A N N UA L R E P O RT 2 0 1 8
Annual Report for the year ended 31 December 2018
Alliance Trust aims to deliver long-term capital
growth and rising income from investing in
global equities at a competitive cost. We blend
the top stock selections of some of the world’s
best active managers* into a single diversified
portfolio designed to outperform the market.
*As rated by Willis Towers Watson (WTW).
Moray agricultural terraces, Peru
Section II
Directors’ Report
Board of Directors
Board Attendances
Policy on Board Diversity
Directors’ Skills
Board Evaluation
Corporate Governance
Audit and Risk Committee
Going Concern Statement
Viability Statement
Remuneration Committee
Other Governance
Auditor’s Report
37
38
40
40
40
41
42
45
50
51
52
56
59
Section III
Financial Statements
Income Statements
Statement of comprehensive income
Statement of changes in equity
Balance sheet
Cash flow statement
Notes
Section IV
Other Information
Equity Portfolio Listing
Glossary: Performance Measures
and Other Terms
Information for Shareholders
Ten-year Record
66
67
67
68
69
70
71
93
93
97
99
101
CONTENTS
Section I
Strategic Report
About Alliance Trust
Our Performance in 2018
Chairman’s Statement
What We Do
How We Operate
How Our Approach Benefits Investors
The Investment Manager
Investment Manager’s Report
The Stock Pickers
Investment Portfolio
Contribution Analysis
Largest 20 Investments
Non-Core Investments
Investment in Operating
Subsidiary Company
Cost and Performance Measures
Dividends
Share Buybacks and Discount
Risk Management
Corporate Responsibility
1
1
2
4
6
7
8
9
10
14
23
23
24
27
28
29
30
31
32
35
ABOUT ALLIANCE TRUST
Investing for
generations
Founded in 1888, Alliance Trust is one of the
oldest and largest investment trusts in the UK.
It has stood the test of time.
Capital growth
and rising income
High conviction
stock picking
and lower volatility
Our aim is for our global equity portfolio to
outperform the MSCI All Country World Index
(MSCI ACWI) by 2% a year after costs over rolling
three year periods. Alliance Trust is one of only
three investment trusts to have increased its
dividends for 52 consecutive years.
Research† shows concentrated single-manager
portfolios can beat the market, but may be
volatile. To reduce this risk of volatility and
increase the likelihood of outperformance over
the long-term, we combine the high conviction
stock picks of eight diverse managers into a
single portfolio.
Best-in-class*
managers
Our stock pickers are among WTW’s highest
rated globally. Most can only be accessed in the
UK by individual investors through Alliance Trust.
Competitive costs
We aim to do all this at a competitive cost
targeting ongoing charges of less than 0.65%
of Net Asset Value per annum.**
†Sebastian & Attaluri, Conviction in Equity Investing, The Journal of Portfolio Management, Summer 2014.
*As rated by WTW.
**The OCR target of 0.65% was set based on the size of the Trust at 31 December 2017.
Alliance Trust PLC | Annual Report and Financial Accounts 2018
1
1
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIIIVI STRATEGIC REPORTII
OUR PERFORMANCE IN 2018
PERFORMANCE SUMMARY
• The Trust's Total Shareholder Return1 for 2018 was -6.1% (2017: 19.2%) and its share price at 31 December 2018 was 688.0p,
down 7.8%, compared to 746.5p at 31 December 2017
• The Trust's NAV Total Return1 for 2018 was -5.4% (2017: 18.5%) and its Net Asset Value (NAV)2 per share at 31 December 2018
was 723.6p, down 7.0% from 777.7p at 31 December 2017
• The Trust's Equity Portfolio Total Return1 remains ahead of its benchmark since the adoption of the current investment approach
on 1 April 2017, outperforming the MSCI All Country World Index (MSCI ACWI) by a cumulative 1% (5.1%* compared to 4.1% by
the MSCI ACWI). Its performance in 2018 was -4.2%* against the MSCI ACWI -3.3%
• Ongoing Charges Ratio (OCR)1 for 2018 was 0.65%. The increase versus the previous year reflects a full year of WTW's fees and
fixed costs rising as a proportion of a smaller asset base
• The Trust bought back 14.0m shares in 2018. This compares to 145.1m shares in 2017 (which included the purchase of 95.5m
shares from Elliott)
• The year began with the Trust shares trading at a discount of 4.0% and ended at a discount of 4.9%
• The Trust raised its total ordinary dividend2 for 2018 by 3% to 13.55p, compared with a total ordinary dividend for 2017 of 13.16p,
marking the 52nd consecutive annual increase
1. Alternative Performance Measure (refer to Glossary on page 97). 2. UK GAAP Measure.
†Refer to glossary on page 97. *Before managers’ fees and including the effect of managers’ cash holdings.
KEY PERFORMANCE INDICATORS - 2018
The Board intends to review the number of Key Performance Indicators it uses once the Trust’s non-core investments are fully
realised and the sale of Alliance Trust Savings has been completed.
SHARE PRICE (PENCE)
NET ASSET VALUE (PENCE)2
ONGOING CHARGES RATIO (%)1
800
700
600
500
400
300
200
100
0
746.5
688.0
638.0
517.0
478.9
2014
2015
2016
2017
2018
800
700
600
500
400
300
200
100
0
777.7
723.6
667.5
544.8
559.0
2014
2015
2016
2017
2018
0.6
0.4
0.2
0.0
0.60
0.59
0.65
0.54
0.43
2014
2015
2016
2017
2018
Source: FactSet.
Source: FactSet and WTW.
Source: Alliance Trust and FactSet.
Why we measure this: This is a
simple means of identifying the
change in the value of the Trust.
How have we performed: The share
price fell 7.8% during 2018 from 746.5p
at 31 December 2017 to 688.0p as at
31 December 2018. Our share price
fell more than our NAV reflecting the
increase in our discount at the year
end which widened slightly from
4.0% at 31 December 2017 to 4.9%
at 31 December 2018.
Net Asset Value includes income and with debt at
fair value.
Why we measure this: This shows the
performance of all of our investments.
How have we performed: Our NAV
per share fell 7.0% during the year
from 777.7p at 31 December 2017 to
723.6p at 31 December 2018 driven
predominantly by falls in equity
markets. The MSCI ACWI fell 3.3%
over the same period.
2
Alliance Trust PLC | Annual Report and Financial Accounts 2018
Why we measure this: This shows
the cost of running the Trust as a
percentage of our average NAV. It is
an indicator of how efficiently the
Trust is managed.
How have we performed: The Ongoing
Charges Ratio (OCR) remained stable
over much of 2018, until December
when a smaller asset base, combined
with a full year of WTW’s fees and the
effect of fixed fees, meant the OCR
increased and finished the year at 0.65%.
More information on Costs and
Performance Measures can be
found on page 29.
NAV TOTAL
RETURN (%)1
80
TOTAL SHAREHOLDER
RETURN (%)1
80
70
60
50
40
30
20
10
0
64.6
55.1
42.5
36.0
-3.3
-5.4
1 Year
4.1
3.3
Since
1 Apr 2017
3 Years
5 Years
70
60
50
40
30
20
10
0
42.5
41.3
-3.3
-6.1
4.1
3.7
1 Year
Since
1 Apr 2017
3 Years
5 Years
71.1
64.6
EQUITY PORTFOLIO TOTAL
RETURN (%)1
80
70
60
50
40
30
20
10
0
64.6
58.6
42.5
39.4
-3.3
-4.2
4.1
5.1
1 Year
Since
1 Apr 2017
3 Years
5 Years
MSCI ACWI
Alliance Trust
MSCI ACWI
Alliance Trust
MSCI ACWI in Sterling
Alliance Trust
Source: Morningstar and MSCI Inc.
Source: Morningstar and MSCI Inc.
Source: Morningstar and MSCI Inc.
NAV Total Return based on NAV including income
with debt at fair value and after managers’ fees.
Why we measure this: This measures
the performance of our assets,
including the contribution of dividends.
How have we performed:
Performance is below the MSCI ACWI
for 2018 and also in the period 1 April
2017 to 31 December 2018. Over this
period, our NAV Total Return was 3.3%
compared to 4.1% achieved by the
MSCI ACWI over the same period.
Why we measure this:
This demonstrates the return our
shareholders receive through dividends
and capital growth of the Trust.
How have we performed:
Performance is below the MSCI ACWI
for 2018 and also in the period 1 April
2017 to 31 December 2018. Over this
period, our Total Shareholder Return
was 3.7% compared to 4.1% achieved
by the MSCI ACWI over the same period.
DISCOUNT (%)
AS AT 31 DECEMBER
TOTAL DIVIDEND (PENCE)2
YEAR TO 31 DECEMBER
Why we measure this:
This demonstrates the return on our
equity portfolio before managers’
fees and including the effect of
managers’ cash holdings. It does
not take into account the impact of
the performance of our non-core
investments nor of our subsidiaries.
How have we performed: Performance
is below the MSCI ACWI over one,
three and five years. Over the period
1 April 2017 to 31 December 2018 our
Equity Portfolio Total Return was 5.1%
compared to 4.1% achieved by the
MSCI ACWI over the same period.
12
10
8
6
4
2
0
12.1
7.5
4.4
4.0
4.9
2014
2015
2016
2017
2018
Global Sector
Weighted Average
Alliance Trust
Source: WTW and Association of Investment
Companies (AIC).
Why we measure this: This is the
difference between the share price
of the Trust and its NAV and is an
indicator of demand for our shares.
How have we performed: The discount
has remained below 8% during 2018,
ending the year at 4.9% and averaging
6.0% for the year against the Investment
Trust Global Sector average of 2.0%.
More information on Share Buybacks
and the Discount can be found on
page 31.
14
13
12
11
10
9
13.55
13.16
12.77
12.38
2.55
12.43
1.46
10.97
9.83
2014
2015
2016
2017
2018
Ordinary Dividend
Special Dividend
Source: WTW.
Why we measure this: A steadily
rising dividend is one of the objectives
of the Board.
How have we performed:
We have increased our dividend for
52 consecutive years, one of only
three investment trusts to have
achieved this.
More information on Dividends can
be found on page 30.
1. Alternative Performance Measure (refer to Glossary
on page 97).
2. UK GAAP Measure.
Alliance Trust PLC | Annual Report and Financial Accounts 2018
3
IIIIVI STRATEGIC REPORTII CHAIRMAN’S STATEMENT
Progress
and ongoing
simplification
of the Trust
January
Sold Liontrust Asset
Management shares
received as part of the
consideration for Alliance
Trust Investments
March
Paid final interim
dividend for the 2017
financial year achieving
51 consecutive years of
dividend increases
April
Redeemed last of our
holdings in Liontrust
Investments’ funds
May
Won the Association of Investment
Companies shareholder communications
awards for Best Factsheet and Website –
individual investment company
make it difficult to achieve profitability without significant
scale. There has been considerable consolidation within this
market in recent years and the Board received a number
of expressions of interest in the business. The Board, after
long and careful consideration, decided that it would be an
appropriate time for this business to be transferred to new
owners. We chose Interactive Investor Limited as the two
businesses are highly complementary and ATS’ customers,
many of whom are Trust shareholders, will benefit from
Interactive Investor’s similar flat-fee structure, as well as
its increased scale. The Board saw this as another positive
step in the Trust’s strategy to focus on its equity portfolio.
An important consideration for the Board was a commitment
by Interactive Investor to maintain a presence in Scotland
and to invest in ATS’ operations in Dundee.
The total price payable under the sale agreement for both
ATS and the Trust’s office building in Dundee, where ATS
occupies most of the space, is £40.0m. The sale requires
regulatory approval and the price is subject to some post-
completion adjustments. Although the price is less than
the combined value we placed on the business and our
office building last year, we regard it as a fair offer. The net
proceeds of the sale will be invested in global equities. The
Trust, which has been headquartered in Dundee since 1888,
will continue to be based in the city.
Non-Core Investments
In October we announced that we had agreed a conditional
sale of certain private equity assets to global asset manager
PineBridge Investments. The sale of these private equity
holdings was aligned with the Trust’s previously announced
strategy to realise value from its non-core assets in order
to focus on its equity portfolio. The sale was completed in
December. The Trust remains invested in only a small number
of private equity holdings, valued at £14.8m at the year end,
which we anticipate being realised by the end of 2019.
The Trust holds mineral rights in North America which have
generated revenue for the Trust for many years. The marketing
of these rights commenced in the second half of the year and
as at the year end an agreement had been entered into to sell
more than half of the holdings with further sales anticipated
in 2019.
We provide more detail on page 27.
Long-term Debt
In November we announced that we had issued £60m of fixed
rate unsecured privately placed notes with maturities of 15, 25
and 35 years and coupons for each respective £20m tranche
of 2.657%, 2.936% and 2.897%. This was used to repay
some of the Trust's floating rate bank debt. Total borrowing
facilities at the year end were £360m. Our fixed long-term
borrowing costs have been reduced from 4.3% to 3.7%.
2018 was a challenging year for global equities, with most
markets falling and many active investment managers
struggling to outperform. Like others, we trailed our
benchmark, partly due to market returns during much of
the year having been driven by a narrow group of very large
companies. Although a number of our eight managers owned
some of these companies and benefited from their share
prices appreciating, others avoided them because they
thought they were overvalued.
Our strategy of appointing a number of managers with
different styles and approaches to select their best stocks
means we will never have a very concentrated exposure
to one segment of the market. By investing more broadly
across companies, countries and sectors, we should avoid
the short-term performance highs and lows driven by
particular market factors. In the long run, though, we expect
our portfolio to outperform the market. Since we adopted
our investment approach in April 2017, the equity portfolio
has beaten its benchmark. During the year, we made
further progress in the disposal of our remaining non-core
investments. This will enable us to focus on our equity
portfolio which we are confident is well positioned
for future gains.
DEVELOPMENTS IN 2018
Alliance Trust Savings
Alliance Trust Savings (ATS) was established in 1986 to
provide a vehicle for the Trust’s shareholders to hold their
shares in a convenient way and to take advantage of tax-
protected structures like ISAs. Over the course of the next
three decades the Trust invested to allow ATS to grow.
ATS is reporting an operating profit of £1.1m for 2018 (2017:
operating loss of £19.3m). Although the business is now one
of the major UK share-trading platforms, the market in which
ATS operates is very competitive and high technology costs
4
Alliance Trust PLC | Annual Report and Financial Accounts 2018 August
Record share price
of 788.0p reached
September
Sale process of US
mineral rights started
October
Conditional sale of
Alliance Trust Savings
announced
November
£60m of long term
unsecured debt issued,
reducing average cost
of long-term debt from
4.3% to 3.7%
December
Sale of almost all
of the Trust’s Private
Equity investments
completed
June
Agreed to change
Depositary and
Custodian entities
Completion of winding
up of Final Salary
Pension Scheme
Shareholders
In 2019 we will be considering how we can stimulate
additional demand for our shares and thereby reduce the level
of our discount. We were very pleased to win the Association
of Investment Companies’ awards for Best Factsheet and Best
Website for an individual investment company this year. We
will be looking at how we can further improve on the way we
communicate with our shareholders including how we report
on our performance. We already hold regular meetings with
our shareholders and provide information about the Trust
and its performance through these meetings as well as our
website, factsheets and newsletters. If you do not already
do so, I would encourage you to subscribe to our monthly
factsheet and quarterly newsletter.
Expenses
We finished 2018 with an Ongoing Charges Ratio (OCR) of
0.65%. Many of our expenses are fixed in nature and when
our net assets fall our OCR rises. Had our average net assets
remained unchanged from 31 December 2017, when we set our
target of 0.65%, our OCR for 2018 would have been 0.56%.
Our Total Expenses Ratio increased during the year from 0.58%
in 2017 to 0.68% in 2018. The increase was attributable to the
fall in the value of our net assets, a full year of WTW's fees and
a few non-recurring costs.
We provide more detail on page 29.
Share Buybacks
During 2018, the Trust bought back a total of 14.0m shares
at a weighted average discount of 5.5%, adding £5.5m to
the Net Asset Value for remaining shareholders. The average
discount for the year was 6.0%.
While we are encouraged by an increase in demand for
our shares, the Board remains committed to the use of
its share buyback programme to support the management
of the discount.
ANNUAL GENERAL MEETING
As I mentioned in last year’s Annual Report, we will be
proposing changes to the wording of our Investment
Objective and Policy to reflect the Trust’s current investment
approach. Although we are making no changes to the way in
which we currently manage the portfolio, we are required to put
the amended Investment Objective and Policy to shareholders
and we will do so at our Annual General Meeting (AGM) in April.
We explain the nature of the proposed changes on page 6.
Our Directors’ Remuneration Policy is also to be considered
at the AGM and we are proposing only minor changes to this
Policy. The Remuneration Committee has decided to reduce
the fees paid to the Chairman, Deputy Chairman, Senior
Independent Director and Chairman of the Remuneration
Committee and will keep the level of fees under review.
After the meeting shareholders will have the opportunity to
receive presentations from two of our stock pickers, Andrew
Wellington of Lyrical Asset Management and Rob Rohn of
Sustainable Growth Advisers.
DIVIDEND
We are very proud of our dividend track record and the Board
is delighted to continue the Trust’s progressive dividend policy.
We have now increased our dividend for 52 consecutive years.
This year we have used £4.2m from our £107.7m of revenue
reserves and we retain 25 years dividend cover assuming
our current dividend level and an unchanged level of income
from our equity portfolio.
THE BOARD
When I joined the Board in 2016, the Directors were all male.
One of the first things I did after my appointment was to
look at the skills and experience around the Board table and
decided that we needed one additional Director. We then
appointed Clare Dobie. The last two years have been very
busy and what I did not want to do was distract the Board
from its objective of simplifying the Trust. I believe that
while the current Board has the necessary skills and time
to devote to the needs of the Trust, we need to improve
our diversity, not as a target for its own sake but to expand
the range of views and opinions that feed into our decision
making processes. We will be asking shareholders to approve
a resolution at the AGM to increase the maximum level of
ordinary remuneration that may be paid to our Directors from
£224,000 per annum to £300,000 per annum. This change is
proposed to give us the flexibility to recruit additional Board
members if we wish to do so, rather than to increase the
level of fees currently paid to our Directors.
OUTLOOK
I cannot end my statement without reference to Brexit.
We have considered the implications for the Trust and
we have in place a contingency plan to change our Irish
Alternative Investment Fund Manager, if required. We do not
consider that Brexit, regardless of how it finally materialises,
will have a significant impact on the operation of the Trust.
Despite the political uncertainties, we are clear on the direction
of the Trust and that it will continue to prove a wise choice
as a core investment for the long term.
Lord Smith of Kelvin
Chairman
5
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIIIVI STRATEGIC REPORTII WHAT WE DO
OUR INVESTMENT OBJECTIVE
As announced last year, we have reviewed our Investment Objective and Policy and are proposing some changes to the wording
to reflect our current investment approach. There will be no change in the way the Trust’s portfolio is actually managed. The full
text of the proposed new investment objective will be set out in the Notice of our Annual General Meeting that will be issued to
shareholders. However, we summarise here the proposed changes.
PROPOSED INVESTMENT OBJECTIVE
The changes in wording that are being proposed are:
• To explain that the Trust will continue to primarily invest in global equities
and to have as its objective that it shall be a core investment delivering a
real return over the long term through capital growth and a rising dividend.
• To explain that through our investment manager we appoint a number
of stock pickers with different styles and approaches who each select and
invest in equities across a wide range of different sectors and industries
for our portfolio.
• To make clear that we will continue to achieve an appropriate spread of
risk by holding a diversified portfolio with no single investment exceeding
10% (at the time of investment) of the Trust’s total assets.
• To confirm no change to our use of gearing which will continue to be a
maximum of 30% of the Trust’s net assets and that derivatives can be
used to hedge, enhance and protect positions.
WHAT WE ARE NOT CHANGING
Our strategy has not changed and we
remain committed to investing in global
equities. As part of our agreed strategy we
are progressing the sale of our non-core
assets. In addition, the sale of Alliance Trust
Savings will, once completed, see the value
of investments in operating subsidiaries
reduce to nil.
Our maximum level of gearing remains
unchanged and we envisage that for the
foreseeable future it will remain around
the current 10%.
CURRENT INVESTMENT OBJECTIVE
INVESTMENTS (AS AT 31 DECEMBER)
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.
6.6
8.0
100.0*
1.3
1.3
97.4
2.6
90.8
1.3
90.7
%
100
90
80
70
60
50
40
30
20
10
0
2016
2017
2018
2019
Equity portfolio
Investments in operating subsidiary companies
Non-core investments
Source: WTW.
*The expected 2019 position shown assumes completion of
disposal of non-core assets and the sale of Alliance Trust Savings.
6
Alliance Trust PLC | Annual Report and Financial Accounts 2018
HOW WE OPERATE
The Board operates with only Non-Executive Directors and is
supported by a small Executive function led by our Company
Secretary, Lisa Brown. The Executive function comprises six
employees of whom two are part time. The way in which the
Board operates is dealt with in more detail on pages 42 to 44.
The Board outsources all of its investment management and
most of its administration.
The Executive team, based in Dundee, works closely with
the Directors to support their administrative and company
secretarial needs but also to implement the various initiatives
approved by the Board. While much of the administrative
aspect of the Trust is outsourced, the Executive function deals
with the day-to-day oversight of the outsourced providers’
output as well as progressing projects such as the sale of
Alliance Trust Savings and the Trust’s private equity and
mineral rights investments, creating a new website, arranging
banking and loan facilities, as well as ongoing marketing and
shareholder relations activity.
The Board has appointed Gregor Stewart as the Director
responsible for engagement with the small number of
employees. He regularly meets with them in our Dundee
office. The Board promotes an open culture and all members
of the Board regularly interact with all members of the
Executive function. The Executive function operates in an
open and supportive manner not only in terms of how they
work together but also in their physical office where they
all share an open plan workspace. The Executive function
is also encouraged to explore different methods of work
including the use of technology to reduce the need to travel
and to improve worklife balance.
Board
Executive function
Willis Towers Watson
(Alternative Investment Fund Manager
and Investment Manager)
Service providers:
Depositary and Custodian
Auditors
Marketing and Public Relations
Registrar
8 Stock Pickers
Alliance Trust PLC | Annual Report and Financial Accounts 2018
7
IIIIVI STRATEGIC REPORTII HOW OUR APPROACH BENEFITS INVESTORS
ALLIANCE TRUST: DIVERSIFIED,
HIGH CONVICTION
Research† shows that active equity
managers add most value through a
small number of their highest conviction
positions. The performance of these
concentrated stock selections can, however,
also be highly volatile. The Trust’s portfolio
mitigates this risk by blending together
the best ideas of eight best-in-class*
stock pickers, each with different yet
complementary styles with the aim of
increasing the chance of outperformance.
†Sebastian & Attaluri, Conviction in Equity Investing,
The Journal of Portfolio Management, Summer 2014.
*As rated by WTW.
LOWER INVESTMENT VOLATILITY
We believe our diversified, high-conviction approach to investing in global
equities should deliver more consistent returns and lower volatility than a
concentrated strategy run by a single manager.
Returns from concentrated, single-manager strategies are often prone to
sharp up and down moves; our portfolio aims to provide investors with a
smoother ride.
The chart below shows the performance of the equity portfolio since
line) and the more volatile performance of
1 April 2017 as a whole (
each stock picker; by combining them, the Trust experiences smoother
performance than we may otherwise experience with a single manager.
CUMULATIVE RETURNS
20%
15%
10%
5%
0
-5%
s
k
r
a
m
h
c
n
e
b
o
t
e
v
i
t
a
l
e
r
s
n
r
u
t
e
r
s
s
o
r
G
-10%
-15%
Mar 17
Jun 17
Sep 17
Dec 17
Mar 18
Jun 18
Sep 18
Dec 18
Stock pickers
Alliance Trust equity portfolio
Source: Investment Performance data is provided by BNY Mellon Performance & Risk Analytics Europe Limited,
Morningstar and MSCI Inc. Individual manager returns, before fees, are benchmarked against MSCI All Country
World Index NDR (Net Dividends Reinvested) in sterling and the MSCI Emerging Markets Index (Net Dividends
Reinvested), while Alliance Trust returns are benchmarked against MSCI All Country World Index GDR (Gross
Dividends Reinvested) in sterling. Source: WTW.
8
Alliance Trust PLC | Annual Report and Financial Accounts 2018
THE INVESTMENT MANAGER
HOW WE MANAGE THE PORTFOLIO
HOW THE STOCK PICKERS ARE MANAGED
We have appointed Willis Towers Watson1 (WTW) (NASDAQ:
WLTW), a leading investment group with roots dating back to
1828, as our investment manager, and it in turn has appointed
a number of managers to pick and invest in stocks for
the Trust’s portfolio. The managers’ mandate is to pick and
invest in stocks while WTW manages the overall portfolio
and is responsible for balancing risk at the stock, sector and
geographical level.
With $116bn2 of assets under management and $2.5trn3 under
advice, WTW’s size and global presence brings investors in
the Trust advantages that many other investment managers
cannot offer.
With a research and portfolio management team numbering
130 (42 in equities alone), WTW’s primary goal is to identify
managers who will deliver long-term value for their clients
net of fees. WTW leveraged its scale and industry leading
position to design a portfolio that met the specific needs
of the Trust while at the same time negotiating highly
competitive fees.
Although WTW has been successfully running similar
strategies for institutional investors for some time, the
portfolio built for the Trust is unique for an investment trust.
While it is not uncommon to bring existing funds together
in a multi-manager structure, the Trust’s portfolio is different,
in that it comprises the highest conviction stocks of eight
best-in-class4 managers in a single, bespoke portfolio.
Most of the eight are not otherwise accessible by UK retail
investors. Between them, the managers cover a range of
stock-picking styles which reduces the risk that is often
faced 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 stock pickers
investing with high-conviction increases the chances of
outperformance.
HOW THE STOCK PICKERS ARE SELECTED
WTW has drawn on its in-depth knowledge of over 1,500 equity
managers and 16,850 equity investment products to select the
most appropriate stock pickers. WTW’s quantitative analysis
and assessment of qualitative factors are fundamental to its
selection process, and includes consideration of i) investment
professionals, ii) approach/insight generation, iii) portfolio
management, iv) firm and team stability, v) opportunity set,
vi) alignment and vii) environmental, social and governance
beliefs. We discuss our approach to stewardship and responsible
ownership on page 36.
