A N N U A L
R E P O R T
2 0 1 7
Annual Report for the year
ended 31 December 2017
Alliance Trust is an investment trust with
a unique global equity portfolio providing
access to an alliance of ‘best-in-class’* equity
managers and their best high-conviction ideas,
all at a competitive cost.
*As rated by Willis
Towers Watson.
CONTENTS
Section I
Strategic Report
Our Performance in 2017
Chairman’s Statement
Our Business Model
Investment Strategy
Investment Objective and Policy
Key Performance Indicators
Our Investment Manager
The Equity Managers
Investment Manager’s Report
Investment Portfolio
Contribution Analysis
Equity Portfolio Listing
Non-core Assets
Investment in Operating
Subsidiary Company
Costs and Performance Measures
Risk Management
Corporate Responsibility
1
1
2
4
4
4
6
7
8
9
14
14
15
18
19
20
22
26
Section II
Directors’ Report
Board of Directors
Corporate Governance
Board Evaluation
Audit and Risk Committee
Going Concern Statement
Viability Statement
Remuneration Committee
Other Governance
Independent Auditor’s Report
28
28
30
33
34
40
41
42
49
52
Section III
Financial Statements
Income statement
Statement of comprehensive income
Statement of changes in equity
Balance sheet
Cash flow statement
Notes
Glossary: Performance Measures
Information for shareholders
Ten-year record
58
59
59
60
61
62
63
89
90
92
OUR PERFORMANCE IN 2017
The Equity Portfolio outperformed its target, producing a
total return of 18.0%1 compared to the MSCI ACWI† which
returned 13.8%.
2017 has been a transformational year for Alliance Trust.
Following the strategic review in 2016, and shareholder
approval of the Board’s proposals, the Trust has successfully
transitioned to a new approach – a global alliance of
high-conviction equity managers – aiming to achieve
more consistent outperformance at a competitive cost,
while maintaining a progressive dividend policy.
Performance since 1 April, when the new investment approach
was adopted, has been encouraging and the Board believes
the foundations are in place to deliver strong and sustainable
performance for shareholders for generations to come.
• Share price at 31 December 2017 was 746.5p, up 17.0% from
638.0p at 31 December 2016
• Net Asset Value (NAV) per share at 31 December 2017 was
777.7p2, up 16.5% from 667.5p2 at 31 December 2016
• Total Shareholder Return1 for 2017 was 19.2% (2016: 26.4%)
• Ongoing Charges Ratio (OCR)1 for 2017 was 0.54%, or
0.62% from 1 April when our new investment approach
was adopted. The higher percentage reflects the new
investment approach, higher buyback activity in the first
quarter and a lower NAV. We remain below our maximum
OCR target of 0.65%
• The Board has delivered on its commitment to execute share
buybacks when it believes it is beneficial to shareholders
to do so. In addition to the purchase from Elliott, the Trust
purchased 49.6m shares at a cost of £339.7m
• The Trust now has over 50 years of consecutive
dividend growth with total ordinary dividend2 for
2017 at 13.16p, an increase of 3% compared with
2016 ordinary dividend of 12.774p
• The Equity Portfolio aims to outperform the MSCI All Country
World Index (ACWI) by 2% per year after costs over rolling
three-year periods. It achieved this in 2017 with a Total
Return of 18.0% (2016: 22.9%), compared to the MSCI ACWI
at 13.8% (2016: 29.4%)
Our other Key Performance Indicators (Total Shareholder
Return, NAV Total Return, Equity Portfolio Total Return,
Discount and Total Dividend) can be found on page 6.
1Alternative Performance Measure (refer to Glossary on page 89).
2UK GAAP Measure.
†See Glossary on page 89.
FINANCIAL HIGHLIGHTS
SHARE PRICE (PENCE)
746.5p
450.1
478.9
517.0
800
700
600
500
400
300
200
100
0
17.0%
638.0
746.5
2013
2014
2015
2016
2017
Source: FactSet.
16.5%
667.5
777.7
NET ASSET VALUE (PENCE)2*
777.7p
516.5
544.8
559.0
800
700
600
500
400
300
200
100
0
2013
2014
2015
2016
2017
Source: FactSet and WTW.
*Including income and with debt at fair value.
ONGOING CHARGES RATIO (%)1
0.54%
0.75
0.60
0.59
0.54
0.43
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
2013
2014
2015
2016
2017
Source: Alliance Trust and WTW.
1
Alliance Trust PLC | Annual Report and Financial Accounts 2017I STRATEGIC REPORTIIIII CHAIRMAN’S STATEMENT
This has been a transformational year for Alliance Trust,
as the new approach to managing our equity portfolio was
approved by shareholders and implemented in the spring.
The early investment performance achieved by this new
approach has been encouraging against the backdrop of world
markets which have been characterised by macro-economic
and political uncertainty. That said, it is still early days and
all of us at Alliance Trust recognise our commitment to invest
for generations. We look forward with confidence to the
opportunities and challenges that 2018 will bring as the
new approach becomes more familiar to the market and
we develop our track record.
DEVELOPMENTS IN 2017
Following the Board’s strategic review of the Trust in 2016,
shareholders voted on the proposed new approach to
managing the Trust’s equity portfolio at a General Meeting
in February 2017. We were delighted with the strong support
of our shareholders, with over 96% of those who voted being
in favour of the change. Following a competitive selection
process, we appointed Willis Towers Watson (WTW) as
investment manager to manage the Trust’s portfolio.
WTW appointed eight equity managers and the portfolio
underwent transition to the new managers during March
2017 and the new strategy became effective on 1 April.
In January, the Board reached agreement with Elliott,
then the Trust’s largest shareholder and a related party,
to repurchase the shares in which it had a disclosable
interest (approximately 20% of the Trust’s issued share
capital as at December 2016). Approval for this was also
granted at the February General Meeting and the repurchase
went ahead, resulting in a reduction in the size of the Trust and
an uplift in the Net Asset Value (NAV) for other shareholders
of around 1%, as well as the removal of a potential share
overhang. This development has allowed the Trust to move
forward with a more stable shareholder register.
As part of the strategic review, Alliance Trust Investments
(ATI), our asset management subsidiary which managed the
Trust’s portfolio prior to 1 April, was sold to Liontrust Asset
Management PLC at what we believe was a fair price. As part
of the consideration we received shares in Liontrust, which we
sold in January 2018 at a price of 520p per share, representing
a significant return of 55.3% on the price of 334.9p at which
the shares were issued. We are due to receive a further
1,015,198 Liontrust shares in April 2018, which are subject to a
one-year lock-up. When ATI was sold, it was expected that the
net proceeds of the sale would be not less than £25m, before
any future contingent consideration. We now expect that the
net proceeds will be not less than £35m, before any future
contingent consideration.
Since the new approach was implemented, the Board has
received regular updates from WTW in order to assess its
progress. We have also hosted a number of events in conjunction
with WTW and refreshed our communications materials in
order to provide relevant updates to our shareholders.
A small Executive function was established on 1 April which
comprises five members of staff. They provide Company
Secretarial services to all Group companies, oversee the work
of our outsourced providers and generally support the Board.
THE NEW APPROACH
WTW has brought together eight best-in-class* equity
managers from around the world who invest only in their
highest-conviction ideas (a maximum of 20 stocks, except
for in the emerging markets portfolio where around 50
stocks are held). It is the combination of their individual,
high-conviction investment ideas, overseen by WTW, that
creates the ‘alliance of best ideas’ approach that we now
talk about when referring to the overall equity portfolio.
Our equity portfolio is targeting outperformance of the
MSCI All Country World Index by 2% per annum, net of costs,
over rolling three-year periods. WTW selects and manages
the underlying managers and monitors their performance
as well as providing risk management expertise.
By leveraging the scale of Alliance Trust and WTW, total
ongoing charges are 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 more consistently our outperformance target;
• maintain our long track record of growing dividends; and
• maintain the Trust’s ongoing competitive cost ratio.
We still hold some Non-Core investments but are actively
reviewing our private equity, funds and mineral right holdings
with a view to an early disposal, subject to market conditions.
Alliance Trust was one of the earliest investment trusts to be
created back in 1888 and we are now combining our strong
heritage with an innovative, high-conviction ‘alliance of best
ideas’ investment proposition. The foundations are firmly in place
for the Trust to deliver strong and sustainable performance as
we continue to invest for generations.
*As rated by Willis Towers Watson.
I STRATEGIC REPORT
II
III
PERFORMANCE IN 2017
REGULATION
The Trust has performed well over the year, outperforming
the target benchmark. Total Shareholder Return was 19.2%,
Net Asset Value (NAV) Total Return was 18.5% and the share
price rose 17.0% to 746.5p with the NAV per share increasing
16.5% to 777.7p. Performance since 1 April, when the new
investment approach was adopted, has been particularly
encouraging and this has been achieved while keeping our
ongoing charges below 0.65%.
The expected total gain of £10m from the sale of shares
in Liontrust received as part of the consideration for the
sale of our subsidiary Alliance Trust Investments, has been
more than offset by a reduction in the value of Alliance Trust
Savings (ATS). Following a year of poor financial performance,
the Directors reduced the fair value of ATS by £23.5m to
£38.0m.
ATS has had a challenging year. While the business has
continued to attract additional assets and now has more
than 110,000 customer accounts, ATS incurred a particularly
high level of costs in 2017. These principally related to the
transfer of the Stocktrade operations from Edinburgh to
ATS’s main centre in Dundee and to steps taken to improve
the level of customer service. In 2017, ATS generated an
operating loss of £6.1m before exceptional expenses. ATS has
written down the value of its intangible assets, related to the
Stocktrade business, resulting in an exceptional charge of
£13.2m. After this charge, ATS’s loss for the year was £19.3m.
This year has seen the introduction of the Key Information
Document (KID), which is available on our website. We
believe that this Annual Report, together with the other
documents we issue, may be more informative and useful
to our shareholders in assessing the risks and benefits of
purchasing our shares.
BUYBACKS
In October 2015 the Board committed to narrow materially
the Trust’s discount to NAV. Share buybacks are one tool
used in this context and were available to all shareholders
throughout the year. We buy back shares when we believe it
is beneficial to shareholders to do so. In addition to the 95.5m
shares repurchased during the Elliott transaction, we also
repurchased 49.6m shares as part of the ongoing programme.
Our share buyback programme has helped us to maintain an
average discount during the year of 5.4% against the Global
Investment Trust Sector’s 4.3%. We opened the year with
a discount of 4.4% and closed the year with a discount of
4.0% (calculated on the published NAV as at 31 December
2017 adjusted for the impact of the Alliance Trust Savings
valuation as at that date determined after the year end)
against the sector’s average of 2.5%.
As supply and demand have moved towards a state of
equilibrium, share buybacks have reduced over the course
of the year.
THE NEW MANAGERS
DIVIDEND
Shareholders have had the opportunity to meet WTW and
some of the equity managers at our last AGM and the various
shareholder forums we have held over the year. In addition,
there are new videos on our website to give a flavour of who
the managers are and their investment styles. It is our intention
to continue holding such events for shareholders in 2018 and
details will be posted on our website www.alliancetrust.co.uk
Hugh Sergeant from River and Mercantile and George Fraise
from Sustainable Growth Advisers (SGA) presented after the
AGM in April, when they described their particular investment
approaches. River and Mercantile invests in recovery stocks
through a systematic and repeatable process, while SGA
looks for a balance between quality, growth and valuation
to reduce the overall risk of any investment. Following this
year’s AGM we expect presentations by Bill Kanko from
Black Creek Investment Management and Andy Headley
of Veritas Asset Management. The presentations will be
available on our website after the AGM.
We also launched our new quarterly newsletter, CONNECTION,
in the autumn, which included articles from two other managers.
Rajiv Jain from GQG Partners discussed matters affecting
emerging markets. He sees solid prospects for healthy profits
going forward. The team from SGA – George Fraise, Gordon
Marchand and Rob Rohn – reflected on how high-quality,
secular growth businesses were temporarily out of favour
and how this can provide opportunities for their investment
style. A copy of the publication is available on our website.
We hope you enjoy reading CONNECTION and accessing our
new video content, along with the Trust’s new-look website.
We welcome any feedback on these materials and the
Trust’s shareholder engagement activities.
The Trust continued to build on its 50 years of consecutive
dividend growth in 2017. We are very proud of our dividend
track record and the Board is delighted to continue the
Trust’s progressive dividend policy. We have decided to
maintain our progressive dividend, and that we may make
use of our revenue reserves when we have unanticipated
levels of income we may retain part of it, as we have done
this year, or declare a special dividend. The Board declared
a dividend of 3.29p per ordinary share, bringing the full year
dividend to 13.16p, growth of 3% on the previous year.
IN SUMMARY
While our new high-conviction, multi-manager investment
approach has been available to institutions for some time,
Alliance Trust brings the approach to a wider audience for
the first time. I am pleased that the new approach has
already demonstrated it can deliver outperformance at
competitive cost.
Looking ahead, 2018 is the Trust’s 130th year and the first
anniversary of the new investment approach. The Board
believes we have the foundations in place to deliver strong
and sustainable performance for our shareholders, whatever
conditions global markets bring. The new investment
approach is a compelling offering and we look forward
to continuing to invest for generations to come.
Lord Smith of Kelvin
Chairman
Alliance Trust PLC | Annual Report and Financial Accounts 2017
3
OUR BUSINESS MODEL
WHAT WE DO
We invest in global equities. We also have relatively small
investments in:
• Alliance Trust Savings
• Non-core investments†
– Mineral rights
– Private equity
– Liontrust Funds and Investments#
†These are mainly investments that were acquired as part of earlier investment
strategies and will be disposed of at the appropriate time.
#Liontrust shares were sold on 24 January 2018. 1,015,198 Liontrust shares will be
acquired in April 2018, which will be subject to a one-year lock-up.
HOW WE MANAGE OUR INVESTMENTS
We have appointed Willis Towers Watson**(WTW) as our
investment manager to manage our portfolio and it in turn
has appointed a number of equity managers. On the following
pages we provide more detail on how each equity manager
focuses on a limited number of their top investment selections.
WTW is also tasked with generating income to support our
progressive dividend policy where we are one of only four
FTSE All-Share Index companies with a record of increasing
their ordinary dividend for 50 years or more.
**We explain the legal structure of our arrangements with WTW on page 7.
INVESTMENT STRATEGY
The equity portfolio brings together an alliance of best-
in-class* equity managers and their best ideas – all at
a competitive cost. It provides access to eight equity
managers from around the world, each investing only in
their top stock selections.
*As rated by Willis Towers Watson.
FOCUSED ON GLOBAL EQUITIES
Global equities
Subsidiary entities
Non-core investments
Most of these managers are available to individual UK
investors only through Alliance Trust. The equity portfolio
target is to outperform the MSCI All Country World Index
by 2% per year after costs over rolling three-year periods.
Alliance Trust has a progressive dividend policy.
INVESTMENT OBJECTIVE AND POLICY
The investment objective and policy allow the Board to
adopt an investment strategy that can change to reflect
different market conditions and investment styles and is
detailed below. As our new Investment approach beds down,
we intend to review whether the Company’s Investment
objective and Policy should be reworded to better reflect
our current approach. If a change is proposed, this will go for
shareholder approval probably at the Annual General Meeting
to be held in 2019.
“Alliance Trust is an investment company with investment
trust status. The Trust’s objective is to be a core investment
for investors seeking increasing value over the long term.
The Trust has no fixed asset allocation benchmark and it
invests in a wide range of asset classes throughout the world
to achieve its objective. The Trust’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 Trust 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.
The Trust 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 Trust by the regulatory
or fiscal regime within which we operate. However, the Trust
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.
Where market conditions permit, the Trust will use gearing
of not more than 30% of its net assets at any given time.
The Trust can use derivative instruments to hedge, enhance
and protect positions, including currency exposures.”
4
Alliance Trust PLC | Annual Report and Financial Accounts 2017 AN ALLIANCE OF BEST IDEAS
Shareholders now have the opportunity to benefit from
the best ideas of eight best-in-class* equity managers.
They are each responsible for picking a selection of
‘high-conviction’ equities that they believe are most likely
to deliver outperformance over time. They invest only in
their very best ideas. Between them, they cover a range of
stock-picking styles.
The portfolio is managed by WTW, which balances risk at
stock, sector and geographical level. Through it, we appoint
multiple equity managers, reducing the risk that is often
taken by investors selecting a single, star manager or one
particular style that can move in and out of favour. We believe
this approach of using several complementary managers
investing with high-conviction increases the chances of
outperformance.
Restricting equity managers’ flexibility is often counter-productive,
so our managers are given mandates with as few constraints
as possible. They are free to invest in approximately 20 stocks,
from wherever in the world they choose.
This approach is complemented by an equity manager
responsible for investing in the emerging markets which
may involve around 50 stocks. Together, this creates a unique
‘alliance of best ideas’ of about 200 underlying listed stocks.
High-
conviction
portfolios
An alliance
of best
ideas
Best-in-class*
managers
Competitive
fees
*As rated by Willis Towers Watson.
I N V E S T M E N T M A N A G E R
†
E Q U I T Y M A N A G E R S
†"JUPITER" and
are the trade marks of Jupiter Investment Management Group Ltd and registered in the UK and as Community Trade Marks and elsewhere.
5
Alliance Trust PLC | Annual Report and Financial Accounts 2017I STRATEGIC REPORTIIIII KEY PERFORMANCE INDICATORS – 2017
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 (%)
120
100
80
60
40
20
0
123.6
106.1
67.2
53.0
19.2
13.8
1 Year
3 Years
5 Years
120
100
80
60
40
20
0
106.1
94.0
53.0
51.6
13.8
18.5
1 Year
3 Years
5 Years
120
100
80
60
40
20
0
106.1
101.0
53.0
54.4
13.8
18.0
1 Year
3 Years
5 Years
MSCI ACWI
Alliance Trust
MSCI ACWI
Alliance Trust
MSCI ACWI
Alliance Trust
Source: Morningstar and MSCI Inc.
Source: Morningstar and MSCI Inc.
This demonstrates the real return our
shareholders receive through dividends
and capital growth.
This demonstrates the growth of our total
portfolio including non-core investments.
Our NAV Total Return in 2016 was 21.5%.
*December 17 return has been adjusted to account
for the reduction in the value of Alliance Trust Savings
after the year end and is calculated including income
and with debt at fair value.
Source: BNY Mellon Fund Performance & Risk Analytics
Europe Limited and MSCI Inc.
This measures how our equity portfolio
investment managers perform. The equity
portfolio accounted for 90.7% of our
investment portfolio at the year end.
DISCOUNT (%)
AS AT 31 DEC
ONGOING CHARGES (%)
AS AT 31 DEC
TOTAL DIVIDEND (PENCE)
YEAR TO 31 DEC
8
6
4
2
0
7.5
4.6
4.6
4.4
4.0
2.5
2015
2016
2017
0.6
0.4
0.2
0.0
Global Sector
Weighted Average
Alliance Trust
Source: WTW.
0.59
0.54
0.43
2015
2016
2017
13
12
11
10
13.16
12.77
12.43
1.46
10.97
2015
2016
2017
Ordinary Dividend
Special Dividend
This is the cost of running the Trust as a
percentage of the average net assets of the
Trust. It is an indicator of how efficiently the
Trust is managed.
For more information see Costs and
Performance Measures on page 20.
Source: WTW.
The figures shown are the total dividends
earned, ordinary and special dividends.
For more information see Costs and
Performance Measures on page 21.
Source: AIC and Morningstar.
This is the difference between the share
price of the Trust and its net value and
is an indicator of demand for our shares.
The discount reported for 2017 is based
on the NAV in our audited accounts and
includes the valuation of Alliance Trust
Savings concluded following the year end.
Our published discount on 31 December
2017 was 4.8%.
6
Alliance Trust PLC | Annual Report and Financial Accounts 2017 OUR INVESTMENT MANAGER
ALLIANCE TRUST INVESTMENTS (TO 31 MARCH 2017)
Alliance Trust Investments was the investment manager to
31 March 2017 and had investment discretion until 17 March
2017 when BlackRock Advisors (UK) Limited was appointed
to manage the transition. WTW was appointed on 1 April
and the eight equity managers then took responsibility for
managing their stock selections at various dates until the
transition was completed on 12 April.
WILLIS TOWERS WATSON (FROM 1 APRIL 2017)
WTW (NASDAQ: WLTW) is a leading investment group with
roots dating back to 1828. The investment business, with
900 associates worldwide, aims to create sustainable
competitive advantage for clients in their investment portfolios.
This advantage is achieved through finding the best return
opportunities, using robust risk management processes and
technology and achieving scale advantages.
For Alliance Trust, this advantage is delivered to shareholders
through an ‘alliance of best ideas’ – a combination of eight
of Willis Towers Watson’s best-in-class* equity managers
from across the world, delivering their very best ideas
through high-conviction equity selection. The total portfolio
is managed by WTW, by balancing risk at the stock, sector
and geographical level.
The performance of the equity managers and the overall
portfolio including the Non-Core Investments is overseen by
WTW’s Investment Committee (see below), which is charged
with the following responsibilities:
• Drive outperformance of the portfolio
• Monitor and oversee individual manager performance
• Review portfolio blending and risk control
• Implement any gearing and hedging requirements
for the portfolio
The Alliance Trust Board has appointed Towers Watson
Investment Management (Ireland) Limited (TWIMI) as the Trust’s
Alternative Investment Fund Manager (AIFM). The AIFM has
delegated the management of the Trust’s portfolio to Towers
Watson Investment Management Limited (TWIM). Both TWIMI
and TWIM are members of the WTW group of companies.
*As rated by Willis Towers Watson.
THE WILLIS TOWERS WATSON INVESTMENT COMMITTEE
Global Chief Investment Officer
at Willis Towers Watson.
22 years' investment experience.
Senior Portfolio Manager
at Willis Towers Watson.
23 years' investment experience
(17 years as UK Equity Fund Manager).
Craig Baker
Role for Alliance Trust:
Chair of Investment
Committee
David Shapiro
Role for Alliance Trust:
Co-Portfolio Manager
Head of Portfolio Management for
EMEA at Willis Towers Watson.
Senior Equity Manager Researcher
at Willis Towers Watson.
18 years' investment experience.
12 years' investment experience.
Mark Davis
Role for Alliance Trust:
Co-Portfolio Manager
Stuart Gray
Role for Alliance Trust:
Investment
Committee Member
Together the team brings to bear 75 years of invaluable investment experience. It is supported by a team of about 120 research
and portfolio management professionals around the world.
Learn more about the new investment approach at: www.alliancetrust.co.uk/news-items/news/investment-approach/
7
Alliance Trust PLC | Annual Report and Financial Accounts 2017I STRATEGIC REPORTIIIII THE EQUITY MANAGERS
EIGHT OF THE BEST STOCK PICKERS* FROM ACROSS THE WORLD
Manager
Team
Investment Approach
Bill Kanko, Founder and President. Bill
was the Lead Manager for the Trimark
Fund and Trimark Select Growth Fund,
with combined assets of more than
$13bn.
The process is to look five to ten years ahead and find
stocks across the cap spectrum. Valuation-orientated
buyers of leading businesses around the world. The
approach is long term and contrarian.
Pierre Py and Greg Herr are
Co-Portfolio Managers with an
average of 20 years' investing
experience.
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.
Ben Whitmore has over 20 years
of experience and joined Jupiter
in 2006. He worked at Schroders,
managing both retail and institutional
portfolios and around £2bn of assets.
Ben is supported by Dermot Murphy,
Assistant Fund Manager.
Lyrical Asset Management’s
investment management team
is led by Co-Founder and Chief
Investment Officer, Andrew Wellington.
Long-term approach seeking companies that have
high-quality business models, exhibit financial
strength, and strong management with a track record
of shareholder alignment and allocating capital in a
value-accretive manner. The team operates a strict
value discipline.
Rajiv looks for high-quality and sustainable businesses,
whose underlying strength should outweigh their macro
environment and where each company’s strength can
only truly be understood through bottom-up analysis.
Ben is well known in the market as a long-standing
practitioner of contrarian value investing. He seeks
businesses that are out of favour and under-valued, but
have prominent franchises and sound balance sheets.
Value matters most to Lyrical and the team also maintains
a strict discipline around investing in quality companies,
seeking businesses that it believes will generate
attractive returns on their invested capital, are resilient
with reasonable debt levels, positive growth, attractive
margins, competent management, and the flexibility to
react to all phases of the business cycle.
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.
Hugh has put in place a process that helps him identify
value at different stages of a company’s lifecycle and
to give signals as to when that value might be unlocked.
He has shown particular strength in smaller companies
and in classic ‘Recovery’ situations.
Sustainable Growth Advisers (SGA)
was founded in 2003 by George
Fraise, Gordon Marchand and Rob
Rohn who jointly manage the Trust’s
portfolio. They average over 30 years
of investment experience.
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.
SGA seeks to identify only those very few truly
differentiated global businesses that possess strong
pricing power, offer recurring revenue generation and
benefit from attractive, long runways of growth.
The investment process utilises a proprietary Real Return
Approach, employed with an absolute return mindset,
dispensing with any reference to indices. Veritas uses a
number of methods including themes to help identify
industries and companies that are well positioned to
benefit medium-term growth, regardless of where they
are located.
10%
13%
15%†
10%
15%
9%
14%
14%
To read more about our equity managers’ views please visit: https://www.alliancetrust.co.uk
*As rated by Willis Towers Watson.
†Manages both a global equity and an emerging markets equity portfolio.
"JUPITER" and
are the trade marks of Jupiter Investment Management Group Ltd and registered in the UK and as Community Trade Marks and elsewhere.
8
Alliance Trust PLC | Annual Report and Financial Accounts 2017 INVESTMENT MANAGER’S REPORT
INVESTMENT MARKETS IN 2017
2017 was an excellent year for global equity investors,
with strong returns in local currency terms realised
across all major geographies and sectors.
2017 saw a broad based-equity market rally, driven by
strong corporate earnings and macro-economic data
across all major regions. The rally was primarily led by
technology stocks, but with all sectors benefiting from
accelerated momentum creating a rising tide effect in all
major global markets. For the first time since 2010, all
major regions reported positive annual growth for the
year in corporate earnings, leading many investors to
profess the arrival of a new global synchronous recovery.
In the US, the Federal Reserve raised interest rates three
times over the course of the year amidst a backdrop of
strong growth and declining unemployment figures.
Expectations of impending corporate and personal tax
cuts after the Republican Party’s tax plan passed through
Congress in December further fuelled US equity growth
towards the end of the year, with the NASDAQ briefly
surpassing 7,000 points for the first time in history during
intra-day trading in mid-December.
