For Mineral rights, an increase in the revenue multiple and average bonus multiple would lead to an increasein the estimated value.For the 31 December 2016 and 2015 fair valuations of ATS the Board has taken advice from an external valuer. This approach was takensubsequent to the purchase of Stocktrade and the decision to use an external valuer is to apply a degree of independence and externalchallenge into the valuation. The external valuation was compared against internal valuations models prepared by management.Private equity investments, both fund-to-fund and direct included under Level 3, are valued in accordance with the International PrivateEquity and Venture Capital Valuation Guidelines issued in December 2015. Unlisted investments in private equity are stated at thevaluation as determined by the Valuation Committee based on information provided by the General Partner. The General Partner’s policy invaluing unlisted investments is to carry them at fair value. The General Partner will generally rely on the fund's investment manager’s fairvalue at the last reported period, rolled forward for any cashflows. However if the General Partner does not feel the manager is reflecting afair value they will select a valuation methodology that is most appropriate for the particular investments in that fund and generate a fair Alliance Trust PLC | Annual Report and Financial Accounts 2016
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Financial Statements23Financial instruments and Risk23.8Hierarchical Valuation of Financial Instruments value. In those circumstances the General Partner believes the most appropriate methodologies to use to value the underlying investmentsin the portfolio are:• Price of a recent investment• Multiples• Net assets• Industry valuation benchmarksAn entity is not required to create quantitative information to comply with this disclosure requirement if quantitative unobservable inputs arenot developed by the entity when measuring fair value (for example, when an entity uses prices from prior transactions or third-party pricinginformation without adjustment). ATI receives information from the General Partner on the underlying investments which is subsequentlyreviewed by the Valuation Committee. Where the Valuation Committee does not feel that the valuation is appropriate, an adjustment will bemade.From 1 January 2016 unsecured fixed rate loan notes are recognised at fair value. In 2015 the fixed rate loan notes were initiallyrecognised at a carrying value equivalent to the proceeds received net of issue costs associated with the borrowings. As disclosed in theaccounting policies note the 2015 opening and closing valuations have been restated at fair value.After initial recognition, unsecured fixed rate loan notes are subsequently measured at amortised cost using the effective interest ratemethod. The effective rate of interest is 2.47%.No interrelationships between unobservable inputs used in the above valuations of Level 3 investments have been identified.24Share Based PaymentsThe Group operated the share based payment schemes:All Employee Share Ownership Plan ('AESOP')Employees could 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. No such awards were made in 2016. In 2015 the charge tothe income statement for these awards was £312,000. The total costs for the AESOP for all staff are borne by the Company as the awardis based on key performance metrics and criteria relating to the Company. On this basis the AESOP cost has not been recharged tosubsidiary companies.Long Term Incentive Plan ('LTIP')The LTIP is a discretionary plan for Executive Directors and senior managers. It comprised two elements: first it provided for the grant ofmatching awards based on the proportion of annual bonus applied by participants in the purchase of shares in the Company and held bythe Employee Benefit Trust; and second it provided for the grant of performance awards. Both awards, granted over shares in theCompany, 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 2016, no new awards were made.In the year to 31 December 2015 participating employees applied a proportion of their annual cash bonuses for the year ended 31December 2014 to purchase 98,002 shares of Alliance Trust PLC at a price of £5.10 per share. Matching awards of up to 317,880 sharesand performance awards of up to 552,263 were granted. Matching awards and performance awards made were valued at £588,000 and£1,022,000 respectively. The fair value of the awards granted during 2015 was calculated using a binomial methodology. The assumptionsused were a share price of £5.07, share price volatility of 11% based on a long term dividend yield of 2.08%, comparator group share pricecorrelation of 40%, risk free interest rate of 0.94% and forfeiture of Nil. The cumulative credit to the income statement during the year for the cost of the LTIP awards referred to above was £1,000 (£52,000charge). In the year to 31 December 2016 a £70,000 credit (£473,000 charge) was recognised in reserves in relation to equalisation ofamounts carried forward from the prior year. These charges related to the Company only. As a result of the transfer of staff employment contracts to ATI and ATS the cumulative incentive plan reserves as at 31 December 2015were transferred to the respective new employing company. The 2016 LTIP expense recorded by the Company relates to the previousChief Executive who left in 2016 and staff made redundant in 2015 who were classed as good leavers.In accordance with IFRS 2 the costs of matching and performance awards for each plan are expensed over the three year performanceperiod.These costs are only adjusted if certain vesting conditions are not met, for example if a participant leaves before the end of the three yearvesting period.Deferred Bonus AwardThe Deferred Bonus Award is a discretionary plan for FCA code staff in subsidiaries, where they are required to defer 50% of an annualbonus award for 3 years. Shares in the Company are awarded up to the value of the deferred award and are held by the Employee BenefitTrust. The award, granted over shares in the Company vests in full or in part at the end of the three year holding period subject to therebeing no material misstatement or fraud in the results of the year that the grant relates to. The cost of all awards are reflected in thesubsidiaries. Alliance Trust PLC | Annual Report and Financial Accounts 2016