WTW’s considerable global buying power enabled it to
negotiate highly competitive fee levels with the eight managers.
As a result, the Trust’s investors can now gain exposure to a
combination of some of the world’s best-in-class4 managers
for less than what many ‘off-the-shelf’ funds charge.
Performance of the Trust’s overall portfolio is managed by
WTW’s investment committee. The committee is responsible
for driving outperformance of the portfolio, monitoring and
overseeing stock picker performance, reviewing portfolio
blending and risk balancing, implementing any hedging and
gearing - as well as tight cost management. This process
is supported by stock level data feeds and monitoring, a
breadth of analytics tools, and regular meetings with the
stock pickers.
The team is led by Craig Baker, Global Chief Investment
Officer at WTW, with 24 years investment experience.
He is supported by three senior industry professionals
with complementary skills and together they have over
75 years of combined investment experience:
• David Shapiro, Co-portfolio manager, with 31 years of
investment experience, 17 of which as UK Equity Fund Manager.
• Mark Davis, Co-portfolio manager, with 20 years of
investment experience, Head of Portfolio Management
for EMEA at WTW.
• Stuart Gray, Senior Equity Manager Researcher, with 15 years
of investment experience.
WTW’S EQUITY RESEARCH PROCESS
WTW focuses on qualitative factors supported by data analytics.
IDEA
GENERATION
16,850
universe
Universe of equity products
Multiple research team inputs
Desk-based research
DUE
DILIGENCE
3,900
researched
On-site meetings / engagement
Follow-up research and contact
Operation due diligence approval
INVESTMENT
DECISION
210
top rating*
Devil’s advocate
Final skill thesis
20
top-rated
highly-concentrated
equity products
of which
8 managers
pick stocks for
the Trust
Process recognised by asset managers with WTW voted by asset
managers as having the highest Quality of Research**
Notes: Figures included above are approximated and rounded. Sourced from WTW
as at December 2018.
*As rated by WTW. **Portfolio Institutional Consultants Survey 2016.
1. 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 Willis Towers Watson group
of companies. 2. As at 30 June 2018. 3. As at 30 June 2017. 4. As rated by WTW.
Alliance Trust PLC | Annual Report and Financial Accounts 2018
9
IIIIVI STRATEGIC REPORTII INVESTMENT MANAGER’S REPORT
INVESTMENT PERFORMANCE
The Trust’s equity portfolio returned -4.2% in 2018 before
managers’ fees and including the effect of managers’ cash
holdings, compared to the benchmark MSCI All Country
World Index (ACWI), which returned -3.3% over the same
period. The Trust’s Net Asset Value (NAV) Total Return was
slightly lower at -5.4%. The NAV Total Return reflects the
impact on performance of Alliance Trust Savings, small
holdings in some other investments such as private equity
and mineral rights that are in the process of being sold,
the negative impact of the Trust’s gearing, fees and costs.
It also reflects the positive impact of buybacks. The Total
Shareholder Return, which also takes into account the
movement in the discount to NAV over the year, was -6.1%.
While disappointing, the equity portfolio’s underperformance
versus the benchmark for the 12-month period needs to
be put in the context of challenging conditions for equity
markets, particularly the highly volatile last quarter of the year,
and what was a difficult period for many active managers.
It is important to note that despite 2018 the equity portfolio
has still outperformed the benchmark since the current
investment approach was put in place in April 2017.
Equity Portfolio
The key driver of negative equity returns in 2018 was monetary
tightening by various central banks around the world, designed
to prevent strong economic growth leading to above-target
inflation. The Federal Reserve raised interest rates four times,
the Bank of England increased them for the second time
since the Global Financial Crisis and the European Central
Bank announced that it would stop expanding market liquidity.
Additionally, equity prices were plagued by the threat of trade
wars between the two largest economies in the world, the US
and China. This contributed to a more volatile market towards
the end of 2018, with global equity indices finishing the year in
the red.
2018 was a challenging year for truly active managers, with a
relatively small number of very large-cap companies delivering
significantly positive returns. In most years, close to 50% of
stocks that make up the index outperform and close to 50%
underperform, suggesting that active managers have a roughly
even number of winners and losers to pick from. However,
in 2018, significantly more stocks underperformed than
outperformed because it was generally the mega cap growth
companies that did particularly well. Truly active managers
who take little notice of the benchmark in the short term tend
to be structurally underweight the mega caps, and the Trust’s
stock pickers were no different. This was a slight headwind
in 2018 (unlike 2017). However, stock selection has continued
to be the main driver of returns. While that led to significant
outperformance in 2017, it led to moderate underperformance
in 2018, but outperformance over the period since 1 April 2017.
Managers who did not have exposure to this narrow group of
high performing growth stocks, in particular, value managers,
who pick stocks they believe are undervalued by the market,
suffered significant underperformance. It is unusual for the
market to be so dominated by a relatively small number of
very large-cap growth stocks, and we believe this is not a
situation that will likely persist over the longer-term.
Looking further back, value managers have suffered persistent
headwinds for many years now. Traditional value stocks have
now experienced the longest period of underperformance
relative to growth stocks in recent years. Of course, history can
provide no guarantee of future market movements, but this
unprecedented run of growth stocks over the past decade is a
dynamic that we do not expect to continue in perpetuity.
As the observation often attributed to Mark Twain says,
“history does not repeat itself, but it often rhymes”. We have
heard several of our managers describe the similarities that
they observe between the market in 2018 and past stock
market shocks in early 2000 and in 2008. In particular, they
have highlighted the concentration of capital in technology
stocks with lofty growth expectations. We do not think trying
to time markets is sensible but we are conscious of warning
signs, not just from pockets of lofty valuations but also
central bank behaviour, threats of trade wars and political
uncertainty. We are minded that this has been a long cycle
of growth and that cycles inevitably turn.
Of the Trust’s eight global stock pickers those that
outperformed the benchmark (four of them) represented
a mix of investing styles but were mainly growth-focused.
The underperformers (four of them) represented predominantly
value styles. The Trust’s emerging markets stocks delivered
strong returns relative to the MSCI Emerging Markets Index.
The three managers that struggled the most all favour the
value style of investing, but their stock selections in particular
now look especially attractive on a relative valuation basis, and
appear well placed to deliver future outperformance.
Equity portfolio turnover in 2018 was approximately 60%.
There was an increase in portfolio trading activity during the
fourth quarter as increased market volatility enabled the
Trust’s managers to exploit falling valuations and find new,
exciting opportunities. During 2018, significant additions to
the Trust’s equity portfolio included multinational consumer
goods conglomerates Unilever and Reckitt Benckiser, both
purchased in March. Other sizeable positions established
during the year included US health insurer Cigna, US data
centre and internet connection services provider Equinix,
and research and development focused global drug
manufacturer AstraZeneca.
Our target manager allocations remained constant throughout
most of the year. In September, a small adjustment was
made to the portfolio’s target manager weights to reduce the
portfolio’s exposure to growth stocks in response to growth
stocks having significantly outperformed the index since the
start of the year. We rebalanced the weightings to reduce
any biases across styles, factors and geographies. Our high
level of conviction in all of the Trust’s managers remains
unchanged, and we believe the portfolio is well positioned to
capitalise on future opportunities to deliver outperformance.
10
Alliance Trust PLC | Annual Report and Financial Accounts 2018
Largest 5 Contributors
to Equity Portfolio
Total Return
1 year
Security Name
Amazon.com Inc
Salesforce.com Inc
Microsoft Corp
HCA Healthcare Inc
UnitedHealth Group Inc
Largest 5 Detractors
to Equity Portfolio
Total Return
Security Name
CommScope
Holding Co. Inc
Hain Celestial Group Inc
Flex Ltd
Western Digital Corp
Amerprise Financial Inc
Average
Equity
Portfolio
weight (%)
Average
MSCI ACWI
weighting (%)
Contribution
to Return (%)
1.2
1.1
1.7
1.1
1.5
1.5
0.2
1.5
0.1
0.6
0.5
0.4
0.4
0.4
0.3
1 year
Average
Equity
Portfolio
weight (%)
Average
MSCI ACWI
weighting (%)
Contribution
to Return (%)
0.6
0.5
0.6
0.7
0.8
0.0
0.0
0.0
0.0
0.0
-0.4
-0.4
-0.4
-0.3
-0.3
Source: The Bank of New York Mellon Performance & Risk Analytics Europe Limited.
Note: Contributions to total return are for the equity portfolio only, which may differ
from the Net Asset Value (NAV) Total Return and Total Shareholder Return.
Performance Attribution
Despite experiencing active management headwinds in
2018, the Trust’s managers have managed to find a number
of big winners over the course of the year. Amongst the
most significant contributors to the Trust’s return were San
Francisco cloud-based software company Salesforce.com,
an operator of healthcare facilities, HCA Healthcare, and a
health insurance company, Anthem Inc. These names were
all present in the Trust’s top 10 holdings at some point during
the year. As with previously mentioned HCA Healthcare,
UnitedHealth, a US-based company that offers healthcare
products and insurance services, was also a significant
contributor to returns. Although the portfolio was not
overweight mega-cap growth stocks, we did have some
exposure to large technology companies such as Amazon,
Salesforce.com and Microsoft, which boosted returns.
However, the tide turned in the fourth quarter and some
of the previous leaders (e.g. Apple, in which our managers
have long been underweight) fell significantly. Fortunately,
our managers have been rotating their portfolios throughout
the year, moving the Trust’s overall portfolio positioning
from a modest overweight technology stocks at the start
of the year, to a modest underweight technology and
overweight healthcare.
In terms of detractors, we note that stocks which are
statistically cheap in earnings or asset terms became
even cheaper during the year. Examples of detractors
included CommScope, a multinational communications
network provider, Flex, an electronics manufacturer, and
Hain Celestial, a global leader and first mover in organic
and natural products, all based in the US, were significant
detractors over the year. We are in continuous conversation
with each of our managers to ensure that their thesis on
such stocks remains intact and conviction remains high.
Whilst there have been some disappointing performers
over this particular 12 month period (and we do not expect
our managers to be right all the time), our confidence in
the managers who hold value-oriented stocks is as strong
as ever and we feel that the market painted them in a
particularly poor light during 2018. We believe it would be
wrong to make a knee-jerk reaction under such conditions.
Alliance Trust PLC | Annual Report and Financial Accounts 2018
11
IIIIVI STRATEGIC REPORTII INVESTMENT MANAGER’S REPORT
CONTINUED
PORTFOLIO RISK
The Trust’s equity portfolio is managed in order to maintain a neutral balance
across investing styles, geographies and sectors relative to the benchmark,
achieved by careful selection and weighting of managers with complementary
investment styles and regional/sector exposures. As a result of this approach,
as at 31 December 2018, regional and sector exposures of the equity portfolio
were broadly similar to the position at 31 December 2017. The equity portfolio
is currently positioned with a small underweight to the US against the MSCI
ACWI; but this is a result of bottom-up stock picking, rather than top-down
asset allocation. With US stocks looking expensive relative to their European
and Asian counterparts throughout much of the year, managers have been
able to find more attractive opportunities outside of the US.
In much the same vein as the preceding year, 2018 saw numerous external
risk factors reappear, as political uncertainty and controversy in all corners of
the world continued to dominate headlines. For a Sterling investor, Brexit-
associated risks continued to be a major concern throughout 2018, and despite
a number of significant developments in the negotiation process, at the time of
writing, many of the realities of post-Brexit Britain remain unclear.
Since the current investment approach was adopted on 1 April 2017, it is pleasing
to see the majority of the Trust’s outperformance has been due to managers’
stock selection abilities, and the Trust has followed a significantly less volatile
path than that of the benchmark, the MSCI ACWI.
Risk summary
Active risk
Active share
Beta
Number of stocks*
Portfolio
Benchmark
2.5% Portfolio volatility
80% Benchmark volatility
0.94
11.9%
12.5%
197
2,727
Source: Factset, BNY Mellon Fund Performance & Risk Analytics Europe Limited and MSCI Inc.
*The figures shown for Portfolio and Benchmark above are those used for the calculation of the corresponding
risk analysis and will differ from the number of stocks held and the number of stocks in the benchmark.
This is due to the classification of stocks for risk purposes and limited data coverage for certain stocks.
12
Alliance Trust PLC | Annual Report and Financial Accounts 2018
While the stock pickers are not restrained
by geography, sector or style, we set
out below an analysis of how the Trust’s
portfolio was structured at the year end.
REGION
North America 45.5%
UK 13.4%
Europe 21.9%
Asia 16.8%
Cash 2.4%
SECTOR
Information Technology 15.4%
Financials 14.9%
Health Care 13.9%
Consumer Discretionary 12.5%
Industrials 11.7%
Consumer Staples 10.8%
Telecommunications 8.9%
Materials 3.8%
Energy 3.5%
Cash 2.4%
Utilities 1.4%
Real Estate 0.8%
GEARING
We manage the gearing level for the Trust in accordance
with the gearing policy set by the Board. We have maintained
a gross level of gearing of around 8.0% throughout much of
2018. This is towards the lower end of the range set by the
Board and reflects our central view that whilst markets are
still projecting expectations for relatively strong growth, we
expect that global growth will soon begin to slow.
Gross gearing levels have fluctuated between approximately
7.5% and 9.5% over the course of the year reflecting market
movement. As at the end of December after the market fall,
the Trust’s gross level of gearing was around the higher end of
this range. This level of gearing will allow the Trust to benefit
from leveraged returns in the event of a market rebound.
In November, the Trust took advantage of a historically
low-yield environment to issue fixed-rate long-dated
financing of £60m through three equally-sized unsecured
privately placed notes with maturities of 15, 25 and 35 years
respectively. During the process the Trust received several
offers from which the Board was able to select the most
attractive pricing. The proceeds were used to repay short-term
borrowing on existing floating rate facilities and the Trust’s
total gearing level remained unchanged as a result of
this transaction.
One of the ways in which the Trust is expected to add
value for its shareholders is by securing long-term, cheap
borrowings that would not otherwise be available to an
individual investor, and invest these borrowings to generate
higher returns for its shareholders. We are pleased that the
Trust’s debt offering received such strong interest, which is
a reflection of the confidence the market has in the future
success of the Trust.
VOTING
WTW has given discretionary voting powers to each of the
stock pickers in respect of the equities they have selected
for the Trust. Between 1 January 2018 and 31 December
2018, they voted on 2,915 resolutions at company meetings.
They voted against or abstained from voting on 10% of these
resolutions. Of the resolutions where the management
recommendation was ‘For’, the managers voted against or
abstained on 9% of these resolutions and of the 73 proposals
where the management recommendation was ‘Against’,
the managers voted with management on 42% 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 dividends.
ECONOMIC AND MARKET OUTLOOK FOR 2019
Our outlook for 2019 is set against a backdrop of increasingly
difficult global economic conditions and political uncertainty.
This uncertainty has brought about significant, and broad
based volatility and price weakness in the equity market.
We expect active management, especially the concentrated,
best ideas approach we employ for the Trust, can take
advantage of this volatility by identifying companies that
have been sold without regard for their true intrinsic value.
Combining the 20 best such companies from each of
our eight high conviction stock pickers, as well as a less
concentrated selection of emerging markets stocks, we
believe we have created a diversified portfolio that will be
able to provide investors with a less volatile and hopefully
more rewarding investment experience.
Because economic policy and political uncertainty are
elevated globally, it is increasingly difficult to predict
economic outcomes, with an increasing range of potentially
negative ones. We expect growth in the major economies
to steadily slow. While there are many drivers for this, rising
interest rates and the unwinding of quantitative easing by
central banks will make developed equity markets overall
more challenging. We expect liquidity to fall and volatility
to rise.
Market expectations for US earnings growth for 2019 are
optimistic – leaving scope for earnings disappointment.
As such, under current valuations, we view more risks to
the downside in US equities. On the other hand, emerging
market equities have been declining over 2018 and are
cheap on a relative basis, with greater potential for growth.
The Trust’s portfolio is managed in such a way as to ensure
that stock selection drives returns, and it is stock selection
that gives us slight underweight position to the US and slight
overweight position to emerging markets.
The Trust’s concentrated, best ideas approach should be
well positioned to take advantage of volatile markets, as
investors often overreact when facing escalated volatility/
market weakness, creating pockets of opportunities for active
management. Having worked at a range of large investment
management firms before starting or joining their current
businesses, the Trust’s stock pickers all have extensive
experience of a wide variety of market environments over
many years, including both bull and bear markets. They
are, therefore, highly skilled at identifying companies with
attractive earnings prospects relative to their perceived
market value. We have a high degree of confidence in their
abilities to identify the winners and we have already heard
from several of our managers that increased volatility is
presenting them with opportunities to invest in what they
regard as undervalued stocks.
Alliance Trust PLC | Annual Report and Financial Accounts 2018
13
IIIIVI STRATEGIC REPORTII THE STOCK PICKERS
Black Creek is based in Toronto and was founded
in 2004 by Bill Kanko. Assets under management
as at 31 December 2018 were $8.0bn.
At 31 December 2018 12% of the equity portfolio
had been selected and invested by Black Creek.
Bill Kanko, Founder and President. Bill was the Lead Manager for the successful
Trimark Fund and Trimark Select Growth Fund, with combined assets of more
than $13bn.
LARGEST 3 INVESTMENTS
MANAGER STYLE
Sector
Value at 31.12.18 (£m)
Health Care
21.1
STOCK SPOTLIGHT: BOOZ ALLEN HAMILTON
Looking five to ten years ahead, using a valuation-orientated approach,
they seek stocks in leading businesses around the world. The approach
is long-term, contrarian and across the cap spectrum.
First invested by stock picker
19 Jan 18
% Sterling gain in 2018
% Sterling gain since
date of first purchase
17.7
17.7
Sector
Value at
31.12.18
(£m)
First
invested by
stock picker
% Sterling
gain in
2018
% Sterling
gain since
date of first
purchase
Sector
Value at 31.12.18 (£m)
First invested by stock picker
% Sterling gain in 2018
% Sterling gain since
date of first purchase
Health Care
18.1
11 Apr 17
-12.2
-3.1
Sector
Information Technology
Value at 31.12.18 (£m)
First invested by stock picker
% Sterling gain in 2018
% Sterling gain since
date of first purchase
17.8
05 Sep 17
27.1
28.0
Information Technology
17.8
05 Sep 17
27.1
28.0
Founded in 1914, Booz Allen Hamilton (BAH) is a management consulting
firm headquartered in the United States with over 400 locations in
more than 20 countries. Its business lines include consulting, analytics,
digital solutions, engineering, and cyber solutions.
From an investment perspective, we held the view that BAH was
a key partner to the government for many aspects of integral data
management and analytics, some of which is highly classified, which
is an enormous barrier to entry. BAH also has a senior management
team and board that promotes a partnership culture and collaboration.
It is currently benefiting from increased global defence spending and
the need for greater cybersecurity solutions for both governments and
corporations. As of September 2018, total project backlog was a robust
$21.4 billion, an increase of over 28% year over year.
Over 90% of the company’s revenue is derived from engagements
on which it acted as the prime contractor which allows BAH to build
unique insights and a strong understanding of the needs of its clients.
The company is making strategic investments in innovative technologies,
such as Machine Intelligence and Directed Energy, to help meet its
clients’ needs over the long term.
14
Alliance Trust PLC | Annual Report and Financial Accounts 2018
First Pacific Advisers (FPA) is a Los Angeles-based
institutional money management firm. As of
31 December 2018, FPA manages approximately
$26bn. Independently owned, FPA has 85
employees, with 32 investment professionals.
At 31 December 2018 12% of the equity portfolio
had been selected and invested by FPA.
Pierre Py and Greg Herr have an average of over 20 years’ investing experience.
LARGEST 3 INVESTMENTS
MANAGER STYLE
Sector
Value at 31.12.18 (£m)
First invested by stock picker
% Sterling gain in 2018
% Sterling gain since
date of first purchase
Sector
Value at 31.12.18 (£m)
First invested by stock picker
% Sterling gain in 2018
% Sterling gain since
date of first purchase
Industrials
24.8
12 Apr 17
-27.0
-16.6
Industrials
21.9
12 Apr 17
1.0
8.5
Sector
Consumer Discretionary
Value at 31.12.18 (£m)
First invested by stock picker
% Sterling gain in 2018
% Sterling gain since
date of first purchase
20.1
22 Dec 17
4.0
3.1
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.
STOCK SPOTLIGHT: PAGEGROUP
Sector
Industrials
Value at
31.12.18
(£m)
First
invested by
stock picker
% Sterling
gain in
2018
% Sterling
gain since
date of first
purchase
21.9
12 Apr 17
1.0
8.5
PageGroup, based in the UK, is one of the leading global employment
staffing companies. Its business model has produced industry-leading
profitability, has limited tangible asset or working capital needs and, as
a result, has generated strong returns on capital employed.
Over the last several years, the company implemented an investment
program to upgrade IT systems and open offices in new countries. This
has significantly diversified the group across geographies and sectors.
While the spending on immature locations weighed on profitability in
the short-term, now that scale has been reached in these markets we
believe margins should benefit. Over the longer term, the entry into
France, China and the US appears to put the company on a long runway
for organic growth.
The group is led by an experienced management team that fostered a
strong culture of performance. We believe that the team has executed
well over time, including the recent expansion program. The balance sheet
has no debt and carries an ample level of cash. The group also returns
excess cash flow to shareholders through dividends and share buybacks.
Finally, we believe PageGroup’s valuation continues to offer an attractive
discount to our estimate of the company’s intrinsic value.
Alliance Trust PLC | Annual Report and Financial Accounts 2018
15
IIIIVI STRATEGIC REPORTII THE STOCK PICKERS
CONTINUED
GQG Partners is a boutique investment
management firm focused on global and
emerging markets equities. Headquartered
in Fort Lauderdale, Florida USA, it manages
assets of around $17.6bn as at 31 December 2018.
At 31 December 2018 15% of the equity portfolio
had been selected by GQG Partners. GQG have
responsibility for picking and investing up to 20
stocks across the global equity market and up to
a further 50 stocks from the emerging markets.
Rajiv Jain founded GQG Partners in June 2016, having previously worked at
Vontobel Asset Management for 22 years where he was responsible for over
£30bn of assets.
LARGEST 3 GLOBAL INVESTMENTS
MANAGER STYLE
Sector
Value at 31.12.18 (£m)
First invested by stock picker
% Sterling gain in 2018
% Sterling gain since
date of first purchase
Sector
Value at 31.12.18 (£m)
First invested by stock picker
% Sterling gain in 2018
% Sterling gain since
date of first purchase
Health Care
20.1
07 Apr 17
21.1
24.9
Financials
19.7
19 Sep 18
12.7
12.7
Sector
Consumer Staples
Value at 31.12.18 (£m)
First invested by stock picker
% Sterling gain in 2018
% Sterling gain since
date of first purchase
16.7
15 Oct 18
16.9
16.9
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.
GLOBAL STOCK SPOTLIGHT: UNILEVER
Sector
Value at
31.12.18
(£m)
First
invested by
stock picker
% Sterling
gain in
2018
% Sterling
gain since
date of first
purchase
Consumer Staples
10.9
07 Dec 18
4.4
-4.4
Despite all the macro noise in 2018, we continue to find good opportunities
to upgrade the portfolio and express our focus on stability of earnings
over absolute growth. One such name is Unilever NV-CVA (Unilever).
Unilever is one of the world’s largest consumer goods companies, with
products across the Beauty and Personal Care, Home Care, as well as
the Food and Refreshment segments. The company owns approximately
400 brands, used by nearly 2.5 billion customers, across 190 countries,
on a daily basis. Several of the company’s name brands include Lipton,
Dove and Hellmann’s. Additionally, the company owns many iconic local
brands such as Bango in Indonesia, Pureit in India and Suave in the US,
which together contribute approximately 30% of revenue. Given the high
profile brands in its portfolio, the company holds leading positions in
several sales categories across their footprint.
Even though the company has spent more than €24 billion on acquisitions
over the last 5 years, return on invested capital remains at an industry
leading 19%. The company has a long history of dividend payments, with
a dividend yield as of December 2018 of 3.5%, and remains focused on
returning more cash to shareholders.
16
Alliance Trust PLC | Annual Report and Financial Accounts 2018
LARGEST 3 EMERGING MARKET INVESTMENTS
EMERGING MARKETS STOCK SPOTLIGHT: LINK REIT
*
Sector
Value at 31.12.18 (£m)
First invested by stock picker
% Sterling gain in 2018
% Sterling gain since
date of first purchase
*
Sector
Value at 31.12.18 (£m)
First invested by stock picker
% Sterling gain in 2018
% Sterling gain since
date of first purchase
Sector
Value at 31.12.18 (£m)
First invested by stock picker
% Sterling gain in 2018
% Sterling gain since
date of first purchase
Financials
8.4
07 Apr 17
14.2
12.5
Financials
5.6
07 Apr 17
8.4
15.8
Financials
5.4
07 Apr 17
20.5
21.6
*Housing Development Finance Corporation (HDFC) is a financial
conglomerate and HDFC Bank is a subsidiary/associate company of
HDFC. HDFC holds approximatively 30.5% of the shares of HDFC Bank.
The marks above are owned by HDFC corporation and HDFC Bank.
Sector
Real Estate
Value at
31.12.18
(£m)
First
invested by
stock picker
% Sterling
gain in
2018
% Sterling
gain since
date of first
purchase
3.7
07 Sep 18
7.9
7.9
LINK REIT (LINK) was the first Real Estate Investment Trust (REIT) to be
listed in Hong Kong and manages a non-discretionary focused, retail
property portfolio of around 9m square feet in Hong Kong and around
3m square feet in China. LINK is not only the largest owner of private
retail space in Hong Kong but its 69,000 car park spaces, make it the
largest holder in that category as well.
Beyond its key holdings, LINK also has the distinction of being the only
major non-family owned property manager in Hong Kong, so it’s much
more concerned with generating returns on capital rather than holding
heirloom/cherished assets. Management accomplishes this by divesting
assets, typically at a premium of 30-50%, to recycle capital into new
properties, keeping the portfolio fresh.
Many of LINK’s customers are in the mass market category, such as
food-retail, making the earnings extremely resilient to economic cycles.
For this resilient business, characteristics remain attractive, with a 2020
financial year price to earnings ratio of 24, a price to book value of less
than 1 and a yield of 4%.