In the UK, the Bank of England raised interest rates for
the first time in over ten years during November, whilst
the completion of the first phase of Brexit negotiations
led to the major equity indices finishing the year at record
highs, despite lagging global markets throughout 2017. In
Europe, a strong start for equity markets was tempered
towards the end of the year, in part due to the rally in the
Euro seen during the first three quarters.
INVESTMENT PERFORMANCE & PORTFOLIO ACTIVITY
(UNTIL APRIL 2017)
Alliance Trust Investments was the investment manager
to 31 March and had investment discretion until 17 March
when BlackRock Advisors (UK) Limited (BlackRock)
was appointed to manage the transition to the new
investment approach.
The equity portfolio managed by ATI over this period
performed strongly, returning 9.2% versus the 7.3% for the
MSCI ACWI benchmark. The strong value style headwind
that buffeted the equity portfolio during the final quarter
of 2016 abated during the first quarter of 2017 to reverse
much of the loss experienced last year, creating a market
environment conducive to the large-cap growth stocks in
the portfolio.
This market environment favoured the Company’s overweight
exposure to Info Tech and Health Care stocks, with much of
the outperformance coming from these two sectors. The
Company’s Info Tech stalwarts such as Activision Blizzard,
Cadence Design Systems and the core Health Care holdings
in SS&C Technologies, CSL, Amgen and Roche were notable
contributors.
BlackRock was appointed as Transition Manager on
17 March with the transition completed successfully
on 12 April.
To manage the potential ‘out of market’ and implementation
risks for the transition, BlackRock was appointed as Transition
Manager on 17 March 2017 to assist with the transition of the
portfolio to the new structure and to align the portfolio with
the Company’s new investment approach.
Willis Towers Watson (WTW) as the new investment manager
played an active role during the transition, taking decisions
on appropriate timing for when each underlying portfolio
manager should take on responsibility for their respective
portfolios. The transition was completed well within the
timeframe expected, and there were no errors in or deviations
from the transition plan.
Prior to the transition, WTW estimated the direct costs
(commissions, taxes, fees and bid/offer spreads) would be in
the region of 0.30%. The final direct costs were much lower
at 0.18%. Indirect costs were also kept to a minimum. The
transition portfolio performance, even after costs, in the
short period of the transition, performed better than if the
legacy portfolio had remained in place and not been traded.
9
Alliance Trust PLC | Annual Report and Financial Accounts 2017I STRATEGIC REPORTIIIII INVESTMENT MANAGER’S REPORT
CONTINUED
On 1 April 2017, WTW was appointed as the Trust’s new investment manager to implement ‘an alliance of best ideas’.
A HIGH-CONVICTION INVESTMENT APPROACH
We believe that high-quality equity managers are able
to deliver long-term capital appreciation and add
value versus an index through their highest-conviction
positions, through high ‘active share’.
We believe:
• Genuinely skilled managers exist
• These managers can generate outperformance relative
to their agreed benchmarks in excess of their fees
• With sufficient research due diligence, these skilled
managers can be identified and selected in advance
We invest significant time and effort in identifying
these managers and we have a successful proven
track record.
Based on our extensive experience we also believe:
• That high active share portfolios are advantageous.
Academic research supports this
• Managers and investors should access a broad
opportunity set. The broadest opportunity set is
provided by unrestricted global mandates
• That a number of managers are needed to diversify
style, size, sector, region and other investment risks as
well as adverse selection; a multi-manager approach
Last but not least, costs matter. We go to great lengths to
ensure that we deliver value for money, not just by using our
scale to reduce costs, but also by using our influence with
managers to create bespoke cost-effective products.
Our investment proposition for the Trust is a true
‘alliance of best ideas’*. We have selected eight of our
best-in-class global equity managers and combined this
with sound risk management to create a well-diversified
portfolio with a strong outperformance expectation. Two
key advantages of this investment strategy are increased
performance consistency through the multi-manager
approach and a high expected return driven by the
high-conviction stock picks.
The target of the equity portfolio is to outperform the
MSCI All Country World Index by 2% per year after costs
over rolling three-year periods, supporting the Trust’s
progressive dividend policy.
We are pleased to report that performance since our
appointment in April 2017 has been strong and the
portfolio is well positioned to grow further and continue
to deliver value to shareholders in 2018 and beyond.
Craig Baker
Chair of the Investment Committee
*As rated by Willis Towers Watson.
10
Alliance Trust PLC | Annual Report and Financial Accounts 2017 PORTFOLIO ACTIVITY (FROM APRIL 2017)
The equity managers, each of whose allocations has been
carefully weighted by us, have got off to a great start.
Prior to our appointment as investment manager for the
Trust, a transition manager, BlackRock, was used to create
a portfolio, based on the ‘wish-lists’ provided by the new
equity managers. The eight equity managers that we selected
to manage the equity portfolio represent a mix of WTW’s
top-rated equity managers with varying style biases, carefully
weighted in order to create a well-diversified, style-neutral
portfolio.
Our analysis indicates that the implementation of the new
approach has been successful, with the total equity portfolio
displaying no significant style biases. The equity managers
have been progressively rotating their allocation of the
portfolio into new and interesting areas of value throughout
the year and we continue to monitor these rotations closely.
It is reassuring to see that on average, the turnover of stock
by the equity managers is relatively low, reinforcing the
long-term investment nature of the new strategy.
The appointment of the eight highly skilled equity managers
that we have selected has strengthened the Trust and positions
it well progressing into 2018 and for the future. We continue
to add to and maintain a ‘bench’ of similarly highly skilled
equity managers, whilst continuing to monitor the equity
portfolio closely in order to identify any opportunity or need
to rotate managers.
Our portfolio comprises the stock picks of several distinct
asset managers. Each of the asset managers has a unique
asset management and stock selection style; below two of
the equity managers’ talk about one of their high-conviction
stock picks.
A stock pick for the Alliance Trust portfolio
by Hugh Sergeant: Tingyi Holding
A stock pick for the Alliance Trust portfolio
by Pierre Py and Greg Herr: Ryanair
In October we purchased Tingyi Holding, China’s number
one instant noodle brand and number one to three
across a range of beverage categories; for example it is
Pepsi’s exclusive bottling partner in China. The stock has
an attractive recovery thesis with the potential to grow
operating profit by 50% over the next three years as it
continues to focus on increasing average selling prices
and rationalisation of the fixed cost base.
Pessimistic investors confuse some cyclicality with
structural decline and miss the critical component of
‘premiumisation’ as a value driver in noodles (i.e. more
profit from the same volumes). Looking at more-mature
countries suggests there is still scope for many years of
value enhancement in its two key end markets, while
new management (since 2015) has shown better capital
allocation discipline. Investor scepticism still lingers after
two years of downgrades (2015-17), which have only just
stabilised; cash flow forecasts provide a lead indicator
that these will continue to move higher.
The shares are currently priced at 12x 2018 estimated /
11x 2019 estimated free cash flow versus the peer group
on 20-23x. Timing looks particularly attractive given
supportive peer commentary and a rolling-over of the
raw material headwind.
One of our portfolio companies dealing with cycles in
its business is Ryanair. Based in Ireland, the company is
Europe’s largest passenger airline. A temporary shortage
of pilots for its autumn schedule led the company to
cancel an unprecedented number of flights and pledge
to boost pilots’ compensation.
As the dust settles on these well-publicised
announcements, we believe Ryanair continues to
possess a massive structural cost advantage against
all its competitors, not only the bloated legacy airlines,
but also the other low-cost providers. This contributes
to making the company’s core business model very
powerful and extremely difficult for anyone to either
replicate or fend off. We believe it also means Ryanair
has the opportunity to extend its current lead in the
European market. Furthermore, the group can leverage
its direct proprietary relationship with customers to
grow ancillary revenues and roll out new digital services.
In our view, despite recent execution challenges,
management has firmly established itself over time
as a best-in-class team. This is underscored by the
company’s very attractive profitability, returns on
capital employed, high cash conversion and net cash
balance sheet. Ryanair isn’t your typical airline.
11
Alliance Trust PLC | Annual Report and Financial Accounts 2017I STRATEGIC REPORTIIIII INVESTMENT MANAGER’S REPORT
CONTINUED
INVESTMENT PERFORMANCE
(APRIL TO DECEMBER 2017)
STOCK SELECTION IS THE BIGGEST DRIVER
OF RETURNS
Since our appointment on 1 April 2017, the Trust’s equity
portfolio has returned 9.8%* – outperforming the MSCI ACWI
by 2.2%. From that date until 30 September 2017, the equity
portfolio performed strongly against the index, outperforming
the MSCI ACWI in both the second and third quarters of the
year. Towards the end of the fourth quarter, a select group
of technology stocks led market advances and the portfolio
struggled to keep pace, as it was underweight in these
stocks, which led to the first quarter of underperformance
relative to the index; however, absolute performance
remained meaningfully positive with the equity portfolio
returning 3.8% over the fourth quarter.
It is pleasing to see that the majority of outperformance since
our appointment and implementation of the new investment
approach can be attributed to stock selection, which indicates
that the portfolio construction has allowed performance to be
driven by the equity managers’ stock-picking capabilities and
not swayed by any individual factor or regional bets.
*Gross of management fees.
As expected, equity managers’ stock-picking has made a
strong contribution to the outperformance over the period.
COUNTRY PERFORMANCE ATTRIBUTION (%)
)
%
(
e
c
n
a
m
r
o
f
r
e
p
t
u
O
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
2.2
2.6
-0.4
Total
Outperformance
Allocation
Stock
Selection
Source: MSCI Inc and The Bank of New York Mellon (International) Ltd.
SECTOR PERFORMANCE ATTRIBUTION (%)
)
%
(
e
c
n
a
m
r
o
f
r
e
p
t
u
O
2.5
2.0
1.5
1.0
0.5
0.0
2.2
1.8
0.4
Total
Outperformance
Allocation
Stock
Selection
Source: MSCI Inc and The Bank of New York Mellon (International) Ltd.
12
Alliance Trust PLC | Annual Report and Financial Accounts 2017
PORTFOLIO RISK
GEARING1
Risk management is a key part of the portfolio
construction process.
We recognise that, in isolation, the returns from any one of
the focused portfolios may be volatile. However, we control
this risk through the multi-manager approach. Specifically,
by selecting managers that have complementary approaches
to equity management, and by directly managing risks at the
overall portfolio level rather than at the sub-manager level.
2017 saw numerous external risk factors which displayed
potential to impact on the Trust’s equity portfolio, with
several major political risks materialising and dissipating
throughout the course of the year. For a Sterling investor,
Brexit associated risks have undoubtedly been the key
concern of 2017. However, despite completion of the
first phase of negotiations in December, the UK’s future
relationship with the EU remains unknown. Therefore, the
economic impact has not yet fully materialised and the
most significant associated risk factor has been movement
of Sterling relative to other major market currencies.
The new investment strategy of a well-diversified ‘best ideas’
portfolio free from style bias at the overall portfolio level,
has on the whole insulated the Trust from such external risk
factors, as returns have been shown to be driven primarily
by the equity managers’ stock-picking abilities rather than
being overly influenced by regional or factor bets.
The equity portfolio is well insulated from external risk
factors through the new structure.
Risk summary
Active risk
Active share
Beta
2.2%
80%
0.97
Number of stocks
Portfolio
Benchmark
Portfolio volatility
Benchmark volatility
12.6%
12.8%
192
2,492
Source: Willis Towers Watson, FTSE ICB, FactSet, MSCI Inc. Portfolio data as at
31 December 2017.
The Trust is managed in accordance with the gearing
policy set by the Board. Given the valuations observed
in equity markets, we have maintained a gross level of
gearing between approximately 8.5% and 9.5% since the
implementation of the new multi-manager strategy.
During the year, we increased the Trust’s borrowings slightly
to maintain the Trust’s gearing ratio in a rapidly rising equity
market. The borrowings were invested into the Trust’s equity
portfolio. Over the period since 1 April this exposure led to 0.6%
of additional returns for the Trust, net of borrowing costs.
1 Alternative Performance Measure (refer to Glossary on page 89).
STEWARDSHIP
WTW has given discretionary voting powers to each of
the equity managers in respect of the allocation of the
Alliance Trust portfolio that they manage. Between 1 April
2017 (when WTW was appointed) to 31 December 2017,
the equity managers voted on 1,299 resolutions at company
meetings. They voted against or abstained from voting on
10% of these resolutions.
Of the 1,249 resolutions where the management
recommendation was ‘For’ the equity managers voted
against or abstained on 9% of these resolutions and of
the 26 proposals where the management recommendation
was ‘Against’ the equity managers voted with management on
half of them. These votes related to many issues, including:
board composition (including director remuneration, incentive
compensation and appointment), auditor tenure, the reduction
of company capital and the setting of company dividend.
The Financial Reporting Council (FRC) has awarded WTW with
Tier 1 status on the quality and transparency of the WTW
stewardship approach. WTW recognises and supports the
FRC’s UK Stewardship Code as best practice.
13
Alliance Trust PLC | Annual Report and Financial Accounts 2017I STRATEGIC REPORTIIIII INVESTMENT PORTFOLIO
EQUITY HOLDINGS AS AT 31 DECEMBER 2017
Investment
Equities
Region
Global
% of Investment Portfolio
90.7
Value £m
2,573.1
Total value 2,573.1
INVESTMENT IN OPERATING SUBSIDIARY COMPANY AS AT 31 DECEMBER 2017
Investment
Alliance Trust Savings
Region
% of Investment Portfolio
Value £m
United Kingdom
1.3
38.0
Total value 38.0
NON-CORE INVESTMENTS AS AT 31 DECEMBER 2017
Investment
Private Equity
Mineral Rights
United Kingdom/Europe
North America
Region
% of Investment Portfolio
Value £m
Luxcellence Liontrust Sustainable Future Pan-European Equity Fund
Luxembourg
Liontrust Sustainable Future Cautious Managed Fund
Liontrust Sustainable Future Defensive Managed Fund
Liontrust Asset Management PLC
United Kingdom
United Kingdom
United Kingdom
TOTAL INVESTMENTS AS AT 31 DECEMBER 2017
Investment
Equities
Investment in operating subsidiary company
Non-core investments
Source: Willis Towers Watson and The Bank of New York Mellon (International) Ltd.
*These were sold on 24 January 2018.
CONTRIBUTION ANALYSIS – 2017
2.9
0.5
2.9
0.5
0.5
0.7
81.3
15.3
83.2
13.2
12.9
19.9*
Total value 225.8
% of Investment Portfolio
Value £m
90.7
1.3
8.0
2,573.1
38.0
225.8
Total value 2,836.9
Total
Return
Average
Weight
Contribution
to Total
Return
18.0
0.92
15.4
1.1
16.5
N/A
0.9
17.4
-0.8
1.1
1.4
-0.6
18.5
0.7
19.2
13.8
Contribution Analysis (%)
Equity Portfolio
(excluding Effect of Gearing)
Effect of Gearing*
Equity Portfolio including
Impact of Gearing
FX Contracts and Index Futures
Non-Core Investments
Investment Portfolio Total
Subsidiaries
Cash and Accruals
Share Buybacks
Total Administration Costs
NAV including Income Total Return
Effect of Discount
Total Shareholder Return
MSCI ACWI Total Return
14
The NAV Total Return for 2017 was 18.5% versus the
benchmark MSCI ACWI return of 13.8%. This is a result of
the investment returns from the global equity portfolio,
investments in private equity, mineral rights and the change
in value of the subsidiary companies. Over 2017 the Total
Shareholder Return was 19.2%, slightly higher than the NAV
Total Return. Equities, at 90.7% of our total investment at
the year end, are by far the most significant asset class and
contributor to our Total Shareholder Return. Average gearing
was 8.7% over 2017, which had the effect of enhancing the
return from the equity portion of the portfolio over the year.
Source: WTW, The Bank of New York Mellon (International) Ltd, Morningstar, BNY Mellon
Fund Performance & Risk Analytics Europe Limited and MSCI Inc.
*Gearing effect is attributed assuming that all borrowing is invested in the equity
portfolio and is net of the cost of borrowing to achieve the gearing.
Alliance Trust PLC | Annual Report and Financial Accounts 2017 EQUITY PORTFOLIO LISTING
EQUITY HOLDINGS AS AT 31 DECEMBER 2017
Stock
Alphabet
Comcast
Charter Communications
Microsoft
UnitedHealth Group
Baidu - ADR
Oracle
Anglo American
Western Union
Airbus
AIA
HDFC Bank
Samsung Electronics
Novo Nordisk
Ryanair
Tencent
Amazon
Aetna
Anthem
Visa
Ameriprise Financial
Page Group
Sberbank
TE Connectivity
Danone
Infosys - ADR
Aflac
salesforce.com
FleetCor Technologies
TP ICAP
Suncor Energy
American Express
HCA Healthcare
Corning
Celanese
SAP SE - ADR
AerCap
Broadcom
Britvic
Lowe’s Cos
Lincoln National
Liberty Interactive
Facebook
Edenred
Ambev
EOG Resources
IHS Markit
Flex
Prosegur
Core Laboratories
Qualcomm
HeidelbergCement
Western Digital
BP
Pearson
Compagnie de Saint-Gobain
CVS Caremark
Mondelez International
Whirlpool
Applus Services
Ralph Lauren
Schneider Electric
Nestlé
Booz Allen Hamilton
Nielsen
Sector
Information Technology
Consumer Discretionary
Consumer Discretionary
Information Technology
Health Care
Information Technology
Information Technology
Materials
Information Technology
Industrials
Financials
Financials
Information Technology
Health Care
Industrials
Information Technology
Consumer Discretionary
Health Care
Health Care
Information Technology
Financials
Industrials
Financials
Information Technology
Consumer Staples
Information Technology
Financials
Information Technology
Information Technology
Financials
Energy
Financials
Health Care
Information Technology
Materials
Information Technology
Industrials
Information Technology
Consumer Staples
Consumer Discretionary
Financials
Consumer Discretionary
Information Technology
Industrials
Consumer Staples
Energy
Industrials
Information Technology
Industrials
Energy
Information Technology
Materials
Information Technology
Energy
Consumer Discretionary
Industrials
Consumer Staples
Consumer Staples
Consumer Discretionary
Industrials
Consumer Discretionary
Industrials
Consumer Staples
Information Technology
Industrials
Country of listing
% of quoted
equities
Value
£m
United States
United States
United States
United States
United States
China
United States
United Kingdom
United States
France
Hong Kong
India
South Korea
Denmark
Ireland
China
United States
United States
United States
United States
United States
United Kingdom
Russia
Switzerland
France
India
United States
United States
United States
United Kingdom
Canada
United States
United States
United States
United States
Germany
Ireland
United States
United Kingdom
United States
United States
United States
United States
France
Brazil
United States
United Kingdom
United States
Spain
Netherlands
United States
Germany
United States
United Kingdom
United Kingdom
France
United States
United States
United States
Spain
United States
France
Switzerland
United States
United States
2.1
1.6
1.6
1.5
1.4
1.4
1.2
1.2
1.2
1.2
1.1
1.0
1.0
1.0
1.0
1.0
1.0
1.0
0.9
0.9
0.9
0.9
0.9
0.9
0.9
0.9
0.9
0.9
0.8
0.8
0.8
0.8
0.8
0.8
0.8
0.8
0.8
0.8
0.8
0.8
0.8
0.8
0.8
0.8
0.8
0.8
0.8
0.8
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.7
53.9
42.2
41.4
39.5
36.2
35.5
31.8
31.0
30.2
30.1
28.0
26.9
26.8
26.7
26.7
26.3
24.9
24.8
24.1
23.4
23.3
23.3
22.6
22.5
22.3
21.8
21.8
21.8
21.7
21.5
21.4
21.3
21.2
21.0
20.9
20.9
20.9
20.9
20.7
20.6
20.6
20.5
20.5
20.3
20.1
20.1
19.3
19.2
19.0
18.8
18.7
18.7
18.6
18.2
18.2
18.2
18.0
17.6
17.5
17.4
17.3
17.2
16.9
16.8
16.8
15
Alliance Trust PLC | Annual Report and Financial Accounts 2017I STRATEGIC REPORTIIIII EQUITY PORTFOLIO LISTING
CONTINUED
EQUITY HOLDINGS AS AT 31 DECEMBER 2017
Stock
Regeneron Pharmaceuticals
ICICI Bank
Cisco Systems
Johnson
Teradata
Sumitomo Mitsui Financial
Priceline
Ericsson
Goodyear Tire & Rubber
OC Oerlikon
Lloyds Banking
Allergan
Santen Pharmaceutical
Koninklijke Philips Electronics
Malaysia Airports
Bank of America
BNP Paribas
DSM
Barclays
Hain Celestial
Express Scripts Holding
Alibaba
Anima Holding
Daimler
Safran
Tingyi Holding
Accor
Daikin Industries
Johnson & Johnson
Wells Fargo
Galp Energia
Standard Chartered
Aryzta
Luxottica Group
Omnicom Cap Inc
WPP
BorgWarner
Check Point
Macquarie
London Stock Exchange
H&R Block
Deutsche Boerse
Rolls-Royce
Inovalon
Nvidia
Prada
Tesco
Centrica
McKesson
SoLocal
Intercontinental Exchange
Rio Tinto
Sonic Healthcare
Lam Research
Sanofi
Nintendo
Grupo Financiero Santander
Sands China
Dong Energy
Citigroup
TS Tech
ExxonMobil
MYOB
Dollar General
Philip Morris International
16
Sector
Health Care
Financials
Information Technology
Industrials
Information Technology
Financials
Consumer Discretionary
Information Technology
Consumer Discretionary
Industrials
Financials
Health Care
Health Care
Health Care
Industrials
Financials
Financials
Materials
Financials
Consumer Staples
Health Care
Information Technology
Financials
Consumer Discretionary
Industrials
Consumer Staples
Consumer Discretionary
Industrials
Health Care
Financials
Energy
Financials
Consumer Staples
Consumer Discretionary
Consumer Discretionary
Consumer Discretionary
Consumer Discretionary
Information Technology
Financials
Financials
Consumer Discretionary
Financials
Industrials
Health Care
Information Technology
Consumer Discretionary
Consumer Staples
Utilities
Health Care
Consumer Discretionary
Financials
Materials
Health Care
Information Technology
Health Care
Information Technology
Financials
Consumer Discretionary
Utilities
Financials
Consumer Discretionary
Energy
Information Technology
Consumer Discretionary
Consumer Staples
Country of listing
% of quoted
equities
Value
£m
United States
India
United States
United States
United States
Japan
United States
Sweden
United States
Switzerland
United Kingdom
United States
Japan
Netherlands
Malaysia
United States
France
Netherlands
United Kingdom
United States
United States
China
Italy
Germany
France
China
France
Japan
United States
United States
Portugal
United Kingdom
Switzerland
Italy
United States
United Kingdom
United States
Israel
Australia
United Kingdom
United States
Germany
United Kingdom
United States
United States
Italy
United Kingdom
United Kingdom
United States
France
United States
United Kingdom
Australia
United States
France
Japan
Mexico
Hong Kong
Denmark
United States
Japan
United States
Australia
United States
United States
0.7
0.7
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
16.8
16.7
16.4
16.2
16.1
16.1
16.0
16.0
15.9
15.9
15.8
15.7
15.7
15.7
15.7
15.7
15.5
15.3
15.2
15.1
15.1
15.0
14.9
14.7
14.5
14.4
14.3
14.2
14.1
14.1
14.0
14.0
13.8
13.7
13.5
13.4
13.3
13.3
13.2
13.1
13.0
12.9
12.9
12.9
12.7
12.7
12.6
12.3
12.1
12.0
11.9
11.6
11.6
10.9
10.7
10.5
10.4
10.3
10.2
10.1
10.0
9.9
9.4
9.2
9.2
Alliance Trust PLC | Annual Report and Financial Accounts 2017 EQUITY HOLDINGS AS AT 31 DECEMBER 2017
Stock
Sector
Country of listing
% of quoted
equities
Value
£m
Mastercard
Marks & Spencer
Carnival Corporation
South32
Naspers
Capita
Zynga
Fomento Econ Mexicano
Gafisa
Sankyo
Bank Central Asia
Taiwan Semiconductor Manufacturing
BM&F Bovespa
ALS
Carsales
AIB Group
Housing Development Finance
Ping An Insurance
Itau Unibanco
CP All
JD.com
Telekomunikasi Indonesia
Heineken
Bank Rakyat
Industrial & Commercial Bank of China
Ansell
Sarana Menara
OTP Bank
Grupo Financiero Galicia
Yandex
InterGlobe Aviation
MMC Norilsk Nickel
Raia Drogasil
MercadoLibre
Discovery
China Gas Holdings
Grupo Aeroportuario Pacifico
Noah
Reliance Industries
Severstal PJSC
Rosneft Oil Company
Scout24
Gedeon Richter
Infraestructura Energetica Nova
X5 Retail Group
Wynn Resorts
WEG
Moscow Exchange
Grupo Aeroportuario Del Sureste
Alrosa
China Resources
Qualicorp
Citec Securities
Gafisa
51Job ADR
Kasikornbank
Polyus PJSC
Wal-Mart de Mexico
Geely Automobile
ZTO Express
LOMA Negra
China Literature
Information Technology
Consumer Discretionary
Consumer Discretionary
Materials
Consumer Discretionary
Industrials
Information Technology
Consumer Staples
Consumer Discretionary
Consumer Discretionary
Financials
Information Technology
Financials
Industrials
Information Technology
Financials
Financials
Financials
Financials
Consumer Staples
Consumer Discretionary
Telecommunication Services
Consumer Staples
Financials
Financials
Health Care
Telecommunication Services
Financials
Financials
Information Technology
Industrials
Materials
Consumer Staples
Information Technology
Financials
Utilities
Industrials
Financials
Energy
Materials
Energy
Information Technology
Health Care
Utilities
Consumer Staples
Consumer Discretionary
Industrials
Financials
Industrials
Materials
Utilities
Health Care
Financials
Consumer Discretionary
Industrials
Financials
Materials
Consumer Staples
Consumer Discretionary
Industrials
Materials
Information Technology
United States
United Kingdom
United States
Australia
South Africa
United Kingdom
United States
Mexico
Brazil
Japan
Indonesia
Taiwan
Brazil
Australia
Australia
Ireland
India
China
Brazil
Thailand
China
Indonesia
Netherlands
Indonesia
China
Australia
Indonesia
Hungary
Argentina
Russia
India
Russia
Brazil
Argentina
South Africa
Hong Kong
Mexico
China
India
Russia
Russia
Germany
Hungary
Mexico
Russia
United States
Brazil
Russia
Mexico
Russia
Hong Kong
Brazil
China
Brazil
China
Thailand
Russia
Mexico
China
China
Argentina
China
Source: Willis Towers Watson and The Bank of New York Mellon (International) Ltd.