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III Financial Statements III24Share Based PaymentsMovements in optionsMovements in options granted under the LTIP are as follows:GroupDecember 2016GroupDecember 2015£000Number ofoptionsWeighted averageexercise priceNumber ofoptionsWeighted averageexercise priceOutstanding at 1 January2,394,619£0.002,912,170£0.00Granted during year85,102£0.00870,143£0.00Exercised during year(188,111)£0.00(245,668)£0.00Forfeited during year(9,686)£0.00(343,545)£0.00Expired during year(556,091)£0.00(798,481)£0.00Outstanding at 31 December1,725,833£0.002,394,619£0.00Exercisable at 31 December-£0.00-£0.00The weighted average remaining contractual life of the options outstanding at 31 December 2016 was 745 days (577 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 satisfiedby shares held on behalf of the Company by the Trustee of the Employee Benefit Trust.25Pension SchemeThe Group sponsors two pension arrangements. The following disclosures apply to both the Group and the Company.The Alliance Trust Companies’ Pension Fund (the ‘Scheme’) is a funded defined benefit pension scheme which was closed to futureaccrual on 2 April 2011. On 31 May 2016 the Trustees of the Scheme purchased an annuity with Legal & General. The purpose of thistransaction was to align the assets of the Scheme with long term liabilities and to reduce risk on long term liabilities.The disclosures which follow relate to the Scheme.Participating EmployerATSL is the sole Participating Employer and its pension obligations are guaranteed by the Company.Valuation and ContributionsThe last full actuarial valuation of the Scheme was carried out by a qualified independent actuary as at 1 April 2015 although for thepurpose of these calculations the results of the 1 April 2015 valuation have been updated on an approximate basis to 31 December 2016.Valuations are on the projected unit credit method.In May 2016 the Board decided to inject £19.2m into the Scheme to fund the purchase of an annuity policy with Legal & General to matchthe Scheme’s liabilities to its members. The annuity was purchased by the Trustees of the Scheme on 31 May 2016. The SOCI reports adefined benefit plan net actuarial loss of £26.6m. This is attributable to the £19.2m annuity purchase, a £0.2m employer contribution, a£0.4m IAS 19 credit recognised in the Income Statement and a £6.8m reduction of the Pension Scheme surplus. RisksFollowing the purchase of the group annuity policy the principal risks the Scheme typically exposes the Group to are as follows:- Covenant risk: There is a risk that the insurance companies providing the annuities will fail, following which the responsibility for makingthe benefit payments under the Scheme would remain with the Scheme (and ultimately the Company). This risk is mitigated as in the eventof insurer insolvency, the Financial Services Compensation Scheme would apply, providing some protection to the Scheme.- Investment risk: The risk of the Scheme failing to hold investments to match the liabilities of the Scheme is extinguished by holdingannuities. Any failure of an insurance company involved could however return this risks to the Scheme.- Actuarial risk: The Trustees are aware that there are actuarial risks associated with the longevity of the members, interest rates andinflation. Although these are now matched by annuities this does not however totally remove actuarial risk, as any failure of an insurancecompany involved could return these risks to the Scheme.Reconciliation of opening and closing balances of the present value of the defined benefit obligation£00031 December 201631 December 2015Defined benefit obligation at start of year37,11938,783Past service cost139-Interest 1,3981,330Actuarial losses/(gains)16,303(1,389)Benefits paid(690)(1,605)Defined benefit obligation at end of year54,26937,119 Alliance Trust PLC | Annual Report and Financial Accounts 2016
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Financial Statements25Pension SchemeReconciliation of opening and closing balances of the present value of the defined benefit obligationThe Group has no unfunded pension obligations.Reconciliation of opening and closing balances of the fair value of plan assets£00031 December 201631 December 2015Fair value of assets at start of year44,00143,980Interest income2,0881,537Actuarial losses (10,334)(1,411)Contributions by employer19,4001,500Benefits paid(690)(1,605)Administration costs(113)-Fair value of assets at end of year54,35244,001Total credit recognised in the income statement£00031 December 201631 December 2015Past service cost139-Interest on Scheme liabilities1,3981,330Interest income(2,088)(1,537)Operating cost113-Total credit (438)(207)As a result of the closure of the defined benefit pension scheme to future accrual in the period ended 31 December 2011, the Companyand the Group benefited from a gain to the Income Statement.(Losses)/gains recognised in the statement of comprehensive income£00031 December 201631 December 2015Difference between expected and actual return on the Scheme assets:Amount(10,334)(1,411)Percentage of Scheme assets19%3%Experience gains arising on the Scheme liabilities:Amount-4,857Percentage of present value of Scheme liabilities-%13%Effects of changes in the financial assumptions underlying the present value ofthe Scheme liabilities:Amount(14,430)(1,138)Percentage of present value of Scheme liabilities27%3%Effects of changes in the demographic assumptions underlying the presentvalue of the Scheme liabilities:Amount(1,873)(2,330)Percentage of present value of Scheme liabilities4%6%Total amount recognised in statement of comprehensive income:Amount(26,637)(22)Percentage of present value of Scheme liabilities52%-% Alliance Trust PLC | Annual Report and Financial Accounts 2016