Alliance Trust PLC | Annual Report and Financial Accounts 2018
17
IIIIVI STRATEGIC REPORTII THE STOCK PICKERS
CONTINUED
*
Jupiter was established in London in 1985 as a
specialist investment boutique. Since then it has
expanded beyond the UK and manage around
£42.7bn as at 31 December 2018.
At 31 December 2018 11% of the equity portfolio
had been selected and invested by Jupiter.
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, Co-Portfolio Manager.
LARGEST 3 INVESTMENTS
MANAGER STYLE
Sector
Communication Services
Value at 31.12.18 (£m)
First invested by stock picker
% Sterling gain in 2018
% Sterling gain since
date of first purchase
17.8
22 Dec 17
-0.7
-0.7
Sector
Information Technology
Value at 31.12.18 (£m)
First invested by stock picker
% Sterling gain in 2018
% Sterling gain since
date of first purchase
Sector
Value at 31.12.18 (£m)
First invested by stock picker
% Sterling gain in 2018
% Sterling gain since
date of first purchase
17.4
08 Apr 17
-1.6
-4.4
Financials
17.3
11 Jul 18
-10.8
-10.8
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.
STOCK SPOTLIGHT: WESTERN UNION
Sector
Value at
31.12.18
(£m)
First
invested by
stock picker
% Sterling
gain in
2018
% Sterling
gain since
date of first
purchase
Information Technology
17.4
08 Apr 17
-1.6
-4.4
Western Union is a global money transfer agency and provides electronic
money transfer and bill paying services. It operates in 200 countries
and has a global network of over 550,000 agent locations. Payments
companies, including Western Union, have faced challenges through
global focus on anti-money laundering (AML) measures. This has forced
Western Union to invest a significant amount on AML and Compliance
(currently 4% of revenues), and the business has not grown profits over
the last few years as it has had to reinvest in its business. Consequently,
it is now very lowly valued, trading on a sub 10x Graham & Dodd Profit
to Earnings ratio. It is cash generative and has high returns.
What appeals is that there is lower competition than assumed by the
stock market with other banks and fintech companies. The business
model focuses on cash payments from developed to undeveloped
markets where the majority of recipients are unbanked. In addition,
the density and diversity of the agent network is very difficult to replicate
and provides global revenue exposure.
"JUPITER" and
Management Group Ltd.
are the trade marks of Jupiter Investment
18
Alliance Trust PLC | Annual Report and Financial Accounts 2018
Lyrical Asset Management is a large advisory
firm based in New York, with 994 clients and
discretionary assets under management (AUM)
of over $7.2bn as at 31 December 2018.
At 31 December 2018 15% of the equity portfolio
had been selected and invested by Lyrical.
Lyrical Asset Management’s investment management team is led
by Co-Founder and Chief Investment Officer, Andrew Wellington.
LARGEST 3 INVESTMENTS
MANAGER STYLE
Sector
Value at 31.12.18 (£m)
First invested by stock picker
% Sterling gain in 2018
% Sterling gain since
date of first purchase
Sector
Value at 31.12.18 (£m)
First invested by stock picker
% Sterling gain in 2018
% Sterling gain since
date of first purchase
Sector
Value at 31.12.18 (£m)
First invested by stock picker
% Sterling gain in 2018
% Sterling gain since
date of first purchase
Health Care
34.6
12-Oct-17
51.8
59.3
Health Care
32.4
08-Apr-17
25.4
25.4
Financials
26.6
08-Apr-17
11.8
13.2
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.
STOCK SPOTLIGHT: AERCAP
Sector
Industrials
Value at
31.12.18
(£m)
First
invested by
stock picker
% Sterling
gain in
2018
% Sterling
gain since
date of first
purchase
18.6
08 Apr 17
-20.1
7.9
Aercap operates a simple business model. It owns about 1,000 aeroplanes
and leases them to airlines all over the world, typically with long-term
contracts. One might think that leasing aeroplanes is a terrible proposition
as airlines notoriously have poor credit and often go bankrupt. But, one of
the nice things about aeroplanes is that they are easy to move. If demand
for aeroplanes shrinks in one country or with one customer, you can
simply fly that aeroplane to a new location or owner.
Investors may be concerned that the future value of Aercap’s aeroplanes
is at risk. However, the company has had its aeroplanes appraised at
a premium of 5-10% above their reported value. Investors may also be
worried about Aercap’s economic sensitivity, but Aercap’s longer-term
track record shows little justification for that concern. The company has
grown its book value per share each year for the past 12 years, including
a 32% increase through the financial crisis of 2007-2009.
Part of the formula for these impressive results is Aercap’s discipline
to sell aeroplanes and buy back its own shares when it believes that
decision offers a better risk/reward. Despite its past success, Aercap
trades at a very low valuation, which makes this attractive company an
even more attractive stock.
Alliance Trust PLC | Annual Report and Financial Accounts 2018
19
IIIIVI STRATEGIC REPORTII THE STOCK PICKERS
CONTINUED
River and Mercantile Group was formed in 2014
and is based in London.
Its advisory and investment solutions serve
a large client base predominantly in the UK.
As at 31 December 2018 they managed £4.6bn.
At 31 December 2018 9% of the equity portfolio
had been selected and invested by River and
Mercantile.
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.
LARGEST 3 INVESTMENTS
MANAGER STYLE
Sector
Communication Services
Value at 31.12.18 (£m)
First invested by stock picker
% Sterling gain in 2018
% Sterling gain since
date of first purchase
19.4
22 Jun 17
-24.4
-5.2
Sector
Consumer Discretionary
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.
STOCK SPOTLIGHT: ANIMA
Sector
Financials
Value at
31.12.18
(£m)
First
invested by
stock picker
% Sterling
gain in
2018
% Sterling
gain since
date of first
purchase
12.9
17 Oct 17
-40.0
-32.0
Anima is Italy’s number one independent asset manager, with €103 billion
in assets under management.
Value at 31.12.18 (£m)
First invested by stock picker
% Sterling gain in 2018
% Sterling gain since
date of first purchase
17.6
11 Apr 17
-1.6
-18.3
Italy is an under-penetrated and fragmented market, providing
opportunities for Anima to grow. Central to Anima’s business model
are its strategic distribution arrangements with banks, where Anima
has helped transform mutual funds from a troublesome area to a
profitable opportunity for both parties.
Sector
Value at 31.12.18 (£m)
First invested by stock picker
% Sterling gain in 2018
% Sterling gain since
date of first purchase
Financials
17.1
11 Apr 17
-20.2
-4.5
This company is a strong cash generator, which provides the opportunity
for mergers and acquisitions (M&A) to drive growth and provide economies
of scale. In September 2017 Anima announced the acquisition of Aletti
Gestielle from Banco BPM and an agreement with Poste Italiane regarding
the transfer of Banco Posta Fondi to Anima; both these transactions
strengthened Anima’s market positon.
Anima’s share price has suffered disproportionately recently from
its linkage to Italy/Italian banks. The company earns very good profit
margins and a high return on capital, despite low management fee
margins (0.30%), which should increase as they deliver cost synergies
from recent M&A. Our confidence on delivery of these is supported by
management’s strong record of cost discipline. At the current trough
valuation, it offers clear strategic value as an entry into the Italian market.
20
Alliance Trust PLC | Annual Report and Financial Accounts 2018
Founded in 2003 by George Fraise, Gordon
Marchand and Robert Rohn, SGA are based
in Stamford, USA and manage US, Global,
Emerging Markets, & International Large Cap
Growth Portfolios. They had client assets
of over $10.6bn as at 31 December 2018.
At 31 December 2018 13% of the equity portfolio
had been selected and invested by SGA.
Sustainable Growth Advisers (SGA) was founded in 2003 by George Fraise,
Gordon Marchand and Rob Rohn who jointly manage SGA’s stock picks for
the Trust. They average over 30 years of investment experience.
LARGEST 3 INVESTMENTS
MANAGER STYLE
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.
Sector
Value at 31.12.18 (£m)
Financials
25.0
STOCK SPOTLIGHT: AIA GROUP
First invested by stock picker
08 Apr 17
% Sterling gain in 2018
% Sterling gain since
date of first purchase
8.5
16.4
Sector
Financials
Value at
31.12.18
(£m)
First
invested by
stock picker
% Sterling
gain in
2018
% Sterling
gain since
date of first
purchase
22.2
08 Apr 17
4.8
18.0
Sector
Value at 31.12.18 (£m)
First invested by stock picker
% Sterling gain in 2018
% Sterling gain since
date of first purchase
Sector
Value at 31.12.18 (£m)
First invested by stock picker
% Sterling gain in 2018
% Sterling gain since
date of first purchase
AIA Group is a Hong Kong based life-insurer with operations across 18
markets in the Asia-Pacific region.
We expect the Asia-Pacific region to enjoy the most attractive rates of
growth within the life insurance sector over our 3-5 year time horizon,
driven by continuing economic development, rising wealth and the
relative under-penetration of insurance.
The need for long-term savings and protection products in the Asia-Pacific
region should continue to grow. The company’s extensive network of
highly productive direct agents are a competitive advantage, allowing
the company to enjoy high profitability and highly persistent, recurring
premium revenues.
With a diverse footprint across both mature and developing markets,
AIA benefits from a high policy persistency ratio of 95%+ and an existing
book of business that provides steady cash flows and high repeat
revenues. The company’s capital position is very strong. With a
compelling long-term growth opportunity, an attractive cash flow based
valuation, strong pricing power and repeatable revenue growth, we find
AIA Group to be a highly attractive investment today, particularly given
the recent weakness experienced by Chinese and Asian stocks.
Health Care
22.5
08 Apr 17
-8.3
19.4
Financials
22.2
08 Apr 17
4.8
18.0
Alliance Trust PLC | Annual Report and Financial Accounts 2018
21
IIIIVI STRATEGIC REPORTII THE STOCK PICKERS
CONTINUED
Established in 2003, Veritas is run with a
partnership structure and culture. They have
offices in London and Hong Kong. As at 31
December 2018 they managed £15.7bn.
At 31 December 2018 13% of the equity portfolio
had been selected and invested by Veritas.
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 over 30 years’ experience.
LARGEST 3 INVESTMENTS
MANAGER STYLE
Sector
Value at 31.12.18 (£m)
First invested by stock picker
% Sterling gain in 2018
% Sterling gain since
date of first purchase
Health Care
29.3
21-Dec-18
22.6
22.6
Sector
Communication Services
Value at 31.12.18 (£m)
First invested by stock picker
% Sterling gain in 2018
% Sterling gain since
date of first purchase
27.2
07-Apr-17
-10.1
-8.8
Sector
Consumer Staples
Value at 31.12.18 (£m)
First invested by stock picker
% Sterling gain in 2018
% Sterling gain since
date of first purchase
25.3
23-Mar-18
13.5
13.5
22
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.
STOCK SPOTLIGHT: CVS HEALTH
Sector
Health Care
Value at
31.12.18
(£m)
First
invested by
stock picker
% Sterling
gain in
2018
% Sterling
gain since
date of first
purchase
23.5
07 Apr 17
-1.9
-7.7
CVS Health (CVS) is extremely well placed in the US Healthcare market,
with more retail pharmacies than any other company and one of the
top two purchasing benefits managers (PBM) in the United States.
The company’s share price had come under pressure during early 2018
as investors became convinced CVS would be challenged by Amazon
in drug distribution and by the rhetoric around drug pricing and the role
PBMs play. (PBMs sit between the payer and the drug companies and
help lower prices when producing their list of approved drugs)
Whilst CVS looked cheap on valuation grounds, the company is made
even more compelling with its agreed bid for Aetna, the US insurer.
The merger will form a large vertically integrated Healthcare company,
not too dissimilar to the very successful United Health (also held).
Not only will the company gain the clients of Aetna, it will be able to
produce the ‘last mile of care’ – further monetising its 10,000 plus
pharmacies by offering some health care services as well simply a
venue for picking up prescriptions.
Over the past five years, the company had grown adjusted earnings per
share by 11% annually and free cash flow in 2017 was $6.4bn. Growth
over the next 5 years is aided by CVS’s merger with Aetna.
CVS recently announced that they are expanding into chronic kidney disease
detection, treatment and dialysis, which is a major cost for health insurers.
Alliance Trust PLC | Annual Report and Financial Accounts 2018 INVESTMENT PORTFOLIO
EQUITY HOLDINGS AS AT 31 DECEMBER 2018
Investment
Equities
Region
Global
% of Investment Portfolio
Value £m
97.4
2,514.5
Total value 2,514.5
INVESTMENT IN OPERATING SUBSIDIARY COMPANY AS AT 31 DECEMBER 2018
Investment
Alliance Trust Savings
Region
% of Investment Portfolio
Value £m
United Kingdom
1.3
32.7
Total value 32.7
NON-CORE INVESTMENTS AS AT 31 DECEMBER 2018*
Investment
Private Equity
Mineral Rights
Liontrust Asset Management PLC
Region
% of Investment Portfolio
Value £m
United Kingdom/Europe
North America
United Kingdom
0.6
0.5
0.2
14.8
12.9
5.9
Total value 33.6
*As at 13 February 2019 the value of the remaining private equity investments was £9.3m with a further £3.4m held in cash and the mineral rights £11.6m. The shares in Liontrust
Asset Management PLC cannot be sold prior to 6 April 2019.
TOTAL INVESTMENTS AS AT 31 DECEMBER 2018
Investment
Equities
Investment in Operating Subsidiary Company
Non-core Investments
Source: The Bank of New York Mellon (International) Ltd.
CONTRIBUTION ANALYSIS – 2018
Contribution Analysis (%)
Contribution to
Total Return
% of Investment Portfolio
Value £m
97.4
1.3
1.3
2,514.5
32.7
33.6
Total value 2,580.8
Equity Portfolio
-4.2 This is the Equity Portfolio Total Return and is before managers' fees and includes the effect of
managers' cash holdings
Effect of Weighting
and Cost of Gearing
Non-core Investments
-0.1 This is the impact of having more than 100% of the assets in the equity portfolio on average over the
year and the cost of gearing
-0.1
Includes private equity and mineral rights and shows that they had a negative impact on the Trust’s
return in the year
Subsidiaries
-0.2 Despite delivering a profit for the year, Alliance Trust Savings’ fair value fell during 2018, therefore
providing a negative contribution to the Trust’s Total Shareholder Return
Cash and Accruals
Share Buybacks
Total Expenses
NAV Total Return
Effect of Discount
-0.4 This entry includes cash as well as accruals for Trust expenses, but does not include cash held by
the stock pickers which has not been invested – this is captured in the Equity Portfolio Total Return
0.3 The impact of share buybacks was positive boosting the Total Shareholder Return
-0.7 Costs (detailed on page 29) including manager fees (detailed on page 57) reduced performance
-5.4 This is the total return of the Trust based on its NAV
-0.7 This is the negative impact on the Total Shareholder Return due to the discount increasing during
the year
Total Shareholder Return
-6.1 This is the total return that our shareholders received through share price movement and dividend
reinvestment
MSCI ACWI Total Return
-3.3 This is the return that the benchmark index achieved through share price movement and dividend
reinvestment
Source: WTW, The Bank of New York Mellon (International) Ltd, Morningstar, BNY Mellon Fund Performance & Risk Analytics Europe Limited and MSCI Inc.
23
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIIIVI STRATEGIC REPORTII LARGEST 20 INVESTMENTS
LARGEST 20 INVESTMENTS AS AT 31 DECEMBER 2018
The following are the largest 20 global stocks selected by our stock pickers. A number of these stocks have been invested in
by more than one of our stock pickers. A full list of all of our holdings can be found on pages 93 to 96 and on our website at
www.alliancetrust.co.uk
HDFC Bank Ltd. (HDFC) is an Indian bank. It offers
a wide range of services including both corporate
banking and custodial services. It is also active in the
treasury and capital markets and provides project
advisory services and capital market products such
as Global Deposit Receipts, Euro currency loans, and
Euro currency bonds.
Country of Listing
Sector
Selected by stock pickers
% of quoted equities
% of MSCI ACWI
Value of Holding (£m)
India
Financials
2
2.1
0.0
53.1
Microsoft Corporation develops, manufactures, licenses,
sells, and supports software products including
Microsoft Office. The company offers a range of other
software products including operating systems, server
applications, business and consumer applications. It also
offers software development tools and software for the
Internet and intranets. In addition, it develops video
game consoles and digital music entertainment devices.
Country of Listing
Sector
Selected by stock pickers
% of quoted equities
% of MSCI ACWI
Value of Holding (£m)
United States
Information Technology
3
1.8
1.8
45.7
Alphabet Inc. is the holding company for Google but
also has other subsidiaries which provide web-based
search, advertisements, maps, software applications,
mobile operating systems, consumer content, enterprise
solutions, commerce and hardware products.
Unilever manufactures branded and packaged
consumer goods, including food, detergents,
fragrances, home, and personal care products.
The Western Union Company offers global money
transfer services. It offers consumer to consumer
money transfer and bill paying services, and sells
money orders.
UnitedHealth Group Incorporated owns and manages
organised health systems in the United States and
internationally. It provides products for employers to
enable them to plan and administer employee benefit
programs. UnitedHealth also provides specialised care
services for the elderly.
Country of Listing
Sector
United States
Communication Services
Selected by stock pickers
% of quoted equities
% of MSCI ACWI
Value of Holding (£m)
Country of Listing
Sector
Selected by stock pickers
% of quoted equities
% of MSCI ACWI
Value of Holding (£m)
3
1.7
1.3
43.7
United Kingdom
Consumer Staples
2
1.5
0.2
38.5
Country of Listing
Sector
United States
Information Technology
Selected by stock pickers
% of quoted equities
% of MSCI ACWI
Value of Holding (£m)
Country of Listing
Sector
Selected by stock pickers
% of quoted equities
% of MSCI ACWI
Value of Holding (£m)
2
1.4
0.0
35.9
United States
Health Care
2
1.4
0.6
35.7
24
Alliance Trust PLC | Annual Report and Financial Accounts 2018
LARGEST 20 INVESTMENTS AS AT 31 DECEMBER 2018
HCA Healthcare, Inc. offers health care services.
This includes diagnosis, treatments, consultancy,
nursing, surgeries as well as medical education,
physician resource centres, and training programs.
HCA Healthcare serves patients in the United States.
Oracle Corporation supplies software for enterprise
information management. It offers databases and
relational servers, application development and
decision support tools, and enterprise business
applications. Oracle's software runs on a variety
of hardware options including network computers,
personal digital assistants, set-top devices, PCs,
mainframes and massively parallel computers.
Anthem Inc. operates as a health benefits company.
It provides health, dental, vision, and pharmacy
benefits, as well as life and disability insurance.
It also offers a broad spectrum of network-based
managed care plans to large and small employers,
individuals and to the Medicaid, and Medicare markets.
Cigna Corporation operates as an insurance company.
It offers life, accident, disability, supplemental,
medicare, and dental insurance products and services,
as well as retirement, health insurance, and annuity
products. Cigna serves individuals, families, and
businesses worldwide.
Charter Communications, Inc. operates as a cable
telecommunications company. It offers cable
broadcasting, internet, voice, and other business
services in the United States.
AIA Group Limited offers insurance and financial
services. It provides life insurance for individuals,
businesses, accident, and health insurance,
as well as retirement planning and wealth
management services.
Aflac, Inc. is a holding company. Its subsidiaries
provide insurance to individuals in the United States
and Japan. These include accident and disability,
cancer expense, short-term disability, sickness and
hospital indemnity, hospital intensive care, and
fixed-benefit dental plans.
Country of Listing
Sector
Selected by stock pickers
% of quoted equities
% of MSCI ACWI
Value of Holding (£m)
United States
Health Care
1
1.4
0.1
34.6
Country of Listing
Sector
United States
Information Technology
Selected by stock pickers
% of quoted equities
% of MSCI ACWI
Value of Holding (£m)
Country of Listing
Sector
Selected by stock pickers
% of quoted equities
% of MSCI ACWI
Value of Holding (£m)
Country of Listing
Sector
Selected by stock pickers
% of quoted equities
% of MSCI ACWI
Value of Holding (£m)
2
1.3
0.3
32.9
United States
Health Care
1
1.3
0.2
32.4
United States
Health Care
1
1.2
0.2
29.3
Country of Listing
United States
Sector
Communication Services
Selected by stock pickers
% of quoted equities
% of MSCI ACWI
Value of Holding (£m)
Country of Listing
Sector
Selected by stock pickers
% of quoted equities
% of MSCI ACWI
Value of Holding (£m)
Country of Listing
Sector
Selected by stock pickers
% of quoted equities
% of MSCI ACWI
Value of Holding (£m)
1
1.1
0.1
27.2
Hong Kong
Financials
2
1.1
0.2
26.6
United States
Financials
1
1.1
0.1
26.6
Alliance Trust PLC | Annual Report and Financial Accounts 2018
25
IIIIVI STRATEGIC REPORTII
LARGEST 20 INVESTMENTS
CONTINUED
LARGEST 20 INVESTMENTS AS AT 31 DECEMBER 2018
Philip Morris International Inc. operates as a holding
company. The company, through its subsidiaries,
licensees, produces, sells, distributes, and markets a
wide range of branded cigarettes and tobacco products.
They also develop smoke-free products that deliver
nicotine without the harmful smoke of cigarettes.
Philip Morris International serves customers worldwide.
Reckitt Benckiser Group PLC manufactures and
distributes a wide range of household, toiletry, health,
and food products on a global basis. Its products
include fabric treatments, disinfectant spray and
cleaners, dishwashing detergent, personal care,
food, and over the counter drugs.
Ryanair Holdings plc provides low fare passenger
airline services to destinations in Europe.
Broadcom Inc. designs, develops, and markets digital
and analog semiconductors. It offers a range of
wireless components, storage adapters, controllers,
and other electonic products. Broadcom markets its
products worldwide.
TP ICAP PLC provide brokering services to counterparties
operating in major wholesale over-the-counter and
exchange traded financial and commodity markets.
It also offers brokering services in fixed income securities
and their derivatives, interest rate derivatives, treasury
products, equities, and energy.
CVS Health Corporation is an integrated pharmacy
health care provider. Its offerings include pharmacy
benefit management services, mail order, retail and
specialty pharmacy, disease management programs,
and retail clinics. It operates drugstores throughout
the US and Puerto Rico.
Novo Nordisk A/S develops, produces, and markets
pharmaceutical products. It focuses on diabetes
care and offers insulin delivery systems and other
diabetes products. It also works in areas such as
haemostatis management, growth disorders, and
hormone replacement therapy. It markets worldwide.
Country of Listing
Sector
Selected by stock pickers
% of quoted equities
% of MSCI ACWI
Value of Holding (£m)
Country of Listing
Sector
Selected by stock pickers
% of quoted equities
% of MSCI ACWI
Value of Holding (£m)
Country of Listing
Sector
Selected by stock pickers
% of quoted equities
% of MSCI ACWI
Value of Holding (£m)
United States
Consumer Staples
2
1.0
0.3
25.1
United Kingdom
Consumer Staples
1
1.0
0.1
24.9
Ireland
Industrials
1
1.0
0.0
24.8
Country of Listing
Sector
United States
Information Technology
Selected by stock pickers
% of quoted equities
% of MSCI ACWI
Value of Holding (£m)
Country of Listing
Sector
Selected by stock pickers
% of quoted equities
% of MSCI ACWI
Value of Holding (£m)
Country of Listing
Sector
Selected by stock pickers
% of quoted equities
% of MSCI ACWI
Value of Holding (£m)
Country of Listing
Sector
Selected by stock pickers
% of quoted equities
% of MSCI ACWI
Value of Holding (£m)
1
1.0
0.3
24.7
United Kingdom
Financials
2
1.0
0.0
24.1
United States
Health Care
1
0.9
0.2
23.5
Denmark
Health Care
1
0.9
0.2
22.5
26
Alliance Trust PLC | Annual Report and Financial Accounts 2018
NON-CORE INVESTMENTS
(1.3% OF INVESTMENT PORTFOLIO)
During 2018, the Trust has sold a significant part of its legacy
non-core assets portfolio with the remaining non-core assets
expected to be sold or to be wound-down in 2019 as part of
the Trust’s strategy to simplify and focus on global equities.
As a result of the sale activity the value of the non-core
assets has reduced in the year from £225.8m to £33.6m
as at 31 December 2018. Of that £33.6m at the year-end,
£8.7m was cash held in the Trust’s private equity limited
partnership structures.
In January 2018, the Trust sold the Liontrust Asset Management
shares received as part of the sale consideration for Alliance
Trust Investments, raising net proceeds of £21.0m, a return
of over 55% on the price at which the shares were issued.
As at 31 December 2018, the Trust continues to hold the
Liontrust first anniversary shares, valued at £5.9m. In April, the
Trust sold its legacy holdings in three Liontrust Investments’
sustainable funds, the proceeds of £103.0m being invested
into the equity portfolio.
In the second half of the year the Trust successfully sold the
investments in both private equity fund of funds vehicles,
ATEP 2008 LP and ATEP 2009 LP, in addition to a select
number of private equity holdings which had been held
directly by the Trust.
The sale has significantly reduced the value of the Trust’s
private equity holdings, with only a small residual number
of private equity holdings remaining. As at 31 December 2018,
the value of our non-core private equity investments was
£14.8m representing a material reduction from £81.3m as
at 31 December 2017. The total price paid under the sale
agreement for the assets is at a small discount to their
combined net asset values at the end of December 2017.
The remaining private equity holdings, representing direct
private equity and real estate investments, are all expected
to be wound-down in 2019, and therefore, were not included
in the sale process conducted in 2018.
In 2018, the private equity investments distributed £73.7m
to the Trust through investment realisations and sales
proceeds. The unfunded commitment, which includes
recallable distributions, now stands at £0.3m.
The Trust continues to hold its North American mineral rights
assets, valued at £12.9m as at 31 December 2018. The mineral
rights assets have generated sustainable levels of income
for many years. The Directors began marketing the sale of
these assets during the second half of the year and as at the
year-end an agreement had been entered into to sell more
than half of the holdings with further sales anticipated after
the year end.
Note 22.9 of the Financial Statements (page 89) provides
details of the valuation methodologies applied to non-core
investments and a contribution analysis is shown on page 23.