A full portfolio listing, similar to that displayed above, is available on a monthly basis on our website at www.alliancetrust.co.uk
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.2
0.2
0.2
0.2
0.2
0.2
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
100%
8.9
8.8
8.4
8.0
7.9
7.5
7.4
7.3
5.9
5.7
5.2
4.1
4.0
3.9
3.7
3.6
3.5
3.4
3.2
3.2
3.1
2.7
2.4
2.2
1.9
1.8
1.7
1.7
1.7
1.6
1.6
1.6
1.5
1.5
1.5
1.3
1.3
1.3
1.2
1.2
1.1
1.1
1.1
1.1
1.1
1.1
0.9
0.9
0.9
0.8
0.8
0.8
0.8
0.7
0.7
0.6
0.6
0.6
0.6
0.6
0.3
0.1
Total value 2,573.1
17
Alliance Trust PLC | Annual Report and Financial Accounts 2017I STRATEGIC REPORTIIIII NON-CORE ASSETS
(8.0% OF INVESTMENT PORTFOLIO)
The Trust has a legacy portfolio of non-core assets diversified
across several alternative asset classes and continues to have
investments in private equity funds, North American mineral
rights, a small UK real estate portfolio and Liontrust shares
and funds. The private equity investments are held across
two funds of funds, the ATEP 2008 and ATEP 2009 funds, and
across direct holdings. The ATEP 2008 and ATEP 2009 funds
hold a mix of UK and European private equity funds including
ECI 9A LP, Pentech Fund II LP, Polaris Private Equity IIIK/S,
Silverfleet Capital Partners LP, 21 Centrale Partners, Phoenix
Equity Partners 2010 LP and The Third Alcuin Fund LP. The
Trust also holds a small number of investments in other funds
the largest of which is Leapfrog Financial Inclusion Fund II LP.
Current market conditions have been increasingly more
challenging than in the past for new investment but
represent ideal markets for selling, which the bulk of the
private equity funds are in the process of doing, so we would
expect the non-core assets to distribute capital back to
the Trust. However, high prices and valuations have made it
difficult to generate outperformance for new investments
by the private equity funds. Specific to the private equity
holdings, we expect the net asset value to decrease steadily
in the short to medium term as more capital is realised
from underlying portfolio company investments. The value
of our private equity investments is £81.3m. The unfunded
commitment to private equity investments, which includes
recallable distributions, is £21.5m. In 2017 the private equity
funds have distributed £34.2m to the Trust and further
realisations and distributions back to the Trust are expected
in 2018. The sale of the private equity portfolio in 2018 is
being actively considered by the Trust.
The mineral rights continue to generate strong, consistent
revenue returns on an annual basis and we expect this trend
to continue for the foreseeable future. Fortunately, despite
the terrible effects of Hurricane Harvey in the US earlier in the
year, the revenue returns for the mineral rights were unaffected.
Any weakness in oil prices has been mitigated by the favourable
currency conversion effect on the US Dollar revenue flows
and we are again investigating the sale of these holdings.
The real estate assets consist of two legacy fund holdings
with the Trust’s office building in Dundee being held as office
premises and not as part of the investment portfolio.
Following the year end the Trust's holding in Liontrust Asset
Management PLC was sold. The Trust will receive further
shares in Liontrust (part of the consideration for the sale of
Alliance Trust Investments) in April 2018 which will be subject
to a one-year lock-up period. The Trust continues to hold
investments in three funds managed by Liontrust but will
look to dispose of these at the appropriate time.
18
Alliance Trust PLC | Annual Report and Financial Accounts 2017 INVESTMENT IN OPERATING SUBSIDIARY COMPANY
(1.3% OF INVESTMENT PORTFOLIO)
ALLIANCE TRUST SAVINGS
At the half-year we reported that additional costs associated
with improvements to ATS’s operating platform and customer
service, together with delays in the launch of the new
technology platform, had contributed to a loss of £1.5m for
the first six months.
In the first half of the year, most of Stocktrade’s operations
were transferred from Edinburgh to Dundee. The integration
of these operations proved to be particularly challenging and
adversely impacted levels of customer service giving rise to
an increase in the number of customer complaints. In order
to address these issues additional, largely non-recurring
expenditure, was incurred in the second half of the year.
Implementation of the new technology platform, which was
expected to generate increased revenues, was further delayed
during the second half of 2017. ATS recorded an operating loss of
£6.1m for the year, before exceptional items (2016: operating
profit of £1.2m). This loss includes £3.0m of non-recurring
costs incurred to stabilise the business.
ATS has reduced the value of its intangible assets, related to
the Stocktrade business, resulting in an exceptional charge
of £13.2m. ATS’s operating loss for 2017, after this exceptional
charge, amounted to £19.3m.
The Directors’ fair value of the Trust’s investment in ATS has
been reduced to £38.0m at 31 December 2017 (2016: £61.5m).
Towards the end of 2017 the Board of ATS appointed its
Chairman as acting Chief Executive Officer, subject to
regulatory approval, and is actively pursuing the recruitment
of a new Chief Executive. After the year end two further
executive appointments were made to the Board.
The number of ATS customer accounts and trading volumes
grew in 2017 and ATS ended the year with assets under
administration of £15.8bn (2016: £13.6bn). Investment
in customer service is continuing in 2018, ATS is now
experiencing a reduction in complaints and an improvement
in service levels.
Income
Administrative Expenses
Operating (Loss)/Profit before exceptional items
Exceptional administrative expenses*
Operating (Loss)/Profit before tax
2017 (£m)
2016 (£m)
27.0
(33.1)
(6.1)
(13.2)
(19.3)
21.6
(20.4)
1.2
-
1.2
*Exceptional administrative expenses relate to write down of intangible assets related
to Stocktrade.
KEY PERFORMANCE INDICATORS FOR THE YEAR
TO 31 DECEMBER
FAIR VALUE
£38.0m
2017
2016
0
-38%
£38.0m
£61.5m
ASSETS UNDER ADMINISTRATION
£15.8bn
+16%
2017
2016
0
£15.8bn
£13.6bn
65
16
CUSTOMER ACCOUNTS
113,317
+2%
2017
2016
0
113,317
110,962
120000
NUMBER OF TRADES
755,638
+12%
2017
2016
0
755,638
673,486
800000
19
Alliance Trust PLC | Annual Report and Financial Accounts 2017I STRATEGIC REPORTIIIII COSTS AND PERFORMANCE MEASURES – 2017
ONGOING CHARGES RATIO
(ALTERNATIVE PERFORMANCE MEASURE)
In February 2017, when we announced the move from a
single manager to multi-manager strategy to be managed
by WTW, we set ourselves a target to seek outperformance
at a competitive cost with ongoing costs of under 0.65%.
For the full year 2017 our Ongoing Charges Ratio (OCR) is
reported as 0.54%. We recognise, however, that the purpose
of the OCR is to provide a guideline of ongoing costs, so have
also calculated an OCR from 1 April 2017 of 0.62%, below
the target maximum of 0.65%. The 1 April date is important
because it is the date WTW was appointed as investment
manager and the Net Asset Values used in the calculation
are after the Elliott share repurchase in the first quarter.
For 2018 the Board continues to set a target of OCR of
under 0.65%, which is below the median for investment
trust companies in the AIC Global sector.
Total expenses for the year are £17.4m (2016: £16.8m) of which
investment management fees represent £10.1m (2016: £9.4m)
and other administrative expenses £6.0m (2016: £4.0m).
Ongoing costs are £16.1m (2016: £13.4m). The higher ongoing
costs in the current year reflect the new investment approach,
increased marketing activity and premises costs as a result
of the sale of Alliance Trust Investments, which included a
transfer of lease commitments to the Trust. We are pleased
to report the higher premises costs are partially offset by
income from a tenant occupying sub-let space.
As in prior years the OCR excludes one-off or non-recurring
costs. Non-recurring costs in 2017 were £1.3m (2016: £3.4m).
It is pleasing to note that as we deal with legacy matters
associated with the Trust, the level of one-off costs has
reduced in 2017.
ONGOING CHARGES RATIO %
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
0.75
0.60
0.59
0.62
0.54
0.43
2013
2014
2015
2016
2017
Apr-Dec
2017
Source: Willis Towers Watson.
For more information see below.
Ongoing Charges Ratio (OCR) Summary 2017
The table below provides more detail of the costs which were incurred in managing the Trust and its investments and compares it
with those incurred in 2016.
£000
Average Net Assets
Total administrative costs
Investment management fees
Administrative costs
Ongoing expenses
Reorganisation
Strategic review
Indirect disposal costs of ATI
Property
Non-recurring costs
OCR ongoing costs
Total expenses ratio (TER)
OCR ongoing costs run rate*
2017
Revenue
8,803
3,307
4,201
7,508
146
732
(195)
613
1,295
Capital
Total
2,991,850
8,629
6,786
1,823
8,609
20
0
0
0
20
17,432
10,093
6,024
16,117
166
732
(195)
613
1,315
0.54%
0.58%
0.62%
2016
Revenue
Capital
Total
7,960
3,118
3,060
6,178
556
457
769
8,810
6,237
983
7,220
179
1,221
189
1,782
1,589
3,111,711
16,770
9,355
4,043
13,398
735
1,678
958
0
3,371
0.43%
0.54%
*OCR run rate reflects April to December ongoing expenses divided by average net assets for that period.
20
Alliance Trust PLC | Annual Report and Financial Accounts 2017 COST ALLOCATION POLICY
SHARE BUYBACKS AND DISCOUNT
Where consistent with AIC SORP guidelines, we have
allocated management fees, financing costs and other
indirect expenditure one third to revenue profits and two
thirds to capital profits. Given the new investment strategy
and approach implemented in April 2017, the Board has
assessed the cost allocation policy in 2017. To better reflect
the anticipated income growth and capital appreciation
returns of the new investment approach, the Board has
decided, from 1 January 2018, to adopt a one quarter revenue
and three quarters capital allocation for management fees,
financing costs and other relevant indirect expenses.
DIVIDENDS
Alliance Trust has increased its ordinary dividend for more
than 50 years and is one of only a few companies in the FTSE
All-Share Index with such a track record.
During the year the Board considered its dividend policy and
has reaffirmed its commitment to a progressive ordinary
dividend. The Board has recognised that to achieve this
objective it may be necessary, on occasions, to make use of
its revenue reserves and that, should there be a year in which
unanticipated levels of income are received, some of that
income may be retained or a special dividend declared.
The intention is to have a smooth annual rise in dividend while
retaining an element of cover by way of revenue reserves to
be used when dividend income is depressed. Our expectation
is that even with a reduced level of income, the value of our
revenue reserves is sufficient to support a progressive
dividend for the next five years.
The ordinary dividend for 2017 will rise by 3% to 13.16p.
A fourth interim dividend of 3.29p will be paid on 3 April 2018
to shareholders who were on the Trust’s share register on
16 March 2018.
Our share buyback programme has been available to all
shareholders during the year. We buy back shares when we
believe it is beneficial to shareholders to do so. In addition
to the 49.6m shares we purchased as part of the programme,
following shareholder approval we also purchased approximately
20% of our issued share capital from Elliott at a discount
around that available to all shareholders at the time.
Our share buyback programme has helped us to maintain
during the year an average discount of 5.4% against the Global
Sector average of 4.3%. We closed the year with a discount
of 4.0% (calculated on the published NAV as at 31 December
2017 adjusted for the impact of the Alliance Trust Savings
valuation as at that date determined after the year end)
against the sector’s 2.5%.
All the shares bought back have been cancelled.
The chart below shows our discount during 2017 and the
reduction in our buyback activity over the year.
SHARE BUYBACKS AND DISCOUNT
Discount (%)
Shares(m)
16,000
6.00
5.75
5.50
5.25
5.00
4.75
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Share buyback
Average discount
Source: Alliance Trust and Morningstar.
12,000
8,000
4,000
0
21
Alliance Trust PLC | Annual Report and Financial Accounts 2017I STRATEGIC REPORTIIIII RISK MANAGEMENT
INTRODUCTION
RISK MANAGEMENT FRAMEWORK
The Audit and Risk Committee comprises all 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 forward-looking risks.
The Committee regularly discusses any breaches of agreed
risk appetites with representatives from the Trust’s Executive
function, WTW and Alliance Trust Savings. The Chief Risk Officer
from Alliance Trust Savings reports to the Committee on risks
affecting that business on a quarterly basis. The Committee
also receives reports on the Risk Exposures and Events from
the Executive function and WTW which highlight any risk
exposures that might be close to or exceed agreed limits.
RISK GOVERNANCE
The financial statements in this Annual Report are those of
the Trust only. In this section where reference is made to
‘Group’ it means the Trust and its subsidiaries (details set
out on page 63) other than Alliance Trust Savings which has
its own independent board responsible for managing the
risks affecting that business and which operates its own risk
management framework.
Effective risk management is essential to the Group's
meeting its strategic objectives successfully. A robust
Risk Management Framework (the ‘Framework’) has been
implemented throughout the Group to provide an efficient
and comprehensive approach for the identification,
assessment and management of the significant risks
impacting the Group’s ability to meet its objectives. This
Framework supports key processes including compliance
with various regulatory capital and liquidity requirements.
Prior to 1 April 2017, the Trust relied on the Risk Management
systems put in place by Alliance Trust Investments (ATI).
Following WTW’s appointment the Audit and Risk Committee
(the ‘Committee’) performed a full review of the Group’s
internal control environment. WTW, which replaced Alliance
Trust Investments as investment manager, was asked to report
on the Group’s control model and the Trust engaged Ernst
& Young LLP (EY) to perform an independent analysis of the
Framework and mitigating controls, comparing this to industry
best practice. In addition, as part of the Committee’s review,
the Trust’s Risk Appetite Statement was updated to reflect the
appointment of the third-party service providers delivering
the Trust’s new investment approach. The Group’s principal
risks and the Framework reflect the changes made as part
of this process.
22
Risk universe
Risk appetite
Policies
Governance
Management information
Risk management
organisation
Risk management
methodologies
Embed risk
practices
Culture
Conduct
The Framework is reviewed annually and findings are
presented to the Committee. The most recent assessment
highlighted no significant concerns.
After the year end the annual review of the effectiveness
of the internal control systems is provided to the Board.
This review encompasses all material controls including
financial, prudential, and operational and compliance, and
aims to ensure that all systems are operating effectively
to mitigate and manage the key risks to the Group. Please
refer to page 37 of the Audit and Risk Committee report
for further details on the findings of our 2017 internal
controls review.
RISK APPETITE
The Group’s Risk appetite statement was updated in 2017 to take
into account the adoption of the new investment management
approach and outsourcing to third parties. The 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 has been agreed. Reporting is provided against these
metrics on a quarterly basis by the Executive function and in
the form of a ‘risk profile snapshot’ from WTW and activity is
monitored against stated triggers and limits.
There were three risk appetite measures outside the
following triggers during the year which remained in that
position at the year end:
• Performance of subsidiaries against business plan –
Alliance Trust Savings failed to achieve its financial target
• Demand for Trust Shares >1% below the sector six-month
average
• NAV performance below an outperformance of 1.5% over
the MSCI ACWI over a rolling three-year period
Alliance Trust PLC | Annual Report and Financial Accounts 2017 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. Under each of the risk headings in the table below, the sub-risk categories have been
updated to align with the changes made to the risk management processes during the year.
MARKET AND PRUDENTIAL RISKS
Risk
Description
Mitigating activities
Change in year
Investment Risk
Investment performance fails
to deliver sufficient capital growth
due to poor stock selection,
sector allocation or wider market
movements.
Credit and
Counterparty
Risk
Credit risk is the risk that a
counterparty to a financial
instrument will fail to discharge
an obligation or commitment that
it has entered into with the Group.
Financial and
Prudential
Reporting
Level of capital held to cover the
Group risks is not sufficient.
Liquidity
The Trust does not have sufficient
liquid resources to ensure that
it can meet its liabilities as they
fall due during normal and
stressed times.
This is the risk that the movement
in the fair value of the assets of
the Trust is amplified by any
gearing that the Trust may have.
• Robust investment process which is guided by
the investment policy. The Board regularly reviews
investment performance and governance, and must
approve any changes to the investment mandate.
• Compliance with investment parameters is tested
by WTW, which also contributes to the stress and
scenario testing of the portfolio through an ‘Early
Warnings Indicators’ analysis.
• Investment risk is managed by WTW within
parameters set by the Board which reviews regular
reports from WTW.
• The Group has adopted a policy of working only
with creditworthy counterparties and obtaining
sufficient collateral where appropriate to mitigate
the risk of financial loss from defaults.
• Investment transactions are carried out with
well-established, approved brokers and on a cash
against receipt or cash against delivery basis.
• The consolidated Group Internal Capital Adequacy
Assessment Process (ICAAP) includes a risk
assessment carried out to identify the principal
risks that may adversely impact the Trust due to its
being a bank holding company.
• The Board reviews the capital structure of the Trust
and Group on a semi-annual basis. Net gearing has
been limited to no more than 30% of the net assets
of the Trust.
• WTW carries out and reports to the Board on stress
and scenario testing on the portfolio.
• The majority of investments are held in listed
entities which pose a reduced risk to liquidity.
• Gearing availability and cash positions of the Trust
are monitored on a regular basis.
• The Committee reviews the consolidated Group
Individual Liquidity Adequacy Assessment Process
(ILAAP) which involves 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.
< >
< >
< >
< >
23
Alliance Trust PLC | Annual Report and Financial Accounts 2017I STRATEGIC REPORTIIIII RISK MANAGEMENT
CONTINUED
OPERATIONAL RISKS
Risk
Description
Mitigating activities
Change in year
Cyber-attack
Outsourcing
Failure to ensure that 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.
Loss arising from inadequate or
failed processes, people and/or
systems of outsourced functions.
• Systems and controls in place to protect the
business from cyber-attacks are tested on a
regular basis.
• Ongoing monitoring of the cyber-security
environment to understand any changes to the
threats and risks of new attacks.
• Business continuity plans are in place should a
cyber-attack occur.
• Through due diligence process in place when
selecting third-party service providers.
• WTW regularly monitors and reports to the Board
on the equity managers and other third-party
service providers.
• Controls reports from WTW and other service
providers are received and reviewed by the Board.
^
Increased due
to the higher
number of
outsourced
providers.
^
Increased due
to the higher
number of
outsourced
providers.
CORPORATE GOVERNANCE
Risk
Description
Mitigating activities
Change in year
Corporate
Governance
The risk of not meeting and
being in compliance with
regulatory responsibilities.
• The Board conducts an annual internal review
(external review is conducted every three years) of
the effectiveness of itself and of its Committees.
This enables it to identify new challenges and
evolve its response.
< >
INVESTMENT TRUST STATUS
Risk
Description
Mitigating activities
Change in year
Loss of
tax status
The risk of not complying with
Sections 1158-59 of the Corporation
Tax Act and the organisation losing
Investment Trust Status.
• WTW reviews the Trust’s Investment Trust status
and reports on this regularly to the Board.
< >
24
Alliance Trust PLC | Annual Report and Financial Accounts 2017 STRATEGY RISK
Risk
Description
Mitigating activities
Change in year
Performance
impacted by
external factors
Stock market action involving the
Trust results in uncertainty around
the business model and impacts on
performance (current and future).
• The Board regularly monitors KPIs against the
business model and strategy, as well as meets
with shareholders to understand expectations
and communicate business updates.
The increasing risk is due to
continued focus by shareholders
on delivery of the Trust’s strategy.
• WTW regularly reviews and reports on the political
and economic environment.
< >
• A Marketing and Investor Relations Working
Group has been put in place to focus on Trust
communications and marketing activities.
REPUTATIONAL
Risk
Description
Mitigating activities
Change in year
Reputational
Damage to the Trust’s reputation
that could lead to negative publicity
and adverse impact on financial
performance.
• Through due diligence process in place when
selecting third-party service providers.
• WTW and the Executive function regularly monitor
the activities of third-party service providers and
report to the Board.
< >
REGULATORY NON-COMPLIANCE
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.
• Regulatory developments are monitored on
a regular basis to ensure changes have been
implemented effectively.
• WTW and the Executive function report on the
regulatory environment.
^
Increased due
to the higher
number of
outsourced
providers.
25
Alliance Trust PLC | Annual Report and Financial Accounts 2017I STRATEGIC REPORTIIIII CORPORATE RESPONSIBILITY
We report in our Investment Manager’s Report (on page 13) how
we exercise our stewardship responsibilities demonstrating
our commitment to good corporate governance.
The Trust has given discretionary voting powers to WTW
which in turn has delegated its voting powers to the equity
managers who vote against resolutions they consider may
damage shareholders’ rights or economic interests.
As an investment trust we have no customers, however,
we do believe that we should maintain an open dialogue
with our shareholders. During the year we met 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 Trust by ensuring that it
captures a range of shareholder views.
Having previously taken a decision to discontinue the Trust
support of the Alliance Trust Cateran Yomp, the Alliance
Trust Foundation charity has now received its final donation
and will be considering how best to continue to support
the communities in which our offices are located with a
significantly reduced income. During 2017 the Alliance Trust
Foundation distributed £44,600 to charities. The charities
supported were, in the main, those which are based in the
communities where we had offices or where employees of
the Trust and its subsidiaries live i.e. Dundee, Edinburgh and
London. The Trust also supports the V&A Museum of Design,
Dundee which is due to open in September 2018.
The Board believes that a diverse workforce will create
the environment to allow our businesses to thrive and grow.
We look for an inclusive environment where people can
develop and contribute fully. The Trust and its subsidiaries’
employment and recruitment policies are at all times
compliant with relevant EU and UK legislation.
Recruitment, development and promotion are 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 been working with the Trustees of the
Trust’s final salary pension scheme, which closed to new
members in 2005, to secure all the members’ benefits.
This has been achieved through a buy-in group annuity
policy which was purchased in 2016, enabled by a £19.2m
contribution by the Trust. The insurer will be issuing
individual annuities to all members and it is intended that
the pension scheme will be formally wound up in 2018.
The table below provides the gender split of the Board of the
Trust as at 31 December 2017. The Trust has five employees of
whom two are part time (one male and one female).
As at 31 December 2017
Male
Female
Board
Senior Managers
Other Staff
Total Workforce (including Directors)
5
1
0
6
1
1
3
5
In 2017 the Board appointed Georgeson, a trading division
of our Registrars, to carry out an exercise to reunite
shareholders who our Registrars believed were ‘lost’ and
were not receiving either dividends or mail. The appointment
was made on the basis that there would be no cost to
our other shareholders for this exercise and that those
‘lost’ shareholders who elected to use Georgeson to be
reunited with their investment would pay a fee for their
service. Georgeson identified 291 accounts representing over
£346,000 of unclaimed dividends and 719,710 shares to be
contacted. By January this year over £37,000 of previously
unclaimed dividends had been paid out and over 163,000
shares had been reunited with the entitled shareholder.
The Trust considers that it does not fall within the scope of
the Modern Slavery Act 2015 and it is not, therefore, obliged
to make a slavery and human trafficking statement. In any
event, the Trust considers its supply chains to be of low risk
as its suppliers are typically professional advisers.
The Investment Association maintains a public register
of companies who have received significant shareholder
opposition to proposed resolutions. At our General Meeting
on 28 February 2017 22% of shareholders voted against the
repurchase of shares from Elliott.
The Strategic Report (comprising the inside cover to page 26 of this document and the viability statement on page 41) has been
approved by the Board and signed on its behalf by
Lord Smith of Kelvin
Chairman
26
Alliance Trust PLC | Annual Report and Financial Accounts 2017 DIRECTORS’ REPORT
BOARD OF DIRECTORS
Lord Smith
Chairman
Gregor Stewart
Deputy Chairman and
Non-Executive Director
Karl Sternberg
Senior Independent Director
Lord Smith joined the Board in 2016.
He is also currently Chairman of IMI PLC,
British Business Bank plc and Forth Ports
Limited as well as Chancellor of the
University of Strathclyde.
He has previously held roles of Chief
Executive Officer of Deutsche Asset
Management, Chairman of The Weir Group,
SSE PLC and the UK Green Investment
Bank and Non-Executive Director of
Standard Bank Group Limited.
A chartered accountant by profession,
Lord Smith was formerly President of the
Institute of Chartered Accountants of
Scotland. He has also been a Governor of
the BBC, and a member of the Financial
Services Authority and the Financial
Reporting Council.
Gregor joined the Board in 2014 and chairs
Alliance Trust’s Audit and Risk Committee.
He is also a Director of Alliance Trust
Savings, Chairman of Intrinsic Financial
Services and a Non-Executive Director of
Direct Line Insurance Group plc, FNZ (UK)
Limited and its holding company.
Previously, he was Finance Director for
the insurance division of Lloyds Banking
Group, including Scottish Widows, and a
member of the Group’s Finance Board.
Bringing over 20 years’ experience at
Ernst & Young, with ten years as a partner
in the firm’s Financial Services practice,
Gregor is also Honorary Treasurer for the
charity International Alert.
Karl has been a member of the Board
since 2015. He is currently a Non-Executive
Director of JPMorgan Elect PLC, Jupiter
Fund Management PLC, Monks Investment
Trust PLC, Lowland Investment Company
PLC, Herald Investment Trust PLC, Railpen
Investments and Clipstone Logistics
REIT PLC.
Previously, he was a founding partner of
Oxford Investment Partners. He has had
an executive career in fund management
at Deutsche Asset Management, latterly
as both its Global Head of Equities and
Chief Investment Officer for Europe and
Asia Pacific.
BOARD EXPERIENCE
The Board recognises that it requires a mix of skills and experience to ensure that the Trust 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.
Financial
Services
Business
Leadership
Asset
Management
Investment
Trusts
Marketing and
Distribution
Board experience
Lord Smith of Kelvin
Gregor Stewart
Anthony Brooke
Clare Dobie
Chris Samuel
Karl Sternberg
28
Alliance Trust PLC | Annual Report and Financial Accounts 2017
Anthony Brooke
Non-Executive Director
Clare Dobie
Non-Executive Director
Chris Samuel
Non-Executive Director
Anthony joined the Board in 2015 and
chairs Alliance Trust’s Remuneration
Committee. He is currently a Non-Executive
Director of Quintessentially UK.
Anthony sits on the Investment Committee
of the National Portrait Gallery and of
Christ’s College, Cambridge and acts as
an adviser to a number of endowments.
He is also a Trustee of the Portrait Trust.