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III Financial Statements III25Pension SchemeAssets£00031 December 201631 December 201531 December 2014Equities-17,60122,395Bonds-21,12021,251Other54,3525,28033454,35244,00143,980Other assets includes cash of £0.1m (2015 £5.3m) and an insurance policy of £54.2 million (2015 £nil). The assets are held independently of the assets of the Group in funds managed by Legal & General. None of the fair values of the assetsshown above include any of the Group’s own financial instruments or any property occupied by, or other assets used by, the Group.Actual return on the Scheme assetsThe actual return on the Scheme assets over the year ended 31 December 2016 was a loss of 15% (gain of 0.3%).Assumptions%31 December 201631 December 201531 December 2014Retail Price Index Inflation3.653.503.00Consumer Price Index Inflation2.752.602.10Rate of discount2.703.803.50Allowance for pension in payment increases of RPI(subject to a maximum increase of 5% p.a.)3.503.352.90Allowance for revaluation of deferred pension of RPI(subject to a maximum increase of 5% p.a.)2.752.202.10Statutory revaluation has used the Consumer Price Index (CPI) for the last four years rather than the Retail Price Index (RPI) which waspreviously 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 2016, follow the S2PA table, using 80% of the base table with CMI_2014 mortality projections with improvementsubject to a 1.5% 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 26 years. Mortality assumptions31 December 2016Years31 December 2015YearsMale currently age 45 at 6526.926.8Female currently age 45 at 6529.129.0Male currently age 6524.724.6Female currently age 6526.826.7SensitivitiesAn estimate of the sensitivities regarding the principal assumptions used to measure the Scheme’s liabilities are set out below.AssumptionChange in assumptionIncreaseEstimated impact onscheme liabilities(Decrease)/IncreaseChange in assumptionDecreaseEstimated impact onscheme liabilitiesIncrease/(Decrease)Discount rate0.5%(£6,509,000)0.5%£7,749,000RPI0.5%£5,882,0000.5%(£6,059,000)Age of member1 year(£1,792,000)1 year£1,795,000£00031 December 201631 December 201531 December 2014Present value defined benefit obligation54,26937,11938,783Fair value of Scheme assets54,35244,00143,980Surplus in Scheme836,8825,197The cumulative amount of actuarial gains and losses recognised in the statement of comprehensive income of the Company sinceadoption of IAS19 is a loss of £30.4m (£3.8m).All actuarial gains and losses are recognised immediately. Financial Statements
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25Pension SchemeBest 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 £19.4m represented by a £19.2m to fund thebulk annuity purchase with Legal & General Group PLC and a £0.2m contribution in line with the previous recovery plan.Amounts for the current and previous years£000Dec 16Dec 15Dec 14Dec 13Dec 12Fair value of assets54,35244,00143,98038,98634,616Defined benefit obligation54,26937,11938,78333,90730,311Surplus in Scheme836,8825,1975,0794,305Experience adjustment on Scheme liabilities-4,85710(41)546Experience adjustment on Scheme assets(10,334)(1,411)2,6171,973383Effects of changes in the demographic and financialassumptions underlying present value of the Schemeliabilities(16,303)(3,468)(4,133)(2,807)(1,334)26Operating lease commitmentsAs at 31 December 2016 the Group and Company had total future minimum lease payments under non cancellable operating leases asfollows:31 December 201631 December 2015Group£000Land andbuildingsOtherLand andbuildingsOtherLease commitments due< 1 year---3Between 2-5 years468487871After 5 years1,863-2,084-31 December 201631 December 2015Company£000Land andbuildingsOtherLand andbuildingsOtherLease commitments dueWithin 1 year---3Between 2-5 years468487871After 5 years1,863-2,084-27Post Balance Sheet EventsRepurchase of SharesAs disclosed on page 7 the Company announced that it had entered into an agreement, subject to shareholder approval, with ElliottInternational, LP, the Liverpool Limited Partnership and Elliott Associates LP (collectively “Elliott”) the Company’s largest beneficialshareholders) to purchase the 95,478,576 Ordinary Shares over which Elliott had direct control or to which it had an economic exposure(through contracts for difference, in five tranches each at a 4.75 per cent. discount to Net Asset Value). The repurchase, which wasapproved at the General Meeting of the Company on 28 February 2017, has been completed on these terms.Approval of New Approach to Investment ManagementAs disclosed on page 3, following approval by shareholders on 28 February 2017, the Board confirmed the new multi investment managerapproach to managing the Trust’s equity portfolio, effective from 1 April 2017. Information for shareholders
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
Our Director of Investor Relations can be contacted at our registered
office (detailed above).