Alliance Trust PLC | Annual Report and Financial Accounts 2018
27
IIIIVI STRATEGIC REPORTII KEY PERFORMANCE INDICATORS
FOR THE YEAR TO 31 DECEMBER
FAIR VALUE
£32.7m
2018
2017
-13.9%
£32.7m
£38.0m
0
ASSETS UNDER ADMINISTRATION
£14.6bn
-7.6%
2018
2017
£14.6bn
£15.8bn
38
16
0
CUSTOMER ACCOUNTS
107,428
- 5.2%
2018
2017
0
NUMBER OF TRADES
741,400
-1.9%
107,428
113,317
115000
741,400
755,638
760000
2018
2017
0
INCOME
£29.7m
2018
2017
0
10.0%
£29.7m
£27.0m
38
INVESTMENT IN OPERATING SUBSIDIARY COMPANY
(1.3% OF INVESTMENT PORTFOLIO)
ALLIANCE TRUST SAVINGS
Alliance Trust Savings provides a range of investment and savings products
to retail investors. It was set up by the Trust in 1986 to provide the Trust’s
shareholders with a cost effective way to hold and purchase the Trust’s
shares. Over the years the Trust has made considerable investment into
Alliance Trust Savings allowing it to expand and invest in new technology
platforms, all with a view to generating future returns to the Trust.
The Board decided in October 2018 that, due to the level of interest being
expressed in acquiring the business and the Board’s stated aim of simplifying
the Trust, it was an appropriate time to sell this investment. The business will be
sold, subject to regulatory approval, along with the office building it occupies
in Dundee, to Interactive Investor Limited at a total gross consideration of
£40m subject to post completion adjustments. The sale is expected to
complete during 2019.
During the year, Alliance Trust Savings has delivered significant improvement
in its customer service and has achieved profitability. Although customer
account numbers and trades fell during the year the business generated
increased revenue and, together with the benefits of the investments made
last year and a tight control of costs, the business delivered an operating
profit before tax of £1.1m (2017: operating loss of £19.3m).
The fair value of Alliance Trust Savings at the year end was £32.7m reflecting
the agreed sale price for this business after deduction of the anticipated
expenses of the sale. The sale price is subject to post completion adjustments.
Income
Administrative Expenses
Operating Profit/(Loss) before exceptional items
Exceptional Administrative Expenses*
Operating Profit/(Loss) before tax
2018 (£m)
2017 (£m)
29.7
(28.6)
1.1
0.0
1.1
27.0
(33.1)
(6.1)
(13.2)
(19.3)
*Exceptional administrative expenses relate to write down of intangible assets related to Stocktrade.
28
Alliance Trust PLC | Annual Report and Financial Accounts 2018
COST AND PERFORMANCE MEASURES – 2018
The Trust’s Ongoing Charges Ratio (OCR) for 2018 was a competitive 0.65%.
This has been achieved despite many of the Trust’s expenses being fixed
and experiencing a fall in its NAV of 7.0% during the year; had the Trust’s
NAV remained unchanged from 2017 the Trust would have been reporting
an OCR for 2018 of 0.56% against last year’s 0.54%.
The total administrative expenses for 2018 have remained in line with 2017.
Within ongoing costs, investment management fees represent £10.9m
(2017: £10.1m) and ongoing administrative expenses £5.8m (2017: £6.0m).
The increase in investment management costs reflects WTW being in place
for the full year compared to only nine months in 2017 and the fixed element
of its fee increasing in line with the UK Consumer Prices Index from 1 April 2018.
The cost of property is partially offset by income from a tenant occupying
sub-let space and the other non-recurring expenses relate mainly to the
disposal of Alliance Trust Investments and one-off fund accounting costs.
From 1 January 2018 the Board adopted a one quarter revenue and three
quarters capital allocation for management fees, financing costs and other
indirect expenses where consistent with the AIC Statement of Recommended
Practice: Financial Statements of Investment Trust Companies and Venture
Capital Trusts guidelines. The Board believed this was a more appropriate cost
allocation under the current Trust structure and better reflects long-term
returns from the portfolio.
ONGOING CHARGES RATIO (OCR) SUMMARY 2018
ONGOING CHARGES RATIO (%)
0.60
0.59
0.65
0.54
0.43
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
2014
2015
2016
2017
2018
Source: WTW.
2018
2017
Revenue
Capital
Total
Revenue
Capital
Total
£000
Average Net Assets
Total expenses
Investment management fees
Administrative expenses
Ongoing expenses
Strategic review
Indirect disposal costs of ATI
Property
Reorganisation & Other
Non-recurring costs
8,179
2,713
4,780
7,493
0
30
376
280
686
9,215
8,139
979
9,118
0
90
0
7
97
2,555,411
17,394
10,852
5,759
16,611
0
120
376
287
783
Total administrative expenses
5,466
1,076
6,542
OCR ongoing costs
Total Expenses Ratio (TER)
0.65%
0.68%
8,803
3,307
4,201
7,508
732
(195)
613
146
1,295
5,496
8,629
6,786
1,823
8,609
0
0
0
20
20
1,843
2,991,850
17,432
10,093
6,024
16,117
732
(195)
613
166
1,315
7,339
0.54%
0.58%
29
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIIIVI STRATEGIC REPORTII DIVIDENDS
Alliance Trust has increased its ordinary dividend for 52 years and is one of
only a few companies in the FTSE All-Share Index with such a track record.
52 YEAR SHAREHOLDER RETURNS
18000
15000
8
6
9
1
y
r
a
u
n
a
J
1
3
12000
t
a
0
0
1
o
t
d
e
s
a
b
e
r
n
r
u
t
e
R
9000
6000
3000
0
20
15
10
5
0
)
p
(
e
r
a
h
S
r
e
p
d
n
e
d
i
v
i
D
1968
1973
1978
1983
1988
1993
1998
2003
2008
2013
2018
Total Return
Capital Return
Dividend per Share (p)
Source: WTW and Alliance Trust.
DIVIDEND POLICY
The Board will look to increase the level of ordinary dividend paid each year
by way of a smooth annual increase. Should there be a year when income
is unexpectedly high some of that income may be retained in the revenue
reserves or a special dividend may be declared. The Board will look to use the
income from investments to satisfy the progressive dividend, but may also,
when this income is insufficient, use part of the Trust’s revenue reserves.
DIVIDEND DECLARATION
The ordinary dividend for 2018 will rise
by 3% to 13.55p. A fourth interim dividend
of 3.389p will be paid on 1 April 2019 to
shareholders who are on the Trust’s share
register on 15 March 2019.
DIVIDEND CALENDAR
Barring unforeseen circumstances there will
be four dividends paid for our 2019 financial
year as follows:
1st Interim
Dividend will be paid on 1 July 2019 to
shareholders who are on the Trust’s share
register on 7 June 2019.
2nd Interim
Dividend will be paid on 30 September 2019
to shareholders who are on the Trust’s share
register on 6 September 2019.
3rd Interim
Dividend will be paid on 31 December 2019
to shareholders who are on the Trust’s share
register on 6 December 2019.
4th Interim
Dividend will be paid on 31 March 2020.
The Board will continue to pay four quarterly interim dividends and will not
have a final dividend declaration for the year. This allows shareholders certainty
of the dates on which they will receive their income.
DIVIDEND SPLIT - 2018
REVENUE RESERVES
The total cost of the four interim dividends paid in the year ending 31 December
2018 was £45.6m compared to income generated during the year of £41.4m.
This means that £4.2m was paid from the Trust’s revenue reserves to support
the 2018 dividend payment.
After allowing for the cost of the dividends for the 2018 financial year the Trust’s
revenue reserves stand at £107.7m indicating that we retain 25 years dividend
cover assuming an unchanged level of income from our portfolio.
Income £41.3m
Revenue Reserves £4.2m
Source: WTW.
30
Alliance Trust PLC | Annual Report and Financial Accounts 2018
SHARE BUYBACKS AND DISCOUNT
The discount continued to be relatively stable through the year, trading in a
range of 3% to 8%. The discount was 4.0% at the start of the period and 4.9%
at the end of the year, despite a notable reduction in the number of shares
bought back, and against the background of an increasingly volatile market.
The average discount was 6.0% compared to the Investment Trust Global
Sector average of 2.0%.
Buyback volumes for February and March were dominated by two large
institutional sell orders. Following a three-month period to the end of July
2018, which saw very little buyback activity, the second half of the year,
and the fourth quarter in particular, was characterised by heightened market
volatility. The Board bought back 1.9% of shares during the second half of 2018,
supporting the discount in a narrow range against this backdrop.
Since mid-December, a more stable supply/demand pattern developed and
buybacks were undertaken only occasionally. Shareholders may have noticed
a sharp narrowing then widening of discounts across the investment trust
sector in late December, which saw the Trust’s discount almost touch 3%.
This was caused by short but significant falls then rallies in the markets, which
were not immediately mirrored by movements in the Trust’s share price.
While the relative stability of our discount over much of the year is encouraging,
the Board continues to monitor the situation and will take advantage of any
significant widening of the discount to buy back shares and produce Net Asset
Value accretion for shareholders. The weighted average discount of the shares
bought back during 2018 was 5.5%.
All of the 14.0m shares bought back have been cancelled. The number of shares
bought back in 2018 was the lowest since 2014. The chart below shows our
discount during 2018 and the level of our buyback activity over the year.
SHARE BUYBACKS AND DISCOUNT
Discount (%)
Shares(m)
-5.0
-5.5
-6.0
-6.5
-7.0
4
3
2
1
0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Average discount
Share buyback
Source: WTW and Morningstar.
31
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIIIVI STRATEGIC REPORTII RISK MANAGEMENT
INTRODUCTION
The Audit and Risk Committee comprises all of the Non-Executive Directors other
than the Chairman, with delegated responsibility from the Board to provide oversight
and challenge to the appropriateness of the actions being taken to mitigate the
risks impacting on the Trust. Alliance Trust Savings operates its own risk framework
independently of the Trust but does report to the Trust’s Audit and Risk Committee
and Board in respect of risks within that business which may impact on the Trust.
The Committee receives and considers regular reports from its Executive
function, WTW and representatives from Alliance Trust Savings.
The strategic objectives of the Trust are to have a clear investment mandate
to improve investment performance, continuation of its policy of paying
a progressive dividend, managing the discount, providing good value and
continuing to simplify the Trust’s structure.
The Board agrees a series of Risk Appetite statements which set out the level
of risk that the Board is prepared to accept to achieve its strategy and monitors
against a suite of measures whether these are achieved and, where it considers
it appropriate to do so, takes action to bring the risk back to a tolerable limit.
Each one of our suite of measures has both
a limit and an early warning indicator (EWI).
The limit is aligned to our risk appetite and
should not be breached. The EWI that is set
for each measure is designed to alert the
Committee should there be an increased
risk of breaching a limit. At the end of
the year we had one measure which had
breached its EWI but no limit breaches.
PRINCIPAL RISKS
We set out below the principal risks impacting on the Trust and its ability to meet its strategic objectives, as well as mitigating
actions, and show any change in the year. The principal risks remained unchanged at the year end from those reported in last
year’s Annual Report.
Risks
Description
Mitigating actions
Market and Prudential - Static
Investment Risk
Unchanged in the year under review
Investment performance fails to
deliver sufficient capital growth.
Credit and Counterparty Risk
Unchanged in the year under review
Financial and Prudential Reporting
Unchanged in the year under review
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 Trust/
Group.
Level of capital held to cover the Group
risks is not sufficient. The Trust is a bank
holding company (Alliance Trust Savings
has a banking licence and is regulated
by the Prudential Regulation Authority
(PRA)) and therefore requires to hold a
minimum amount of regulatory capital.
32
The Investment strategy and the
performance of the underlying managers
are regularly reviewed. The process to sell
most of the private equity investment
has been completed and the sale of the
mineral rights is being progressed, with
the completion of the sale of Alliance
Trust Savings additional funds will be
released for equity investment.
The Trust contracts only with
creditworthy counterparties. Its main
transactions relating to investments
are carried out with well-established
brokers on a cash against receipt or
cash against delivery basis.
The Board regularly reviews its capital
structure and gearing may not exceed
30% of the net assets of the Trust.
Stress and scenario testing is carried
out on the portfolio and reported
to the Committee by WTW. A risk
assessment is undertaken as part of
the consolidated Group Internal Capital
Adequacy Assessment Process (ICAAP)
that is carried out at least annually.
Alliance Trust PLC | Annual Report and Financial Accounts 2018 Risks
Description
Mitigating actions
Market and Prudential - Static (continued)
Liquidity Risk
Reduced in the year under review
The Trust does not have sufficient liquid
resources to ensure that it can meet
its liabilities as they fall due and the
movement in the fair value of the assets
of the Trust is amplified by any gearing
that the Trust may have.
Operational - Decreasing
Cyber-attack
Unchanged in the year under review
Failure to ensure that business is
adequately protected against the
threat of cyber-attack, which may lead
to significant business disruption or
external fraud.
Outsourcing
Reduced in the year under review
Loss arising from inadequate or failed
processes, people and/or systems of
outsourced functions.
Corporate Governance - Static
Corporate Governance
Unchanged in the year under review
The risk of not meeting and being in
compliance with legal and regulatory
responsibilities.
The level of equity investment has
increased to 97.4% at 31 December
2018 from 90.7% at the end of 2017
partly due to the sale of private equity
and other non-core investments.
Agreement has been reached to
sell Alliance Trust Savings subject
to regulatory approval. Equities
are more liquid than the non-core
investments. A liquidity assessment is
undertaken as part of the consolidated
Group Individual Liquidity Adequacy
Assessment Process (ILAAP) that is
carried out at least annually.
The Trust benefits from the level of IT
security put in place by its IT service
provider, Alliance Trust Savings. This
includes having in place security
designed to protect systems from
cyber-attack and a programme of
training for staff on privacy related risks
and data security. Business continuity
plans are in place should a cyber-attack
occur. A replacement IT service provider
has been identified to service the needs
of the Trust once the sale of Alliance
Trust Savings has been completed.
WTW monitors and reports on the
performance of outsourced providers
to the Board which also receives
control reports from certain service
providers. WTW itself is monitored by
the Board and the Executive function,
and NatWest who also monitors the
custodian. The outsourced providers,
having been in place for over a
year, have greater experience and
understanding of the Trust.
The Board conducts an annual internal
review on it and its Committees’
effectiveness. An external review is
carried out at least every three years
and the last such review was in
December 2018.
33
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIIIVI STRATEGIC REPORTII RISK MANAGEMENT
CONTINUED
Risks
Description
Mitigating actions
Investment Trust Status - Static
Investment Trust status
Unchanged in the year under review
Strategy - Static
Performance impacted by
external factors
Unchanged in the year under review
The risk of not complying with Sections
1158-59 of the Corporation Tax Act and
losing Investment Trust status.
WTW reviews and monitors the Trust’s
Investment Trust status and reports on
this regularly to the Board.
Stock market action involving the
Trust results in uncertainty around
the business model and impacts on
performance (current and future).
The Trust now has a stable shareholder
base and continues to take action
through its share buyback programme
to support the management of the
discount at which the Trust’s shares
trade. A Communications and Marketing
Manager has been appointed which has
increased the level of engagement with
shareholders.
Reputational - Static
Reputational
Unchanged in the year under review
Damage to the Trust’s reputation that
could lead to negative publicity and
adverse impact on financial performance.
Due diligence process is in place for
selecting third party providers. These
providers are regularly monitored by the
Audit and Risk Committee or Board.
Environmental, social and governance (ESG) factors and technological change - New
Environmental, social and governance
(ESG) factors and technological change.
Failure to consider the impact of ESG
and technological factors adversely
affecting the Trust’s reputation and
financial performance.
Regulatory non-compliance - Decreasing
Regulatory non-compliance
Reduced in the year under review
Failure to ensure that systems and controls
are adequate to allow compliance with
all relevant regulatory requirements.
WTW’s approach to ESG and
technological change is fully embedded
within WTW’s overall assessment of
managers. It considers each manager’s
stewardship credentials, and integration
of ESG and technological factors into
the portfolio management process.
The Board receives updates from
WTW and the Executive function on
regulatory developments and changes.
The outsourced arrangements have
been in place since April 2017 and the
providers have a better understanding
of the activities of the Trust and its
regulatory obligations.
34
Alliance Trust PLC | Annual Report and Financial Accounts 2018 CORPORATE RESPONSIBILITY
As an investment trust the Board believes that it should
maintain an open dialogue with shareholders. During the
year Directors met with the Trust’s 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 consider the interests of all
of its shareholders regardless of the size of their holdings.
Having previously taken a decision to discontinue the Trust’s
support of the Alliance Trust Cateran Yomp, the Alliance
Trust Foundation charity has now resolved to dissolve and
any future support for charities will be considered by the
Board. The Alliance Trust Foundation was formed in 2014
and since then it supported the communities in which
our offices are (or were) located. In total, just under £0.3m
has been distributed to over 100 charities. The Trust also
supports the V&A Museum of Design, Dundee which opened
in September 2018.
The Board believes that a diverse workforce will create
the environment to allow our business to thrive and grow.
We look for an inclusive environment where people can
develop and contribute fully. The Trust’s 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 table below provides the gender split of the Board of the
Trust as at 31 December 2018. The Trust has six employees
of whom two are part time.
As at 31 December 2018
Male
Female
Board
Senior Managers
Other Staff
Total Workforce (including Directors)
5
2
0
7
1
1
3
5
The Board also recognises its responsibilities to its former
employees and this year completed the winding up of the
Trust’s final salary pension scheme, which closed to new
members in 2005. All of the members’ benefits are now fully
secured by annuities in their own name.
RESPONSIBLE INVESTMENT
The Trust is a supporter of the UK’s Stewardship Code and
considers this an integral part of the investment activity
carried out by its investment manager, WTW. The Board has
delegated stewardship activities to WTW. Further details can
be found on page 36.
MODERN SLAVERY
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.
A statement from WTW, the Trust’s investment manager
on the steps it takes to investigate and mitigate the risk
of modern slavery and human trafficking can be found on
WTW’s website www.willistowerswatson.com
ENVIRONMENTAL IMPACT
As an investment trust with a small number of employees,
the Trust’s environmental impact is limited. With the
simplification of the Trust’s business, the Board intend to
consider how the Trust’s environmental impact can be
reduced including looking at more efficient ways of working.
On page 58, we report on our carbon footprint.
ANTI-BRIBERY AND CORRUPTION
The Trust takes anti-bribery measures very seriously and
conducts its business honestly, fairly and with transparency.
The Trust is committed to implementing and enforcing
effective measures to counter bribery and corruption
and has a zero tolerance approach to acts of bribery and
corruption by Directors, employees or anyone acting on the
Trust’s behalf.
FINANCIAL CRIME
The possibility of financial crime is taken seriously by the
Board and it has a zero tolerance for any such activity
including tax evasion and the facilitation of tax evasion.
PAYMENT PRACTICES REPORTING
The Trust complies with its obligations under the Reporting
on Payment Practices and Performance Regulations.
INVESTMENT ASSOCIATION PUBLIC REGISTER
The Investment Association maintains a public register
of companies who have received significant shareholder
opposition to proposed resolutions. There were no votes cast
at our AGM on 26 April 2018 that received significant opposition.
35
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIIIVI STRATEGIC REPORTII CORPORATE RESPONSIBILITY
CONTINUED
STEWARDSHIP CODE
The Financial Reporting Council (FRC) first published
“the UK Stewardship Code” for Institutional shareholders
on 2 July 2010 and updated it in 2012. The purpose of the UK
Stewardship Code is to enhance the quality of engagement
between institutional investors and companies to help improve
long-term returns to shareholders and the efficient exercise
of governance responsibilities.
The Trust is a supporter of the UK Stewardship Code, and
considers this an integral part of the investment activity
which is carried out for us by our investment manager, WTW.
WTW also recognises and supports the FRC’s UK Stewardship
Code as best practice. The FRC has awarded WTW with Tier 1
status on the quality and transparency of the WTW stewardship
approach. A copy of WTW’s UK Stewardship Code statement
can be found on its website www.willistowerswatson.com.
WTW recognises that it has significant interaction across the
industry with investment managers and asset owners with
attendant ability and responsibility to encourage and improve
processes in respect of stewardship. WTW has delegated
voting powers to the Trust’s stock pickers in respect of the
stocks in the Trust’s portfolio that they manage, but remains
responsible for the oversight of the way each stock picker
votes and their engagement activity.
Each stock picker is expected to assess investee companies
on issues including: a company’s corporate strategy, financial
performance, capital structure, leadership, corporate
governance and risk management, including risk arising from
environmental and social matters. Where engagement does
not form part of a particular stock picker’s process, WTW
looks for a clear explanation and alternative mechanisms to
manage the risk to investors.
Furthermore, the stock pickers are expected to promote
generally accepted standards of good governance by exercising
their investor rights and by engaging with companies where
appropriate (and in accordance with their own investment
philosophies), on issues of governance and shareholder value
and in the long-term interest of the Trust’s shareholders.
WTW monitors the policies of the stock pickers in respect
of their compliance with the UK Stewardship Code.
In our Investment Manager’s Report (on page 13) WTW
discloses how the stock pickers have, overall, voted in
respect of the stocks they have invested in for the Trust.
RESPONSIBLE OWNERSHIP
When our stock pickers make investments for our portfolio,
the primary objective is to achieve the best investment
return while allowing for an acceptable degree of risk. In
pursuing this objective, various factors that may impact on
the performance are considered by our stock pickers.
WTW, as our investment manager, believes that environmental,
social and governance (ESG) factors can have a material
influence on investment risk and returns. Where ESG factors
may influence investment risk and return, WTW expects each
manager it has appointed to have a demonstrable process
in place that identifies and assesses material ESG factors
in so far as these relate to its investment strategy. WTW is
a signatory to the United Nations Principles for Responsible
Investment as are more than half of the stock pickers.
The Strategic Report (including the inside cover and pages 1 to 36 of this document and the viability statement on page 51) has
been approved by the Board and signed on its behalf by
Lord Smith of Kelvin
Chairman
36
Alliance Trust PLC | Annual Report and Financial Accounts 2018
I
II DIRECTORS’ REPORT
III
IV
DIRECTORS’ REPORT
Darling Harbour, Sydney, Australia
Alliance Trust PLC | Annual Report and Financial Accounts 2018
37
BOARD OF DIRECTORS
Lord Smith
Chairman
Lord Smith joined the Board in
2016. He was 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.
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 Stewart
Deputy Chairman and Non-Executive Director
Karl Sternberg
Senior Independent Director
Chair of Audit and Risk Committee and
member of Remuneration Committee
Member of Audit and Risk Committee
and of Remuneration Committee
Karl has been a member of the Board
since 2015.
Karl 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.
Gregor is the Trust’s designated financial
expert on the Audit and Risk Committee
and is the Director responsible for
engagement with the Trust’s employees.
Gregor joined the Board in 2014 and
chairs Alliance Trust’s Audit and Risk
Committee. He is also a Non-Executive
Director of Alliance Trust Savings Limited.
Gregor was Finance Director for the
insurance division of Lloyds Banking
Group, including Scottish Widows, and a
member of the Group’s Finance Board.
He brings over 20 years’ experience at
Ernst & Young, with ten years as a partner
in the firm’s Financial Services practice.
Current Appointments
Current Appointments
Current Appointments
Direct Line Insurance Group plc
Non-Executive Director
Jupiter Fund Management PLC
Non-Executive Director
Intrinsic Financial Services
Chairman
FNZ (UK) Limited and
its holding company
Non-Executive Director
JPMorgan Elect PLC
Non-Executive Director
Monks Investment Trust PLC
Non-Executive Director
Lowland Investment Company PLC
Non-Executive Director
Herald Investment Trust PLC
Non-Executive Director
Clipstone Logistics REIT PLC
Non-Executive Director
Railpen Investments
Non-Executive Director
IMI PLC
Chairman
British Business Bank plc
Chairman
Forth Ports Limited
Chairman
38
Alliance Trust PLC | Annual Report and Financial Accounts 2018
Anthony Brooke
Non-Executive Director
Clare Dobie
Non-Executive Director
Chris Samuel
Non-Executive Director
Chair of Remuneration Committee and
member of Audit and Risk Committee
Member of Audit and Risk Committee
and of Remuneration Committee
Member of Audit and Risk Committee
and of Remuneration Committee
Anthony joined the Board in 2015 and
chairs Alliance Trust’s Remuneration
Committee.
Anthony was 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.
Chris joined the Board in 2015.
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 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.
Current Appointments
Current Appointments
Current Appointments
Quintessentially UK
Non-Executive Director
Investment Committee of
the National Portrait Gallery
Member
Investment Committee of
Christ’s College, Cambridge
Member
Various Endowments
Adviser
Aberdeen New Thai
Investment Trust PLC
Senior Independent Non-Executive
Director
BMO Capital and Income
Investment Trust PLC
Non-Executive Director
Schroder UK Mid Cap Fund PLC
Non-Executive Director
Defaqto
Chairman
Sarasin and Partners LLP
Non-Executive Director
BlackRock Throgmorton Trust PLC
Chairman
JPMorgan Japanese Investment
Trust PLC
Chairman
UIL Limited
Non-Executive Director
Listed operating companies and their subsidiaries
Unlisted operating companies and their subsidiaries
Investment companies
Other
39
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIVII DIRECTORS’ REPORTIII
BOARD OF DIRECTORS
CONTINUED
BOARD AND COMMITTEE ATTENDANCES
The Board scheduled four Board, three Audit and Risk Committee and two Remuneration Committee meetings in 2018. These were
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
Actual
Possible
Actual
Possible
Actual
Possible
4
4
4
4
4
4
4
4
4
4
4
4
-
3
3
3
3
3
-
3
3
3
3
3
-
2
2
2
2
2
-
2
2
2
2
2
In addition to the above scheduled meetings, the Board met on four other occasions either in person or by telephone during the
year and there was one additional Audit and Risk Committee meeting held. A number of ad hoc committees were established
to deal with specific activities during the year which involved some or all of the Directors.
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 are currently required in preparing their long list to include female candidates of at least 33% of the number submitted for
consideration. Over time the Board intends to achieve at least 33% female representation on the Board.
As part of its Board and Committee evaluation (reported on in more detail on page 41) the Board and Board Committees diversity
was considered. The Board concluded that the current Directors had the appropriate and necessary level of skills and experience
to manage the Trust in its current structure and that it would not be appropriate to remove and replace any of the current Board
members nor to incur increased expense to appoint additional directors purely to meet its gender diversity target. The longest
serving Director was appointed in December 2014 with the remainder being appointed between June 2015 and May 2016.