Anthony was previously a Vice Chairman
of S.G. Warburg & Co. Ltd and until 2010
was a Non-Executive Director of the PR
consultancy, Huntsworth PLC.
Clare joined the Board in 2016. She is
currently Senior Independent Non-
Executive Director of Aberdeen New
Thai Investment Trust PLC and is a
Non-Executive Director of F&C Capital
and Income Investment Trust PLC and
Schroder UK Mid Cap Fund PLC.
Clare ran a marketing consultancy from
2005-2015. Before that she was Group
Head of Marketing at GAM (formerly
Global Asset Management) and served on
its Executive Business Committee. Prior
to that, Clare held a number of roles at
Barclays Global Investors, including Head
of Marketing.
Chris joined Alliance Trust PLC’s Board in
2015. He is currently Chairman of Defaqto
and BlackRock Throgmorton Trust PLC
and a Non-Executive Director of JPMorgan
Japanese Investment Trust PLC, Sarasin
LLP, UIL Limited and UIL Finance Limited.
Chris was Chief Executive of Ignis Asset
Management from 2009-2014 and was
previously a Director and Chief Operating
Officer of Gartmore and Hill Samuel Asset
Management and a partner at Cambridge
Place Investment Management. He is a
chartered accountant.
POLICY ON BOARD DIVERSITY
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. In reviewing
Board composition the benefits of all aspects of diversity
will be considered 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 Board 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.
29
Alliance Trust PLC | Annual Report and Financial Accounts 2017II DIRECTORS' REPORTIIII CORPORATE GOVERNANCE
We report here on how the Board runs your Trust and the
changes that we have made during the year to simplify
governance.
The board of Alliance Trust Savings is independent from
that of the Trust. The Board and Audit and Risk Committee
however still maintain oversight of the performance of this
operating subsidiary.
The Board seeks to ensure that the Trust’s new investment
management and operational arrangements are functioning
effectively. We have taken the opportunity to remove two of
our Committees, the Management Engagement Committee
and Nomination Committee, and any decisions that would
have formerly been taken by these Committees will now be
made by the Board. We decided to retain our Remuneration
Committee as, while we now no longer have Executive
Directors, there are still decisions required in connection
with historic share award schemes and the Trust now has
five employees. The terms of reference of the two standing
Committees (Remuneration and Audit and Risk) can be
found on our website www.alliancetrust.co.uk
The Trust has complied with the recommendations of the AIC
Code of Corporate Governance issued in July 2016 except that
due to the outsourced investment and administration model
and appropriate reporting from WTW’s Risk and Compliance
functions the Board feels that there is no requirement for
an internal audit function. We report on pages 34 to 40 the
checks and controls that we have in place and on pages 49
to 51 the disclosures required under 7.2.6 of the Disclosure
and Transparency Rules. This report will describe how the
Board applies the 21 principles of the AIC Code in practice.
Lord Smith of Kelvin
Chairman
Principle
1. The chairman should be independent.
2. A majority of the Board should be independent
of the manager.
Lord Smith was appointed in February 2016. He had no previous
involvement with the Trust and the Board considers that Lord Smith
is, and has been since his appointment, an independent
Non-Executive Director.
As at 31 December 2017 the Board comprised six independent
Non-Executive Directors. All of the Board are independent of
executive management and are wholly independent of the Trust’s
various investment managers. WTW has appointed Jupiter Asset
Management as one of the underlying portfolio managers. Karl
Sternberg is a director of Jupiter Fund Management PLC. However,
the engagement and removal of portfolio managers is discretionary
on the part of WTW and the Board considers that this does not impact
on Karl Sternberg’s independence.
The Remuneration Committee approved an additional payment
to Clare Dobie to reflect time spent over and above what would
normally be expected of a Non-Executive Director (details can be
found on page 43). The Board did not consider that the making of
this payment in any way impacted on the independence of her as
a Director.
3. Directors should be submitted for re-election
at regular intervals. Nomination for re-election
should not be assumed but be based on disclosed
procedures and continued satisfactory performance.
Each Director is subject to annual re-election by shareholders at the
Trust’s AGM. Directors are submitted for re-election only if the Board
considers that they continue to be independent, contribute effectively
to the work of the Board and have confirmed that they have sufficient
time to devote to the work of the Board.
4. The Board should have a policy on tenure,
which is disclosed in the annual report.
5. There should be full disclosure of information
about the Board.
New Directors are appointed with an expectation that the Director’s
term of appointment shall normally be for the period commencing
with his or her appointment to the Board and ending on the seventh
Annual General Meeting of the Trust following appointment. Following
that term the Director may be appointed for a further term of
between one and three years. Each Director is however required to
stand for re-election each year and their appointment will terminate
should they not be re-elected by the shareholders.
Details of the Directors are set out on pages 28 and 29. The Directors
have a broad range of investment, professional and commercial
expertise and experience, gained overseas as well as in the
United Kingdom.
30
Alliance Trust PLC | Annual Report and Financial Accounts 2017 Principle
6. The Board should aim to have a balance of skills, experience,
length of service and knowledge of the Company.
The Board considers that it has achieved this aim. Brief biographical
details of each Director are set out on pages 28 and 29 along with
the Board’s policy on diversity.
7. The Board should undertake a formal and rigorous
annual evaluation of its own performance and that
of its committees and individual directors.
The external review of the Board’s effectiveness is reported on in
more detail on page 33.
8. Director remuneration should reflect their duties,
responsibilities and the value of their time spent.
The Directors’ Remuneration Report on pages 42 to 45 details the
process for determining the Directors’ remuneration and sets out the
amounts payable.
9. The independent directors should take the lead in
the appointment of new directors and the process
should be disclosed in the annual report.
The Board oversees the recruitment process, which will include the use
of a firm of recruitment consultants, with all the Directors having the
opportunity to input into the process. The Senior Independent Director
would lead the process of selecting a new Chairman.
10. Directors should be offered relevant training
and induction.
11. The Chairman (and the Board) should be brought
into the process of structuring a new launch at
an early stage.
12. Boards and managers should operate in a supportive,
co-operative and open environment.
13. The primary focus at regular Board meetings
should be a review of investment performance
and associated matters such as gearing, asset
allocation, marketing/investor relations,
peer group information and industry issues.
Directors newly appointed to the Board are provided with an
introductory programme covering the Trust’s strategy, policies and
operations, including those outsourced to third parties. Thereafter,
Directors are given, on an ongoing basis, key information on the
Trust’s investment portfolios, financial position, internal controls
and details of the Trust’s regulatory and statutory obligations (and
changes thereto).
This principle does not apply to the Trust, being a long-established
investment trust.
The Board is scheduled to meet on four occasions during the year
with the investment manager present for each meeting. All the
Directors have made themselves available throughout the year for
additional meetings both as a Board or Committee but also with
members of the Executive function and the investment managers.
WTW monitors investment performance and all associated matters
on an ongoing basis and presents regular reports to the Board
both at formal meetings and during the interval between meetings.
At each meeting presentations are given and reports made covering
investment performance, asset allocation and gearing. The Executive
function supports the Board in relation to marketing and investor
relations which are also considered at Board meetings. In addition
there is a Working Group comprising Directors and representatives
from the Executive function, WTW and marketing and PR agencies
that meets on a monthly basis to discuss and agree marketing and
PR activity.
14. Boards should give sufficient attention to
overall strategy.
As previously reported the Board has undertaken a significant review
of its operation and has implemented major changes. The Board
continues to keeps its overall strategy and performance under review.
15. The Board should regularly review both the
performance of, and contractual arrangements
with, the manager (or executives of a self-managed
company).
The Board reviews the performance of the investment manager in
terms of both investment performance and cost on a regular basis
against agreed service levels.
The Remuneration Committee reviews the performance and the
contractual arrangements of the Executive function.
16. The Board should agree policies with the manager
covering key operational issues.
The Board has set out in its agreement with WTW certain key
operational controls through a Service Level Agreement and Key
Performance Indicators. WTW in turn sets out how the equity
managers it appoints make their investments as set out on page 8.
31
Alliance Trust PLC | Annual Report and Financial Accounts 2017II DIRECTORS' REPORTIIII CORPORATE GOVERNANCE
CONTINUED
Principle
17. Boards should monitor the level of the share price
discount or premium (if any) and, if desirable,
take action to reduce it.
18. The Board should monitor and evaluate other
service providers.
19. The Board should regularly monitor the shareholder
profile of the Company and put in place a system for
canvassing shareholder views and for communicating
the Board’s views to shareholders.
20. The Board should normally take responsibility for,
and have a direct involvement in, the content of
communications regarding major corporate issues
even if the manager is asked to act as spokesman.
21. The Board should ensure that shareholders are
provided with sufficient information for them to
understand the risk: reward balance to which
they are exposed by holding the shares.
The Board uses its corporate broker to monitor the share price and
the discount to Net Asset Value (NAV) on a daily basis. The Board
makes use where appropriate of its share buyback authority to
purchase shares (at a discount) in order to add to the NAV per share
and to support management of the discount to NAV.
The Executive function monitors and evaluates the performance of
the Trust’s various service providers. The Board receives reports on
the performance of significant service providers from the Executive
function and internal control assurance reports from material suppliers.
Regular review meetings are held with significant suppliers.
The Chairman is responsible for ensuring that there is effective
communication with the Trust’s shareholders. The shareholder
register is monitored and analysed and there is a programme for
meeting or speaking to significant investors and private client
stockbrokers, wealth managers and advisers. The Chairman of the
Remuneration Committee is available to discuss remuneration matters.
The Trust encourages attendance at its Annual General Meeting as
a forum for communication with individual shareholders and may
organise occasional investor forums or webinars (details will be
provided on the Trust website).
The Directors may be contacted through the Company Secretary at
the address shown on page 90.
The Board has a process under which all major communications and
changes to the website are approved by at least one Director and
a member of the Executive function. Such communications would
normally be made by the Trust and not the investment manager.
The Board seeks to communicate effectively with its shareholders.
The Annual Report and Accounts, Interim Report and monthly
factsheets are issued to all shareholders who request a copy.
Through its subsidiary Alliance Trust Savings, the Board affords each
of Alliance Trust Savings’ customers who holds shares in the Trust the
opportunity to attend and vote at the Annual General Meeting and to
be treated, so far as possible, as shareholders in their own name.
All this information is readily accessible on the Trust’s website.
BOARD AND COMMITTEE ATTENDANCES
The Board has moved to having four scheduled Board meetings and up to four scheduled Board Committee meetings in the year,
supplemented with ad hoc meetings to discuss matters arising between these meetings. Other than the Chairman, who is not a
member of the Audit and Risk and Remuneration Committees, all Directors are members of all Board Committees.
Scheduled Meeting
Attendances
Director
Lord Smith
Anthony Brooke
Clare Dobie
Chris Samuel
Karl Sternberg
Gregor Stewart
BOARD
AUDIT AND RISK
REMUNERATION
NOMINATION
MANAGEMENT
ENGAGEMENT
Actual
Possible
Actual
Possible
Actual
Possible
Actual
Possible
Actual
Possible
4
4
4
4
4
4
4
4
4
4
4
4
-
2
2
2
1
2
-
2
2
2
2
2
-
1
1
1
1
1
-
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
In addition to the above scheduled meetings, members of the Board met either in person or by telephone on 20 occasions during
the year and there were four additional Audit and Risk Committees held.
32
Alliance Trust PLC | Annual Report and Financial Accounts 2017 al
n
r
e
t
x
E
–
1
r
a
e
Y
Year 2 - I
n
t
e
r
n
a
l
OUR
THREE-YEAR
EVALUATION CYCLE
Year 3 – In
ternal
BOARD EVALUATION
2016 EVALUATION
This evaluation identified that there was significant overlap
between the work of some of the Committees and that of
the Board. The Board reviewed the remit of its Committees
and determined that the work of the Nomination Committee
and Management Engagement Committee should in the
future be dealt with by the Board and the Committees were
therefore dissolved.
2017 EVALUATION
This year the Board and Committee evaluation was externally
facilitated. The evaluation was carried out by the corporate
advisory firm, Lintstock Limited, and the outputs from the
evaluation were considered by the Board in February 2018.
The performance of the Board and Committees was rated
highly overall, although a number of areas were identified for
potential improvement during 2018. These were:
• addressing Alliance Trust Saving performance – the Audit
and Risk Committee and Board receive regular reports
from the Chief Risk Officer and Chief Executive Officer of
Alliance Trust Savings, including specific updates on steps
being taken to address the customer service issues that
have been encountered by Alliance Trust Savings.
• focusing on marketing and investment performance –
the Company is recruiting an individual to manage the
Company’s marketing and communications and more time
will be provided in scheduled Board meetings to enable
the Board to consider marketing challenges and how
demand for the Company’s shares is created as well as
investment performance. A Working Group was established
comprising three Directors, the Company Secretary and
advisers to improve marketing and communications.
• developing the relationship with WTW – the Company will
be working with WTW to further develop communications
about its role.
• discount management – while the discount averaged 5.4%
during 2017, the Board will continue to take steps to try to
maintain or improve the discount.
The evaluation also identified the sale of the private equity
portfolio as a priority and this is being actively pursued.
33
Alliance Trust PLC | Annual Report and Financial Accounts 2017II DIRECTORS' REPORTIIII
AUDIT AND RISK COMMITTEE
In this section we provide information on the main areas focused on by the
Audit and Risk Committee over the year. The Committee plays a significant
role in ensuring that the Trust’s financial statements are properly prepared and
that the systems of internal controls in place are effective and appropriate.
The Committee monitors how effectively risk is managed and reviews and
challenges the appropriateness of the Trust’s Risk Appetite, its application 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 2017
Risk Appetite
Final Salary
Pension Scheme
Regulatory
Compliance
The Committee considered and updated its risk appetite and this is reported on in more detail on pages
22 to 25.
Following the Board’s decision in 2016 to derisk the Trust’s final salary pension scheme (‘the Scheme’)
through the purchase of a bulk annuity policy, the Trustees of the Scheme are now arranging for individual
annuities to be issued to all members. The Committee has been kept updated on progress being made by
the Trustees and with all Group companies now having ceased to participate in the Scheme it is expected
that the winding-up of the Scheme will be completed in 2018.
The Committee reviewed a number of items required to ensure the Trust’s regulatory compliance.
These included the consolidated Group Internal Capital Adequacy Assessment Process (ICAAP) and the
consolidated Group Individual Liquidity Adequacy 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. It also reviewed the content of the Key Information Document
prepared by WTW in accordance with the requirements of the Packaged Retail and Insurance’ Based
Investment Products (PRIIPs) Regulation.
Internal and
External Auditors
The Committee considered both its internal and external audit requirements. Due to the Trust’s outsourcing
its investment and administrative arrangements, the Committee concluded that there was no need for an
internal audit function. The Committee evaluated, and was satisfied with, the performance of the external
auditor. In keeping with legislation the Committee has decided to tender the external audit function in 2018.
The existing external audit firm will be included in the process.
Valuation of
Unlisted
Investments
The valuation methodology used to value the investments in the subsidiaries and private equity investments
can be found in Note 22.9 of pages 81 to 84. The Committee took advice from an external valuer 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 determined its value.
Review of Annual
and Interim Accounts
The Committee considered the content of the Interim Accounts and the Annual Report and Accounts
of the Trust before recommending approval to the Board. The Committee concluded that the Trust’s
accounts were fair, balanced and understandable.
Alliance Trust Savings
The Committee received quarterly reports from the Chief Risk Officer of Alliance Trust Savings on its risk
and compliance environment and, in particular, on regulatory compliance and customer service issues.
Alliance Trust Savings also reported on cyber-security and the steps taken to protect it, and the Trust,
from cyber incidents.
Outsourcing
The Committee considered a number of papers setting out how financial controls and risk would be
managed following the appointment of WTW and set out the extent of reporting that it required to be
assured that appropriate risk management and internal controls would be in place.
34
Alliance Trust PLC | Annual Report and Financial Accounts 2017 INTERNAL CONTROLS
The Board has an ongoing process for the identification,
evaluation and management of the significant risks faced
by the Group. This process was reviewed during the year as
detailed on page 22. It helps the Board to carry out a robust
assessment of the principal risks to the Trust, and assist
its review of the internal controls that are in place to ensure
its are designed effectively to facilitate operations as well
as ensure:
• The assets of the Group are safeguarded;
• Proper financial and accounting records are maintained; and
• The financial information used for reporting to stakeholders
is reliable.
The Committee also receives regular reports from the Chief
Risk Officer and the Chief Executive Officer of Alliance Trust
Savings, so that the impact of risks affecting that business
can be taken into consideration when managing the risks
affecting the Trust. The performance of the Committee was
considered as part of the Board evaluation which is reported
on page 33.
BOARD
• Responsible for determining the risk appetite
level the Group is willing to take to meet its
strategic objectives.
• Oversight of the Group’s risk management
framework and internal control systems.
AUDIT AND RISK COMMITTEE
• Regular review of all material financial,
operational and compliance controls,
including their effectiveness.
During 2017, the Audit and Risk Committee challenged
the risk positions and internal controls put in place by the
Trust and its various service providers. Its review included
consideration of whether any risk appetite levels approved
by the Board had been breached.
After the year end the Committee received WTW’s report
on the effectiveness of the risk management and internal
control systems; including an Independent Service Auditors’
Assurance Report (ISAE 3402 Type 1) on Internal Controls
prepared by KPMG LLP. The Committee also received reports
from the Custodian and the Administrator.
35
Alliance Trust PLC | Annual Report and Financial Accounts 2017II DIRECTORS' REPORTIIII AUDIT AND RISK COMMITTEE
CONTINUED
CHANGES TO THE INTERNAL CONTROLS
GOVERNANCE ARRANGEMENTS IN 2017
Prior to 1 April 2017, the Trust relied on the internal control
systems put in place by Alliance Trust Investments (ATI).
The Committee received reports from the Risk and
Compliance functions of ATI which included findings from
the combined risk assurance and internal audit approach
adopted in 2016. The Trust appointed WTW on 1 April and
since that date has relied on the internal controls systems
put in place by WTW.
The Audit and Risk Committee reviews reports on a regular
basis from WTW’s risk management and compliance
functions which set out its risk management responsibilities
under the ‘Three Lines of Defence’ model, as follows:
1. Line management and staff in business units – maintain
effective controls on a day-to-day process;
2. Risk team in the risk management function – facilitates and
monitors the implementation of risk management policies
and processes and monitors adherence to regulation; and
3. Other independent assurance functions – Depositary
functions which provide external and/or independent
challenge.
WTW performs operational due diligence on the underlying
portfolio managers and reports to the Audit and Risk
Committee on a quarterly basis on a ‘Risk Profile Snapshot’
of the portfolio supported by stress-testing analysis on the
Trust’s risk parameters and portfolio reporting.
WTW’s Compliance team also reports on a quarterly basis
to the Audit and Risk Committee on compliance issues
affecting WTW and the Trust.
In addition to the reports from WTW, the Audit and Risk
Committee receives and considers a quarterly Risk and
Compliance report from the Trust’s Executive function which
highlights any breaches of the Trust’s risk appetite measures.
Alliance Trust Savings continues to operate a three lines
of defence model. The Internal Audit function, which is
outsourced, provides independent assurance 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 Alliance Trust Savings Chief Risk Officer reports
to the Audit and Risk Committee on a quarterly basis.
Depositary
Agreement
Alliance Trust PLC
AIFM Agreement
Manager
Towers Watson Investment Management
(Ireland) Limited
Discretionary IMA
Investment Manager
Towers Watson Investment Management Limited
Administration
Agreement
Depositary
National Westminster
Bank plc
Custodian
The Bank of New York
Mellon SA/NV
Administrator
The Bank of New York
Mellon (International) Ltd
Alliance Trust Portfolio
Investment Managers
Black Creek, FPA, GQG, Jupiter, Lyrical, River and
Mercantile, Sustainable Growth Advisers, Veritas
Assets
s
A
M
I
-
b
u
S
36
Alliance Trust PLC | Annual Report and Financial Accounts 2017 DEPOSITARY
The Trust has appointed a Depositary, National Westminster
Bank plc. The Depositary is responsible for:
• The safekeeping of all custodial assets of the Trust;
• Ensuring its cash flows are properly monitored;
• Verifying and maintaining a record of all other assets of
the Trust; and
• The collection of income that arises from the Trust’s assets.
It is the duty of the Depositary to take reasonable care to
ensure that the Trust is managed in accordance with the FCA
FUND Sourcebook, the Trust’s Articles of Association and the
AIFM Directive.
ANNUAL REVIEW OF INTERNAL CONTROLS
AND FINDINGS
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 provide only
reasonable assurance and not absolute assurance against
regulatory breaches, material misstatement or loss.
The Audit and Risk Committee conducts an annual review
on the effectiveness of the risk management framework and
internal control systems in place to mitigate any significant
risks. The findings of this review are communicated to the
Board and actions proposed for the future are approved.
The Board recognises that the environment in which the
Group and Alliance Trust Savings operate is complex and
constantly evolving. The Board supports and guides the
Group 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. The Board of Alliance Trust Savings carries out the
same function in relation to Alliance Trust Savings.
The 2017 assessment and internal controls assurance reports
did not highlight any significant weaknesses or failings in the
risk management framework and internal control systems.
The Board does however recognise that these are early days
under the new structure and that there are areas where
improvements can be made.
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.
As part of the outsourcing arrangements with WTW, the
financial reporting process is managed by WTW, which has
delegated certain accounting responsibilities to The Bank
of New York Mellon. WTW performs full oversight over the
activities of The Bank of New York Mellon and reports to the
Trust on a quarterly basis.
This risk and the mitigating controls are assessed regularly
by management. Controls over the preparation of the
consolidated accounting include, but are not limited to:
• A formal review and sign-off of the annual accounts by
WTW including verification of any statements made;
• Adoption and review of appropriate accounting policies
by the Board; and
• Review and approval of accounting estimates by the Board.
The Audit and Risk 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 Trust’s performance, business
model and strategy. In arriving at its 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 establishment of a working group of the Board and
members of the Executive function and WTW as well
as marketing and PR advisers 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; and
• Independent external comment.
The Committee considered the steps outlined above and
the content of the document. After review the Committee
was 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.
37
Alliance Trust PLC | Annual Report and Financial Accounts 2017II DIRECTORS' REPORTIIII AUDIT AND RISK COMMITTEE
CONTINUED
INDEPENDENCE OF AUDITOR
APPOINTMENT OF AUDITOR
Following a tender, Deloitte LLP was appointed after approval
of the members at the 2011 Annual General Meeting. Deloitte
LLP has been reappointed at subsequent AGMs and is
proposed for reappointment at our AGM in April 2018. The
recommendation to reappoint Deloitte LLP is not automatic.
In the course of the year the Chairman of the Committee
has met 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
it applies to the audit process and has recommended the
reappointment of Deloitte LLP for a further year. In keeping with
legislation a tender will be carried out for the role of External
Auditor during 2018 with approval for the appointment of the
preferred firm being sought from shareholders at the AGM to
be held in 2019.
The Trust 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 2017.
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.
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 Chairman.
Such assignments are normally put out to tender. Last year
£30,550 was paid to the Auditor, in respect of work done on
the interim report and in relation to supporting the buyback
of shares from Elliott and associated regulatory notifications.
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 the
Committee Chairman and members of the Executive function.
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 2016, 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.
The Financial Reporting Council’s Audit Quality Review
team selected to review the audit of the 31 December 2016
financial statements as part of its 2017 annual inspection
of audit firms. The focus of the review and its reporting
is on identifying areas where improvements are required
rather than highlighting areas performed to or above
the expected level. The Chairman of the Audit and Risk
Committee received a full copy of the findings of the Audit
Quality Review team and has discussed these with Deloitte.
The Audit and Risk Committee confirms that there were no
significant areas for improvement identified within the report.
The Audit and Risk Committee is also satisfied that there is
nothing within the report which might have a bearing on the
audit appointment.
The Audit and Risk Committee also received and reviewed the
FRC 2016/2017 Audit Quality Review on Deloitte’s audits generally
and discussed the findings with the engagement partner.
38
Alliance Trust PLC | Annual Report and Financial Accounts 2017 The Directors are responsible for keeping proper accounting
records that disclose with reasonable accuracy at any
time the financial position of the Trust 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 Trust 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.
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 Trust 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 Trust’s ability to continue as a
going concern.
39
Alliance Trust PLC | Annual Report and Financial Accounts 2017II DIRECTORS' REPORTIIII GOING CONCERN STATEMENT
Given that most of the likely liquidity requirements such as
loan payments and dividends are timetabled and therefore
readily foreseeable, while others such as share buybacks
are subject to the Trust’s discretion, the Directors are
satisfied that unexpected liquidity and solvency needs are
not significant relative to the size of the Trust’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 22 on pages 77 to 81.
The Directors consider that the Trust 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.
The Trust’s business activities are set out on page 4 with
the principal risks which could impact on performance set
out on pages 23 to 25. The financial statements as set out
on pages 58 to 88 along with an analysis of its borrowings
in Note 14 on page 74. In their assessment of Going Concern
the Directors consider both liquidity and solvency risks
and whether the Trust has adequate financial resources
to continue in operational existence for at least the next
12 months.
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 Trust’s assets are in listed securities on recognised
stock exchanges which are readily realisable even in volatile
markets. In addition as at 31 December 2017 we also had
£167m 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 2017 the Trust’s total net assets were £2.7bn.
As at 31 December net gearing of 5.5% and gross gearing of
9.4% are comfortably below the investment policy gearing
restriction of 30% of net assets at any given time.
40
Alliance Trust PLC | Annual Report and Financial Accounts 2017 VIABILITY STATEMENT
In accordance with the 2014 UK Governance Code the
Directors have assessed the prospects and viability of the
Trust over a longer period than the 12 months required by
the Going Concern statement. This assessment has been
made taking account of the current position of the Trust and
its prospects, the corporate strategy and planning process
of the Trust and the Trust’s principal risks, both current and
medium and long term, as detailed in the Strategic Report
on pages 23 to 25.
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 prudential consolidated Group Internal Capital Adequacy
Assessment Process (ICAAP). Even the most severe of
these scenarios does not result in a breach of our banking
covenants, borrowings not to exceed 30% of net tangible
assets and tangible net asset value of no less than £1.5bn.
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 also considers the sustainability of
the Trust’s dividend and it believes that our progressive
dividend policy is also sustainable over the same time
frame. The ICAAP provides a risk assessment to identify
the principal risks that may adversely impact the Group.
These include inappropriate business strategy in relation
to investor needs, unfavourable markets or inappropriate
asset allocation, failure of the Trust’s main service providers
and regulatory and conduct risks. The risk management
framework and controls have various regular early warning
indicator and risk outlook signposts (trends) and triggers
(events) to 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 Trust and prudential consolidated Group.