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.
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
Dividends paid by the Company carry a tax credit at 10% of the gross
dividend. Dividends are paid net of the tax credit.
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.
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91
Annual General Meeting
The 129th Annual General Meeting of the Company will be
held at 11.00am on Friday 27 April 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.
Financial calendar
Proposed dividend payment dates for the financial year to
31 December 2017 are on or around:
• 30 June 2017
• 2 October 2017
• 2 January 2018
• 31 March 2018
Dividend Tax Allowance
From April 2016 dividend tax credits have 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 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.
If you have any Tax queries, please contact your Financial Advisor.
Common Reporting Standards
Since January 2016 you may have received requests from our Registrar
for personal information to comply with legal obligations introduced
to reduce tax evasion. 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 to the HMRC.
Please note that only a small number of our shareholders fall into the
category where we have to make these requests. If you have any
queries on the validity of any document received from our registrars
you can contact them directly on 0870 889 3187.
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.
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 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
advisor 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 recommend that if you wish to sell
your shares you only deal with a financial services firm that is
authorised by the FCA.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
92
10 year record
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.
Assets £m as at
Total assets
Loans
Net assets
Net asset value (p)
31 Jan
2008
2,894
(159)
2,699
31 Jan
2009
2,211
(50)
2,123
31 Jan
2010
2,704
(160)
2,513
31 Jan
2011
3,268
(339)
2,895
31 Dec
2011
31 Dec
2012
31 Dec
2013
31 Dec
2014
31 Dec
2015
31 Dec
2016
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
3,541
(220)
3,284
NAV per share
402.3
316.8
377.7
439.0
405.8
444.9
516.5
544.8•
559.0•
667.5•
NAV total 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
210.7
178.6
198.3
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
638.0
641.5
447.3
226.0
197.0
225.5
5
–
–
11
5
–
11
–
7
–
7
–
12
–
11
–
13
–
6
–
Revenue
2008
2009
2010
2011
Year ended 31 January
11 mths
to 31 Dec
2011
Year ended 31 December
2012
2013
2014
2015
2016
Profit after tax
£61.5m
£69.5m
£61.1m
£63.8m
£61.9m
£55.6m
£60.6m
£68.8m
Earnings per share
Dividends per share
Special dividend
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
2.546p
£60.2m
12.43p†
10.97p
1.46p∆
£65.9m
12.77p
12.77p
Performance (rebased
at 31 Jan 2007) as at
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
31 Dec
2016
NAV per share
Closing price per share
Earnings per share
Dividends per share
(excluding special)
Cost of running
the Company
95
92
106
104
75
73
120
106
90
86
106
108
104
100
112
111
Year ended 31 January
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
158
174
147
169
Year ended 31 December
2012
2013
2014
2015
2016
Administrative expenses
£15.0m
£16.8m
£16.0m
£17.0m
£16.0m
£18.7m
£21.5m
£20.8m
£23.9m
£18.8m
Ongoing charges ratio
(excluding capital
incentives***)
Capital incentives
Ongoing charges ratio
(including capital
incentives***)
0.42%
0.03%
0.60%
0.07%
0.64%
0.05%
0.53%
0.07%
0.56%**
0.04%
0.67%
0.04%
0.75%
0.05%
0.60%
0.04%
0.59%
0.04%
0.43%
–
0.45%
0.67%
0.69%
0.60%
0.60%**
0.71%
0.80%
0.64%
0.63%
0.43%
•With debt at fair value
*Source: Morningstar UK Ltd
†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.
Alliance Trust PLC | Annual Report and Financial Accounts 2016
93
Contact
Alliance Trust PLC
8 West Marketgait
Dundee
DD1 1QN
Tel +44 (0)1382 321000
Email investor@alliancetrust.co.uk
www.alliancetrust.co.uk