DIRECTORS’ SKILLS
We set out in the table below the mix of key skills and experience that the Board recognises it must possess to manage and
govern effectively. 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
Anthony Brooke
Clare Dobie
Chris Samuel
Karl Sternberg
Gregor Stewart
40
Alliance Trust PLC | Annual Report and Financial Accounts 2018 BOARD EVALUATION
2017 EVALUATION
2018 EVALUATION
The 2017 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.
A number of areas were identified for potential improvement
during 2018. These were:
• addressing Alliance Trust Savings’ performance
• focusing on marketing and investment performance
• developing the relationship with WTW
• discount management
The evaluation also identified the sale of the Trust’s private
equity investments as a priority.
Lintstock has again carried out the Board and Committee
evaluation but this year the evaluation was completed by
way of both questionnaires and interviews with Directors.
The Board was seen to have performed very well during a
demanding period of transformation. The Board noted the
work that had been carried out in addressing the points raised
at the last evaluation including the improvement in Alliance
Trust Savings’ performance, the recruitment of a marketing
and communications manager, ongoing communications with
WTW, management of the discount and the sale of most of
the Trust’s private equity investments.
A key focus identified for 2019 is the adjustment of the
Trust’s activities to reflect the simplification of its business.
A number of additional priorities were also identified for 2019.
These were:
• Reviewing the operating model for non-investment services
• Improving marketing arrangements
• Maintaining a strong understanding of shareholder needs
In light of the simplification of the Company’s investment
portfolio and operational experience since WTW was appointed,
the Board is reviewing the way the non-investment services
it receives are undertaken and how the delivery of these
services needs to develop to reflect the simpler Trust.
A third party adviser has been engaged to assist with this
review. The conclusion of this work will impact the way that
the Trust and the Board will evolve. In terms of marketing
arrangements, the Board has initiated a qualitative research
project on the way the Trust communicates its investment
approach. The output of this work will be reflected in the
Trust’s distribution plan for 2019.
Manager Review
The Board regularly reviews the performance of WTW.
However, this year we decided to also include WTW in
our formal external year end evaluation process.
In terms of the top priorities for WTW for 2019, the following
matters were identified: reviewing the Trust’s operating
model and ways to develop the non-investment services
WTW provides; focusing on delivering strong investment
performance in order to meet the outperformance target
and deliver the Trust’s progressive dividend; communicating
the differentiating factors in the Trust’s approach; and, ensuring
the investment management team are proactive in engaging
with investors.
41
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIVII DIRECTORS’ REPORTIII CORPORATE GOVERNANCE
We report here on how the Board runs your Trust.
In addition to the investment management and operational arrangements of the Trust, the Board and the Audit and Risk
Committee also have oversight of the performance of the operating subsidiary Alliance Trust Savings.
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 45 to 49 the checks
and controls that we have in place and on pages 56 to 58 the disclosures required under Rule 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.
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.
2. A majority of the Board should be
independent of the manager.
As at 31 December 2018 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 investment manager and of the underlying
stock pickers. WTW has appointed Jupiter Asset Management as one of
the underlying stock pickers. Karl Sternberg is a director of Jupiter Fund
Management PLC. However, the engagement and removal of the stock pickers
is discretionary on the part of WTW and the Board considers that this does
not impact on Karl Sternberg’s independence.
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. When coming to this conclusion, the Board considered
the nature and scope of the Directors’ appointments e.g. the complexity of
the business concerns and the appointment.
4. The Board should have a policy on tenure,
which is disclosed in the annual report.
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 AGM 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.
5. There should be full disclosure of
information about the Board.
Details of the Directors are set out on pages 38 and 39. The Directors have
a broad range of investment, professional and commercial expertise and
experience, gained overseas as well as in the United Kingdom.
42
Alliance Trust PLC | Annual Report and Financial Accounts 2018 Principle
6. The Board should aim to have a balance
of skills, experience, length of service and
knowledge of the Company.
7. The Board should undertake a formal
and rigorous annual evaluation of its own
performance and that of its committees
and individual directors.
8. Director remuneration should reflect their
duties, responsibilities and the value of their
time spent.
The Board considers that it has achieved this aim. Brief biographical details
of each Director are set out on pages 38 and 39 and the Board’s policy on
diversity can be found on page 40. The longest serving Director was appointed in
December 2014 with the other Directors having been appointed between June
2015 and May 2016. The Board will take this into consideration in its succession
planning and when taking steps to address the gender balance on the Board.
The external review of the Board and its Committees’ effectiveness is
reported on in more detail on page 41.
The Directors’ Remuneration Report on pages 52 to 55 details the process
for determining the Directors’ remuneration and sets out the amounts
payable. After the year end the Remuneration Committee agreed to reduce
the fees paid to the Chairman, Deputy Chairman, Senior Independent
Director and Chairman of the Remuneration Committee reflecting the
ongoing simplification of the Trust.
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, which is wholly independent, oversees any recruitment process
and this will normally include the use of a firm of recruitment consultants. All
of the Directors will have the opportunity to input into the process. The Senior
Independent Director will 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.
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 portfolio, 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
representatives from WTW 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,
WTW, the managers and other service providers. Gregor Stewart has been
appointed the Director responsible for engaging with the Executive function
on behalf of the Board.
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.
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.
14. Boards should give sufficient attention to
overall strategy.
The Board undertook a significant review of the Trust’s operations and strategy
in 2016 and implemented major changes in 2017 and 2018. The Board agreed
the sale, subject to regulatory approval, of Alliance Trust Savings and sold a
number of its remaining non-core investments in 2018. The Board continues
to keep its strategy under review and, where appropriate, will make changes
where this serves to simplify the operation of the Trust or reduce cost without
impacting on investment performance or the focus on global equities.
43
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIVII DIRECTORS’ REPORTIII CORPORATE GOVERNANCE
CONTINUED
Principle
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. In 2018, the externally facilitated Board evaluation process
also included a review of WTW. 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.
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.
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 managers may make their investments as set
out on page 9.
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 supports the Board in their monitoring and
evaluation of 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 WTW together with internal
control assurance reports from material suppliers including WTW.
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 AGM as a forum for communication
with individual shareholders and this year also held investor forums to
supplement the information and videos available on the Trust’s website
www.alliancetrust.co.uk
The Directors may be contacted through the Company Secretary at the
address shown on page 99.
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.
The Board has a process under which all material corporate communications
and significant changes to the Trust’s 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.
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 seeks to communicate effectively with its shareholders.
The Annual Report and Accounts, Interim Report, quarterly newsletters
and monthly factsheets are issued to all shareholders who request a copy.
The Investor Disclosure Document is also available on our website
www.alliancetrust.co.uk
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 AGM and to be treated, so far
as possible, as shareholders in their own name. It has been agreed
that Interactive Investor will continue to facilitate the attendance
and voting of Trust’s shareholders after the completion of the sale
of Alliance Trust Savings.
All this information is readily accessible on the Trust’s website.
44
Alliance Trust PLC | Annual Report and Financial Accounts 2018 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 2018
Risk Appetite
The Committee considered and updated its risk appetite and this is reported on in more detail on
pages 32 to 34.
Investment Risk
The Committee reviewed the level of risk being run by the investment manager including breakdowns
by region, industry and style. It also considered the level of active risk being adopted across the portfolio
and the source of that risk. The impact on the risk performance of the individual stock pickers was
considered as well as the risk performance of the portfolio as a whole.
Regulatory
Compliance
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. The Committee also reviewed the steps taken to ensure
compliance with the General Data Protection Regulation and the impact of MiFID II on the Trust, WTW
and its managers.
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.
Audit Tender
As reported in last year’s Annual Report, a decision had been taken to conduct a tender for the role
of External Auditor with a view to a recommendation being made to the AGM to be held in April 2019.
Due to the scope of future audit work being uncertain, due to the sale of Alliance Trust Savings, it was
agreed that the audit tender would be deferred and that any recommendation to shareholders for
appointment would be made to the AGM in 2020 in respect of the financial year ending 31 December
2020. The current external auditors, Deloitte, would be invited to participate and it is intended that the
tender process will include firms outwith the ‘Big 4’ accountancy practices.
Valuation
of Unlisted
Investments
The valuation methodology used to value the investments in the subsidiaries, mineral rights and
private equity investments can be found in Note 22.9 on pages 89 to 91. Alliance Trust Savings and
the Trust’s office building at 8 West Marketgait, Dundee were valued by the Directors at the prices
which had been agreed with Interactive Investor adjusted for transaction costs and an assessment of
indemnity provisions.
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.
45
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIVII DIRECTORS’ REPORTIII AUDIT AND RISK COMMITTEE
CONTINUED
Areas of focus in 2018
(continued)
Outsourcing
The Committee considered at each meeting papers setting out how financial controls and risk were
managed by WTW and the other outsourced providers.
Brexit
The Committee considered reports from WTW on the impact of the UK leaving the EU on the Trust,
WTW and the managers. This included considering a contingency plan in the event that the Trust is
not able to retain the services of its Irish Alternative Investment Fund Manager (AIFM) following Brexit.
Towers Watson Investment Management (Ireland) Limited (TWIMI) has approval from the Financial
Conduct Authority (FCA) to continue to act as the AIFM for the Trust under FCA’s Temporary Permissions
Regime (TPR). We are also in discussion with Towers Watson Investment Management Limited (TWIM),
the Trust’s Investment Manager with a view to TWIM becoming the AIFM for the Trust before the TPR
comes to an end. TWIM has confirmed that it has submitted an application to the FCA to vary its
permissions to enable it to act as AIFM. TWIM is expecting a decision from the FCA in March.
During 2018, the Audit and Risk Committee
challenged the risk appetite postures
and internal controls put in place by the
Trust and its various service providers.
This 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 2) on
Internal Controls prepared by KPMG LLP.
The Committee also received reports from
WTW in relation to administration services
provided by WTW and by its delegate,
the Administrator.
INTERNAL CONTROLS
The Board has an ongoing process for the identification, evaluation and
management of the significant risks faced by the Group. 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 they
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 receives regular reports from the Chief Risk 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 Board
separately receives regular reports from the Chief Executive Officer of Alliance
Trust Savings. The performance of the Committee was considered as part of
the Board evaluation which is reported on page 41.
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.
46
Alliance Trust PLC | Annual Report and Financial Accounts 2018 INTERNAL CONTROLS GOVERNANCE
The Chairman of the Committee is the Trust’s designated
financial expert on the Committee.
by stress-testing analysis on the Trust’s risk parameters and
portfolio reporting.
The Trust appointed WTW on 1 April 2017 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 managers
and reports to the Audit and Risk Committee on a quarterly
basis on a ‘Risk Profile Snapshot’ of the portfolio supported
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. The
Chief Executive Officer of Alliance Trust Savings also reports to
the Board on a quarterly basis.
Depositary
Agreement
Alliance Trust PLC
AIFM Agreement
Manager
Towers Watson Investment Management
(Ireland) Limited
Discretionary IMA
s
A
M
I
-
b
u
S
Investment Manager
Towers Watson Investment Management Limited
Administration
Agreement
Depositary
NatWest Trustee &
Depositary Services Limited
Custodian
The Bank of New York
Mellon, London branch
Administrator
The Bank of New York
Mellon (International) Ltd
Alliance Trust Portfolio
Managers
Black Creek, FPA, GQG, Jupiter, Lyrical, River and
Mercantile, Sustainable Growth Advisers, Veritas
Assets
47
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIVII DIRECTORS’ REPORTIII AUDIT AND RISK COMMITTEE
CONTINUED
DEPOSITARY
Until 29 October 2018, the Trust had appointed National
Westminster Bank plc as its Depositary. With effect from
29 October 2018, NatWest Trustee & Depositary Services
Limited replaced the National Westminster Bank plc as
the Trust’s Depositary. 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.
The change in Depositary made during the year resulted from
changes being made within the Royal Bank of Scotland plc
group as a result of ‘ring-fencing’ legislation, which required
UK banks to separate banking services from investment
banking from 1 January 2019. The Custodian appointed by the
Depositary also changed with effect from 29 October 2018
from The Bank of New York Mellon, SA/NV, London branch to
The Bank of New York Mellon, London branch. This change
was made as a result of a global re-organisation within the
Custodian’s group.
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 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
Trust operates is complex and constantly evolving. The Board
supports 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 2018 assessment and internal controls assurance reports
did not highlight any significant weaknesses or failings in the
risk management framework and internal control systems.
48
INTERNAL CONTROLS OVER FINANCIAL REPORTING
One of the risks to the Group is Financial and Prudential
Reporting – the risk of misstatement of the accounts or 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
the Executive function. Controls over the preparation of the
financial statements 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 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. 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.
INDEPENDENCE OF AUDITOR
The Committee’s policy is to allow the audit firm to be
instructed to undertake non-audit work only where there
is no threat to independence. Any assignment must be
approved on behalf of the Committee by its Chairman.
In 2018 the only non-audit work carried out by the Auditor
was in relation to the Interim Report for which a fee of
£5,445 was paid.
Alliance Trust PLC | Annual Report and Financial Accounts 2018 Each year the Committee considers the independence
of the Auditor. It has done so this year and confirms the
Auditor’s independence.
During the year the Committee had a private meeting with
the Auditor.
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 2017,
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.
APPOINTMENT OF AUDITOR
Following a tender, Deloitte LLP was appointed after approval
of the members at the 2011 AGM. Deloitte LLP has been
reappointed at subsequent AGMs and is proposed for
reappointment at our AGM in April 2019. The recommendation
to reappoint Deloitte LLP is not automatic and this year is
as a result of the deferral of the audit tender approach.
In our Annual Report last year we indicated that we would be
undertaking an audit tender with approval for the appointment
of the preferred firm being sought from shareholders at the
AGM to be held in 2019. As the Board took a decision to sell
Alliance Trust Savings part of the way through the year the
Board agreed to halt the process and defer consideration for a
further 12 months. In taking this decision the Board considered
that the role of External Auditor would change significantly
not just through the sale of Alliance Trust Savings, although
that was the main factor, but through the other actions being
taken to further simplify the Trust and dispose of its non-core
unlisted assets. The intention is that a recommendation will
be made to the shareholders at the AGM to be convened in
2020 for the audit of the financial year ending 31 December
2020. It is intended that audit firms outside the ‘Big 4’ audit
firms will be invited to participate in the process.
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. The current audit partner is
Andrew Partridge who has been our audit partner since April 2016.
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 2018.
DISCLOSURE OF INFORMATION TO AUDITOR
The Directors who held office at the date of approval of this
Directors’ Report confirm that, so far as they are each aware,
there is no relevant audit information of which the Auditor is
unaware; and each Director has taken all steps they ought to
have taken as a Director to make themselves aware of any
relevant audit information and to establish that the Auditor is
aware of that information.
DIRECTORS’ RESPONSIBILITIES STATEMENT
The Directors are responsible for preparing the financial
statements in accordance with applicable law and
regulations. Company law requires the Directors to prepare
financial statements for each financial period. By law,
the Directors are required to prepare the group financial
statements in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European
Union (EU) and Article 4 of the IAS Regulation and have
elected to prepare the parent company financial statements
under IFRSs as adopted by the EU.
The financial statements are required by law and IFRSs as
adopted by the EU to present fairly the financial position
of the 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.
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.
49
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIVII DIRECTORS’ REPORTIII GOING CONCERN STATEMENT
The Trust’s business activities are set out on page 1 and
pages 6 to 8 with the principal risks which could impact
on performance set out on pages 32 to 34. The financial
statements are set out on pages 65 to 92 along with an
analysis of its borrowings in Note 14 on page 82. 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 the Trust’s ability to liquidate
assets or access new sources of short-term funds in the
time needed to meet its 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 2018 the Trust also had £133m of
unused committed funding lines. The Trust’s total borrowing
facility at the year end was £360m, of which £227m was
drawn down; comprising £67m variable short term loan,
£100m of long-term loan notes issued in July 2014 and
£60m of long-term loan notes issued in November 2018.
Solvency is concerned with the Trust’s ability to meet its
liabilities in full. This involves managing the Trust’s capital by
maintaining a business model which is capable of delivering
over time a continuing economic return to shareholders whilst
absorbing the impact of any risks which crystallise. As at
31 December 2018 the Trust’s total net assets were £2.4bn
with net gearing of 6.9% and gross gearing of 10.2%. The level
of borrowing is comfortably below the investment policy
gearing restriction of 30% of net assets at any given time.
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 Board’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 85 to 89.
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.
50
Alliance Trust PLC | Annual Report and Financial Accounts 2018 VIABILITY STATEMENT
The Board has assessed the prospects and viability of the
Trust over a longer period than the 12 months required by
the foregoing Going Concern statement. This assessment
has taken into account the current position of the Trust and
its prospects, strategy and planning process as well as its
principal risks, both current and medium and long term, as
set out on pages 32 to 34.
The Board’s strategy provides long-term direction and is
reviewed on, at least, an annual basis, including five-year
forecasts showing expected financial performance. The
resilience of the agreed 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 the Trust’s banking covenants which are
borrowings not to exceed 30% of net tangible assets and
tangible net asset value of not 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. 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.
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 risk management framework and controls have various
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 Brexit regardless of the final direction that it takes.
• The Trust is structured for long-term outperformance, rather
than short-term opportunities, and although its investment
target is based on a rolling three year period the Board also
regard 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 put in place unsecured long-term borrowing
arrangements going out to 2053.
• 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 position to continue over many more
years to come.
51
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIVII DIRECTORS’ REPORTIII REMUNERATION COMMITTEE
Set out here is the Directors’ Remuneration Report for the year ended 31 December
2018. No changes were made to Directors’ fees in 2018. After the year-end, we approved
a number of reductions in fees for the roles of Chairman, Deputy Chairman, Senior
Independent Director and Chairman of the Remuneration Committee. We will keep
the level of fees under review. The Report also sets out the minor changes we propose
to make to our current Remuneration Policy and explains how the Policy has been
implemented during the year.
Anthony Brooke
Chairman, Remuneration Committee
REMUNERATION POLICY
In May 2016 the Board approved the following
Remuneration Policy:
The Board’s Remuneration Policy is to ensure that the
remuneration of Directors is set at a reasonable level
commensurate with the duties and responsibilities of each
Director and the time commitment required to carry out
their roles effectively. Remuneration will be such that the
Company is able to attract and retain Directors of appropriate
experience and quality. The fees paid to Directors will reflect
the experience of the Board as a whole, will be fair, and will
take account of the responsibilities attaching to each role
given the nature of the Company’s interests, as well as the
level of fees paid by comparable investment trusts. Secretarial
assistance will be provided to the Chairman to assist in the
execution of his duties. Additional payments may be made to
Directors for time expended over and above that envisaged on
appointment and for serving on or chairing committees or for
service as directors of subsidiary boards, or other additional
responsibilities. The level of such fees and payments will
be subject to periodic review. Directors will be reimbursed
for travel and subsistence expenses incurred in attending
meetings or in carrying out any other duties incumbent upon
them as Directors of the Company. In the event that any such
payments are regarded as taxable, Directors may receive
additional payments to ensure that they suffer no net cost
in carrying out their duties. The level of Directors’ fees paid
will not exceed the limit set out in the Company’s Articles
of Association.
The Committee also reserves the right to make payments
outside the Policy in exceptional circumstances. The Committee
would only use this right where it believes that this is in the best
interests of the Company, and when it would be disproportionate
to seek specific approval from a General Meeting. Any such
payments would be fully disclosed on a timely basis.
The Board is required to submit its Remuneration Policy to
shareholders for approval every three years and a slightly
modified Policy will be proposed to the AGM in April 2019.
The full text of the amended policy can be found in the
Notice of Meeting document. The changes which are
proposed will be:
• To include the word ‘designed’ in the first sentence so it
will read:
‘The Board’s Remuneration Policy is designed to ensure
that the remuneration of Directors is set at a reasonable
level...’
• Changing the word ‘Company’ to ‘Trust’
The purpose of these changes is to improve the clarity of the
intent of the Policy and to be consistent in the way the Trust
is described.
A resolution will be put to our AGM to increase the maximum
level of ordinary remuneration that may be paid to our
Directors from £224,000 per annum to £300,000 per annum.
This change is proposed to give us the flexibility to recruit
additional Board members if we wish to do so, rather than to
increase the level of fees currently paid to our Directors.
CONSIDERATION OF SHAREHOLDER VIEWS
The Directors regularly engage with our shareholders on
all aspects of performance and governance. In the past
year the views of our principal shareholders specifically on
remuneration issues have not been sought. However, any
comments received from shareholders are always carefully
considered. This Report and the amended Remuneration
Policy will be subject to approval at the AGM and Directors
welcome the opportunity to discuss matters of remuneration
with shareholders at that meeting.
52
Alliance Trust PLC | Annual Report and Financial Accounts 2018
NON-EXECUTIVE DIRECTORS’ CONTRACTS
NON-EXECUTIVE DIRECTORS’ FEES
Each Non-Executive Director’s appointment is governed
by written terms which are available for inspection at the
Trust’s registered office. They are also available at the AGM.
Non-Executive Directors are appointed subject to annual
re-election at the Trust’s AGM and their appointment may
be terminated at any time by notice given by three quarters
of the other Directors. The expectation is that any Director
appointed will serve until the AGM seven years after the date
of their initial appointment and thereafter for a further term
of between one and three years. The date of appointment of
each Director can be found on page 56.
EXECUTIVE FUNCTION REMUNERATION
The Trust has no Executive Directors, but has a small
Executive function comprising six members of staff, two of
whom work part time. The Remuneration Committee takes
all decisions in respect of salary and bonuses for these
members of staff on the recommendation of the Company
Secretary (other than in respect of her own remuneration).
These employees are not members of any share-based
incentive arrangements nor of any long-term share award
schemes, although two employees are beneficiaries of the
Trust’s All Employee Share Ownership Plan (AESOP) which
ceased to be available for investment by employees on
1 April 2017. No awards have been made under the AESOP in
2018 and no future awards will be made under this Scheme
which the Trust intends to terminate effective from the
date of the sale of Alliance Trust Savings. The Committee
has agreed that shares held by the Trustee of the Employee
Benefit Trust under the Company’s Long Term Incentive Plan
(‘LTIP’) may be sold to provide cash bonuses to members
of the Executive function. These shares are not required to
satisfy existing commitments.
Annual Fees
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†
From
1 July 2019
2018
£120,000
£80,000
£80,000
£60,000
£35,000
£35,000
£6,000
£8,000
£4,500
£5,000
£35,000
£6,000
£8,000
nil
£3,000
nil
*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 Gregor Stewart in respect of his appointment to the board of Alliance
Trust Savings but will continue should the sale of Alliance Trust Savings not be
completed by 1 July 2019.
The Remuneration Committee reviewed the fees paid to
Directors in October 2018 and agreed that they should
remain unchanged but kept under review. These fees were
reviewed again in early 2019. The Committee determined
that the fees for the roles of Chairman, Deputy Chairman,
Senior Independent Director and Chair of the Remuneration
Committee should be reduced with effect from 1 July 2019
or, if earlier, the completion of the sale of Alliance Trust
Savings. The changes are being made as a result of the
significant simplification of the Trust’s business which is
expected to continue during 2019. The Committee agreed
that the level of Directors’ fees should continue to be kept
under review.
Where a Non-Executive Director also sits on the Board of a
subsidiary company, the Director is paid a fee for that role in
addition to the fees received from the Trust. The level of fee is
set by the subsidiary company.
The approach of paying a single composite fee for membership
of Board Committees and the level of this fee remained
unchanged in 2018.
53
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIVII DIRECTORS’ REPORTIII IMPLEMENTATION REPORT – REMUNERATION
RELATIVE IMPORTANCE OF SPEND ON PAY
DIRECTORS’ SHAREHOLDINGS (AUDITED)
The chart below shows the actual expenditure of the Trust
on remuneration and distributions to shareholders by way
of dividend and share buybacks in 2017 and 2018.
In 2017 the Executive function received £0.2m of remuneration
for the period 1 April to 31 December 2017. The Non-Executive
Directors received remuneration of £0.5m and the former
Chief Executive Officer received £0.1m. LTIP awards of
£1.1m vested in 2017 and these are included the figure for
remuneration in 2017.
During 2018 the Executive function was increased by the
appointment of a Marketing and Communications Manager.
Other staff members were employed for the full 12 months.
The Executive function received £0.6m in remuneration
for the year to 31 December 2018 and the Non-Executive
Directors received £0.4m.
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 are subject to performance
conditions. In 2018 the Trust issued no options to subscribe
for shares.
Directors’
shareholdings
As at
1 Jan 2018
As at
31 Dec 2018
Acquired between
31 Dec 2018 and
28 Feb 2019
Lord Smith
Anthony Brooke
Clare Dobie
Chris Samuel
Karl Sternberg
Gregor Stewart
18,000
13,000
3,030
20,190
13,806
25,011
30,700
13,000
3,160
40,374
13,997
25,120
-
-
-
108
54
31
£m
1200
1000
800
600
400
200
0
1,003
ADVISERS
The Remuneration Committee received no independent
advice in respect of remuneration during the year.
56.5
45.5
102.0
Dividend
Buybacks
1.9
1.0
Remuneration
2017
2018
Source: WTW.
SINGLE TOTAL FIGURE OF REMUNERATION (AUDITED)
2018
Fees for
Subsidiary
Company
Appointment
Company
Fees
120
46
41
41
46
94
388
-
-
-
-
-
35
35
2017
Fees for
Subsidiary
Company
Appointment
Company
Fees
120
46
71
41
46
94
418
-
-
-
9
-
35
44
Total
120
46
41
41
46
129
423
Total
120
46
71
50
46
129
462
£000
Non-Executive
Director
Lord Smith
Anthony Brooke
Clare Dobie
Chris Samuel
Karl Sternberg
Gregor Stewart
Total
54
Alliance Trust PLC | Annual Report and Financial Accounts 2018 PERFORMANCE GRAPH
FORMER CHIEF EXECUTIVE’S REMUNERATION
The graph below shows the Total Shareholder Return (TSR)
for holders of Alliance Trust PLC Ordinary Shares, measured
against the MSCI All Country World Index (ACWI) 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 97.4% of the total investment portfolio.