The Trust’s business model, strategy and the embedded
characteristics of an investment company have helped
define and maintain the stability of the Trust over many
decades. The nature and activities of the Trust as a closed-end
investment trust lead to a reasonable expectation the Trust
will be able to continue in operation and meet its liabilities
as they fall due in the future. Contributory factors in this
assessment include:
• The Trust has a long-term investment strategy
under which it invests mainly in readily realisable,
publicly listed securities.
• As an investment trust, investing in a global equity
portfolio, the Trust is unlikely to be adversely impacted as
a direct result of the Brexit Referendum.
• The Trust is inherently structured for long-term
outperformance, rather than short-term opportunities,
with five years as a sensible timeframe for measuring
and assessing long-term investment performance.
• The Trust is able to take advantage of its closed-end
investment trust structure.
• The Trust has the ability to hold a proportion of
long-term less-liquid private equity investments and
mineral rights providing diversity to the income and
returns of the portfolio.
• The Trust has put in place unsecured long-term borrowing
arrangements.
• The ICAAP provides a discipline for regular and robust
review of revenue and expenditure forecasts and
assessment of principal risks.
• The Trust maintains large revenue and capital reserves.
• The Trust retains title to all assets held by the Custodian
which are subject to further safeguards imposed on
the Depositary.
Based on its assessment and evaluation of the Trust’s
current financial position, its future prospects, and
long-term investment horizon and financing, the Board
therefore concludes there is a reasonable expectation that
the Trust will be able to continue in operation and meet
its liabilities as they fall due over the coming five years and
beyond; the Board expects this to continue over many more
years to come.
41
Alliance Trust PLC | Annual Report and Financial Accounts 2017II DIRECTORS' REPORTIIII REMUNERATION COMMITTEE
Set out here is the Directors’ Remuneration Report for the year ended 31 December
2017. This report includes our current Remuneration Policy which was approved
in 2016, and also says how this policy has been implemented during the year.
As a result of the reduction in the Directors’ valuation of Alliance Trust Savings,
the Committee exercised its discretion under the rules of the Long-Term Incentive
Plan to reduce the vesting percentage of the shares awarded for the three-year
performance period which ended on 31 December 2017. We have made no changes
to Directors’ fees for the year.
Anthony Brooke
Chairman, Remuneration Committee
CONSIDERATION OF SHAREHOLDER VIEWS
We regularly engage with our shareholders on all aspects
of performance and governance. In the past year we have
not sought the views of our principal shareholders on
remuneration issues. However, any comments received from
shareholders will be carefully 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
Trust’s registered office and are also available at the Annual
General Meeting. Non-Executive Directors are appointed
subject to annual re-election at the Trust’s Annual General
Meeting 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
Trust 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 Trust’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 Trust. 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 Trust’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 Trust, 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.
42
Alliance Trust PLC | Annual Report and Financial Accounts 2017 NON-EXECUTIVE DIRECTORS’ FEES
Annual Fees for 2018 remain unchanged from 2017 and are
Chairman*
Deputy Chairman
Basic Non-Executive Director Fee payable to each
Director (other than Chairman and Deputy Chairman)
Committee Membership**
Chairman of Audit and Risk Committee***
Chairman of Remuneration Committee***
Senior Independent Director
Subsidiary Board Director’s Fee†
£120,000
£80,000
£35,000
£6,000
£8,000
£4,500
£5,000
£35,000
*Inclusive of membership of all Board Committees.
**All Directors, other than the Chairman, 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 the board of Alliance Trust
Investments to 31 March 2017 and to Gregor Stewart in respect of his appointment to
the board of Alliance Trust Savings.
The Remuneration Committee has reviewed the fees paid
to Directors in 2017 and agreed that they should remain
unchanged. The Committee did, however, agree to make a
one-off payment of £30,000 to Claire Dobie to reflect the
time she has spent over and above what could reasonably
have been expected relating to formulating the Trust’s
marketing strategy and to changes to our branding, and
to our website.
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 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 Board’s Committee structure which took place
in 2017. We have retained the approach of paying a single
composite fee for membership of Board Committees and
this fee remains unchanged for 2018. A further review will be
undertaken in 2018.
43
Alliance Trust PLC | Annual Report and Financial Accounts 2017II DIRECTORS' REPORTIIII IMPLEMENTATION REPORT – CURRENT REMUNERATION
RELATIVE IMPORTANCE OF SPEND ON PAY
DIRECTORS’ SHAREHOLDINGS (AUDITED)
All Directors are required to hold 3,000 shares in the Trust.
Details of the shareholdings of all Directors and their connected
persons, together with details of shares acquired, are shown
below. None of these shares is subject to performance
conditions. In 2017 the Trust issued no options to subscribe
for shares.
Directors’
shareholdings
Lord Smith
Anthony Brooke
Clare Dobie
Chris Samuel
Karl Sternberg
Gregor Stewart
As at
1 Jan 2017
As at
31 Dec 2017
Acquired
between
31 Dec 2017 and
28 Feb 2018
18,000
3,000
3,030
5,096
3,041
24,843
18,000
13,000
3,030
20,190
13,806
25,011
-
-
-
36
31
27
The chart below shows, in respect of this and the preceding
financial year, the actual expenditure of the Trust on
remuneration and distributions to shareholders by way
of dividend and share buybacks. In 2016 all services were
provided by employees of our investment manager, Alliance
Trust Investments, and we therefore provided details of
remuneration paid to the Executive Directors and former
Executive Directors. In the period since 1 April 2017 the Trust
has employed five employees, two on a part-time basis. We
disclose for 2017 the payments made to them and to the
former Executive Directors. These disclosures include the
value of LTIP awards which vested in 2017 and those which
will vest in 2020 for the 2016 and 2017 remuneration figures.
The value of these LTIP awards in 2017 is £1.1m.
(£m)
1,200
1,000
800
600
400
200
0
1,003
1.9
1.3
Remuneration
195.8
66.3*
56.5
Dividend
Buybacks
2016
2017
*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.
Source: WTW.
SINGLE TOTAL FIGURE OF REMUNERATION (AUDITED)
£000
Non-Executive
Director
Lord Smith
Anthony Brooke
Clare Dobie
Chris Samuel
Karl Sternberg
Gregor Stewart
ADVISERS
2017
Fees for
Subsidiary
Company
Appointment
-
-
-
9
-
35
Company
Fees
120
46
71
41
46
94
Total
120
46
71
50
46
129
Company
Fees
109
46
25
41
76
106
2016
Fees for
Subsidiary
Company
Appointment
-
-
-
35
-
29
Total
109
46
25
76
76
135
The Remuneration Committee received no independent advice in respect of remuneration during the year.
44
Alliance Trust PLC | Annual Report and Financial Accounts 2017 PERFORMANCE GRAPH
The graph opposite 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 Trust believes that this is the most
appropriate index as it represents the performance of listed
equities across a range of global markets and is the one
used to measure the performance of the equity portfolio.
The Trust’s equity portfolio is global in nature and at the
year end comprised 90.7% of the total investment portfolio.
350
300
250
200
150
100
50
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
31 Dec
2017
MSCI ACWI
Alliance Trust
†11 months 31 January to 31 December 2011.
Source: MSCI Inc and Morningstar.
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
nine financial periods. The Trust 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 during 2017 and all payments made to her were those required under
her contract.
Single figure of remuneration
£692,484
£700,232
£1,037,175
£1,809,326
£1,378,444
£1,342,859
£1,376,076
£1,305,215
£831,388
31 Jan 2010
31 Jan 2011†
31 Dec 2011
31 Dec 2012
31 Dec 2013
31 Dec 2014
31 Dec 2015
31 Dec 2016
31 Dec 2017
Annual bonus (as percentage
of maximum opportunity)
LTIP vesting (as percentage
of maximum opportunity)
†11 months 31 January to 31 December 2011.
58.4%
50.0%
90.3%
81.5%
57.5%
85.0%
60.7%
nil
n/a
0.0%
0.0%
0.0%
51.7%
33.9%
12.5%
27.1%
38.9%
62.5%
We have not provided a comparator of the Chief Executive Officer’s remuneration with those of the employees within the Group as
there has been no Chief Executive Officer since 3 February 2016.
VOTING AT ANNUAL GENERAL MEETING
At the Annual General Meeting held on 27 April 2017, votes cast by proxy and at the meeting in respect of the Directors’ Remuneration
Report were as follows:
Resolution
Directors’ remuneration
report (excluding
remuneration policy)
Votes
for
%
Votes
against
90,720,751
96.92
2,879,764
%
3.08
Total votes
cast
Votes withheld
(abstentions)
93,600,515
1,694,498
At the Annual General Meeting held on 6 May 2016, votes cast by proxy and at the meeting in respect of the Directors’ Remuneration
Policy were as follows:
Resolution
Approval of
Remuneration Policy
Votes
for
182,111,330
%
98.29
Votes
against
3,164,092
%
1.71
Total votes
cast
Votes withheld
(abstentions)
185,275,422
2,039,521
45
Alliance Trust PLC | Annual Report and Financial Accounts 2017II DIRECTORS' REPORTIIII IMPLEMENTATION REPORT – HISTORIC REMUNERATION
The information below gives details of the payments made
in 2017 to Katherine Garrett-Cox, the former Chief Executive
Officer who left the Board on 3 February 2016.
EXECUTIVE DIRECTORS’ SERVICE CONTRACTS
Executive Directors had service contracts which could
be terminated on 12 months’ notice from the Trust 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 were 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 for these Group share plans. Awards
are normally pro-rated for length of service.
Contracts contained specific mitigation provisions should
they be terminated. These mitigation provisions were
structured to provide monthly payments during the notice
period against which any income received during the period
was offset. The monthly payment was 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 the Implementation Reports for 2015 and 2016 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 2017. All these payments were
within the terms of the Trust’s Remuneration Policy which
was approved by shareholders on 1 May 2014.
No discretionary payments were made to either of the
former Directors in 2017 and all payments made were
in accordance with those detailed in the 2015 and 2016
Remuneration Implementation Reports.
Katherine Garrett-Cox
Payment
Salary and payments in respect of pension during notice period
£93,750
Payment in lieu of contractual benefits
LTIP awards made in 2017
Value of LTIP awards vested in 2017†
Value of LTIP awards vesting in 2020*
Alan Trotter
Payment
Value of LTIP awards vested in 2017
Value of LTIP awards vesting in 2020*
†Based on actual share price on date of vesting.
£785
None
£678,990
£736,853
£270,810
£304,901
*Based on a share price of 739.1p being the average share price in the last quarter of 2017
and calculated with reference to the three-year performance period to 31 December 2017
but will not vest until 2020.
SINGLE TOTAL FIGURE OF REMUNERATION (AUDITED)
£000
Executive
Director
Katherine Garrett-Cox
2017
2016
Salary
75
Taxable
Benefits*
Long-term
Awards^
Pension**
1
737
19
Total
832
Salary
425#
Taxable
Benefits*
Annual
Bonus†
Long-term
Awards^^
Pension**
93
2
679
106
Total
1,305
*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 739.1p being the average share price in the last quarter of 2017. They will not vest until 2020.
#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.
^^Based on actual share price on date of vesting.
46
Alliance Trust PLC | Annual Report and Financial Accounts 2017 LONG-TERM INCENTIVE PLANS
ALL EMPLOYEE SHARE OWNERSHIP PLAN
The last awards under the Long-Term Incentive Plan were
made in May 2015 (in respect of the financial year ended
31 December 2014) and no further awards have been or will
be made under the Plan. Awards made will be paid subject to
the Plan Rules, including the achievement of performance targets.
The table below shows the payout for the awards made in
2015 and which will vest in 2020. These are based on the
performance for the period ended 31 December 2017.
This year the Committee used the discretion it has under
the Plan Rules to amend the vesting percentage of the
awards. The Committee believed that a strict application of
the methodology to calculate NAV growth, as set out in the
Plan Rules, would result in a vesting percentage that does
not accurately reflect the actual performance of the Trust
over the three-year performance period. This resulted from
the fact that the FactSet data does not take into account the
impact of the reduction in the Directors’ valuation of Alliance
Trust Savings, which was agreed after the year end and is
reflected in our 2017 audited balance sheet.
The Committee agreed that the reduction in the value of
Alliance Trust Savings should be taken into account in
calculating the percentage of the awards which will vest.
As a result, the Trust’s NAV Rank is 12 and the vesting
percentage is 62.5%. The Committee wanted to ensure
that the percentage of the awards that vest under the Plan
accurately reflected the performance of the Trust over
the performance period and it believes the awards made
achieve this.
Peer Group^
Ranking out of 23
TSR Rank*
NAV Rank*
6
12**
TSR payout
NAV payout
Combined payout
%
100
25
62.5
^ The Peer Group can be found on our website www.alliancetrust.co.uk
*Calculated using the average of the Trust’s performance 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 12 February 2018, provided by FactSet. The Trust engaged PricewaterhouseCoopers
LLP to independently calculate the vesting percentage based on TSR and NAV market
data sourced from FactSet. The use of data sourced from FactSet is consistent with
that used in prior periods.
**The ranking has been adjusted to reflect the valuation of Alliance Trust Savings
agreed post the year end.
Details of the awards made to the former 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.
The former Executive Directors also participated in the
Trust’s All Employee Share Ownership Plan (AESOP). They
received no payments in 2017.
SUMMARY OF 2014 POLICY:
LONG-TERM INCENTIVE PLANS
There were two categories of award 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 Trust 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.
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 Trust 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)
100
75
50
)
%
(
g
n
i
t
s
e
25V
0
Q4
Q3
Q2
Q1
Peer Group Ranking
47
Alliance Trust PLC | Annual Report and Financial Accounts 2017II DIRECTORS' REPORTIIII
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 prior years.
All awards were subject to performance conditions as set out on the previous page.
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)
At
1 Jan
2017
223,471
177,514
160,086
187,458
Awards
granted
in year
Awards
vested or
will vest
Awards
lapsed or
will lapse
At
31 Dec
2017
Market price
of share on
date of award
Vesting
date
–
–
–
–
55,561*
167,910
223,471
£5.07
6 May 2020
44,135*
133,379
177,514
£5.07
6 May 2020
45,524*
114,562
53,307*
134,151
–
–
£4.537
11 April 2017
£4.537
11 April 2017
*The number of shares that vested or will vest has been reduced as 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)
At
1 Jan
2017
42,475
96,646
26,275
99,184
Awards
granted
in year
Awards
vested or
will vest
Awards
lapsed or
will lapse
At
31 Dec
2017
Market price
of share on
date of award
Vesting
date
–
–
–
–
12,595*
29,880
42,475
£5.07
6 May 2020
28,658*
67,988
96,646
£5.07
6 May 2020
8,255*
18,020
31,163*
68,021
–
–
£4.537
11 April 2017
£4.537
11 April 2017
*The number of shares that vested or will vest has reduced as the former Director was not an eligible employee for the whole of the three-year performance period.
APPROVAL
The Remuneration Report comprising pages 42 to 48 and the Implementation Report comprising pages 44 to 48 have been
approved by the Board and signed on its behalf by
Anthony Brooke
Chairman, Remuneration Committee
7 March 2018
48
Alliance Trust PLC | Annual Report and Financial Accounts 2017 OTHER GOVERNANCE
RE-ELECTION OF DIRECTORS
DIRECTORS’ AND OFFICERS’ INDEMNIFICATION
Details of the current Directors can be found on pages
28 and 29. Although the Articles of the Trust provide for
re-election every three years the Board has decided that
all 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 Chairman and the Board. All are
recommended for re-election at the forthcoming Annual
General Meeting. Each of our Directors has confirmed that
they remain committed to their role and have sufficient time
available to meet what is expected of them.
The Trust 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 do not extend to cover claims
brought by the Trust 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.
DIRECTORS IN 2017
Name
Lord Smith
Designation
Chairman
Anthony Brooke
Non-Executive Director
Clare Dobie
Chris Samuel
Non-Executive Director
Non-Executive Director
Karl Sternberg
Non-Executive Director
Gregor Stewart
Non-Executive Director
Appointed
3/2/2016
24/6/2015
26/5/2016
23/9/2015
23/9/2015
1/12/2014
All the Directors served the full financial year and remained in
office at the date of signing these Accounts.
MAJOR SHAREHOLDERS
As at 28 February 2018 the Trust 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 Trust:
Shareholder
Nature of interest
Number of shares
DC Thomson &
Company Limited
Shares
12,610,000 (3.7%)
The above notification made on 8 February 2018 superseded
DC Thomson & Company Limited previously notified holding
of 15,010,000 shares.
The largest shareholder in the Trust is the nominee company
for Alliance Trust Savings which holds its shares on behalf of
around 19,500 customers.
Shareholder
Nature of interest
Number of shares
Alliance Trust Savings
Nominees Limited
Shares
116,870,789 (34.1%)
DIVIDENDS
The dividend payable to shareholders on 3 April 2018 is
disclosed on page 21.
USE OF FINANCIAL INSTRUMENTS
Information on the use of financial instruments can be found
in Note 22.3 on page 78 of the Accounts.
RELATIONSHIP WITH SHAREHOLDERS
All Directors normally attend the Annual General Meeting
where they have the opportunity to meet shareholders.
Meetings also take place throughout the year with major
and institutional shareholders.
INVESTMENT TRUST AND COMPANY STATUS
Alliance Trust PLC is a public limited company limited by
shares. HM Revenue & Customs has confirmed that
Alliance Trust PLC has investment trust status for all
financial periods from 1 January 2012.
ALTERNATIVE INVESTMENT FUND MANAGERS
DIRECTIVE
Until 1 April 2017 the manager had been Alliance Trust
Investments Limited. Upon completion of the sale of Alliance
Trust Investments the Trust appointed Towers Watson
Investment Management (Ireland) Limited as manager.
The Trust 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 Trust’s Investor
Disclosure Document, are provided on the Trust’s website
at www.alliancetrust.co.uk. Disclosures on Remuneration as
required under the AIFMD can also be found on our website.
POST BALANCE SHEET EVENTS
On 24 January 2018 the Trust sold 4,060,792 shares in
Liontrust Asset Management PLC at a price of 520p per share.
These shares were part of the consideration paid to the Trust
on the sale of its subsidiary Alliance Trust Investments.
49
Alliance Trust PLC | Annual Report and Financial Accounts 2017II DIRECTORS' REPORTIIII OTHER GOVERNANCE
CONTINUED
INVESTMENT MANAGEMENT AGREEMENT
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 the 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 Trust made use of this provision during the course of
the year as detailed above. The Trust will seek the renewal of
these authorities at the Annual General Meeting.
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 was 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 2018. Procedures are
in place to allow Directors to request authority should it be
required outwith the normal Board meeting schedule.
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:
• 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 Meetings.
After the formal meeting we expect to have presentations
from two of our equity managers, Bill Kanko from Black Creek
Investment Management and Andrew Headley from Veritas
Asset Management.
Under the terms of the 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 Trust after deduction of (a) the value of non-core
assets, (b) the value of the Trust’s subsidiaries; (ii) such fees
as are agreed from time to time by the Trust in respect of
third-party managers; and (iii) fees paid to the managers/
administrators of non-core assets. Each of the third-party
managers is entitled to a base management fee rate,
generally based on the value of assets under management.
No performance fees are payable.
The AIFM also receives 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 Trust 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) it was entitled to receive a fee for
its services equal to 0.35% of the Trust’s adjusted net asset
value (excluding holdings in ATI managed funds and the fair
value of Alliance Trust Savings and ATI). The agreement was
terminable by either ATI or the Trust’s giving to the other
not less than six months’ written notice and it terminated
on 31 March 2017.
DIRECTOR DEVELOPMENT
Every new Director receives an individually tailored induction.
The Board as a whole received updates on relevant topics.
SHARE CAPITAL AND WAIVER OF DIVIDENDS
The Trust’s issued share capital as at 31 December 2017
comprised 347,592,156 Ordinary 2.5p shares of which 456,886
have been acquired by the Trustee of an Employee Benefit
Trust (‘the Trustee’) with funds provided by the Trust 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 98,002 shares deposited
by recipients of awards under the LTIP. Each Ordinary share
of the Trust is entitled to one vote but the Trustee does not
vote in respect of the shares held by it on behalf of the Trust.
In the course of the year the Trust acquired and cancelled
145,111,776 shares for £1.003bn.
There are no preference shares or shares held in Treasury.
50
Alliance Trust PLC | Annual Report and Financial Accounts 2017 TOTAL GREENHOUSE GAS EMISSIONS DATA
We report here on all 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 Trust 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
Natural gas
Refrigerant loss
Company cars
Purchased electricity
Downstream leased assets
Business travel
Total Scope 1 + 2 location based
Total Scope 1 + 2 per full employee equivalent (FTE)
Year to
31 Dec 2014
Year to
31 Dec 2015
Year to
31 Dec 2016
Year to
31 Dec 2017
% Change
year-on-year
157
457
-
316
930
614
3.1
163
422
54
247
832
585
2.4
131
379
37
205
715
510
2.0
136
326
207
171
633
462
1.4
+4%
-14%
+559%
-17%
-11%
-9%
-30%
All figures in the above table have been restated to reflect the removal of Alliance Trust Investments from the Group in 2017.
REPORT OF DIRECTORS AND RESPONSIBILITY STATEMENT
The Report of the Directors, including the Directors’ responsibility statement on pages 30 to 39, the going concern statement
on page 40, the indications of future developments contained on pages 4 and 5 of the Strategic Report and pages 49 to 51 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
7 March 2018
51
Alliance Trust PLC | Annual Report and Financial Accounts 2017II DIRECTORS' REPORTIIII INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF ALLIANCE TRUST PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
Opinion
In our opinion the financial statements:
• give a true and fair view of the state of the company’s affairs as at 31 December 2017 and of its 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.
We have audited the financial statements of Alliance Trust PLC (the ‘company’) which comprise:
• income statement;
• statement of comprehensive income;
• statement of changes in equity;
• balance sheet;
• cash flow statement; and
• related notes 1 to 26.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by
the European Union.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the
financial statements section of our report.
We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the non-audit
services prohibited by the FRC’s Ethical Standard were not provided to the company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
SUMMARY OF OUR AUDIT APPROACH
Key audit matters
The key audit matters that we identified in the current year were:
Materiality
Scoping
• valuation and ownership of listed equity investments and other equity and fund investments and
• valuation of unlisted investments including subsidiaries, including consideration of management
override of controls through the manipulation of key assumptions and estimates.
There were no changes in the key audit matters identified in the prior year.
The materiality that we used in the current year was £26.9m which was determined on the
basis of 1% of net asset value.
Our audit was scoped by obtaining an understanding of the entity and its environment,
including internal control, and assessing the risks of material misstatement.
The financial reporting process is outsourced to Willis Towers Watson (“the Manager”), who have
delegated certain accounting responsibilities to The Bank of New York Mellon.
As part of our audit we assessed the key controls in place at the Manager and The Bank of New
York Mellon.
Changes in our approach
The following changes were made during the year which altered the scope of the audit:
• as noted on page 3 a change in manager from Alliance Trust Investment Limited to Willis
Towers Watson, resulting in a change in internal controls tested; and
• as described in note 2, the Company no longer prepares group accounts and as such our
audit was scoped for the Company only.
52
Alliance Trust PLC | Annual Report and Financial Accounts 2017 CONCLUSIONS RELATING TO GOING CONCERN, PRINCIPAL RISKS AND VIABILITY STATEMENT
Going concern
We have reviewed 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 company’s ability to continue to do so over a period
of at least twelve months from the date of approval of the financial statements.
We confirm that we
have nothing material
to report, add or draw
attention to in respect
of these matters.
We are required to state whether we have anything material to add or draw attention to in relation to that
statement required by Listing Rule 9.8.6R(3) and report if the statement is materially inconsistent with our
knowledge obtained in the audit.
Principal risks and viability statement
Based solely on reading the directors’ statements and considering whether they were consistent with the
knowledge we obtained in the course of the audit, including the knowledge obtained in the evaluation of
the directors’ assessment of the company’s ability to continue as a going concern, we are required to state
whether we have anything material to add or draw attention to in relation to:
We confirm that we
have nothing material
to report, add or draw
attention to in respect
of these matters.
• the disclosures on pages 23-25 that describe the principal risks and explain how they are being managed
or mitigated;
• the directors’ confirmation on page 22 that they have carried out a robust assessment of the principal risks
facing the company, including those that would threaten its business model, future performance, solvency
or liquidity; or
• the directors’ explanation on page 41 as to how they have assessed the prospects of the company, 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 company 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 are also required to report whether the directors’ statement relating to the prospects of the company
required by Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall 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.
Key audit
matter title
Key audit matter
description
How the scope of our audit
responded to the key audit matter
Valuation and
ownership of listed
equity investments
and other equity and
fund investments.
Listed equity investments £2,573.1m
(2016: £3,163.9m) and other equity
and fund investments £129.2m
(2016: £93.0m) represent the most
significant number on the balance
sheet and are the main driver of the
Company’s performance. The total
of these £2,702.3m (2016: £3,257.9m)
represented 90.70% of total assets of
the Company at 31 December 2017
(2016: 92.48%) (see notes 2 and 9).
There is a risk that the prices quoted
in respect of the listed investments
held by the Company 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 Company.
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 as Custodian and Fund
Accountant.
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.
Key observations
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 Company’s
investment portfolio
to the confirmation
received directly from
the custodian and
depositary.
53
Alliance Trust PLC | Annual Report and Financial Accounts 2017II DIRECTORS' REPORTIIII
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF ALLIANCE TRUST PLC CONTINUED
Key observations
No misstatements
were identified which
required reporting to
those charged with
governance in regards
to the valuation of the
unlisted investments.
Key audit matter title
Key audit matter description
Valuation of unlisted
investments including
subsidiaries, including
consideration of
management override
of controls through
the manipulation of
key assumptions and
estimates.
As an investment entity, the Company
presents its interests in subsidiaries
and other entities at fair value,
in accordance with IFRS 10.
Unlisted investments of £134.6m
(2016: £217.3m) 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 34 and notes 2, 9 and 22.9)
There are key inputs to the valuation
calculations which reflect the Directors’,
external valuers’ and Investment
Manager’s judgement (see note 22.9).
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.
The risk of management override of
controls due to fraud is a pervasive risk
of material misstatement in financial
statements. Specifically in regard to
the valuation of unlisted investments,
there is a risk that there is bias in the
estimates determined by management.
How the scope of our audit
responded to the key audit matter
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.