)
R
S
T
(
n
r
u
t
e
R
r
e
d
l
o
h
e
r
a
h
S
l
a
t
o
T
400
350
300
250
200
150
100
50
0
In our Annual Report for the year to 31 December 2017
we disclosed the remuneration received by the Trust’s
former Chief Executive, who left the Board on 3 February
2016. This included annual bonuses payable and long term
incentive payments which vested in each year since the
financial year ended 31 January 2010 to 31 December 2017.
No further payments, other than those already disclosed,
have or will be made to the former Chief Executive or to
any other former Executive Directors. As a result, a table
giving details of these payments has not been included
here. A comparison of the Chief Executive’s remuneration
with those of other employees in the Group is not given as
this has not been relevant since 2016.
PAYMENTS TO FORMER DIRECTORS
All payments, including any payments due under share plans,
made to former Executive Directors have been disclosed in
previous Annual Reports. These can be found on the Trust’s
website www.alliancetrust.co.uk
31 Dec
2009
31 Dec
2010
31 Dec
2011
31 Dec
2012
31 Dec
2013
31 Dec
2014
31 Dec
2015
31 Dec
2016
31 Dec
2017
31 Dec
2018
MSCI ACWI
Alliance Trust
Source: Morningstar and MSCI Inc.
VOTING AT ANNUAL GENERAL MEETING
At the AGM held on 28 April 2018, 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
84,318,041
%
97.16
Votes
against
%
Total votes
cast
Votes withheld
(abstentions)
2,464,482
2.84%
86,782,523
1,590,561
At the AGM held on 6 May 2016, votes cast by proxy and at the meeting in respect of the Directors’ Remuneration Policy were
as follows:
Resolution
Votes
for
Approval of Remuneration Policy
182,111,330
%
98.29
Votes
against
3,164,092
%
1.71
Total votes
cast
Votes withheld
(abstentions)
185,275,422
2,039,521
APPROVAL
The Remuneration Report comprising pages 52 to 55 and the Implementation Report comprising pages 54 to 55 have been
approved by the Board and signed on its behalf by
Anthony Brooke
Chairman, Remuneration Committee
28 February 2019
55
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIVII DIRECTORS’ REPORTIII
OTHER GOVERNANCE
RE-ELECTION OF DIRECTORS
USE OF FINANCIAL INSTRUMENTS
Details of the current Directors can be found on pages 38 and
39. 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 AGM. Each of the Trust’s
Directors has confirmed that they remain committed to
their role and have sufficient time available to meet what
is expected of them.
DIRECTORS IN 2018
Name
Designation
Lord Smith
Chairman
Anthony Brooke
Non-Executive Director
Clare Dobie
Non-Executive Director
Chris Samuel
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 2019 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
Information on the use of financial instruments can be found
in Note 22 on pages 85 to 91 of the Accounts.
DIRECTORS’ AND OFFICERS’ INDEMNIFICATION
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.
CHARITABLE DONATIONS
The Trust paid £50,000 to support the V&A Design Museum
in Dundee. A further £200 was provided to fund prizes for
students at Dundee university.
ACCESS TO ADVICE
All Directors have access to independent professional advice
if necessary.
RELATIONSHIP WITH SHAREHOLDERS
All Directors normally attend the AGM where they have
the opportunity to meet shareholders. Meetings also take
place throughout the year with major and institutional
shareholders and investment forums may be held where
other shareholders may attend.
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.
DC Thomson &
Company Limited
Shares
10,180,000 (3.1%)
ALTERNATIVE INVESTMENT FUND MANAGERS
DIRECTIVE (‘THE DIRECTIVE’)
The largest shareholder in the Trust is the nominee company
for Alliance Trust Savings which holds its shares on behalf of
around 18,500 customers.
Shareholder
Nature of interest
Number of shares
Alliance Trust Savings
Nominees Limited
Shares
113,982,435 (34.2%)
DIVIDENDS
The dividend payable to shareholders on 1 April 2019 is
disclosed on page 30.
On 1 April 2017 the Trust appointed Towers Watson Investment
Management (Ireland) Limited as its alternative investment
fund manager (AIFM) and Towers Watson Investment Fund
Management Limited as its investment manager.
The Trust has appointed NatWest Trustee & Depositary
Services Limited (formerly 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 Directive can also be found on our website.
56
Alliance Trust PLC | Annual Report and Financial Accounts 2018 INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT IN RESPECT OF VOTING RIGHTS
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 management fee of £10.9m (2017 £10.1m) 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; and
(ii) Such fees as are agreed from time to time by the Trust in
respect of third-party managers. 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 is also entitled to receive the following payments:
(i) A fixed administration fee in respect of the provision of
certain underlying administration services which is capped
at £0.92m per annum (increasing each year in line with the
CPI). In 2018 this fee was £0.93m; and
(ii) Fees paid to the managers/administrators of non-core
assets of £0.4m (2017: £0.4m) (these have been paid
directly by the Trust to the third parties).
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.
DIRECTOR DEVELOPMENT
Every Director on appointment 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 2018
comprised 333,626,020 Ordinary 2.5p shares of which
407,316 have been acquired by the Trustee of an Employee
Benefit Trust (‘the Trustee’) with funds provided by the
Trust in connection with former 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 13,966,136 shares at a cost of £101.8m.
There are no preference shares or shares held in Treasury.
There are no agreements in respect of voting rights.
SHARE BUYBACK AUTHORITY
At the last AGM 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 AGM.
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 AGM.
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 2019. 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:
• Approval of amended Directors’ Remuneration policy
(details on page 52);
• Approval of Investment Objective and Policy (details on
page 6);
• 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 stock pickers, Andrew Wellington of
Lyrical Asset Management and Rob Rohn of Sustainable
Growth Advisers.
57
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIVII DIRECTORS’ REPORTIII OTHER GOVERNANCE
CONTINUED
TOTAL GREENHOUSE GAS EMISSIONS DATA
The Trust’s operational environmental impact relates to
offices occupied by the Trust and Alliance Trust Savings and
to travel undertaken by employees. Although Alliance Trust
Savings does not fall to be consolidated in the financial
statements it is wholly owned by the Trust and is therefore
regarded as under the Trust’s control for the purposes of
reporting emissions. The Trust’s carbon footprint has been
calculated based on the GHG Protocol Corporate Accounting
and Reporting Standard. An operational control approach
has been adopted. The emissions reported below have been
verified by Carbon Footprint Limited. Details of our verification
statements are available on the Trust’s 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 2015
Year to
31 Dec 2016
Year to
31 Dec 2017
Year to
31 Dec 2018
% Change
year-on-year
163
422
54
247
832
585
2.4
131
379
37
205
715
510
2.0
136
326
207
171
633
462
1.4
126
257
144
112
495
381
1.2
-7
-21
-31
-35
-22
-18
-14
All figures in the above table have been restated to reflect the sale of Alliance Trust Investments in 2017.
REPORT OF DIRECTORS AND RESPONSIBILITY STATEMENT
The Report of the Directors, including the Directors’ responsibility statement on pages 40 to 49, the going concern statement
on page 50, the indications of future developments contained on pages 6 to 8 of the Strategic Report and pages 56 to 58 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;
• 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
28 February 2019
58
Alliance Trust PLC | Annual Report and Financial Accounts 2018 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 of Alliance Trust PLC (the ‘company’):
• give a true and fair view of the state of the company’s affairs as at 31 December 2018 and of its loss 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 which comprise:
• the income statement;
• the statement of comprehensive income;
• the balance sheet;
• the statement of changes in equity;
• the cash flow statement; and
• the related notes 1 to 26.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the
European Union.
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 Financial Reporting Council’s (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
Materiality
Scoping
Significant changes
in our approach
The key audit matter that we identified in the current year was Valuation and ownership of
listed equity investments and other equity and fund investments.
In the audit for the year ended 31 December 2017 valuation of unlisted investments, including
subsidiaries, was considered a key audit matter given the degree of judgement over the
valuations and the size of the balance. The company has agreed to sell its material subsidiary,
Alliance Trust Savings, therefore the level of judgement involved is significantly reduced and this
has not been considered as a key audit matter for this year’s audit.
The materiality that we used in the current year was £24.1m 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.
In prior years we have challenged the Director’s judgements underpinning the valuation of
Alliance Trust Savings. Following the agreement to sell Alliance Trust Savings as described
above, this is no longer considered a key audit matter. Our audit work this year involves a review
of the Sale and Purchase Agreement, including the treatment of post completion adjustments.
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Alliance Trust PLC | Annual Report and Financial Accounts 2018IIVII DIRECTORS’ REPORTIII INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ALLIANCE TRUST PLC
CONTINUED
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 considered as part of our risk assessment the nature of the company, its business model and related
risks including where relevant the impact of Brexit, the requirements of the applicable financial reporting
framework and the system of internal control. We evaluated the directors’ assessment of the company’s
ability to continue as a going concern, including challenging the underlying data and key assumptions used
to make the assessment, and evaluated the directors’ plans for future actions in relation to their going
concern assessment.
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 32 to 34 that describe the principal risks and explain how they are being managed
or mitigated;
• the directors’ confirmation on page 58 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 51 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 – valuation and ownership of listed equity investments and other equity and fund investments
Key audit matter
description
Listed equity investments £2,515m (2017: £2,573m) and other equity and fund investments £5.9m (2017:
£129m) represent the most significant number on the balance sheet and are the main driver of the
company’s performance. The combined total of £2,520m (2017: £2,702m) represented 94.1% of total
assets of the company at 31 December 2018 (2017: 90.7%) (see notes 2 and 9).
There is a risk that the prices recorded in respect of the listed investments held by the company may not
be reflective of fair value. This has been deemed a fraud risk given the possibility of manipulation of the
net asset value of the company through investment valuations.
There is also a risk over the recording and custody of listed investments and whether listed investments
recorded are indeed the property of the company.
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Alliance Trust PLC | Annual Report and Financial Accounts 2018 Key audit matter – valuation and ownership of listed equity investments and other equity and fund investments (continued)
How the scope of our
audit responded to
the key audit matter
We have:
• assessed the design and implementation controls over valuation and existence of listed investments;
• reviewed Controls Reports relating to Custody and Investment Accounting provided by Bank of New York
Mellon as Custodian and Fund Accountant;
• agreed 100% of the company’s quoted investment portfolio at the year end to confirmations received
directly from the custodian (Bank of New York Mellon) and depositary (NatWest);
• agreed 100% of the bid prices of quoted investments on the investment ledger at year end to closing bid
prices published by an independent pricing source; and
• tested the recording of a sample of purchases and sales of quoted investments by agreeing the
transactions to supporting documentation and tracing the cash movements to bank statements.
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 depositary.
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
£24.1m (2017: £26.9m)
Basis for determining
materiality
Rationale for the
benchmark applied
We determined materiality as 1% (2017: 1%) of net asset value.
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.
NAV £2,411m
Materiality £24m
NAV
Materiality
Audit Committee
reporting threshold £482k
We agreed with the Audit and Risk Committee that we would report to the Committee all audit differences in excess of £482,000
(2017: £539,900), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also
report to the Audit and Risk Committee on disclosure matters that we identified when assessing the overall presentation of the
financial statements.
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
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 the Manager who prepares the
financial statements of the company and also the key controls in place at The Bank of New York Mellon (Fund Accounting)
who maintain the underlying accounting records for investment transactions and related balances.
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Alliance Trust PLC | Annual Report and Financial Accounts 2018IIVII DIRECTORS’ REPORTIII INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ALLIANCE TRUST PLC
CONTINUED
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.
We have nothing to
report in respect of
these matters.
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.
Details of the extent to which the audit was considered capable of detecting irregularities, including fraud are set out below.
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.
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Alliance Trust PLC | Annual Report and Financial Accounts 2018 EXTENT TO WHICH THE AUDIT WAS CONSIDERED CAPABLE OF DETECTING IRREGULARITIES, INCLUDING FRAUD
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and
then design and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and
appropriate to provide a basis for our opinion.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with
laws and regulations, our procedures included the following:
• enquiring of management and the Audit and Risk Committee, including obtaining and reviewing supporting documentation,
concerning the company’s policies and procedures relating to:
- identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
- detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
- the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations;
• discussing among the engagement team and involving relevant internal specialists, including valuations specialists, regarding
how and where fraud might occur in the financial statements and any potential indicators of fraud. As part of this discussion,
we identified potential for fraud in the valuation of investments due to the potential for the manipulation of the net asset
value through manipulation of the investment balance; and
• obtaining an understanding of the legal and regulatory frameworks that the company operates in, focusing on those laws
and regulations that had a direct effect on the financial statements or that had a fundamental effect on the operations of the
company. The key laws and regulations we considered in this context included International Financial Reporting Standards
(‘IFRSs’), UK Companies Act, Listing Rules and tax legislation.
Audit response to risks identified
As a result of performing the above, we identified the valuation and ownership of listed equity investments and other equity and
fund investments as a key audit matters. The key audit matters section of our report explains the matters in more detail and
also describes the specific procedures we performed in response to that key audit matter.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with relevant
laws and regulations discussed above;
• enquiring of management, the Audit and Risk Committee and external legal counsel concerning actual and potential litigation
and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
• reading minutes of meetings of those charged with governance, reviewing correspondence with HMRC and the FCA; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members
including internal specialists, and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.
Our work over the identified fraud risk, valuation of investments, has been documented in the key audit matters section of
this report.
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Alliance Trust PLC | Annual Report and Financial Accounts 2018IIVII DIRECTORS’ REPORTIII INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ALLIANCE TRUST PLC
CONTINUED
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, or returns adequate for our audit have not been
received from branches not visited by us; or
• the 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 8 years,
covering the years ending 31 December 2011 to 31 December 2018.
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).
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.
Andrew Partridge (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Statutory Auditor
Edinburgh, United Kingdom
28 February 2019
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Alliance Trust PLC | Annual Report and Financial Accounts 2018
I
II
III FINANCIAL STATEMENTS
IV
FINANCIAL STATEMENTS
66
Alliance Trust PLC | Annual Report and Financial Accounts 2018Financial StatementsIncome statement for year ended 31 December 2018Statement of comprehensive incomeStatement of changes in equity for year ended 31 December 2018Balance sheet as at 31 December 2018Cash flow statement for year ended 31 December 2018Notes 67
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIIIII FINANCIAL STATEMENTSIVIncome statement for the year ended 31 December 2018Year to December 2018Year to December 2017£000NoteRevenueCapitalTotalRevenueCapitalTotalIncome355,145-55,14560,525-60,525(Loss)/Profit on fair value designated investments9-(162,664)(162,664)-432,187432,187Loss on fair value of debt-(361)(361)-(2,160)(2,160)Total revenue55,145(163,025)(107,880)60,525430,027490,552Investment management fees4(2,713)(8,139)(10,852)(3,307)(6,786)(10,093)Administrative expenses4(5,466)(1,076)(6,542)(5,496)(1,843)(7,339)Finance costs 5(1,618)(4,817)(6,435)(2,094)(4,096)(6,190)(Loss)/Gain on other assets held at fair value-(2,180)(2,180)-1,4501,450Foreign exchange (losses)/gains -(2,722)(2,722)-4,5564,556(Loss)/Profit before tax45,348(181,959)(136,611)49,628423,308472,936Tax6(3,986)-(3,986)(1,170)41(1,129)(Loss)/Profit for the year41,362(181,959)(140,597)48,458423,349471,807All (loss)/profit for the year is attributable to equity holders.Earnings per share attributable to equity holdersBasic (p per share)812.18(53.60)(41.42)12.86112.35125.21Diluted (p per share)12.17(53.53)(41.36)12.84112.14124.98Statement of comprehensive incomeYear to December 2018Year to December 2017£000RevenueCapitalTotalRevenueCapitalTotal(Loss)/Profit for the year41,362(181,959)(140,597)48,458423,349471,807Items that will not be reclassified subsequently to profitor loss:Defined benefit plan net actuarial (loss)/gain(note 24)-(38)(38)-313313Retirement benefit obligations deferred tax-66-(53)(53)Other comprehensive (loss)/income -(32)(32)-260260Total comprehensive (loss)/income for the year41,362(181,991)(140,629)48,458423,609472,067All total comprehensive (loss)/income for the year is attributable to equity holders. 68
Alliance Trust PLC | Annual Report and Financial Accounts 2018Statement of changes in equity for the year ended 31 December 2018£000Dec 18Dec 17Called-up share capitalAt 1 January8,69112,319Own shares purchased and cancelled in the year(349)(3,628)At 31 December8,3428,691Capital reserveAt 1 January1,923,4392,508,359(Loss)/Profit for the year(181,959)423,349Defined benefit plan actuarial net (loss)/gain (32)260Own shares purchased and cancelled in the year(102,276)(1,008,529)At 31 December1,639,1721,923,439Merger reserveAt 1 January and at 31 December645,335645,335Capital redemption reserveAt 1 January10,3076,679Own shares purchased and cancelled in the year3493,628At 31 December10,65610,307Revenue reserveAt 1 January111,861111,450Profit for the year41,36248,458Dividends paid(45,545)(48,113)Unclaimed dividends returned666At 31 December107,684111,861Total Equity at 1 January2,699,6333,284,142Total Equity at 31 December2,411,1892,699,633 69
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIIIII FINANCIAL STATEMENTSIVBalance sheet as at 31 December 2018£000NoteDec 18Dec 17Non-current assets Investments held at fair value92,580,7652,836,875Office premises freehold / Heritable property9-4,935Pension scheme surplus24-38Deferred tax asset11-62,580,7652,841,854Current assetsOutstanding settlements and other receivables1213,57431,607Cash and cash equivalents2081,168105,808Assets classified as held for sale92,755-97,497137,415Total assets2,678,2622,979,269Current liabilitiesOutstanding settlements and other payables13(14,761)(21,679)Tax payable11(3,991)(3,991)Bank loans14(67,000)(133,000)(85,752)(158,670)Total assets less current liabilities2,592,5102,820,599Non-current liabilitiesUnsecured fixed rate loan notes held at fair value14(181,321)(120,960)Deferred tax liability11-(6)(181,321)(120,966)Net assets2,411,1892,699,633EquityShare capital158,3428,691Capital reserve161,639,1721,923,439Merger reserve16645,335645,335Capital redemption reserve1610,65610,307Revenue reserve16107,684111,861Total Equity2,411,1892,699,633All net assets are attributable to equity holders.Net Asset Value per ordinary share attributable to equity holdersBasic (£)17£7.24£7.78Diluted (£)17£7.23£7.77The financial statements were approved by the Board of Directors and authorised for issue on 28 February 2019.They were signed on its behalf by:Lord Smith of KelvinChairman 70
Alliance Trust PLC | Annual Report and Financial Accounts 2018Cash flow statement for the year ended 31 December 2018£000Dec 18Dec 17Cash flows from operating activities(Loss)/Profit before tax(136,611)472,936Adjustments for:Losses/(Gains) on investments162,664(432,187)Losses on fair value of debt3612,160Foreign exchange losses/(gains)2,722(4,556)Depreciation-4Loss/(Gains) on revaluation of office premises2,180(1,450)Finance costs6,4356,190Movement in pension scheme loss6305Operating cash flows before movements in working capital37,75743,402(Increase)/Decrease in receivables(2,288)3,273Increase/(Decrease) in payables5,848(6,318)Net cash flow from operating activities before income taxes41,31740,357Taxes paid(5,220)(1,433)Net cash inflow from operating activities36,09738,924Cash flows from investing activitiesProceeds on disposal at fair value of investments through profit and loss1,849,2794,384,770Purchases of fair value through profit and loss investments(1,747,167)(3,322,009)Disposal of property-21Net cash inflow from investing activities102,1121,062,782Cash flows from financing activitiesDividends paid - Equity(45,545)(48,113)Unclaimed dividendsreturned666Purchase of own shares(102,276)(1,008,529)Bank loans and unsecured fixed rate loan notes raised60,00013,000Repayment of bank debt(66,000)-Finance costs paid(6,312)(6,308)Net cash outflow from financing activities(160,127)(1,049,884)Net cash (decrease)/increase in cash and cash equivalents(21,918)51,822Cash and cash equivalents at beginning of year105,80849,430Effect of foreign exchange rate changes(2,722)4,556Cash and cash equivalents at end of year81,168105,808 71
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIIIII FINANCIAL STATEMENTSIVNotes1General InformationAlliance Trust PLC was incorporated in the United Kingdom under the Companies Acts 1862-1886. The address of the registered office isgiven on page 99. 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 2018 and the comparatives which are in brackets for the year ended 31 December 2017.The financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which theCompany operates.Critical accounting estimates and judgementsThe preparation of the financial statements necessarily requires the exercise of judgement both in application of accounting policies, whichare set out below, and in the selection of assumptions used in the calculation of estimates. These estimates and judgements are reviewedon an ongoing basis and are continually evaluated based on historical experience and other factors. However, actual results may differ fromthese estimates. There are no critical judgements. Following the announcement of the sale of its subsidiary company Alliance TrustSavings (ATS) there are no remaining key sources of estimation uncertainty in the Company's financial statements.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 February 2018, 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.IFRS 15 Revenue from Contracts with CustomersIn the current financial year the Company has adopted IFRS 15. The core principle of IFRS 15 is that an entity should recognise revenue todepict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to beentitled in exchange for those goods or services. Given the nature of the income streams of the Company, there is no material impact to thecurrent measurement and disclosure of revenue.IFRS 9 Financial InstrumentsIn the current financial year the Company has applied IFRS 9 Financial Instruments (as revised in July 2014) and the related consequentialamendments to other IFRSs. IFRS 9 introduces new requirements for the classification and measurement of financial assets and financialliabilities, impairment for financial assets and general hedge accounting. The Company measures all balance sheet items at fair value,there are no impaired assets and, does not enter into general hedge accounting. There is no material impact on the Company in relation tothe adoption of this standard.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 36. The financial position of the Company as at 31 December 2018 is shownon the balance sheet on page 69. 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 OrdinaryEngland**InactiveAT2006 LimitedOrdinaryScotland*Intermediate holding companySecond Alliance Trust LimitedOrdinaryScotland*Inactive 72
Alliance Trust PLC | Annual Report and Financial Accounts 20182Summary of Significant Accounting PoliciesNameSharesheldCountry ofincorporationPrincipal ActivityAlliance Trust Equity Partners LimitedOrdinaryScotland*Investment managementATEP 2008 GP LimitedOrdinaryScotland*Private equity general partnerATEP 2009 GP LimitedOrdinaryScotland*Private equity general partnerAllsec Nominees LimitedOrdinaryScotland*NomineeAlliance Trust Savings Nominees LimitedOrdinaryScotland*NomineeAlliance Trust Services LimitedOrdinaryScotland*Service company* Registered at 8 West Marketgait, Dundee, DD1 1QN.** Registered at Broadgate Tower Level 13, Primrose Street, London, EC2A 2EW, this company was dissolved on 15 January 2019.Alliance Trust Real Estate Partners LP was dissolved on 7 November 2018, Liquidators were appointed on 29 November 2018 to Alliance Trust Real Estate Partners GP and AlbanyVentures Managers GP Limited as part of a members’ voluntary liquidation of these companies.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 2018. Their adoption has not had anymaterial impact on the disclosures or on the amounts reported in these financial statements.IFRS 2Share based paymentsIFRSs 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 2018:IFRS 16LeasesThe Directors do not expect that the adoption of the Standard 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 income 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.ExpensesAll 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 onequarter to revenue and three quarters 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.The Directors have adopted a one quarter revenue and three quarters capital allocation for management fees, financing costs and otherindirect expenses where consistent with the AIC SORP guidelines. 73
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIIIII FINANCIAL STATEMENTSIV2Summary of Significant Accounting PoliciesOperating 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 scheme. No awards have been made in any of these schemes during the year. Anycost relating to the AESOP was recognised as a revenue cost in the year. The fair value of options granted to employees under the LTIPwas recognised as staff costs, with a corresponding increase in equity, over the year in which the employees become unconditionallyentitled to the options. The amount recognised as an expense may be adjusted to reflect the actual number of share options that vest. Forshare-based compensation schemes settled by the Company that relate to employees of the subsidiary companies a recharge equal to thecost during the year is made to subsidiary companies. Pension costsEmployer contributions to pension arrangements for staff have been charged one quarter to revenue and three quarters 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 completed a buy-out of the pension scheme liabilities in 2018, having carried out a buy-in of pension liabilities in 2016 andaccordingly, no further contribution to fund pension liabilities will 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 taxable ordeductible 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 legallyenforceable 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. 74