Subsidiaries
We reviewed and challenged
management’s and external valuations
for a sample of unlisted investments
including Alliance Trust Savings limited,
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 in relation to the testing
of Alliance Trust Savings Limited.
Other 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 Investment
Manager were reasonable and confirmed
that the unlisted investments had been
valued on a consistent basis.
Management override
As part of our overall response to the
pervasive risk of management override,
in addition to the procedures described
above, we reviewed management’s key
judgements, assumptions and valuation
methodologies for bias.
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.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Materiality
£26.9m (2016: £32.8m).
Basis for determining
materiality
We determined materiality as 1% (2016: 1%) of net assets.
Rationale for the benchmark
applied
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 £539,900
(2016: £657,000), 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.
Alliance Trust PLC | Annual Report and Financial Accounts 2017
54
54
Alliance Trust PLC | Annual Report and Financial Accounts 2017
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Our audit was scoped by obtaining an understanding of the entity and its environment, including internal control, and assessing
the risks of material misstatement. As part of our audit we assessed the controls in place at Willis Towers Watson (“the Investment
Manager”) who prepares the financial statements of the Company and also the key controls in place at Bank of New York Mellon
(Fund Accounting) who maintain the underlying accounting records for investment transactions and related balances.
The following changes were made during the year which altered the scope of the audit:
• as noted on page 3 change in manager from Alliance Trust Investment Limited to at Willis Towers Watson, resulting in a change
in internal controls tested; and
• as described in note 2 the Company no longer prepares group accounts and as such our audit was scoped for the Company only.
We have nothing to
report in respect of
these matters.
OTHER INFORMATION
The directors are responsible for the other information. The other information comprises the information
included in the annual report, other than the financial statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to
determine whether there is a material misstatement in the financial statements or a material misstatement
of the other information. If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact.
In this context, matters that we are specifically required to report to you as uncorrected material
misstatements of the other information include where we conclude that:
• Fair, balanced and understandable – the statement given by the directors that they consider the annual
report and financial statements taken as a whole is fair, balanced and understandable and provides the
information necessary for shareholders to assess the company’s position and performance, business
model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit and Risk Committee reporting – the section describing the work of the Audit and Risk Committee
does not appropriately address matters communicated by us to the Audit and Risk Committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the directors’
statement required under the Listing Rules relating to the company’s compliance with the UK Corporate
Governance Code containing provisions specified for review by the auditor in accordance with Listing
Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate
Governance Code.
Responsibilities of directors
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, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the company’s ability to continue as a going
concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
55
Alliance Trust PLC | Annual Report and Financial Accounts 2017II DIRECTORS' REPORTIIII INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF ALLIANCE TRUST PLC CONTINUED
USE OF OUR REPORT
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for
the opinions we have formed.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• 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 company and its environment obtained in the course of the audit,
we have not identified any material misstatements in the strategic report or 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.
We have nothing to
report in respect of
these matters.
OTHER MATTERS
Auditor tenure
Following the recommendation of the Audit Committee (now Audit and Risk Committee), we were appointed by the Board
of Directors on 20 May 2011 to audit the financial statements for the year ending 31 December 2011 and subsequent financial
periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 7 years,
covering the years ending 31 December 2011 to 31 December 2017.
Consistency of the audit report with the additional report to the Audit and Risk Committee
Our audit opinion is consistent with the additional report to the Audit and Risk Committee we are required to provide in
accordance with ISAs (UK).
Andrew Partridge (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Statutory Auditor
Edinburgh, United Kingdom
7 March 2018
56
Alliance Trust PLC | Annual Report and Financial Accounts 2017 FINANCIAL STATEMENTS
57
Alliance Trust PLC | Annual Report and Financial Accounts 2017III FINANCIAL STATEMENTSIII 58
Alliance Trust PLC | Annual Report and Financial Accounts 2017Financial StatementsIncome statement for year ended 31 December 2017Statement of comprehensive incomeStatement of changes in equity for year ended 31 December 2017Balance sheet as at 31 December 2017Cash flow statement for year ended 31 December 2017Notes 59
Alliance Trust PLC | Annual Report and Financial Accounts 2017III FINANCIAL STATEMENTSIIIIncome statement for the year ended 31 December 2017Year to December 2017Year to December 2016£000NoteRevenueCapitalTotalRevenueCapitalTotalIncome360,525-60,52584,783-84,783Profit on fair value designated investments9-432,187432,187-591,755591,755Loss on fair value of debt-(2,160)(2,160)-(9,800)(9,800)Total revenue60,525430,027490,55284,783581,955666,738Investment management fees4(3,307)(6,786)(10,093)(3,114)(6,227)(9,341)Administrative expenses4(5,496)(1,843)(7,339)(4,846)(2,583)(7,429)Finance costs 5(2,094)(4,096)(6,190)(2,586)(5,107)(7,693)Gain/(Loss) on other assets held at fair value-1,4501,450-(40)(40)Foreign exchange gains/(losses) -4,5564,556-(2,527)(2,527)Profit before tax49,628423,308472,93674,237565,471639,708Tax6(1,170)41(1,129)(8,367)(2,248)(10,615)Profit for the year48,458423,349471,80765,870563,223629,093All profit for the year is attributable to equity holders.Earnings per share attributable to equity holdersBasic (p per share)812.86112.35125.2112.77109.23122.00Diluted (p per share)12.84112.14124.9812.76109.06121.82Statement of comprehensive incomeYear to December 2017Year to December 2016£000RevenueCapitalTotalRevenueCapitalTotalProfit for the year48,458423,349471,80765,870563,223629,093Items that will not be reclassified subsequently to profitor loss:Defined benefit plan net actuarial gain/(loss)(note 24)-313313-(26,637)(26,637)Retirement benefit obligations deferred tax-(53)(53)-4,4784,478Other comprehensive income/(loss) -260260-(22,159)(22,159)Total comprehensive income for the year48,458423,609472,06765,870541,064606,934All total comprehensive income for the year is attributable to equity holders. 60
Alliance Trust PLC | Annual Report and Financial Accounts 2017Statement of changes in equity for the year ended 31 December 2017£000Dec 17Dec 16Called-up share capitalAt 1 January12,31913,160Own shares purchased and cancelled in the year(3,628)(841)At 31 December8,69112,319Capital reserveAt 1 January2,508,3592,163,026Profit for the year423,349563,223Defined benefit plan actuarial net gain/(loss) 260(22,159)Own shares purchased and cancelled in the year(1,008,529)(195,841)Share-based payments-110At 31 December1,923,4392,508,359Merger reserveAt 1 January and at 31 December645,335645,335Capital redemption reserveAt 1 January6,6795,838Own shares purchased and cancelled in the year3,628841At 31 December10,3076,679Revenue reserveAt 1 January111,450111,921Profit for the year48,45865,870Dividends paid(48,113)(66,329)Unclaimed dividends returned/(redistributed) 66(12)At 31 December111,861111,450Total Equity at 1 January3,284,1422,939,280Total Equity at 31 December2,699,6333,284,142 61
Alliance Trust PLC | Annual Report and Financial Accounts 2017III FINANCIAL STATEMENTSIIIBalance sheet as at 31 December 2017£000NoteDec 17Dec 16Non-current assetsInvestments held at fair value92,836,8753,474,197Property, plant and equipment94,9354,524Pension scheme surplus243883Deferred tax asset116722,841,8543,478,876Current assetsOutstanding settlements and other receivables1231,60712,818Cash and cash equivalents20105,80849,430137,41562,248Total assets2,979,2693,541,124Current liabilitiesOutstanding settlements and other payables13(21,679)(14,051)Tax payable11(3,991)(3,991)Bank loans14(133,000)(120,000)(158,670)(138,042)Total assets less current liabilities2,820,5993,403,082Non-current liabilitiesUnsecured fixed rate loan notes held at fair value14(120,960)(118,800)Deferred tax liability11(6)(72)Amounts payable under long-term Investment Incentive Plan-(68)(120,966)(118,940)Net assets2,699,6333,284,142EquityShare capital158,69112,319Capital reserve161,923,4392,508,359Merger reserve16645,335645,335Capital redemption reserve1610,3076,679Revenue reserve16111,861111,450Total Equity2,699,6333,284,142All net assets are attributable to equity holders.Net Asset Value per ordinary share attributable to equity holdersBasic (£)17£7.78£6.67Diluted (£)17£7.77£6.67The financial statements were approved by the Board of Directors and authorised for issue on 7 March 2018. They were signed on its behalf by:Lord Smith of KelvinChairman 62
Alliance Trust PLC | Annual Report and Financial Accounts 2017Cash flow statement for the year ended 31 December 2017£000Dec 17Dec 16Cash flows from operating activitiesProfit before tax472,936639,708Adjustments for:Gains on investments(432,187)(591,755)Losses on fair value of debt2,1609,800Foreign exchange (gains)/losses(4,556)2,527Depreciation457Disposals and transfers of fixed assets-(174)(Gain)/loss on other assets held at fair value(1,450)40Share-based payment expense-110Finance costs6,1907,693Movement in pension scheme loss/(surplus)305(15,360)Operating cash flows before movements in working capital43,40252,646Decrease/(increase) in receivables3,273(392)(Decrease)/Increase in payables(6,318)5,962Net cash flow from operating activities before income taxes40,35758,216Taxes paid(1,433)(12,129)Net cash inflow from operating activities38,92446,087Cash flows from investing activitiesProceeds on disposal at fair value of investments through profit and loss4,384,7701,481,435Purchases of fair value through profit and loss investments(3,322,009)(1,054,086)Purchase of plant and equipment-(6)Proceeds on transfer of other intangible assets to Group companies-917Disposal of tangible assets21-Proceeds on transfer of property, plant and equipment to Group companies-395Net cash inflow from investing activities1,062,782428,655Cash flows from financing activitiesDividends paid - Equity(48,113)(66,329)Unclaimed dividendsreturned/(redistributed) 66(12)Purchase of own shares(1,008,529)(195,841)Bank loans and unsecured fixed rate loan notes raised13,000-Repayment of borrowing-(170,000)Finance costs paid(6,308)(7,570)Net cash outflow from financing activities(1,049,884)(439,752)Net cash increase in cash and cash equivalents51,82234,990Cash and cash equivalents at beginning of year49,43016,967Effect of foreign exchange rate changes4,556(2,527)Cash and cash equivalents at end of year105,80849,430 63
Alliance Trust PLC | Annual Report and Financial Accounts 2017III FINANCIAL STATEMENTSIIINotes1General InformationAlliance Trust PLC was incorporated in the United Kingdom under the Companies Acts 1862-1886. The address of the registered office isgiven on page 90. The nature of the Company’s operations and its principal activity is a global investment trust. The following notes refer tothe year ended 31 December 2017 and the comparatives which are in brackets for the year ended 31 December 2016.The financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which theCompany operates.Critical accounting judgements and key sources of estimation uncertaintyThe 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. There are no critical judgements. The key sources of estimation uncertainty, that may have a significant risk of causing amaterial adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below: Valuation of Alliance Trust Savings Limited (ATS)This represents the Directors' view of the amount for which ATS could be exchanged between knowledgeable willing parties in an arm'slength transaction. The Directors' took advice from an external valuer in arriving at the fair value of ATS. The external valuation was derivedfrom a discounted cash flow approach using ATS business plans, multiples derived from comparable companies and recent transactions.This valuation is sensitive to changes in the following unobservable inputs: cost of equity, long-term growth rate and long-term PBT margin.Further information on the sensitivity of this valuation to changes in the unobservable inputs is provided in note 22.9.2Summary of Significant Accounting PoliciesBasis of accountingThe financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs), as adopted by theEuropean Union ('Adopted IFRS's').The financial statements have been prepared on the historical cost basis, except that investments and financial instruments are stated atfair value and office premises are revalued on a periodic basis. The principal accounting policies adopted are set out below. Wherepresentational guidance set out in the Statement of Recommended Practice (SORP) “Financial Statements of Investment TrustCompanies” issued by the Association of Investment Companies (AIC) in November 2014 and updated in January 2017, is consistent withthe requirements of IFRS, then the Directors have sought to prepare the financial statements on a basis consistent with therecommendations of the SORP.The same accounting policies, presentations and methods of computation are followed in these financial statements as were applied in theCompany’s last annual audited financial statements, other than those stated below.The Annual Report for the year ended 31 December 2016 presented both Company-only financial statements as well as consolidated Group financial statements consisting of the Company and its wholly owned subsidiary Alliance Trust Services Limited (ATSL). This was because the activities of ATSL were previously material to the Company, which is no longer the case given a cessation of the services provided due to the new investment approach. The Board has therefore decided that, on the basis of materiality, it is no longer appropriate to prepare consolidated financial statements, and to now present the results of the Company on a Company-only basis. This report presents prior-period Company-only results to ensure consistency. The Company continues to recognise its subsidiaries as investments at fair value through the income statement.Going concernThe Directors have, at the time of approving the financial statements, a reasonable expectation that the Company has adequate resourcesto continue in operational existence for the foreseeable future. They therefore continue to adopt the going concern basis of accounting inpreparing the financial statements. The Company’s business activities, together with the factors likely to affect its future development andperformance, are set out in the Strategic Report on pages 1 to 26. The financial position of the Company as at 31 December 2017 is shownon the balance sheet on page 61. Basis of consolidationThe Company qualifies as an investment entity under IFRS 10 meeting all the key characteristics:It obtains funds from investors and provides those investors with investment management services;It commits to its investors that its business purpose is to invest solely for returns from capital appreciation and investment income;andIt measures and evaluates performance of substantially all its investments on a fair value basis.As such the Company does not consolidate its subsidiaries.The following subsidiaries held by the Company are valued at fair value through the income statement as they do not provide services thatrelate directly to the investment activities of the Company nor are they themselves regarded as an investment entity:NameSharesheldCountry ofincorporationPrincipal ActivityAlliance Trust Savings Limited(ATS)OrdinaryScotland*Provision and administration ofinvestment and pension productsAlliance Trust Savings (England) Limited (ATS (England))OrdinaryEngland**InactiveAT2006 Limited(AT2006)OrdinaryScotland*Intermediate holding companySecond Alliance Trust Limited(SATL)OrdinaryScotland*InactiveAlliance Trust Real Estate Partners (GP) Limited(ATREP GP)OrdinaryScotland*Real estate general partner 64
Alliance Trust PLC | Annual Report and Financial Accounts 20172Summary of Significant Accounting PoliciesNameSharesheldCountry ofincorporationPrincipal ActivityAlliance Trust Real Estate Partners LP(ATREP LP)-Scotland*Limited partnershipAlliance Trust Equity Partners Limited(ATEPL)OrdinaryScotland*Investment managementAlbany Venture Managers GP Limited(AVMGP)OrdinaryScotland*Private equity general partnerATEP 2008 GP Limited(ATEP 2008GP)OrdinaryScotland*Private equity general partnerATEP 2009 GP Limited(ATEP 2009GP)OrdinaryScotland*Private equity general partnerAllsec Nominees LimitedOrdinaryScotland*NomineeAlliance Trust Savings Nominees LimitedOrdinaryScotland*NomineeAlliance Trust Services Limited(ATSL)OrdinaryScotland*Service company*Registered at 8 West Marketgait, Dundee, DD1 1QN** Registered at 60 Gresham Street, London, EC2V 7BBAlliance Trust Investments Limited (ATI) was sold to Liontrust Asset Management PLC in 2017. Subsequent to the sale of ATI, AllianceTrust Investments (England) Limited was struck off the Companies House register. This company had not traded.Adopted IFRSsIn the current year, the Company has applied a number of amendments to IFRSs issued by the International Accounting Standards Board(IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2017. Their adoption has not had anymaterial impact on the disclosures or on the amounts reported in these financial statements.Amendments to IAS 12Recognition of Deferred Tax Assets for Unrealised LossesAnnual Improvements to IFRSs 2014-2016 CycleAmendments to IAS 7Disclosure InitiativeIFRSs not yet appliedAt the date of authorisation of these financial statements, the Company has not applied the following new and revised IFRSs that havebeen issued but are not yet effective and had not yet been adopted by the EU as at 31 December 2017:IFRS 3Disclosure InitiativeIFRS 2Share-based payments (amendments)IFRS 9Financial InstrumentsIFRS 15Revenue from contracts with customersIFRS 16LeasesThe Directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of theCompany in future periods.Presentation 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. The net revenue profit for the year is the measurethe Directors use in assessing the Company’s compliance with certain requirements set out in Section 1158 of the Corporation Tax Act2010.Revenue recognitionDividend income from investments is recognised when the shareholders’ rights to receive payment have been established, normally the ex-dividend date. Where the Company 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 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.Expenses connected with rental income and mineral rights are included as administrative expenses.Foreign currenciesTransactions in currencies other than pounds sterling are recorded at the rates of exchange applicable to the dates of the transactions. Ateach balance sheet date, monetary items and non-monetary assets and liabilities that are fair valued and are denominated in foreigncurrencies are restated at the rates prevailing on the balance sheet date. Gains and losses arising on restatement are included as capitalnet profit or loss for the period where investments are classified as fair value through profit or loss. 65
Alliance Trust PLC | Annual Report and Financial Accounts 2017III FINANCIAL STATEMENTSIII2Summary of Significant Accounting PoliciesExpensesAll expenses and interest payable are accounted for on an accruals basis. In respect of the analysis between revenue and capital itemspresented within the income statement, where there is a connection with the maintenance or enhancement of the value of the investmentsand where consistent with the AIC SORP the Company is attributing indirect expenditure including management fees and finance costs onethird to revenue and two thirds to capital profits, specific exceptions are: 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.Expenses which under the AIC SORP are chargeable to revenue profits are recorded directly to revenue.As disclosed on page 21 effective from 1 January 2018 the Directors have decided to adopt a one quarter revenue and three quarterscapital allocation for management fees, financing costs and other indirect expenses where consistent with the AIC SORP guidelines. Operating leasesCharges for operating leases are debited to the income statement on an accruals basis. Note 25 “Operating lease commitments” disclosesthe commitments to pay charges for leases expiring within one year, between two to five years and over five years.Share-based paymentHistorically the Company has operated three share-based payment schemes: the All Employee Share Ownership Plan (AESOP), the LongTerm Incentive Plans (LTIP) and the Deferred Bonus Award. The cost of the AESOP is recognised as a revenue cost in the year. The fairvalue of options granted to employees under the LTIP is recognised as staff costs, with a corresponding increase in equity, over the year inwhich the employees become unconditionally entitled to the options. The amount recognised as an expense may be adjusted to reflect theactual number of share options that vest. For share-based compensation schemes settled by the Company a recharge equal to the costduring the year is made to subsidiary companies.Pension costsEmployer contributions to pension arrangements for staff have been charged one third to revenue and two thirds to capital. 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. TheCompany part funded a buy-in of the pension scheme liabilities in 2016 and accordingly, aside from contributions to supporting the Schemethrough to buy-out, no further contribution to fund pension liabilities should be required.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. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxableor deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax iscalculated using tax rates applicable as at 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 is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in thefinancial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balancesheet liability method. 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 which deductible temporary differences 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 Company is able to control the reversal of the temporary difference and it is probable that the temporarydifference will not be 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 Company intends to settle its current taxassets and liabilities on a net basis.The Company does not recognise deferred tax assets or liabilities on capital profits or losses on the basis that the investment trust status ofthe 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 Company’s balance sheet when the Company becomes a party to thecontractual provisions of the financial instrument. The Company will only offset financial assets and financial liabilities if it has a legally 66
Alliance Trust PLC | Annual Report and Financial Accounts 20172Summary of Significant Accounting Policiesenforceable right of set off and intends to settle on a net basis.Derivative financial instrumentsThe Company’s activities expose it primarily to the financial risks of changes in market prices, foreign currency exchange rates and interestrates. Derivative transactions which the Company 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 is calculated by reference to current forward exchangerates for contracts of similar maturity dates. Changes in fair value of derivative financial instruments are recognised in the IncomeStatement. 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 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 12months 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 their 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.Other 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.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.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 Company after deducting all of its liabilities.Bank borrowings and unsecured fixed rate loan notesInterest-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 and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which theyarise.Unsecured fixed rate loan notes are initially recorded at the proceeds received. After initial recognition they are now measured at fair value.Finance charges are accounted for through the income statement on an accruals basis using the effective interest rate.Other payablesOther payables are not interest-bearing and are stated at their nominal value. 67
Alliance Trust PLC | Annual Report and Financial Accounts 2017III FINANCIAL STATEMENTSIII2Summary of Significant Accounting PoliciesBuybacks 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 reservesA description of each of the reserves follows:Capital reserveThe following are accounted through this reserve:Gains and losses on realisation of investmentsChanges in fair value of assets held at fair valueRealised 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 valueBuyback 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 profitsRevaluation 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 reservereflect the nominal value of the buyback and cancellation of a portion of the share capital of the Company.Revenue reserveNet revenue profits and losses of the Company and the fair value costs of share-based payments which are revenue in nature are recordedwithin this reserve, together with the dividend payments made by the Company. 68
Alliance Trust PLC | Annual Report and Financial Accounts 20173RevenueAn analysis of the Company's revenue is as follows:£000Dec 17Dec 16Income from investmentsListed dividends - UK10,94818,866Distributions from Collective Investment Schemes1,5001,913Listed dividends - Overseas44,53662,12456,98482,903Other incomeProperty rental income570-Mineral rights income2,8031,685Deposit interest204Recharged costs1481913,5411,880Total income60,52584,7834Profit before tax is stated after charging the following expenses:Investment manager fee£000Dec 17RevenueDec 17CapitalDec 17TotalDec 16RevenueDec 16CapitalDec 16TotalInvestment management fees3,3076,78610,0933,1146,2279,341For the first three months of 2017 ATI was the appointed Alternative Investment Fund Manager (AIFM) and investment manager to theCompany. The basis of the ATI investment management fee was 0.35% of NAV after deducting the fair value of subsidiary companies. From 1 April 2017 the Company appointed Towers Watson Investment Management (Ireland) Limited (TWIMI) as the AIFM. The AIFMdelegated the management of the Company’s investment portfolio to Towers Watson Investment Management Limited (TWIM). TWIMappointed a range of specialist third-party managers to oversee the equity portfolio. TWIMI is entitled to a fixed fee and a base variable feebased on the market capitalisation of the Company after deduction of the value of non-core assets and the value of Company subsidiaries.TWIMI is also entitled to an administration fee for the provision of certain administrative services outsourced by the Company. Each of thethird-party managers is entitled to a base management fee rate, generally based on the value of assets under management. Noperformance fees are payable.£000Dec 17RevenueDec 17CapitalDec 17TotalDec 16RevenueDec 16CapitalDec 16TotalStaff costs2876229095099901,499Social security costs69137206104209313Pension costs/(credit) - defined benefit scheme (note 24)119239358(146)(292)(438)Pension costs - defined contribution scheme918271234841,0161,5004689091,377£000Dec 17RevenueDec 17CapitalDec 17TotalDec 16RevenueDec 16CapitalDec 16TotalAuditor's remunerationFee payable to the auditor for the audit of the Company'sannual accounts61-6164-64Total audit fees61-6164-64All other services31-315-5Total non-audit fees31-315-5 69
Alliance Trust PLC | Annual Report and Financial Accounts 2017III FINANCIAL STATEMENTSIII4Profit before tax is stated after charging the following expenses:£000Dec 17RevenueDec 17CapitalDec 17TotalDec 16RevenueDec 16CapitalDec 16TotalFees payable to the Company's auditor in respect ofassociated pension schemes audit5-55-55-55-5Total remuneration97-9774-74Other administrative expenses4,9158275,7424,3041,6745,978Total administrative expenses5,4961,8437,3394,8462,5837,429In addition to the audit fees paid by the Company disclosed above, fees payable to the Company's auditors for the audit of the non-consolidated subsidiaries amounted to £120,000 (£190,000), with audit-related services for these entities amounting to £71,000 (£100,000).Total audit fees of £181,150 (£267,000), non-audit fees of £101,850 (£105,000) and fees payable in respect of associated pensionschemes of £5,000 (£5,000) were paid to Deloitte LLP. Total remuneration paid to Deloitte LLP amounted to £288,000 (£377,000).Total Directors’ remuneration recorded for the year was £0.5m (£1.2m). This includes the current year allocation in respect of contractualawards made to former Executive Directors in prior years. No new awards were granted in 2016 or 2017. Further details are given in theRemuneration Report on pages 42 to 48. In the period since 1 April 2017 the Trust has employed five employees, two on a part time basis.The average full-time equivalents in the year was three.Total Company administration expenses of £17.4m (£16.8m) consist of investment management fees of £10.1m (£9.4m) and otheradministrative expenses of £7.3m (£7.4m). These further include non-recurring expenses of £1.3m (£3.4m) as disclosed on page 20. Theongoing charges ratio (OCR) of the Company amounted to 0.54% (0.43%) of the average net assets. The 2017 OCR of 0.54% is based ontotal ongoing expenses consistent with prior year. The cost of insured benefits for staff including Executive Directors is included in staff costs.5Finance costs£000Dec 17RevenueDec 17CapitalDec 17TotalDec 16RevenueDec 16CapitalDec 16TotalBank loans and unsecured fixed rate loan notes2,0944,0966,1902,5865,1077,693Finance 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 2.6Taxation£000Dec 17RevenueDec 17CapitalDec 17TotalDec 16RevenueDec 16CapitalDec 16TotalUK corporation tax at 19.25% (20.00%)------Prior year adjustment(3,347)-(3,347)(1)-(1)Overseas taxation4,593-4,5936,219-6,219Recoverable income tax(64)-(64)(81)-(81)1,182-1,1826,137-6,137Deferred taxation originations and reversal oftemporary differences(12)(41)(53)2,2802,2484,528Rate change impact on deferred tax balances---(50)-(50)Tax expense for the year1,170(41)1,1298,3672,24810,615The prior year adjustment noted above relates to refunds on US taxes.The standard rate of corporation tax in the UK reduced from 20% to 19% with effect from 1 April 2017. Accordingly, the profit/ (loss) of theCompany for the year ended 31 December 2017 is taxed at an average rate of 19.25% (20.00%). Taxation for overseas jurisdictions iscalculated at the rates prevailing in the respective jurisdictions. The tax charge assessed for the years ended 2016 and 2017 is lower thanthat resulting from applying the effective standard rate of corporation tax in the UK and can be reconciled to the profit per the incomestatement as follows: 70
Alliance Trust PLC | Annual Report and Financial Accounts 20176Taxation£000Dec 17RevenueDec 17CapitalDec 17TotalDec 16RevenueDec 16CapitalDec 16TotalProfit before tax49,628423,308472,93674,237565,471639,708Tax at the average UK corporation tax rate of 19.25% (20.00%)9,55381,48791,04014,847113,094127,941Non-taxable income(10,119)-(10,119)(14,423)-(14,423)Losses on investments not taxable-(83,196)(83,196)-(118,351)(118,351)Prior year adjustment(3,347)-(3,347)(1)-(1)Foreign exchange adjustments-(877)(877)-505505Effect of changes in tax rates257(452)(397)(849)Effect of overseas tax4,594-4,5946,219-6,219Deferred tax assets not recognised8243,4824,306(193)5,5525,359Fair value movement in office premises-(279)(279)-88Adjustments arising on the difference betweentaxation and accounting treatment of income andexpenses(219)(759)(978)2,1491,5953,744Expenses not deductible for tax purposes (1)9695390242632Expense relief for overseas tax (53)-(53)(88)-(88)Recoverable income tax(64)-(64)(81)-(81)Tax expense for the year1,170(41)1,1298,3672,24810,6157Dividends Dividends Paid £000Dec 17Dec 16Fourth interim dividend for the year ended 31 December 2015 of 3.3725p per share-17,473First interim dividend for the year ended 31 December 2016 of 2.8250p per share-14,528Second interim dividend for the year ended 31 December 2016 of 2.8250p per share-14,528Third interim dividend for the year ended 31 December 2016 of 3.8500p per share-19,800Fourth interim dividend for the year ended 31 December 2016 of 3.2740p per share13,505*-First interim dividend for the year ended 31 December 2017 of 3.2900p per share11,671-Second interim dividend for the year ended 31 December 2017 of 3.2900p per share11,507-Third interim dividend for the year ended 31 December 2017 of 3.2900p per share11,430-48,11366,329We 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.Dividends Earned £000Dec 17Dec 16First interim dividend for the year ended 31 December 2016 of 2.8250p per share-14,528Second interim dividend for the year ended 31 December 2016 of 2.8250p per share-14,528Third interim dividend for the year ended 31 December 2016 of 3.8500p per share-19,800Fourth interim dividend for the year ended 31 December 2016 of 3.2740p per share-16,108*First interim dividend for the year ended 31 December 2017 of 3.2900p per share11,671-Second interim dividend for the year ended 31 December 2017 of 3.2900p per share11,507-Third interim dividend for the year ended 31 December 2017 of 3.2900p per share11,430-Fourth interim dividend for the year ended 31 December 2017 of 3.2900p per share11,421-46,02964,964*31 December 2016 figures have been adjusted to reflect share buybacks in the period between the year end date and the dividend recorddate. 71
Alliance Trust PLC | Annual Report and Financial Accounts 2017III FINANCIAL STATEMENTSIII8Earnings per shareThe calculation of the basic and diluted earnings per share is based on the following data:£000Dec 17RevenueDec 17CapitalDec 17TotalDec 16RevenueDec 16CapitalDec 16TotalOrdinary sharesEarnings for the purposes of basic earnings pershare being net profit attributable to equity holders48,458423,349471,80765,870563,223629,093Number of sharesWeighted average number of ordinary shares for thepurpose of basic earnings per share376,802,754515,646,212Weighted average number of ordinary shares for thepurpose of diluted earnings per share377,500,816516,414,688To arrive at the basic figure, the number of shares was reduced by 456,886 (698,062) ordinary shares held by the Trustee of the EmployeeBenefit Trust (EBT). During the period the Trustee increased its holding by Nil (Nil) shares. Nil (188,111) shares were transferred from theEmployee Benefit Trust to participants in the Long Term Incentive Plans, in satisfaction of awards.IAS 33.41 requires that shares should be treated as dilutive only if they decrease earnings per share or increase the loss per share.9Non-current assets£000Dec 17Dec 16Investments designated at fair value through profit and loss:Investments listed on a recognised investment exchange2,573,0793,157,042Other equities and funds129,20093,027Forward currency exchange contracts held at fair value through profit and loss(2)6,853Unlisted investments46,57847,444Investments in related and subsidiary companies88,020169,8312,836,8753,474,197As disclosed on page 14 investments listed on a recognised investment exchange relate to equity holdings considered to be coreinvestments. Other equities and funds relate to holdings in Liontrust managed funds and Liontrust Asset Mananagement PLC shares,disclosed as part of non-core investments. Investments in related and Subsidiary companies include Alliance Trust Savings, othersubsidiary companies and the ATEP fund of fund private equity investments. Unlisted investments relate to directly held private equityinvestments and the mineral rights. Within other equities and funds, the Company has invested in two UK-domiciled Open-Ended Investment Companies (OEIC). At the yearended 31 December 2017 holdings in Sustainable Future Cautious Managed Fund were valued at £13.2m (£11.9m) representing 35%(66%) of the fund, holdings in Sustainable Future Defensive Managed Fund were valued at £12.9m (£11.7m) representing 33% (58%) ofthe fund. In addition, the Company has invested in a Luxembourg-domiciled Société d’Investissement à Capital Variable (SICAV),Luxcellence - Sustainable Future Pan-European Equity Fund valued at £83.2m (£69.5m) representing 37% (44%) of the fund. £000Listed equityinvestmentsOther equityand fundsRelated andsubsidiarycompaniesUnlistedinvestmentsTotalOpening book cost at 1 January 20162,475,16875,992204,25045,9652,801,375Opening unrealised appreciation/(depreciation)529,0318,690(31,238)1,813508,296Opening valuation as at 1 January 20163,004,19984,682173,01247,7783,309,671Movements in the yearPurchases at cost**1,034,71885917,0001,6291,054,206Sales - 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 held308,0877,4862,894(1,343)317,124Closing valuation as at 31 December 20163,163,89593,027169,83147,4443,474,197Closing book cost2,326,77776,851198,17546,9742,648,777Closing appreciation/(depreciation) on assets held837,11816,176(28,344)470825,420 72
Alliance Trust PLC | Annual Report and Financial Accounts 20179Non-current assets£000Listed equityinvestmentsOther equityand fundsRelated andsubsidiarycompaniesUnlistedinvestmentsTotalClosing valuation as at 31 December 20163,163,89593,027169,83147,4443,474,197£000Listed equityinvestmentsOther equityand fundsRelated andsubsidiarycompaniesUnlistedInvestmentsTotalOpening book cost at 1 January 20172,326,77776,851198,17546,9742,648,777Opening unrealised appreciation/(depreciation)837,11816,176(28,344)470825,420Opening valuation at 1 January 20173,163,89593,027169,83147,4443,474,197Movements in the yearPurchases at cost**3,315,28316,8094683,4453,336,005Sales - proceeds**(4,336,755)-(64,066)(4,693)(4,405,514) - realisedgains/(losses) on sales1,065,841-(8)(1,155)1,064,678(Decrease)/Increase in appreciation on assets held(635,187)19,364(18,205)1,537(632,491)Closing valuation at 31 December 20172,573,077129,20088,02046,5782,836,875Closing book cost2,371,14693,660134,56944,5712,643,946Closing appreciation/(depreciation) on assets held201,93135,540(46,549)2,007192,929Closing valuation as at 31 December 20172,573,077129,20088,02046,5782,836,875**Expenses incidental to the purchase or sale of investments are included within the purchase cost or deducted from the sale proceeds.These expenses amounted to £4.4m (£1.6m) for purchases and £2.3m (£1.5m) for sales.£000Office premises freehold / Heritable propertyValuation at 31 December 20154,540Revaluation(40)Valuation at 31 December 20164,500Revaluation435Valuation at 31 December 20174,935At 31 December 2017Cushman & Wakefield, an independent Chartered Surveyor, valued the office premises at 8 West Marketgait,Dundee at £4.94m (£4.50m) 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 2017 was £12.7m (£12.7m).10Subsidiaries and Related CompaniesAt 31 December 2017 the Company owned 100% of ATS, AT2006, ATREP, ATSL and ATEPL, AVMGP, ATEP2008GP and ATEP2009GP.AT2006 owned 100% of SATL. A full list of investments in subsidiary entities is included in the basis of accounting note.£000Dec 17Dec 16Alliance Trust Savings38,00061,500Alliance Trust Investments-28,276Other subsidiaries50,02080,05588,020169,831Investments in subsidiary companies are valued at the Directors’ estimate of their fair value, using the guidelines and methodologies onvaluation published by the International Private Equity and Venture Capital Association issued in December 2015 and where applicableexternal valuations. The key financial results for ATS are noted below. 73
Alliance Trust PLC | Annual Report and Financial Accounts 2017III FINANCIAL STATEMENTSIII10Subsidiaries and Related CompaniesAlliance Trust Savings Limited£000Year ended31 December 2017Year ended31 December 2016Income27,04921,627Administrative expenses(33,125)(20,453)Operating (loss)/profit before exceptional items(6,076)1,174Exceptional administrative expense(13,240)-Operating (loss)/profit before tax(19,316)1,174Fair valuation38,00061,500The 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 22.9 provides further information on thevaluation methodologies applied, including that the Directors involved an external valuation in their assessment of the fair value of ATS for2016 and 2017.The fair value of ATI as at 31 December 2016 was based on the value of the sale transaction to Liontrust Asset Management PLC. This valuation was based on the fair value of Liontrust shares used as consideration and the net asset value of ATI excluding any deferred contingent amounts. This transaction was completed on 1 April 2017.11Deferred taxThe following are the major deferred tax liabilities and assets recognised by the Company and movements thereon during the current andprior reporting period:£000RetirementbenefitobligationsLossesOtherTotalAt 1 January 2016 - (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)(14)72(58)-61(66)5853----(53)--(53)At 31 December 2016 - (liability)/asset Income statement - deferred tax credit/(charge) Income statement - deferred tax charge Equity - deferred tax chargeEquity - deferred tax charge----At 31 December 2017 - (liability)/asset (6)6--At the balance sheet date, the Company had unused tax losses of £97.9m (£79.8m) available for offset against future profits.There are unrecognised deferred tax assets of £16.6m (£13.6m) in relation to unused tax losses and £2.9m (£3.7m) in relation to fixedassets and other timing differences. There is no expiry date in connection with the unrecognised deferred tax assets and no temporarydifferences in relation to subsidiaries held by the Trust. The Directors have not recognised this deferred tax asset due to uncertainty overthe timing of future profits. Tax payable of £3.99m (£3.99m) relates to the taxation of overseas dividends received before July 2009. The amount of the final liabilitytaxable to be paid is dependent on the outcome of an ongoing class action in which the Company is participating.12Outstanding settlements and other receivables£000Dec 17Dec 16Sales of investments awaiting settlement21,758-Dividends receivable3,4736,021Amounts due from subsidiary companies184438Other debtors2,8913,362Recoverable overseas tax3,3012,99731,60712,818The Directors consider that the carrying amount of other receivables approximates to their fair value. 74
Alliance Trust PLC | Annual Report and Financial Accounts 201713Outstanding settlements and other payables£000Dec 17Dec 16Purchases of investments awaiting settlement14,903907Amounts due to subsidiary companies373,035Other creditors4,8718,123Interest payable1,8681,98621,67914,051The Directors consider that the carrying amount of other payables approximates to their fair value.14Bank loans and unsecured fixed rate loan notesBank loans£000Dec 17Dec 16Bank loans repayable within one year133,000120,000Analysis of borrowings by currency:Bank loans - sterling133,000120,000The weighted average % interest rates payable:Bank loans1.20%0.96%The Directors estimate the fair value of the borrowings to be:Bank loans133,000120,000Unsecured fixed rate loan notes£000Dec 17Dec 16Unsecured fixed rate loan notes120,960118,800£100m of unsecured fixed rate 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.Dec 17Dec 16The total weighted average % interest rate2.53%2.47%15Share capital£000Dec 17Dec 16Allotted, called up and fully paid:- 347,592,156 ordinary shares of 2.5p each8,69112,319The Company has one class of ordinary share which carries no right to fixed income.The Employee Benefit Trust holds 456,886 (698,062) ordinary shares, acquired by its Trustee with funds provided by the Company. Duringthe year the Trustee increased its holding by Nil (Nil) shares. Nil (188,111) shares were transferred from the Employee Benefit Trust toparticipants in the Long Term Incentive Plans in satisfaction of awards.During the year the Company bought back 145,111,776 ordinary shares at a total cost of £1,008,529,184, all of which were cancelled.Thefull cost of all shares bought back is dealt with in Capital Reserves own shares purchased.£000Dec 17Dec 16Ordinary shares of 2.5p eachOpening share capital12,31913,160Share buybacks(3,628)(841)Closing share capital8,69112,319 75
Alliance Trust PLC | Annual Report and Financial Accounts 2017III FINANCIAL STATEMENTSIII15Share capitalCapital 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 4. From 1 April 2017 this function has been undertaken by TWIMI in its capacity as AIFM within parameters set by theBoard. At the prudential regulatory consolidated position the Company and the remaining regulated financial services subsidiaryinvestments comply with the capital requirements of their relevant regulators, including the EU Capital Requirements Regulations (CRR)and the Alternative Investment Fund Managers Directive (AIFMD). 16Reserves£000Share capitalCapitalreserveMergerreserveCapitalredemptionreserveRevenuereserveTotalNet assets at 31 December 201513,1602,163,026645,3355,838111,9212,939,280Dividends----(66,329)(66,329)Unclaimed dividends returned----(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 201612,3192,508,359645,3356,679111,4503,284,142Dividends----(48,113)(48,113)Unclaimed dividends redistributed----6666Profit for the year-423,349--48,458471,807Own shares purchased(3,628)(1,008,529)-3,628-(1,008,529)Defined benefit plan net actuarial gain -260---260Share-based payments------Net assets at 31 December 20178,6911,923,439645,33510,307111,8612,699,633The Company revenue reserves distributable by way of a dividend are £111.9m (£111.5m). Realised capital reserves of £1,752m(£1,702m) can be distributed by way of a dividend. Unrealised capital reserves of £171m (£806m) relate to unrealised appreciation oninvestments. Total distributable reserves are £1,923m (£2,508m). Share buybacks are funded through realised capital reserves.17Net Asset Value per Ordinary ShareThe calculation of the net asset value per ordinary share is based on the following:£000Dec 17Dec 16Equity shareholder funds2,699,6333,284,142Number of shares at year end - basic347,135,270492,005,870Number of shares at year end - diluted347,592,156492,703,932The diluted figure is the entire number of shares in issue.To arrive at the basic figure, the number of shares has been reduced by 456,886 (698,062) shares held by the Trustee of the EmployeeBenefit Trust. During the year the Trustee increased its holding by Nil (Nil) shares. Nil (188,111) shares were transferred from theEmployee Benefit Trust to participants in the LTIP in satisfaction of awards.18Segmental 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 59. 19Related Party transactionsSubsidiaries held may purchase goods or services for other entities within the Group and recharge these costs directly to the appropriateentity to which the costs relate. There are no terms and conditions attached to these transactions.During the year the Company repurchased 95,478,576 shares from Elliott International L.P., The Liverpool Limited Partnership and ElliottAssociates L.P., at a discount of 4.75% to NAV at a total cost of £633m. These entities were classified as a related party due to the size oftheir shareholding in the Company.Expenses of £810,650 were recharged from ATI to Alliance Trust PLC; there were no balances remaining at the year end. 76
Alliance Trust PLC | Annual Report and Financial Accounts 201719Related Party transactionsExpenses of £121,074 were recharged from Alliance Trust PLC to Alliance Trust Savings and £117,794 from Alliance Trust Savings toAlliance Trust PLC; there were balances of £184,120 due from Alliance Trust Savings at year end.It is anticipated that the value of inter-company related party activity will reduce in 2018 with Alliance Trust Services ceasing to provideservices for other Group companies.There are no other further related parties other than those stated below.Alliance Trust Services£000Year ended31 December 2017Year ended31 December 2016Paid by Alliance Trust PLC (the Company)4,9907,198Paid to Alliance Trust PLC (the Company)(153)(7,217)Due from/(to)ATSL(2)(95)Paid by Alliance Trust Savings Limited8,77330,906Paid to Alliance Trust Savings Limited(3,392)(2,750)Due from/(to)ATSL-(58)Paid by Alliance Trust Investments Limited3,41919,533Paid to Alliance Trust Investments Limited(1,577)(8,721)Due from/(to)ATSL-(8)Paid by Alliance Trust Equity Partners Limited1645Paid to Alliance Trust Equity Partners Limited-(3)Due from/(to)ATSL(2)-Paid by Alliance Trust Real Estate Partners LP8108Paid to Alliance Trust Real Estate Partners LP-(10)Due from/(to)ATSL--Transactions with key management personnelDetails of the Non-Executive Directors are disclosed on pages 28 and 29. For the purpose of IAS 24 ‘Related Party Disclosures, key management personnel comprised the Non-Executive Directors of the Company.The 2017 remuneration paid to the previous Chief Executive has been borne by the Company. Details of the remuneration are disclosed inthe remuneration report on pages 42 to 48. £000Dec 17Dec 16Total emoluments418467Payments to former key management personnel95625Equity compensation benefits-715131,16320Analysis of change in net cash/(debt)£000Dec 15Cash flowOthergains /(losses)Dec 16Cash flowOthergains /(losses)Dec 17Cash and cash equivalents16,96734,990(2,527)49,43051,8224,556105,808Bank loans and unsecured fixed rateloan notes(399,000)170,000(9,800)(238,800)(13,000)(2,160)(253,960)Net (debt)/cash(382,033)204,990(12,327)(189,370)38,8222,396(148,152)Other gains/(losses) includes movement on foreign exchange and movements in the fair value of the fixed rate loan notes.21Financial commitmentsFinancial commitments as at 31 December 2017, which have not been accrued, for the Company totalled £22.8m (£28.5m). These were inrespect of uncalled subscriptions in investments in our private equity portfolio structured as limited partnerships (LP). These LPcommitments, which can include recallable distributions received, may be called at any time up to an agreed contractual date. TheCompany may choose not to fulfil individual commitments but may suffer a penalty should it do so, the terms of which vary betweeninvestments. A maturity analysis of the expiry dates of these LP commitments is presented below: 77
Alliance Trust PLC | Annual Report and Financial Accounts 2017III FINANCIAL STATEMENTSIII21Financial commitments£000Dec 17Dec 16< 1 year2,3501,7221-5 years20,40018,2085-10 years-8,55522,75028,485The Company has provided a letter of comfort in connection with banking facilities made available to one of its subsidiaries. The Companyprovided a letter of support to AT2006 Limited 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 this company to continue trading, meet commitments andnot to seek 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. This floating charge was discharged in 2016.22Financial instruments and RiskThe Strategic Report details the Company’s approach to investment risk management on pages 22 to 25 and the accounting policies onpages 64 to 67 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 Company are not materially different from theircarrying values.Capital risk managementThe Company manages its capital to ensure that entities in the Company will be able to continue as a going concern while maximising thereturn to stakeholders through the optimisation of the use of debt and equity balances. The Company’s overall strategy remains unchangedfrom the year ended 31 December 2016.The capital structure of the Company consists of debt, which includes the borrowings disclosed in Note 14, cash and cash equivalents andequity attributable to equity holders of the Company comprising issued ordinary share capital, reserves and retained earnings as disclosedin Note 16 to the financial statements.The Board reviews the capital structure of the Company on at least a semi-annual basis. The Company has decided that gearing should atno time exceed 30% of the net assets of the Company.£000Dec 17Dec 16Debt*(253,960)(238,800)Cash and cash equivalents105,80849,430Net (debt)(148,152)(189,370)Net (debt) as % of net assets(5.5)%(5.8)%*If debt had been valued at par, net debt as a percentage of net assets would be 4.7% (5.2%).22.1Risk 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 4. 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.The risks and the Directors’ approach to managing them are set out below under the following headings: market risk (comprising currency risk, interest rate risk, and other price risk), credit risk, liquidity risk, and gearing risk. The assumptions and sensitivities within each risk are considered appropriate and are based on the Directors' wider knowledge of the investment market.The Company has a risk management framework in place which is described in detail on pages 22 to 25. The objectives, policies and processes for managing the risks, and the methods used to measure the risks, have not changed from the previous accounting period. 78
Alliance Trust PLC | Annual Report and Financial Accounts 201722Financial instruments and Risk22.2Market RiskMarket risk embodies the potential for both losses and gains and includes currency risk (see note 22.3), interest rate risk (see note 22.4)and other price risk (see note 22.5). Market risk is managed on a regular basis by TWIMI in its role as AIFM. TWIMI manages the capital ofthe Company within parameters set by the Directors on investment and asset allocation strategies and risk. The Company’s strategy on investment risk is outlined in our statement of investment objectives and policy on page 4. Details of the investment portfolio at the balance sheet date are disclosed on pages 15 to 17.22.3Currency RiskSome of the Company’s assets, liabilities and transactions are denominated in currencies other than its functional currency of poundssterling. Consequently the Company is exposed to the risk that movements in exchange rates may affect the pounds sterling value of thoseitems.The Company’s currency holdings and gains/losses thereon are reviewed regularly by the Directors, and the currency risk is managed on aregular basis by TWIMI within parameters set by the Directors on investment and asset allocation strategies and risk. The Company entersinto forward exchange contracts to cover specific foreign currency exposure.The currency exposure for overseas investments is based on the quotation currency of each holding, while the currency exposure for netmonetary assets is based on the currency in which each asset or liability is denominated. At the reporting date the Company had thefollowing exposures:Currency exposure£000OverseasinvestmentsDec 17Net monetaryassetsDec 17TotalcurrencyexposureDec 17OverseasinvestmentsDec 16Net monetaryassetsDec 16TotalcurrencyexposureDec 16US dollar1,527,085-1,527,0851,760,9692401,761,209Euro450,442-450,442399,530-399,530Yen72,116-72,116173,188-173,188Other non-sterling395,933-395,933514,158-514,1582,445,576-2,445,5762,847,8452402,848,085Sensitivity analysisIf pounds sterling had strengthened by 10% (10%) relative to all currencies, with all other variables held constant, the income statementand the net assets attributable to equity holders of the parent would have decreased by the amounts shown below. The analysis isperformed on the same basis as for the year ended 31 December 2016. The revenue return impact is an estimated figure for 12 monthsbased on the cash balances at the reporting date.£000Dec 17Dec 16Income statementRevenue return(4,454)(6,212)Capital return(244,558)(284,784)Net assets(249,012)(290,996)A 10% (10%) weakening of pounds 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.22.4Interest Rate RiskThe Company is exposed to interest rate risk in a number of ways. A movement in interest rates may affect income receivable on cashdeposits 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 Directors. 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. Unsecured fixed rate loans being repayable at a fixed rate interest are excluded from the sensitivity analysis.The following table details the Company’s exposure to interest rate risks for bank and loan balances: 79
Alliance Trust PLC | Annual Report and Financial Accounts 2017III FINANCIAL STATEMENTSIII22Financial instruments and Risk22.4Interest Rate Risk£000Dec 17Dec 16Exposure to floating interest ratesCash at bank105,80849,430Bank loans repayable within 1 year(133,000)(120,000)(27,192)(70,570)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 would have increased by the amounts shown below. The revenue return impact is an estimated figure for theyear based on the cash balances at the reporting date.£000Dec 17Dec 16Income statementRevenue return(155)68Capital return223109Net assets68177If 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 would have decreased by the amounts shown below.£000Dec 17Dec 16Income statementRevenue return155(67)Capital return(223)(109)Net assets(68)(176)22.5Other 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 Company’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 Directors review this objective andinvestment performance regularly. The risk is managed on a regular basis by TWIMI within parameters set by the Directors on investmentand asset allocation strategies and risk. The Directors monitor the managers’ compliance with their mandates and also whether eachmandate and asset allocation is compatible with the Company’s objective.Concentration of exposure to other price risksA listing of the Company’s equity investment portfolio is shown on pages 15 to 17. 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 Company’s exposure to market price risk on its quoted and unquoted equity investments: 80
Alliance Trust PLC | Annual Report and Financial Accounts 201722Financial instruments and Risk22.5Other Price Risk£000Dec 17Dec 16Investments at fair value through Profit & LossInvestments listed on a recognised investment exchange2,573,0793,157,042Forward currency exchange contracts held at fair value through profit and loss(2)6,853Unlisted investments46,57847,444Other equity and funds129,20093,027Investments in related and subsidiary companies88,020169,8312,836,8753,474,197Sensitivity analysis95.3% (93.7%) 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%.£000Dec 17Dec 16Income statementCapital return(270,228)(325,692)Net assets(270,228)(325,692)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.22.6Credit 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 Company.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 Company minimises credit risk through banking polices which restrict banking deposits to high-rated financial institutions. The policiesalso set maximum exposure to individual banks.The Company has adopted a policy of dealing only with creditworthy counterparties and obtaining sufficient collateral where appropriate(cash and gilts) as a means of mitigating the risk of financial loss from defaults.At the reporting date, the Company’s cash and cash equivalents exposed to credit risk were as follows:£000Dec 17Dec 16Credit ratingAa1104,39947,879A31,4091,551105,80849,430Average maturity1 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 Company’s rights with respect to securities held by the custodian to be delayed or limited. 22.7Liquidity 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. 81
Alliance Trust PLC | Annual Report and Financial Accounts 2017III FINANCIAL STATEMENTSIII22Financial instruments and Risk22.7 Liquidity RiskIt also has the ability to borrow, which gives it access to additional funding when required. At the balance sheet date it had the following facilities:£000Dec 17Expires2016ExpiresCommitted multi-currency facility - RBS100,00031/12/2018100,00031/12/2018Amount drawn100,000---Committed multi-currency facility - RBS-50,00031/12/2016Amount drawn----Committed multi-currency facility - RBS-100,00031/03/2017Amount drawn--100,000-Committed multi-currency facility - Scotiabank100,00027/03/2018100,00027/03/2018Amount drawn33,000-20,000-Committed multi-currency facility - Scotiabank100,00022/12/2020100,00022/12/2017Amount drawn----Unsecured fixed rate loan notes*100,00031/07/2029100,00031/07/2029Amount drawn100,000-100,000-Total facilities400,000550,000Total drawn233,000-220,000-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 14.22.8Gearing 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.£000Dec 17Dec 16Investments after gearing2,836,8753,474,197Gearing*(253,960)(238,800)Investments before gearing2,582,9153,235,397*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 would have further decreased by the amounts shown below. The analysis for last year assumed a net assetsbefore gearing decrease of 10%.£000Dec 17Dec 16Income statementCapital return(25,396)(23,800)Net assets(25,396)(23,800)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.22.9Hierarchical Valuation of Financial Instruments Accounting Standards recognise a hierarchy of fair value measurements, for financial instruments measured at fair value in the BalanceSheet, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and thelowest priority to unobservable inputs (Level 3). The classification of financial instruments depends on the lowest significant applicableinput.The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: 82