Alliance Trust PLC | Annual Report and Financial Accounts 20182Summary of Significant Accounting PoliciesInvestmentsInvestments 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 2018, or sale price, and where relevant the use of external valuers. For investments in private equity, the Directors make use ofunaudited valuations of the underlying investments as supplied by the managers of those private equity funds. The Directors regularlyreview the principles 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 or the agreed sale price for any assets sold. Mineral rights are included in unlistedinvestments.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 premisesDuring 2017 office premises were valued annually by chartered surveyors on the basis of market value in accordance with the RICSAppraisal and Valuation Standards. As at 31 December 2018 the office premises have been classified as held for sale. They are classified as held for sale if their carryingamount will be recovered through a sale transaction rather than through continuing use and where such a sale is considered highlyprobable. These have been subsequently measured at the lower of their carrying amount and their fair value less the costs to sell. No depreciation has been charged on these assets as, in the opinion of the Board, any provision for depreciation would be immaterial.Financial liabilities and equityFinancial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into by theCompany. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of itsliabilities.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 valueBuybacks 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 the 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 dividends 75
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIIIII FINANCIAL STATEMENTSIV2Summary of Significant Accounting PoliciesAmounts 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 three quarters of indirect expenditure including management fees, finance costs andrelevant administrative expenses are charged to capital profits.Revaluation 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 The Second Alliance Trust Limited in 2006.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. 76
Alliance Trust PLC | Annual Report and Financial Accounts 20183RevenueAn analysis of the Company's revenue is as follows:£000Dec 18Dec 17Income from investmentsListed dividends - UK11,07110,948Distributions from Collective Investment Schemes2351,500Listed dividends - Overseas40,49744,53651,80356,984Other incomeProperty rental income785570Mineral rights income2,1442,803Other interest34420Other income691483,3423,541Total income55,14560,525The mineral rights income disclosed above represents gross income received. Against this the Company pays associated expenses of£0.34m (£0.36m), with US tax of 20% payable on the net income.4Profit before tax is stated after charging the following expenses:Investment manager fee£000Dec 18RevenueDec 18CapitalDec 18TotalDec 17RevenueDec 17CapitalDec 17TotalInvestment management fees2,7138,13910,8523,3076,78610,093For the first three months of 2017 the Company’s then subsidiary, Alliance Trust Investments Limited (ATI) was the appointed AlternativeInvestment Fund Manager (AIFM) and investment manager to the Company. The basis of the ATI investment management fee was 0.35%of NAV after deducting the fair value of subsidiary companies. On 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 managers to invest the equity portfolio. TWIMI is entitled to a fixed fee and a base variable fee based onthe market capitalisation of the Company after deduction of the value of non-core assets and the value of Company’s subsidiaries. TWIMIis also entitled to an administration fee for the provision of certain administrative services outsourced by the Company. Each of themanagers is entitled to a base management fee rate, generally based on a percentage of the value of assets under management. Noperformance fees are payable.£000Dec 18RevenueDec 18CapitalDec 18TotalDec 17RevenueDec 17CapitalDec 17TotalStaff costs2708101,080287622909Social security costs6519526069137206Pension costs - defined benefit scheme---119239358Pension costs - defined contribution scheme237093918273581,0751,4334841,0161,500£000Dec 18RevenueDec 18CapitalDec 18TotalDec 17RevenueDec 17CapitalDec 17TotalAuditor's remunerationFee payable to the auditor for the audit of the Group'sannual accounts54-5461-61All other services5-531-31Total non-audit fees5-531-31Fees payable to the Company's auditor in respect ofassociated pension schemes audit---5-5 77
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIIIII FINANCIAL STATEMENTSIV4Profit before tax is stated after charging the following expenses:£000Dec 18RevenueDec 18CapitalDec 18TotalDec 17RevenueDec 17CapitalDec 17Total---5-5Total remuneration59-5997-97Other administrative costs5,04915,0504,9158275,742Total administrative costs5,4661,0766,5425,4961,8437,339In addition to the audit fees paid by the Company disclosed above, fees payable to the Company's auditors for the audit of the nonconsolidated subsidiaries amount to £106,350 (£120,000), with audit-related services for these entities amounting to £74,100 (£71,000).Total audit fees of £160,350 (£181,150), non-audit fees of £79,050 (£101,850) and fees payable in respect of associated pension schemesof £nil (£5,000) were paid to Deloitte LLP. Total remuneration paid to Deloitte LLP amounted to £239,400 (£288,000).Total Directors’ remuneration recorded for the year was £0.4m (£0.5m). The balance of the remuneration expense £1.0m (£1.0m) relates tothe executive function, and in 2017 to previous employees. Further details are given in the Remuneration Report on pages 52 to 55. TheCompany has six employees, two on a part time basis excluding Directors. The average full time equivalents in the year was five.Total Company administration expenses of £17.4m, (£17.4m) consist of investment management fees of £10.9m ((£10.1m) and otheradministrative expenses of £6.5m (£7.3m). These further include non-recurring administrative expenses of £0.8m (£1.3m) as disclosed onpage 29. The ongoing charges ratio (OCR) of the Company amounted to 0.65% (0.54%) of the average net assets. The 2018 OCR of0.65% is based on total ongoing expenses consistent with prior year. The cost of insured benefits for staff is included in staff costs.5Finance costs£000Dec 18RevenueDec 18CapitalDec 18TotalDec 17RevenueDec 17CapitalDec 17TotalBank loans and unsecured fixed rate loan notes1,6184,8176,4352,0944,0966,190Finance costs include interest of £4.3m (£4.3m) on the £100m 4.28% unsecured fixed rate loan notes issued in July 2014 for 15 years andinterest of £0.2m (£0.0m) on the three tranches of £20m unsecured loan notes issued in November 2018 for 15, 25 and 35 years. The basisof apportionment of finance costs between revenue and capital profits is disclosed in note 2.6Taxation£000Dec 18RevenueDec 18CapitalDec 18TotalDec 17RevenueDec 17CapitalDec 17TotalUK corporation tax at 19.00% (19.25%)------Revision of prior year estimate1,830-1,830(3,347)-(3,347)Overseas taxation2,199-2,1994,593-4,593Recoverable income tax(49)-(49)(64)-(64)3,980-3,9801,182-1,182Deferred taxation originations and reversal oftemporary differences6-6(12)(41)(53)Tax expense for the year3,986-3,9861,170(41)1,129The 2018 revision of prior year estimate noted above relates to Group relief. The 2017 prior year adjustment related 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 2018 is taxed at an average rate of 19% (19.25%). Taxation for overseas jurisdictions iscalculated at the rates prevailing in the respective jurisdictions. The tax charge assessed for the years ended 2017 and 2018 can bereconciled to the profit per the income statement as follows: 78
Alliance Trust PLC | Annual Report and Financial Accounts 20186Taxation£000Dec 18RevenueDec 18CapitalDec 18TotalDec 17RevenueDec 17CapitalDec 17Total(Loss)/Profit before tax45,348(181,959)(136,611)49,628423,308472,936Tax at the average UK corporation tax rate of 19.00%(19.25%)8,616(34,572)(25,956)9,55381,48791,040Non-taxable income(9,658)-(9,658)(10,119)-(10,119)Losses/(gains)on investments not taxable-30,90630,906-(83,196)(83,196)Revision of prior year estimate1,830-1,830(3,347)-(3,347)Foreign exchange adjustments-517517-(877)(877)Effect of changes in tax rates(1)-(1)257Effect of overseas tax2,199-2,1994,594-4,594Deferred tax assets not recognised1,2893,4844,7738243,4824,306Fair value movement in office premises-414414-(279)(279)Adjustments arising on the difference betweentaxation and accounting treatment of income andexpenses(269)(749)(1,018)(219)(759)(978)Expenses not deductible for tax purposes 47-47(1)9695Expense relief for overseas tax (18)-(18)(53)-(53)Recoverable income tax(49)-(49)(64)-(64)Tax expense for the year3,986-3,9861,170(41)1,1297Dividends Dividends Paid £000Dec 18Dec 17Fourth interim dividend for the year ended 31 December 2016 of 3.2740p per shareFirst interim dividend for the year ended 31 December 2017 of 3.2900p per shareSecond interim dividend for the year ended 31 December 2017 of 3.2900p per shareThird interim dividend for the year ended 31 December 2017 of 3.2900p per share-13,505-11,671-11,507-11,430 Fourth interim dividend for the year ended 31 December 2017 of 3.2900p per share11,245*-First interim dividend for the year ended 31 December 2018 of 3.3890p per share11,516-Second interim dividend for the year ended 31 December 2018 of 3.3890p per share11,441-Third interim dividend for the year ended 31 December 2018 of 3.3890p per share11,343-45,54548,113We 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 18Dec 17First interim dividend for the year ended 31 December 2017 of 3.2900p per share-11,671Second interim dividend for the year ended 31 December 2017 of 3.2900p per share-11,507Third interim dividend for the year ended 31 December 2017 of 3.2900p per share-11,430Fourth interim dividend for the year ended 31 December 2017 of 3.2900p per share-11,421*First interim dividend for the year ended 31 December 2018 of 3.3890p per share11,516-Second interim dividend for the year ended 31 December 2018 of 3.3890p per share11,441-Third interim dividend for the year ended 31 December 2018 of 3.3890p per share11,343-Fourth interim dividend for the year ended 31 December 2018 of 3.3890p per share11,293-45,59346,029*31 December 2017 figures have been adjusted to reflect share buybacks in the period between the year end date and the dividend recorddate. 79
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIIIII FINANCIAL STATEMENTSIV8Earnings per shareThe calculation of the basic and diluted earnings per share is based on the following data:£000Dec 18RevenueDec 18CapitalDec 18TotalDec 17RevenueDec 17CapitalDec 17TotalOrdinary sharesEarnings for the purposes of basic earnings pershare being net (loss)/profit attributable to equityholders41,362(181,959)(140,597)48,458423,349471,807Number of sharesWeighted average number of ordinary shares for thepurpose of basic earnings per share339,480,982376,802,754Weighted average number of ordinary shares for thepurpose of diluted earnings per share339,904,794377,500,816To arrive at the basic figure, the number of shares was reduced by 407,316 (456,886) ordinary shares held by the Trustee of the EmployeeBenefit Trust (EBT). During the period the Trustee did not increase its holding. 49,570 (Nil) shares were transferred from the EmployeeBenefit Trust to satisfy share awards made by the Company or its subsidiaries to participants in the Long Term Incentive Plans.IAS 33.41 requires that shares should be treated as dilutive only if they decrease earnings per share or increase the loss per share.For 2018, bonuses for the Executive team will be paid using shares held by the EBT.9Non-current assets£000Dec 18Dec 17Investments designated at fair value through profit and loss:Investments listed on a recognised investment exchange2,514,5442,573,079Other equities and funds5,888129,200Forward currency exchange contracts held at fair value through profit and loss-(2)Unlisted investments22,27346,578Investments in related and subsidiary companies38,06088,0202,580,7652,836,875As disclosed on page 23 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 Management 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. In January, the Trust sold the Liontrust Asset Management PLC shares received as part of the saleconsideration for Alliance Trust Investments, raising net proceeds of £21m, a return of over 55% on the price at which the shares wereissued. As at 31 December 2018, the Trust continues to hold the Liontrust first anniversary shares shown as a purchase in the year, valuedat £5.9m.In April 2018 the Trust sold its legacy holdings in three Liontrust Investments sustainable funds which had been previously managed byAlliance Trust Investments, the proceeds of £103.0m being invested into the equity portfolio. At the year ended 31 December 2017holdings in the Sustainable Future Cautious Managed Fund were valued at £13.2m representing 35% of the fund, in the Sustainable FutureDefensive Managed Fund were valued at £12.9m representing 33% of the fund and in the Luxembourg-domiciled Société d’Investissementà Capital Variable (SICAV), Luxcellence - Sustainable Future Pan-European Equity Fund were valued at £83.2m representing 37% of thefund. £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 as 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) 80
Alliance Trust PLC | Annual Report and Financial Accounts 20189Non-current assets£000Listed equityinvestmentsOther equityand fundsRelated andsubsidiarycompaniesUnlistedinvestmentsTotalClosing valuation as 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 20172,573,077129,20088,02046,5782,836,875Opening book cost at 1 January 20182,371,14693,660134,56944,5712,643,946Opening unrealised appreciation/(depreciation)201,93135,540(46,549)2,007192,929Opening valuation at 1 January 20182,573,077129,20088,02046,5782,836,875Movements in the yearPurchases at cost**1,727,0853,957-3,2361,734,278Sales - proceeds**(1,629,453)(124,830)(55,020)(18,421)(1,827,724) - realisedgains/(losses) on sales154,69731,16930,286(20,245)195,907(Decrease)/Increase in appreciation on assets held(310,862)(33,608)(25,226)11,125(358,571)Closing valuation at 31 December 20182,514,5445,88838,06022,2732,580,765Closing book cost2,623,4753,956109,8359,1412,746,407Closing (depreciation)/appreciation on assets held(108,931)1,932(71,775)13,132(165,642)Closing valuation as at 31 December 20182,514,5445,88838,06022,2732,580,765**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 £2.4m (£4.4m) for purchases and £5.2m (£2.3m) for sales.£000Office premises freehold / Heritable propertyValuation at 31 December 20164,500Revaluation435Valuation at 31 December 20174,935Fair value adjustment on announcement of sale(1,485)Adjusted fair value as at 22 October 20183,450Transaction costs related to sale(195)Indemnity provision related to sale(500)Valuation as at 31 December 20182,755Transfer to current assets held for sale(2,755)Valuation at 31 December 2018-At 31 December 2017Cushman & Wakefield, an independent Chartered Surveyor, valued the office premises at 8 West Marketgait,Dundee at £4.94m on the basis of market value. The valuation was in accordance with RICS Appraisal and Valuation Standards. On 22 October 2018 following the announcement of the conditional sale of Alliance Trust Savings and the office premises noted above, theoffice premises has been revalued at sale value adjusted for disposal costs and sale indemnity provisions, at £2.76m; and reclassified as acurrent asset held for sale as shown on the statement of financial performance. A loss of £2.2m has been recognised in the incomestatement in the caption line Gain/(Loss) on other assets held at fair value.The historic cost of the building as at 31 December 2018 was £12.7m (£12.7m).10Subsidiaries and Related CompaniesAt 31 December 2018 the Company owned 100% of the companies listed in the in the basis of accounting note on pages 71 and 72.AT2006 owned 100% of The Second Alliance Trust. 81
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIIIII FINANCIAL STATEMENTSIV10Subsidiaries and Related Companies£000Dec 18Dec 17Alliance Trust Savings38,00038,000Fair value adjustment on announcement of sale(1,450)-Adjusted fair value as at 22 October 201836,550-Reduction in fair value for transaction costs(3,900)-Valuation as at 31 December 201832,650-Other subsidiaries5,41050,02038,06088,020During 2017 the valuation of Alliance Trust Savings and the valuation of Investments in other subsidiary companies were valued at theDirectors’ estimate of their fair value, using the guidelines and methodologies on valuation published by the International Private Equity andVenture Capital Association issued in December 2018 and in the case of Alliance Trust Savings an external valuation. Other than AllianceTrust Savings all other subsidiaries continue to be valued on this basis. The key financial results for ATS are noted below.Alliance Trust Savings Limited£000Year ended31 December 2018Year ended31 December 2017Income29,67327,049Administrative expenses(28,597)(33,125)Operating profit/(loss) before exceptional items1,076(6,076)Exceptional administrative expense-(13,240)Operating profit/(loss) before tax1,076(19,316)Fair valuation32,65038,000On 22 October 2018 Alliance Trust announced the conditional sale of Alliance Trust Savings to Interactive Investor Limited. The total saleprice payable is £40m subject to post completion adjustments and includes the Alliance Trust office premises in Dundee. As at the balancesheet date the Directors fair value estimation of these assets reflects transaction costs and an assessment of indemnity provisions.Completion of the transaction is subject to regulatory approval from the Prudential Regulation Authority and Financial Conduct Authority.The reported value of Alliance Trust Savings as at 31 December 2018 reflects the sale consideration less costs to sale.11Deferred tax and tax payableThe 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 2017 - (liability)/asset (14)72(58)-Income statement - deferred tax credit/(charge)61(66)5853Equity - deferred tax charge(53)--(53)At 31 December 2017 - (liability)/asset (6)6--Income statement - deferred tax credit/(charge)-(6)-(6)Equity - deferred tax credit6--6At 31 December 2018 - (liability)/asset ----At the balance sheet date, the Company had unused tax losses of £122.1m (£97.9m) available for offset against future profits.There are unrecognised deferred tax assets of £20.8m (£16.6m) in relation to unused tax losses and £2.1m (£2.9m) in relation to fixedassets and other timing differences. The Directors have not recognised a deferred tax asset due to uncertainty over the timing of futureprofits.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. 82
Alliance Trust PLC | Annual Report and Financial Accounts 201812Outstanding settlements and other receivables£000Dec 18Dec 17Sales of investments awaiting settlement20321,758Dividends receivable2,8203,473Amounts due from subsidiary companies2184Other debtors6,0142,891Recoverable overseas tax4,5353,30113,57431,607The Directors consider that the carrying amount of other receivables approximates to their fair value. 13Outstanding settlements and other payables£000Dec 18Dec 17Purchases of investments awaiting settlement2,01414,903Amounts due to subsidiary companies1,13037Other creditors9,6264,871Interest payable1,9911,86814,76121,679The Directors consider that the carrying amount of other payables approximates to their fair value.14Bank loans and unsecured fixed rate loan notesBank loans£000Dec 18Dec 17Bank loans repayable within one year67,000133,000Analysis of borrowings by currency:Bank loans - sterling67,000133,000The weighted average % interest rates payable:Bank loans1.44%1.20%The Directors estimate the fair value of the borrowings to be:Bank loans67,000133,000During the year £66m of bank debt was repaid by the Trust.Unsecured fixed rate loan notes£000Dec 18Dec 174.28 per cent. Unsecured fixed rate loan notes due 2029119,390120,9602.657 per cent. Unsecured fixed rate loan notes due 203320,439-2.936 per cent. Unsecured fixed rate loan notes due 204320,607-2.897 per cent. Unsecured fixed rate loan notes due 205320,885-181,321120,960£100m of unsecured fixed rate loan notes were drawn down in July 2014, with 15 years' duration at 4.28%. On 28 November 2018 the Company issued £60m fixed rate unsecured privately placed notes each of £20m and with maturities of 15, 25and 35 years and coupons for each respective tranches of 2.657%, 2.936% and 2.897%. The fair value of unsecured debt is estimated by discounting future cash flows using quoted benchmark interest yield curves as at the endof the reporting period and by obtaining lender quotes for borrowings of similar maturity to estimate credit risk margin.Long-term fixed rate notesDec 18Dec 17The total weighted average % interest rate3.06%2.53% 83
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIIIII FINANCIAL STATEMENTSIV15Share capital£000Dec 18Dec 17Allotted, called up and fully paid:- 333,626,020 ordinary shares of 2.5p each8,3428,691The Company has one class of ordinary share which carries no right to fixed income.The Employee Benefit Trust holds 407,316 (456,886) ordinary shares, acquired by its Trustee with funds provided by the Company. Duringthe year the Trustee did not increase its holding. 49,570 (Nil) shares were transferred from the Employee Benefit Trust to satisfy shareawards made by the Company or its subsidiaries to participants in the Long Term Incentive Plans in satisfaction of awards.During the year the Company bought back 13,966,136 (145,111,776) ordinary shares at a total cost of £102,275,560 (£1,008,529,184), allof which were cancelled.The full cost of all shares bought back is dealt with in Capital Reserves own shares purchased.For 2018, bonuses for the Executive team will be paid using shares held by the EBT.£000Dec 18Dec 17Ordinary shares of 2.5p eachOpening share capital8,69112,319Share buybacks(349)(3,628)Closing share capital8,3428,691Capital 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 6. 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 201612,3192,508,359645,3356,679111,4503,284,142Dividends----(48,113)(48,113)Unclaimed dividends returned----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---260Net assets at 31 December 20178,6911,923,439645,33510,307111,8612,699,633Dividends----(45,545)(45,545)Unclaimed dividends redistributed----66(Loss)/profit for the year-(181,959)--41,362(140,597)Own shares purchased(349)(102,276)-349-(102,276)Defined benefit plan net actuarial loss -(32)---(32)Net assets at 31 December 20188,3421,639,172645,33510,656107,6842,411,189The Company revenue reserves distributable by way of a dividend are £107.7m (£111.9m). Realised capital reserves of £1,826m(£1,752m) can be distributed. Unrealised capital reserves of £(187)m (£171m) relate to decreases/increases in unrealised appreciation oninvestments. Total distributable capital reserves are £1,639m (£1,923m). 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 18Dec 17Equity shareholder funds2,411,1892,699,633Number of shares at year end - basic333,218,704347,135,270Number of shares at year end - diluted333,626,020347,592,156 84
Alliance Trust PLC | Annual Report and Financial Accounts 201817Net Asset Value per Ordinary ShareThe diluted figure is the entire number of shares in issue.To arrive at the basic figure, the number of shares has been reduced by 407,316 (456,886) shares held by the Trustee of the EmployeeBenefit Trust. During the year the Trustee did not increase its holding. 49,570 (Nil) shares were transferred from the Employee Benefit Trustto satisfy share awards made by the Company or its subsidiaries to participants in the Long Term Incentive Plans in satisfaction of awards.For 2018, bonuses for the Executive team will be paid using shares held by the EBT.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 67. 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 2017 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.During 2017 expenses of £810,650 were recharged from ATI to the Company; there were no balances remaining at the year end.Expenses of £414,775 (£121,074) were recharged from the Company to Alliance Trust Savings and £350,051 (£117,794) from AllianceTrust Savings to Alliance Trust PLC; there were balances of £986,867 owed to, (£184,120) due from Alliance Trust Savings at year end.There are no other further related parties other than those stated below.Alliance Trust Services£000Year ended31 December 2018Year ended31 December 2017Paid by Alliance Trust PLC (the Company)54,990Paid to Alliance Trust PLC (the Company)(3)(153)Due from/(to)Alliance Trust Services Ltd(1)(2)Paid by Alliance Trust Savings Limited-8,773Paid to Alliance Trust Savings Limited-(3,392)Due from/(to)Alliance Trust Services Ltd--Paid by Alliance Trust Investments Limited-3,419Paid to Alliance Trust Investments Limited-(1,577)Due from/(to)Alliance Trust Services Ltd--Paid by Alliance Trust Equity Partners Limited216Paid to Alliance Trust Equity Partners Limited--Due from/(to)Alliance Trust Services Ltd-(2)Paid by Alliance Trust Real Estate Partners LP-8Due from/(to)Alliance Trust Services Ltd--Transactions with key management personnelDetails of the Non-Executive Directors are disclosed on pages 38 to 39. For the purpose of IAS 24 ‘Related Party Disclosures', key management personnel comprised the Non-Executive Directors of theCompany.Details of remuneration are disclosed in the remuneration report on pages 52 to 55.£000Dec 18Dec 17Total emoluments388418Payments to former key management personnel-95388513 85
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIIIII FINANCIAL STATEMENTSIV20Analysis of change in net cash/(debt)£000Dec 16Cash flowOthergains /(losses)Dec 17Cash flowOthergains /(losses)Dec 18Cash and cash equivalents49,43051,8224,556105,808(21,918)(2,722)81,168Bank loans and unsecured fixed rateloan notes(238,800)(13,000)(2,160)(253,960)6,000(361)(248,321)Net (debt)/cash(189,370)38,8222,396(148,152)(15,918)(3,083)(167,153)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 2018, which have not been accrued, for the Company totalled £1.7m (£22.8m). These were inrespect of uncalled subscriptions in investments in our private equity portfolio structured as limited partnerships (LP). A maturity analysis of the expiry dates of these LP commitments is presented below:£000Dec 18Dec 17< 1 year1,7372,3501-5 years-20,4001,73722,750The recallable distribution relating to FF&P Investors of £1.4m should cease once the partnership is wound up, this will happen after 5 April2019.The Company provided a letter of support to AT2006 Limited, one of its subsidiaries in connection with banking facilities made availableand confirming ongoing support for at least 12 months from the date the annual financial statements were signed, to make sufficient fundsavailable if needed to enable this company to continue trading, meet commitments and not 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.22Financial instruments and RiskThe Strategic Report details the Company’s approach to investment risk management on pages 32 to 34 and the accounting policies onpages 71 to 75 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 2017.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 18Dec 17Debt*(248,321)(253,960)Cash and cash equivalents81,168105,808Net (debt)(167,153)(148,152)Net (debt) as % of net assets(6.9)%(5.5)%*If debt had been valued at par, net debt as a percentage of net assets would be 6.0% (4.7%). 86
Alliance Trust PLC | Annual Report and Financial Accounts 201822Financial instruments and Risk22.1Risk 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 6. 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 currencyrisk, interest rate risk, and other price risk), credit risk, liquidity risk, and gearing risk. The assumptions and sensitivities within each riskare 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 32 to 34. The objectives, policies andprocesses for managing the risks, and the methods used to measure the risks, have not changed from the previous accounting period.22.2Market 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 6. Details of the equity investment portfolio at the balance sheet date are disclosed on pages 93 to 96.22.3Currency 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 mayenter into forward exchange contracts to cover specific foreign currency exposure.The currency exposure for overseas investments is based on the quotation currency of each holding, while the currency exposure for 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 18Net monetaryassetsDec 18TotalcurrencyexposureDec 18OverseasinvestmentsDec 17Net monetaryassetsDec 17TotalcurrencyexposureDec 17US dollar1,406,409-1,406,4091,527,085-1,527,085Euro428,694-428,694450,442-450,442Yen80,336-80,33672,116-72,116Other non-sterling360,791-360,791395,933-395,9332,276,230-2,276,2302,445,576-2,445,576Sensitivity 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 2017. The revenue return impact is an estimated figure for 12 monthsbased on the cash balances at the reporting date.£000Dec 18Dec 17Income statementRevenue return(4,050)(4,454)Capital return(258,077)(244,558)Net assets(262,127)(249,012)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. 87
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIIIII FINANCIAL STATEMENTSIV22Financial instruments and Risk22.4Interest 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:£000Dec 18Dec 17Exposure to floating interest ratesCash at bank81,168105,808Bank loans repayable within 1 year(67,000)(133,000)14,168(27,192)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 18Dec 17Income statementRevenue return(124)(155)Capital return35223Net assets(89)68If 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 18Dec 17Income statementRevenue return124155Capital return(35)(223)Net assets89(68)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 93 to 96. 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: 88