Alliance Trust PLC | Annual Report and Financial Accounts 201722Financial instruments and Risk22.9Hierarchical Valuation of Financial Instruments Level 1 Unadjusted, fully accessible and current quoted prices in active markets for identical assets or liabilities. Included within this category are investments listed on any recognised stock exchange.Level 2Quoted prices for similar assets or liabilities or other directly or indirectly observable inputs which exist for the duration of the period of investment. Examples of such instruments would be forward exchange contracts and certain other derivative instruments.Level 3 Valued by reference to valuation techniques using inputs that are not based on observable market data. The value is the Directors’ best estimate, based on advice from relevant knowledgeable experts, use of recognised valuation techniques and on assumptions as to what inputs other market participants would apply in pricing the same or similar instrument. Included within this category aredirect or pooled private equity investments and mineral rights.The following table analyses the fair value measurements for the Company's assets and liabilities measured by the level in the fair valuehierarchy in which the fair value measurement is categorised at 31 December 2017. All fair value measurements disclosed are recurringfair value measurements.The Company valuation hierarchy fair value through profit and loss through the income statement:As at 31 December 2017As at 31 December 2016£000Level 1Level 2Level 3TotalLevel 1Level 2Level 3TotalListed investments2,676,17926,100-2,702,2793,250,069--3,250,069Foreign exchangecontracts-(2)-(2)-6,853-6,853Unlisted investmentsPrivate equity--81,18581,185--113,007113,007Alliance Trust Savings--38,00038,000--61,50061,500Alliance TrustInvestments------28,27628,276Mineral rights--15,29715,297--13,18713,187Other--116116--1,3051,3052,676,17926,098134,5982,836,8753,250,0696,853217,2753,474,197There have been no transfers 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 Company is the current bid price. These investments are includedwithin Level 1 and comprise equities, bonds and exchange-traded derivatives. This includes assets noted as part of the core equity portfolio and the listed investments of Luxcellence Liontrust Sustainable Future Pan-European Equity Fund and Liontrust Asset Management PLC shares, shown as part of the non-core portfolio on page 14. 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. This includes the investments in Liontrust Sustainable Future Cautious Managed Fund and Liontrust Sustainable Future DefensiveManaged Fund noted as part of the non-core portfolio on page 14, which are not listed on a recognised exchange.Fair Value Assets in Level 3This includes subsidiary companies, private equity investments and North American mineral rights held by the Trust noted on page 14. From 1 April 2017 Level 3 assets, excluding the valuation of ATS, are reviewed at least annually by the Valuation Committee of TowersWatson Investment Management (TWIM) who are assigned responsibility for valuation by the Board of the Company. Prior to this date,valuation responsibility was assigned to the Valuation Committee of the Company. The valuation of ATS is reviewed at least annually bythe Audit and Risk Committee. The TWIM Valuation Committee considers the appropriateness of the valuation models, inputs, using thevarious valuation methods in accordance with the Company's valuation policy, and 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.£000Dec 17Dec 16Balance at 1January217,275220,790(Loss)/net gain from financial instruments at fair value through profit or loss(16,668)1,551Purchases at cost3,91318,629Sales proceeds(68,759)(37,308) 83
Alliance Trust PLC | Annual Report and Financial Accounts 2017III FINANCIAL STATEMENTSIII22Financial instruments and Risk22.9Hierarchical Valuation of Financial Instruments £000Dec 17Dec 16Realised (loss)/gain on sale(1,163)13,613Balance at 31 December134,598217,275Investments in subsidiary companies (Level 3) are valued in the Company accounts at £88.0m (£169.8m). The Directors' valuation of ATS is £38.0m (£61.5m). This represents the Directors' view of the amount for which ATS could be exchangedbetween knowledgeable willing parties in an arm's length transaction. This does not assume that the Company currently has any intentionto sell the subsidiary business in the future. The Directors' took advice from an external valuer in arriving at the fair value of ATS; thedecision to use an external valuer is to apply a degree of independence and external challenge into the valuation. The external valuationwas derived from a discounted cash flow approach using ATS business plans, multiples derived from comparable companies and recenttransactions. The Directors' challenged the range of values provided and after fully reviewing the methodology and assumptionsdetermined the reported valuation.The fair value of ATI as at 31 December 2016 was based on the value of the sale transaction to Liontrust Asset Management PLC. Thisvaluation was based on the fair value of Liontrust shares used as consideration and the net asset value of ATI excluding any deferredcontingent amounts. This transaction was concluded on 1 April 2017.The key assumptions relevant to the fair valuation of our investment in our subsidiary companies and unlisted investments, are consistentwith prior years.Mineral rights are carried at fair value and are valued in the Company’s accounts at £15.3m (£13.2m) 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 17 Valuation methodUnobservable inputsInputInputsensitivity +/-Change invaluation +/-Alliance Trust Savings38,000Discounted cash flowCost of equity(2,500)/3,500Long-term growth rate2,000/(1,000)Long-term PBT margin12.5% 0.5/(0.5) 2.0% 1.0/(1.0) 0.0% 1.0/(1.0)3,000/(2,000)Mineral rights15,297Oklahoma Tax CommissionRevenue multiple - gas711,196/(1,196)multiples and Lierle US PriceRevenue multiple - oil41696/(696)report (for non-producingRevenue multiple -41497/(497)properties).products/condensateAverage bonus10.51,139/(1,139)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.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 TWIM Valuation Committee based on information provided by the General Partner. The General Partner’spolicy in valuing unlisted investments is to carry them at fair value. The General Partner will generally rely on the fund's investmentmanager’s fair value at the last reported period, rolled forward for any cashflows. However if the General Partner does not feel the manageris reflecting a fair value it will select a valuation methodology that is most appropriate for the particular investments in that fund andgenerate a fair value. In those circumstances the General Partner believes the most appropriate methodologies to use to value theunderlying investments in 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). TWIM receives information from the General Partner on the underlying investments which is subsequentlyreviewed by the TWIM Valuation Committee. Where the TWIM Valuation Committee does not feel that the valuation is appropriate, anadjustment will be made. 84
Alliance Trust PLC | Annual Report and Financial Accounts 201722Financial instruments and Risk22.9Hierarchical Valuation of Financial Instruments Unsecured fixed rate loan notes are recognised at fair value. The Company refines and modifies its valuation techniques as markets develop. While the Company 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.No interrelationships between unobservable inputs used in the above valuations of Level 3 investments have been identified.23Share-Based PaymentsThe Company operated the share-based payment schemes:All Employee Share Ownership Plan ('AESOP')No new annual or matching awards will be made under the AESOP. Employees could receive up to £3,600 of shares annually under theterms of the AESOP. This amount was pro-rated for part-time employees. Individuals received these shares free of all restrictions after aperiod of five years. Employees of Alliance Trust Investments Ltd received awards of £1,500 in 2017. This cost was borne by Alliance TrustInvestments Ltd. No awards were made to employees of Alliance Trust Savings Ltd. Long Term Incentive Plan ('LTIP')The LTIP is a discretionary plan for Executive Directors and senior managers. It comprises 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 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. In the year ended 31 December 2017 no new awards were made and no Company shares were purchased (Nil at 31 December 2016).There was no charge to the Company Income statement in respect of LTIP awards (£1,000 charge). No future awards will be made infuture.The 2016 LTIP expense recorded by the Company relates to the previous Chief Executive who left in 2016 and staff made redundant in2015 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 were required to defer 50% of an annualbonus award for three years. Shares in the Company are awarded up to the value of the deferred award and are held by the EmployeeBenefit Trust. The award, granted over shares in the Company, vests in full or in part at the end of the three-year holding period subject tothere being 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.Movements in optionsMovements in options granted under the LTIP are as follows:December 2017December 2016£000Number ofoptionsWeighted averageexercise priceNumber ofoptionsWeighted averageexercise priceOutstanding at 1 January1,725,833£0.002,394,619£0.00Granted during year50,300£0.0085,102£0.00Exercised during year(260,065)£0.00(188,111)£0.00Forfeited during year(56,213)£0.00(9,686)£0.00Expired during year(569,303)£0.00(556,091)£0.00Outstanding at 31 December890,552£0.001,725,833£0.00Exercisable at 31 December-£0.00-£0.00The weighted average remaining contractual life of the options outstanding at 31 December 2017 was 877 days (745 days). 85
Alliance Trust PLC | Annual Report and Financial Accounts 2017III FINANCIAL STATEMENTSIII23Share-Based PaymentsMovements in optionsThe 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.24Pension SchemeHistorically the Company sponsors two pension arrangements. The following disclosures apply to the Company.The Alliance Trust Companies’ Pension Fund (the ‘Scheme’) is a funded final salary defined benefit pension scheme which was closed to future accrual on 2 April 2011. On 31 May 2016 the Trustees of the Scheme purchased an annuity with Legal & General (L&G). The purpose of this transaction was to align the assets of the Scheme with long-term liabilities and to reduce risk on long-term liabilities. The other pension arrangement comprises contributions to individual SIPP plans held by employees in their own name. The Scheme has no Participating Employers and the liabilities of the Scheme are fully matched by annuities held by the Trustees of theScheme. The Trustees of the Scheme are in the process of winding up the Scheme and this is expected to be completed in 2018.The disclosures which follow relate to the Scheme.Participating EmployerATSL, the sole Participating Employer, and ceased participation on 20 December 2017. The Scheme is now being prepared for winding up, L&G is issuing individual annuities to members and the Trustees of the Scheme are progressing the winding-up of the Scheme and it is expected this will be completed and the trust constituting the Scheme dissolved in 2018. 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 2017.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 L&G to match the Scheme’s liabilities to its members. The annuity was purchased by the Trustees of the Scheme on 31 May 2016. RisksFollowing the purchase of the group annuity policy the principal risks the Scheme typically exposes the Company 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 risk 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 201731 December 2016Defined benefit obligation at start of year54,26937,119Past service cost136139Interest 1,4161,398Actuarial losses1,41916,303Benefits paid(3,773)(690)Defined benefit obligation at end of year53,46754,269The Company has no unfunded pension obligations.Reconciliation of opening and closing balances of the fair value of plan assets£00031 December 201731 December 2016Fair value of assets at start of year54,35244,001Interest income1,4142,088Actuarial gains/(losses) 1,732(10,334)Refund of payments previously made to L&G49-Contributions by employer-19,400Benefits paid(3,773)(690)Administration costs(269)(113) 86
Alliance Trust PLC | Annual Report and Financial Accounts 201724Pension SchemeReconciliation of opening and closing balances of the fair value of plan assets£00031 December 201731 December 2016Fair value of assets at end of year53,50554,352Total credit recognised in the income statement£00031 December 201731 December 2016Past service cost136139Interest on Scheme liabilities1,4161,398Interest income(1,414)(2,088)Operating cost269113Total expense/(credit) 407(438)As a result of the closure of the defined benefit pension scheme to future accrual in the period ended 31 December 2011, the Companybenefited from a gain to the income statement.(Losses)/Gains recognised in the statement of comprehensive income£00031 December 201731 December 2016Difference between expected and actual return on the Scheme assets:Amount1,732(10,334)Percentage of Scheme assets(3)%19%Effects of changes in the financial assumptions underlying the present value ofthe Scheme liabilities:Amount(1,419)(14,430)Percentage of present value of Scheme liabilities3%27%Effects of changes in the demographic assumptions underlying the presentvalue of the Scheme liabilities:Amount-(1,873)Percentage of present value of Scheme liabilities-%4%Total amount recognised in statement of comprehensive income:Amount313(26,637)Percentage of present value of Scheme liabilities1%52% Assets£00031 December 201731 December 201631 December 2015Equities--17,601Bonds--21,120Other53,50554,3525,28053,50554,35244,001Other assets includes cash of £35m (£0.1m) and an insurance policy of £52.9m (£54.2m).The assets are held independently of the assets of the Company in funds managed by L&G. None of the fair values of the assets shown above includes any of the Company’s own financial instruments or any property occupied by, or other assets used by, the Company.Actual return on the Scheme assetsThe actual return on the Scheme assets over the year ended 31 December 2017 was a gain of 6% (loss of 15%). 87
Alliance Trust PLC | Annual Report and Financial Accounts 2017III FINANCIAL STATEMENTSIII24Pension SchemeAssetsAssumptions%31 December 201731 December 201631 December 2015Retail Price Index Inflation3.603.653.50Consumer Price Index Inflation2.702.752.60Rate of discount2.552.703.80Allowance for pension in payment increases of RPI(subject to a maximum increase of 5% p.a.)3.453.503.35Allowance for revaluation of deferred pension of RPI(subject to a maximum increase of 5% p.a.)2.702.752.20Statutory 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 2017, 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 27 years. Mortality assumptions31 December 2017Years31 December 2016YearsMale currently age 45 at 6527.026.9Female currently age 45 at 6529.229.1Male currently age 6524.824.7Female currently age 6526.926.8SensitivitiesThe sensitivities used are based on industry practice and represent a reasonable approximation of possible changes. An estimate of thesensitivities regarding the principal assumptions used to measure the Scheme’s liabilities is set out below.AssumptionChange in assumptionIncreaseEstimated impact onscheme liabilities(Decrease)/IncreaseChange in assumptionDecreaseEstimated impact onscheme liabilitiesIncrease/(Decrease)Discount rate0.5%(£6,680,000)0.5%£7,932,000RPI0.5%£6,244,0000.5%(£6,446,000)Age of member1 year(£1,909,000)1 year£1,914,000£00031 December 201731 December 201631 December 2015Present value defined benefit obligation53,46754,26937,119Fair value of Scheme assets53,50554,35244,001Surplus in Scheme38836,882The cumulative amount of actuarial gains and losses recognised in the statement of comprehensive income of the Company sinceadoption of IAS19 is a loss of £30.1m (£30.4m).All actuarial gains and losses are recognised immediately.Contributions paid to the scheme The Scheme closed to accrual on 2 April 2011. The Company paid contributions during 2016 of £19.2m to fund the bulk annuity purchase with Legal & General Group PLC and a £0.2m contribution in line with the previous recovery plan. No contributions were paid into the Scheme during the year, however, a premium refund of £49,000 was received from L&G during October 2017. Amounts for the current and previous years£000Dec 17Dec 16Dec 15Dec 14Dec 13Fair value of assets53,50554,35244,00143,98038,986Defined benefit obligation53,46754,26937,11938,78333,907Surplus in Scheme38836,8825,1975,079 Alliance Trust PLC | Annual Report and Financial Accounts 2017
88
24Pension Scheme£000Dec 17Dec 16Dec 15Dec 14Dec 13Experience adjustment on Scheme liabilities--4,85710(41)Experience adjustment on Scheme assets(1,732)(10,334)(1,411)2,6171,973Effects of changes in the demographic and financialassumptions underlying present value of the Schemeliabilities1,419(16,303)(3,468)(4,133)(2,807)25Operating lease commitmentsAs at 31 December 2017 the Company had total future minimum outgoing lease payments under non-cancellable operating leases asfollows:31 December 201731 December 2016£000Land andbuildingsOtherLand andbuildingsOtherLease commitments payableWithin 1 year2501642629Between 2-5 years1,00021,29219After 5 years363-613-In 2016 the Company had lease commitments payable on two properties. In 2017 one of the leases was assigned to a third party and theother property was sublet. As at 31 December 2017 total future minimum lease amounts receivable under non-cancellable operating leases, including the sub-lease,were as follows:31 December 201731 December 2016£000Land andbuildingsOtherLand andbuildingsOtherLease commitments receivableWithin 1 year532---Between 2-5 years3,467---After 5 years288---26Post balance sheet eventsSale of Liontrust Asset Management PLC sharesOn 24 January 2018 Alliance Trust PLC ('Alliance Trust') announced that it had successfully sold 4,060,792 ordinary shares ('PlacingShares') in Liontrust Asset Management Plc ('Liontrust') to institutional investors at a price of 520p per share, raising net proceeds ofc.£21m. The Placing Shares represent approximately 8.2% of Liontrust's entire issued share capital. The sale was made with theagreement of Liontrust and conducted on the behalf of Alliance Trust by Canaccord Genuity Limited ('Canaccord') acting as solebookrunner. GLOSSARY: PERFORMANCE MEASURES
AND OTHER TERMS
Throughout this document we use a number of terms to
describe performance. Where not described in detail
elsewhere we set out here what these terms mean.
Active Risk is a measure of the risk in a portfolio that is
due to active management decisions. It is calculated as the
standard deviation of the excess returns of a portfolio over
its benchmark. For the equity portfolio as at 31 December
2017 this was calculated as 2.2% in relation to the MSCI ACWI
benchmark.
Active Share is a measure of how actively a portfolio is
managed, is the percentage of the portfolio that differs from its
comparative index. It is calculated by deducting from 100 the
percentage of the portfolio that overlaps with the comparative
index. An active share of 100 indicates no overlap with the index
and an active share of zero indicates a portfolio that tracks the
index. For the equity portfolio as at 31 December 2017 this was
calculated as 80% in relation to the MSCI ACWI benchmark.
Benchmark Volatility is a measure of the dispersion or
variability of the benchmark returns, MSCI ACWI. It is calculated
as the standard deviation of the benchmark returns over a
one-year period. We calculate the benchmark volatility as at
31 December 2017 to be 12.8%.
Beta is a measure of the volatility of a portfolio in comparison
to its benchmark. In general, a beta less than 1 indicates that
the investment is less volatile than the benchmark, while
a beta greater than 1 indicates that the investment is more
volatile than the benchmark. The equity portfolio has a beta
of 0.97 as at 31 December 2017.
Equity Portfolio Total Return is a measure of the performance
of the Trust’s equity portfolio over a specified period. It combines
any appreciation in the value of the equity portfolio and dividends
paid. The comparator used for equity portfolio return is the
MSCI ACWI total return. The equity portfolio return was 18.0%
over the year to end 31 December 2017 gross of manager fees.
On page 14 we provide an analysis of the investment portfolio
and equity portfolio return.
Gearing At its simplest, gearing is borrowing. Just like any
other public company, an investment trust can borrow
money to invest in additional investments for its portfolio.
The effect of the borrowing on the shareholders’ assets is
called ‘gearing’. If the company’s assets grow, the shareholders’
assets grow proportionately more because the debt remains
the same. But if the value of the company’s assets falls,
the situation is reversed. Gearing can therefore enhance
performance in rising markets but can adversely impact
performance in falling markets.
Leverage For the purposes of the Alternative Investment
Fund Managers (AIFM) Directive, leverage is any method
which increases the Trust’s exposure, including the borrowing
of cash and the use of derivatives. It is expressed as a ratio
between the Trust’s exposure and its net asset value and
can be calculated on a gross and a commitment method.
Under the gross method, exposure represents the sum of
the Trust’s positions after the deduction of sterling cash
balances, without taking into account any hedging and
netting arrangements. Under the commitment method,
exposure is calculated without the deduction of sterling
cash balances and after certain hedging and netting
positions are offset against each other.
MSCI means MSCI Inc which provides information relating
to the benchmark, the MSCI All Country World Index, against
which the performance target for the equity portfolio has
been set. MSCI’s disclaimer regarding the information provided
by it can be found on our website.
NAV Total Return is a measure of the performance of the
Trust’s net asset value over a specified period. It combines
any appreciation in the net asset value and dividends paid.
The comparator used for NAV total return is the MSCI ACWI
total return, as a NAV total return for that index is not available.
The NAV at 31 December 2017 was 777.7p (2016: 667.5p),
increasing 16.5% over the year. The NAV total return for the
period was 18.5% and the effect of reinvesting the dividends
was therefore 2.0%.
Net Asset Value (NAV) is the value of total assets less liabilities
(including borrowings). The NAV per share is calculated by
dividing this amount by the number of ordinary shares in issue
and is stated on a cum-income basis. The Trust’s balance
sheet net asset value as at 31 December 2017 is £2.699633bn
divided by the 347,135,270 shares in issue on that date giving
a NAV per share of 777.7p
Ongoing Charges represent the total ongoing costs and are
calculated in accordance with the guidelines issued by the
Association of Investment Companies (AIC). More detailed
information can be found on page 20.
Ongoing Charge Ratio (OCR) The total ongoing expenses
(excluding borrowing costs) incurred by the Company as a
percentage of the average net asset value (with debt at fair
value). A fuller explanation and the method of calculation
can be found on page 20.
Portfolio Volatility is a measure of the dispersion or
variability of the equity portfolio returns. It is calculated
as the standard deviation of the portfolio returns over a
one-year period. We calculate the portfolio volatility as at
31 December 2017 to be 12.6%.
Total Assets represents total net assets less current liabilities,
before deduction of all borrowings.
Total Shareholder Return (TSR) is the return to shareholders
after reinvesting the net dividend on the date that the share price
goes ex-dividend. The comparator used for total shareholder
return is the MSCI ACWI total return. This measure shows the
actual return received by a shareholder from their investment.
The Trust's share price as at 31 December 2017 was 746.5p
(2016: 638.0p), an increase of 17.0% over the year. The total
shareholder return for the period was 19.2% and the effect
of reinvesting the dividends was therefore 2.2%.
Alliance Trust PLC | Annual Report and Financial Accounts 2017
89
INFORMATION FOR SHAREHOLDERS
ANNUAL REPORT AND ELECTRONIC
COMMUNICATIONS
We send paper Annual Reports only 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-uk.computershare.com/investor
TAXATION
If you are in any doubt about your liability to tax arising
from a shareholding in the Trust, you should seek
professional advice.
INCOME TAX
Dividends paid by the Trust 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 Trust 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.
INVESTOR DISCLOSURE DOCUMENT
The EU AIFMD requires certain information to be made
available to investors prior to their purchase of shares in the
Trust. The Trust's Investor Disclosure Document is available at
www.alliancetrust.co.uk
INCORPORATION
Alliance Trust PLC is incorporated in Scotland with the
registered number 1731.
The Trust’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 Trust, or wish to
receive a paper copy of our Annual Report, please contact
the Trust Secretary at our registered office:
8 West Marketgait,
Dundee DD1 1QN
Tel: 01382 321010
Email: investor@alliancetrust.co.uk
Our website www.alliancetrust.co.uk contains information
about the Trust, 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 Trust’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 Trust 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 Trust’s Register of Members is,
by law, information to which the public may, for a proper
purpose, have access and the Trust cannot prevent any
person inspecting it or having copies of it for such purpose,
on payment of the statutory fee.
If you do not want to receive information from the Trust
other than that which the Trust is obliged to issue to
shareholders, please let us know and we will remove you
from our mailing lists.
90
Alliance Trust PLC | Annual Report and Financial Accounts 2017 SHARE INVESTMENT
ANNUAL GENERAL MEETING
The 130th Annual General Meeting of the Trust will be held at
11.00 am on Thursday 26 April 2018 at the Gardyne Theatre,
Dundee and Angus College, Gardyne Road, Dundee DD5 1NY.
The Notice of Meeting, detailing the business of the meeting,
is sent to all shareholders. The Meeting will be followed in
the afternoon by a presentation from Willis Towers Watson
and two of the equity managers.
FINANCIAL CALENDAR
Proposed dividend payment dates for the financial year to
31 December 2018 are on or around:
• 2 July 2018
• 1 October 2018
• 31 December 2018
• 1 April 2019
DIVIDEND TAX ALLOWANCE
From April 2016 dividend tax credits have been replaced
by an 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 adviser.
COMMON REPORTING STANDARDS
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 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 0370 889 3187.
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 adviser who specialises in advising on the acquisition
of shares and other securities before acquiring shares.
Investors should be capable of evaluating the risks and merits
of such an investment and should have sufficient resources to
bear any loss that may result.
RISKS
If you wish to acquire shares in the Trust, 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 Trust. The price generally stands below
the net asset value of the Trust (‘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
Trust’s own assets.
The assets owned by the Trust 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 number 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 deal only
with a financial services firm that is authorised by the FCA.
91
Alliance Trust PLC | Annual Report and Financial Accounts 2017 TEN-YEAR RECORD
A ten-year record of the Trust’s Financial Performance is provided below.
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
31 Dec
2017
2,211
(50)
2,123
2,704
(160)
2,513
3,268
(339)
2,895
2,676
(249)
2,400
2,702
(200)
2,491
3,478
(380)
2,886
3,415
(380)
3,019
3,351
(390)
2,948
3,541
(220)
3,284
2,979
(233)
2,700
316.8
377.7
439.0
405.8
444.9
516.5
544.8●
559.0●
667.5●
777.7●
210.7
178.6
198.3
217.8
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
746.5
747.5
638.0
226.0
197.0
225.5
266.4
–
11
5
–
11
–
7
–
7
–
12
–
11
–
13
–
6
–
5
–
Assets £m as at
Total assets
Loans
Net assets
Net asset value (p)
NAV per share
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
Revenue
Year ended 31 January
2010
2009
11 mths to
2011 31 Dec 2011
2012
2013
Year ended 31 December
2015
2014
Profit after tax
£69.5m
£61.1m
£63.8m
£61.9m
£55.6m
£60.6m
£68.8m
Earnings per share
Dividends per share
Special dividend
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
9.55p
1.28p
12.38p
9.83p
2.546p
£60.2m
12.43p†
10.97p
1.46p∆
2016
2017
£65.9m
£48.5m
12.77p
12.77p
–
12.87p
13.16p
–
Performance (rebased
at 31 Jan 2008) as at
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
31 Dec
2017
NAV per share
Closing price per share
Earnings per share
Dividends per share
(excluding special)
75
73
120
106
90
86
106
108
104
100
112
111
96
94
117
119
106
103
112
122
123
123
125
126
130
131
143
130
133
141
143
145
158
174
147
169
185
204
149
174
Cost of running
the Trust
Year ended 31 January
2010
2009
11 mths to
2011 31 Dec 2011
2012
2013
Year ended 31 December
2015
2014
2016
2017
Administrative expenses
£16.8m
£16.0m
£17.0m
£16.0m
£18.7m
£21.5m
£20.8m
£23.9m
£16.8m
£17.4m
Ongoing charges ratio
(excluding capital
incentives***)
Total expense ratio
0.60%
0.67%
0.64%
0.69%
0.53%
0.60%
0.56%**
0.60%**
0.67%
0.71%
0.75%
0.80%
0.60%
0.64%
0.59%
0.63%
0.43%
0.54%
0.54%
0.59%
●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.
92
Alliance Trust PLC | Annual Report and Financial Accounts 2017 CONTACT
Alliance Trust PLC
8 West Marketgait
Dundee
DD1 1QN
Tel +44 (0)1382 321010
Email investor@alliance trust.co.uk
www.alliancetrust.co.uk