Alliance Trust PLC | Annual Report and Financial Accounts 201822Financial instruments and Risk22.5Other Price Risk£000Dec 18Dec 17Investments at fair value through Profit & LossInvestments listed on a recognised investment exchange2,514,5442,573,077Forward currency exchange contracts held at fair value through profit and loss-(2)Unlisted investments22,27346,578Other equity and funds5,888129,200Investments in related and subsidiary companies38,06088,0202,580,7652,836,873Sensitivity analysis97.7% (95.3%) of the Company’s investment portfolio is listed on stock exchanges. If share prices had decreased by 10% with all othervariables remaining constant, the income statement result and the net assets attributable to equity holders of the parent would havedecreased by the amounts shown below. The analysis for last year assumed a share price decrease of 10%.£000Dec 18Dec 17Income statementCapital return(252,043)(270,228)Net assets(252,043)(270,228)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 basis.The 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 18Dec 17Credit ratingAa180,827104,399A33411,40981,168105,808Average 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. Italso has the ability to borrow, which gives it access to additional funding when required. At the balance sheet date it had the followingfacilities: 89
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIIIII FINANCIAL STATEMENTSIV22Financial instruments and Risk22.7Liquidity Risk£000Dec 18Expires2017ExpiresCommitted multi-currency facility - RBS100,00031/12/2019100,00031/12/2018Amount drawn67,000-100,000-Committed multi-currency facility - Scotiabank-100,00027/03/2018Amount drawn--33,000-Committed multi-currency facility - Scotiabank100,00022/12/2020100,00022/12/2020Amount drawn----15 year 4.28% unsecured fixed rate loan notes *100,00031/07/2029100,00031/07/2029Amount drawn100,000-100,000-15 year 2.657% unsecured fixed rate loan notes *20,00027/11/2033-Amount drawn20,000---25 year 2.936% unsecured fixed rate loan notes *20,00027/11/2043-Amount drawn20,000---35 year 2.897% unsecured fixed rate loan notes *20,00027/11/2053-Amount drawn20,000---Total facilities360,000400,000Total drawn227,000-233,000-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 18Dec 17Investments after gearing2,580,7652,836,875Gearing*(248,321)(253,960)Investments before gearing2,332,4442,582,915* 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 18Dec 17Income statementCapital return(24,832)(25,396)Net assets(24,832)(25,396)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: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. 90
Alliance Trust PLC | Annual Report and Financial Accounts 201822Financial instruments and Risk22.9Hierarchical Valuation of Financial Instruments 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 2018. All fair value measurements disclosed are recurring fairvalue measurements.The Company valuation hierarchy fair value through profit and loss through the income statement:As at 31 December 2018As at 31 December 2017£000Level 1Level 2Level 3TotalLevel 1Level 2Level 3TotalListed investments2,520,432--2,520,4322,676,17926,100-2,702,279Foreign exchangecontracts-----(2)-(2)Unlisted investmentsPrivate equity--14,59514,595--81,18581,185Alliance TrustSavings--32,65032,650--38,00038,000Mineral rights--12,88112,881--15,29715,297Other--207207--1161162,520,432-60,3332,580,7652,676,17926,098134,5982,836,875There 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 included withinLevel 1 and comprise equities, bonds and exchange-traded derivatives. This includes assets noted as part of the equity portfolio and the listed investment of Liontrust Asset Management PLC shares and, duringthe year ended 2017, Luxcellence Liontrust Sustainable Future Pan European Equity Fund which was sold in April 2018. All as shown aspart of the portfolio on pages 23. 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. During the year ended 2017 this included the investments of Liontrust Sustainable Future Cautious Managed Fund and LiontrustSustainable Future Defensive Managed Fund. These investments were sold in April 2018 and there were no assets in this category as at31 December 2018.Fair Value Assets in Level 3This includes subsidiary companies, private equity investments and North American mineral rights held by the Company noted on page 23. From 1 April 2017 Level 3 assets, excluding the valuation of Alliance Trust Savings, are reviewed at least annually by the ValuationCommittee of Towers Watson 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 Directors' valuation of AllianceTrust Savings has been agreed as the consideration agreed to be paid for it by Interactive Investor Limited as announced in October 2018,adjusted for transaction costs. 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 18Dec 17Balance at 1January134,598217,275(Loss)/net gain from financial instruments at fair value through profit or loss(14,101)(16,668)Purchases at cost3,2363,913Sales proceeds(73,441)(68,759)Realised (loss)/gain on sale10,041(1,163) 91
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIIIII FINANCIAL STATEMENTSIV22Financial instruments and Risk22.9Hierarchical Valuation of Financial Instruments £000Dec 18Dec 17Balance at 31 December60,333134,598Investments in subsidiary companies (Level 3) are valued in the Company accounts at £38.1m (£88.0m). The valuation of Alliance Trust Savings is £32.7m (£38.0m) and for 2018 is carried at the sale value to Interactive Investor Limited adjustedfor transaction costs.Mineral rights are carried at fair value and are valued in the Company’s accounts at £12.9m (£15.3m) being the Directors' estimate of theirfair value, using agreed sale values and the guidelines and methodologies on valuation published by the Oklahoma Tax Commission andfor non-producing properties, the Lierle US Price Report. 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 2018. 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.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')Employees could receive up to £3,600 of shares annually under the terms of the AESOP. This amount was pro-rated for part-timeemployees. Individuals received these shares free of all restrictions after a period of five years. No awards were made in 2018 (Employeesof Alliance Trust Investments Limited received awards of £1,500 in 2017). No new annual or matching awards will be made under theAESOP. The total costs for the AESOP for all staff are borne by the employing Company. Long Term Incentive Plan ('LTIP')The LTIP is a discretionary plan for Executive Directors and senior managers, no awards have been made since May 2015 and no newawards will be made. It comprises two elements: first it provided for the grant of matching awards based on the proportion of annual bonusapplied by participants in the purchase of shares in the Company and held by the Employee Benefit Trust; and second it provided for thegrant of performance awards. Both awards, granted over shares in the Company, vest either in full or in part at the end of the three-yearperformance period or five years from date of grant in the case of the 2015 awards subject to meeting pre-defined targets.The number of shares comprised in all awards has now been determined and was reported in the 2017 financial statements. 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. No awards have been made since 2016. 92
Alliance Trust PLC | Annual Report and Financial Accounts 2018
23Share-Based PaymentsMovements in optionsMovements in options granted under the LTIP are as follows:December 2018December 2017£000Number ofoptionsWeighted averageexercise priceNumber ofoptionsWeighted averageexercise priceOutstanding at 1 January890,552£0.001,725,833£0.00Granted during year-£0.0050,300£0.00Exercised during year(58,339)£0.00(260,065)£0.00Forfeited during year-£0.00(56,213)£0.00Expired during year-£0.00(569,303)£0.00Outstanding at 31 December832,213£0.00890,552£0.00Exercisable at 31 December-£0.00-£0.00The weighted average remaining contractual life of the options outstanding at 31 December 2018 was 555 days (877 days).The weighted average exercise price of the options is Nil (Nil) as any options which vest at the end of the performance period are satisfiedby shares held on behalf of the Company by the Trustee of the Employee Benefit Trust.24Pension SchemeIn the period the Company sponsored three pension arrangements. The Alliance Trust Companies’ Pension Fund (the Scheme) was afunded defined benefit pension scheme. On 25 June 2018, following completion of a buyout and the issuance by Legal & General and otherinsurers of individual annuities to all members in respect of their entitlement to benefits from the Scheme, the Trustees of the Schemeterminated the Scheme and it is now wound up.The other pension arrangements offered by the Trust are (i) membership of a pension plan through the National Employment SavingsTrust, this was set up for the purposes of auto-enrolment and has no members and (ii) contributions by the Trust to personal SIPPsoperated by individual members and administered by Alliance Trust Savings.25Operating lease commitmentsAs at 31 December 2018 the Company had total future minimum outgoing lease payments under non-cancellable operating leases asfollows:31 December 201831 December 2017£000Land andbuildingsOtherLand andbuildingsOtherLease commitments payableWithin 1 year250325016Between 2-5 years1,000-1,0002After 5 years113-363-In 2018 the Company had lease commitments payable on one property which is sublet. As at 31 December 2018 total future minimum lease amounts receivable under non-cancellable operating leases, including the sub-lease,were as follows:31 December 201831 December 2017£000Land andbuildingsOtherLand andbuildingsOtherLease commitments receivableWithin 1 year569-532-Between 2-5 years2,275-3,467-After 5 years1,109-288-26Contingent assetsThe sale of Alliance Trust Investments to Liontrust Asset Management Plc (Liontrust) included £3m in cash as contingent consideration,dependent on the future level of assets under management payable two years after completion. The inflow of these funds to the Companyis considered probable but not virtually certain and as such is being disclosed as a contingent asset. EQUITY PORTFOLIO LISTING
EQUITY HOLDINGS AS AT 31 DECEMBER 2018
Stock
HDFC Bank
Microsoft
Alphabet
Unilever
Western Union
UnitedHealth Group
HCA Healthcare
Oracle
Anthem
Cigna Corporation
Charter Communications
AIA
Aflac
Philip Morris International
Reckitt Benckiser
Ryanair
Broadcom
TP ICAP
CVS Health
Novo-Nordisk
Yum
Page Group
Microchip Technology
GlaxoSmithKline ADR
Celanese
Comcast
Regeneron Pharmaceuticals
Luxottica Group
Danone
Visa
Qurate Retail
Baidu - ADR
Suncor Energy
IHS Markit
EOG Resources
salesforce.com
Aercap
Fleetcor Technology
Autodesk Inc
Rolls Royce
Ambev
Schneider Electric
Equinix
Alibaba
Sap Se - ADR
Booz Allen Hamilton
WPP
Fomento Econ Mexicano
Prada
Santen Pharmaceutical
Heidelbergcement
Edenred
Standard Chartered
Inditex
Lloyds Banking
Amazon
Ameriprise Financial
Tencent
Proctor & Gamble
Sector
Financials
Information Technology
Communication Services
Consumer Staples
Information Technology
Health Care
Health Care
Information Technology
Health Care
Health Care
Communication Services
Financials
Financials
Consumer Staples
Consumer Staples
Industrials
Information Technology
Financials
Health Care
Health Care
Consumer Discretionary
Industrials
Information Technology
Health Care
Materials
Communication Services
Health Care
Consumer Discretionary
Consumer Staples
Information Technology
Consumer Discretionary
Communication Services
Energy
Industrials
Energy
Information Technology
Industrials
Information Technology
Information Technology
Industrials
Consumer Staples
Industrials
Real Estate
Consumer Discretionary
Information Technology
Information Technology
Communication Services
Consumer Staples
Consumer Discretionary
Health Care
Materials
Industrials
Financials
Consumer Discretionary
Financials
Consumer Discretionary
Financials
Communication Services
Consumer Staples
I
II
III
IV OTHER INFORMATION
Country of listing
% of quoted
equities
Value
£m
India
United States
United States
United Kingdom
United States
United States
United States
United States
United States
United States
United States
Hong Kong
United States
United States
United Kingdom
Ireland
United States
United Kingdom
United States
Denmark
United States
United Kingdom
United States
United Kingdom
United States
United States
United States
Italy
France
United States
United States
China
Canada
United Kingdom
United States
United States
Ireland
United States
United States
United Kingdom
Brazil
France
United States
China
Germany
United States
United Kingdom
Mexico
Italy
Japan
Germany
France
United Kingdom
Spain
United Kingdom
United States
United States
China
United States
2.1
1.8
1.7
1.5
1.4
1.4
1.4
1.3
1.3
1.2
1.1
1.1
1.1
1.0
1.0
1.0
1.0
1.0
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
0.7
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
0.7
0.7
0.7
0.7
0.7
0.7
53.1
45.7
43.7
38.5
35.9
35.7
34.6
32.9
32.4
29.3
27.2
26.6
26.6
25.1
24.9
24.8
24.7
24.1
23.5
22.5
22.0
21.9
21.8
21.1
20.8
20.7
20.6
20.1
19.7
19.5
19.5
19.4
19.3
19.3
19.3
19.1
18.6
18.4
18.2
18.2
18.1
18.1
18.0
17.9
17.9
17.8
17.8
17.7
17.6
17.4
17.3
17.3
17.3
17.3
17.1
17.1
17.1
17.0
16.7
Alliance Trust PLC | Annual Report and Financial Accounts 2018
93
EQUITY PORTFOLIO LISTING
CONTINUED
EQUITY HOLDINGS AS AT 31 DECEMBER 2018
Stock
Diageo
Lincoln National
Glanbia
Sulzer
AIB Group
Mastercard
Allergan
New Oriental Education ADR
Barrick Gold
Grandvision
DKSH Holding AG
Intercontinental Exchange
Carnival Corporation
Cie De St-Gobin
Oc Oerlikon
Naspers
Citigroup
Johnson
Sumitomo Mitsui Financial
DSM
Nestle
Capgemini
BorgWarner
H&R Block
Pearson
IMCD Group
BP
Safran
Air Liquide
Abbot Laboratories
Roche
Volkswagen
Daikin Industries
L’Oreal
Nielsen
Harley Davidson
Whirlpool
Raph Lauren
Nextera Energy Inc
Applus Services
American Express
Imperial Brands
Qualcomm
Anima Holding
Inovalon
Goodyear Tire & Rubber
Ericsson
Tesco
Anglo American
Banco Santander-MX
Facebook
Nintendo
Commscope Hldg
Dollar General
Astrazeneca
TS Tech
Western Digital
Barclays
Adobe Systems
Sector
Consumer Staples
Financials
Consumer Staples
Industrials
Financials
Information Technology
Health Care
Consumer Discretionary
Materials
Consumer Discretionary
Industrials
Financials
Consumer Discretionary
Industrials
Industrials
Communication Services
Financials
Industrials
Financials
Materials
Consumer Staples
Information Technology
Consumer Discretionary
Consumer Discretionary
Communication Services
Industrials
Energy
Industrials
Materials
Health Care
Health Care
Consumer Discretionary
Industrials
Consumer Staples
Industrials
Consumer Discretionary
Consumer Discretionary
Consumer Discretionary
Utilities
Industrials
Financials
Consumer Staples
Information Technology
Financials
Health Care
Consumer Discretionary
Information Technology
Consumer Staples
Materials
Financials
Communication Services
Communication Services
Information Technology
Consumer Discretionary
Health Care
Consumer Discretionary
Information Technology
Financials
Information Technology
94
94
Alliance Trust PLC | Annual Report and Financial Accounts 2018
Country of listing
% of quoted
equities
Value
£m
United Kingdom
United States
Ireland
Switzerland
Ireland
United States
United States
China
Canada
Netherlands
Switzerland
United States
United States
France
Switzerland
South Africa
United States
United States
Japan
Netherlands
Switzerland
France
United States
United States
United Kingdom
Netherlands
United Kingdom
France
France
United States
Switzerland
Germany
Japan
France
United States
United States
United States
United States
United States
Spain
United States
United Kingdom
United States
Italy
United States
United States
Sweden
United Kingdom
United Kingdom
Mexico
United States
Japan
United States
United States
United Kingdom
Japan
United States
United Kingdom
United States
0.7
0.7
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
0.6
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
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
16.6
16.5
16.4
16.4
16.3
16.3
16.2
16.2
16.2
16.0
16.0
16.0
16.0
16.0
15.9
15.7
15.7
15.7
15.6
15.5
15.4
15.4
15.3
15.1
15.0
14.9
14.9
14.7
14.7
14.6
14.5
14.3
14.2
14.1
14.0
13.9
13.9
13.8
13.7
13.3
13.3
13.1
13.0
12.9
12.9
12.8
12.4
12.4
12.0
12.0
11.4
11.3
11.1
10.9
10.9
10.8
10.7
10.5
10.5
Alliance Trust PLC | Annual Report and Financial Accounts 2018 EQUITY HOLDINGS AS AT 31 DECEMBER 2018
Stock
Flex
Sonic Healthcare
Marks & Spencer
Airbus
Deutsche Boerse
Bayer AG
Ping An Insurance
Henry Schein
ICICI Bank
Centrica
Sapiem
S&P Global
Hain Celestial
McKesson
Tingyi Holding
Housing Development Finance Corporation
Auto Data Process
Exxon Mobil
Stryker Corp
CGG
Nippon Television
Adient Plc
Bank Central Asia
Sankyo
Macquarie
Solocal
Eni
Heineken
Grupo Televisa Sab
Veeco
Reliance Industries
China Mobile
Link Reit
Cooper Cos Inc
Infosys - ADR
CK Infastructure
HANG SENG BANK LTD HKD5
China Tower
Tata Consultancy
MTR Corp
Coca-Cola HBC
Samsung Fire & Mar
Samsung Electronics
Kotak Mahindra Bank
Taiwan Semiconductor Manufacturing
Infosys
SK Telecom
Bangkok Dusit Medi
Guangdong Investment
KT Corp
CLP Holdings
Bank Rakyat
CP All
ITAUSA Investimen
America Movil
Sarana Menara
Kasikornbank
Electricity Gen Public
Vale
Sector
Information Technology
Health Care
Consumer Discretionary
Industrials
Financials
Health Care
Financials
Health Care
Financials
Utilities
Energy
Financials
Consumer Staples
Health Care
Consumer Staples
Financials
Information Technology
Energy
Health Care
Energy
Communication Services
Consumer Discretionary
Financials
Consumer Discretionary
Financials
Communication Services
Energy
Consumer Staples
Communication Services
Information Technology
Energy
Communication Services
Real Estate
Health Care
Information Technology
Utilities
Financials
Communication Services
Information Technology
Industrials
Consumer Staples
Financials
Information Technology
Financials
Information Technology
Information Technology
Communication Services
Health Care
Utilities
Communication Services
Utilities
Financials
Consumer Staples
Financials
Communication Services
Communication Services
Financials
Utilities
Materials
Country of listing
% of quoted
equities
Value
£m
United States
Australia
United Kingdom
France
Germany
Germany
China
United States
India
United Kingdom
Italy
United States
United States
United States
China
India
United States
United States
United States
France
Japan
Ireland
Indonesia
Japan
Australia
France
Italy
Netherlands
Mexico
United States
India
Hong Kong
Hong Kong
United States
India
Hong Kong
Hong Kong
Hong Kong
India
Hong Kong
Switzerland
South Korea
South Korea
India
Taiwan
India
South Korea
Thailand
Hong Kong
South Korea
Hong Kong
Indonesia
Thailand
Brazil
Mexico
Indonesia
Thailand
Thailand
Brazil
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.3
0.3
0.3
0.3
0.3
0.3
0.2
0.2
0.2
0.2
0.2
0.2
0.2
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
0.1
0.1
0.1
10.2
10.0
9.9
9.8
9.8
9.7
9.7
9.7
9.6
9.4
9.3
9.1
9.0
8.9
8.8
8.4
8.2
8.1
7.9
6.9
5.8
5.5
5.4
5.4
5.3
5.3
5.2
5.0
4.8
4.5
4.3
3.8
3.7
3.6
3.5
3.2
3.1
3.0
2.9
2.7
2.7
2.6
2.5
2.4
2.3
2.1
2.0
2.0
2.0
2.0
1.8
1.7
1.5
1.4
1.4
1.4
1.4
1.4
1.3
95
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIIIV OTHER INFORMATIONIII EQUITY PORTFOLIO LISTING
CONTINUED
EQUITY HOLDINGS AS AT 31 DECEMBER 2018
Stock
China Petroleum
Petrochina Co Ltd
Boc Hong Kong
Equatorial Energia
CIA De Transmissa
Macquarie Korea
United Breweries Ltd
ITAU Unibanco
TAESA
Bajaj Finance
Beijing Enterprise
IHH Healthcare
NTPC Ltd
Wal-Mart de Mexico
Korea Gas Corpora
Chailease Holding
Sector
Energy
Energy
Financials
Utilities
Utilities
Financials
Consumer Staples
Financials
Utilities
Financials
Utilities
Health Care
Utilities
Consumer Staples
Utilities
Financials
Country of listing
% of quoted
equities
Value
£m
China
China
China
Brazil
Brazil
South Korea
India
Brazil
Brazil
India
Hong Kong
Malaysia
India
Mexico
South Korea
Taiwan
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
1.3
1.1
1.1
1.0
1.0
0.9
0.9
0.8
0.8
0.8
0.7
0.7
0.7
0.6
0.6
0.2
Source: WTW 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. Where the percentage of the portfolio is shown as
0.0% this is due to the small size of the holding and rounding the percentage downwards. Holdings may be selected by more than one stock picker.
96
Alliance Trust PLC | Annual Report and Financial Accounts 2018 GLOSSARY: PERFORMANCE MEASURES AND OTHER TERMS
Throughout this document a number of terms are used
to describe performance. Where not described in detail
elsewhere set out here is what these terms mean.
Gearing (Net) is a measure of the Trust’s financial leverage
and calculated by dividing the Trust’s net borrowings (i.e.
total borrowings minus cash) by its Net Asset Value.
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, in the case of the Trust the MSCI ACWI.
For the equity portfolio as at 31 December 2018 this was
calculated as 2.5% 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 2018 this was
calculated as 80% in relation to the MSCI ACWI benchmark.
Benchmark Volatility is a measure of the variability of the
benchmark returns, MSCI ACWI. It is calculated as the standard
deviation of the benchmark returns over a one year period.
The benchmark volatility as at 31 December 2018 was
calculated to be 12.5%.
Beta is a measure of the risk, defined as the volatility
of a stock or the portfolio compared to the 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. For example, if a stock has a Beta of 0.5,
you would expect it to increase or decrease in value, half as
much as the benchmark increases or decreases. The equity
portfolio has a Beta of 0.94 as at 31 December 2018 so it
should increase or decrease in value by less than the
movement of the benchmark.
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 Total Return is the MSCI ACWI total return. The Equity
Portfolio Total Return was -4.2% over the year to end 31
December 2018 before managers’ fees and including the effect
of managers' cash holdings. On page 23 an analysis of the
investment portfolio and equity portfolio return is provided.
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.
Gearing (Gross) = Total Gearing is a measure of the Trust’s
financial leverage. It is calculated by dividing the Trust’s total
borrowings by its Net Asset Value. The Gross Gearing calculation
includes any cash or non-equity holdings.
Leverage For the purposes of the Alternative Investment
Fund Managers (AIFM) Directive, ‘leverage’ is a term used to
describe any method by which the Company increases its
exposure, whether through borrowing (gearing) or through
leverage embedded in derivative positions, or by any other
means. As required by AIFMD, leverage is calculated using
two methods: the ‘gross’ method which gives the overall
total exposure, and the ‘commitment’ method which takes
into account hedging and netting offsetting positions. As the
leverage calculation includes exposure created by the Company’s
investments, it is only described as ‘leveraged’ if its overall
exposure is greater than its net asset value. This is shown as
a leverage ratio of greater than 100%.
MSCI means MSCI Inc which provides information relating
to the benchmark, the MSCI All Country World Index (MSCI
ACWI), against which the performance target for the
equity portfolio has been set.
MSCI All Country World Index (MSCI ACWI) is a market
capitalisation weighted index designed to provide a broad
measure of equity-market performance throughout the
world. It is comprised of stocks from both developed and
emerging markets. The index used measures performance in
sterling and that as much as possible of a company’s dividend
distributions are reinvested back into the index. The reinvested
amount is equal to the total dividend amount distributed to
persons residing in the country of the dividend paying company,
excluding any tax credits. 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 (NAV) over a specified time period.
It combines any appreciation in the NAV and dividends paid.
The comparator used for NAV Total Return is the MSCI ACWI
total return.
After fees NAV Total Return including income with debt at
Fair Value was -5.4% at 31 December 2018.
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 2018 is
£2.4bn divided by 333,626,020 ordinary shares in issue on
that date, giving a NAV per share of 723.6p. This includes
income and with debt at fair value.
Non-core Assets or Non-core Investments are the assets the
Trust holds aside from the global equity portfolio. These include
mineral rights, shares in Liontrust Asset Management PLC and
a number of private equity holdings. During 2018, the Trust
has successfully sold a significant part of the legacy non-core
assets portfolio with the remaining non-core assets expected
to be sold or be wound down in 2019 as part of the Trust’s
strategy to simplify and focus on the global equity portfolio.
97
Alliance Trust PLC | Annual Report and Financial Accounts 2018IIIIV OTHER INFORMATIONIII GLOSSARY: PERFORMANCE MEASURES AND OTHER TERMS
CONTINUED
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 29.
Ongoing Charge Ratio (OCR) The total expenses (excluding
borrowing costs) incurred by the Trust as a percentage of the
average NAV (with debt at fair value). A fuller explanation and
the method of calculation can be found on page 29.
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. It is calculated as the standard deviation of the
benchmark returns over a one year period. The benchmark
volatility as at 31 December 2018 is calculated to be 11.9%.
Total Assets represents total net assets less current
liabilities, before deduction of all borrowings.
Total Expense Ratio (TER) is a measure of the total costs
associated with managing and operating of the Trust. These
costs consist primarily of management fees and additional
expenses, such as trading fees, legal fees, auditor fees and
other operational expenses. The total cost of the Trust is
divided by the Trust’s total assets to arrive at a percentage
amount, which represents the TER. The TER over the year to
end 31 December 2018 was 0.68%.
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 the TSR is
the MSCI ACWI total return. This measure shows the actual
return received by a shareholder from their investment.
The TSR as at 31 December 2018 was -6.1%.
98
Alliance Trust PLC | Annual Report and Financial Accounts 2018
INFORMATION FOR SHAREHOLDERS
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
ANNUAL REPORT AND ELECTRONIC
COMMUNICATIONS
The Trust sends paper Annual Reports only to shareholders
who have requested this. All shareholders receive notices
of the Trust’s general meetings and information on how to
access our Annual Report either in paper form or electronically.
Shareholders can opt to receive all notifications electronically
by going to www-uk.computershare.com/investor
GENERAL ENQUIRIES
TAXATION
If you have an enquiry about the Trust, or wish to receive
a paper copy of our Annual Report, please contact the
Company Secretary at our registered office:
8 West Marketgait,
Dundee DD1 1QN
Tel: 01382 321010
Email: investor@alliancetrust.co.uk
The Trust’s 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 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-uk.computershare.com/investor
DATA PROTECTION
Where the Trust has personal information, it will be held and
processed by the Trust as a data controller in accordance with
the requirements of the General Data Protection Regulation
and any other applicable legislation. This may be information
received from or about shareholders or investors (for example
from a stockbroker), whether by telephone or in writing,
or by any 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 you will be removed
from our mailing lists.
If you are in any doubt about your liability to tax arising from
a shareholding in the Trust, you should seek professional advice.
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.
DIVIDEND TAX ALLOWANCE
Shareholders will normally have a tax-free allowance across
their entire share portfolio. Above this amount, shareholders
will pay tax on their dividend income at a rate dependent on
their income tax bracket and personal circumstances.
The Trust’s Registrars provide registered shareholders with a
confirmation of the dividends paid by the Trust. Shareholders
should include this with any other dividend income when
calculating and reporting total dividend income received
to HMRC.
If you have any tax queries, you should seek professional
advice.
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
Alliance Trust PLC | Annual Report and Financial Accounts 2018
99
IIIIV OTHER INFORMATIONIII INFORMATION FOR SHAREHOLDERS
CONTINUED
SHARE INVESTMENT
The Trust invests primarily in equities and aims to generate
capital growth and a progressively rising dividend from its
portfolio of investments.
The 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.
Shares in the 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 COMMUNICATIONS
The Trust is aware of contact being made with shareholders,
generally by telephone, seeking information about their
shareholdings. These unsolicited callers may state this is
in connection with a takeover bid or some other reason.
They may offer to buy your shares at a price significantly
above the current market price. If you have any concerns
about the genuineness of any such communication you
may call us on 01382 321010.
100
The Trust is prohibited from advising shareholders on whether
to buy or to sell shares in the Trust, but recommend that if
you wish to sell your shares you deal only with a financial
services firm that is authorised by the FCA.
ANNUAL GENERAL MEETING
The 131st Annual General Meeting of the Trust will be held
at 11.00 am on Thursday 25 April 2019 at the Apex City Quay
Hotel, 1 West Victoria Dock Road, Dundee, DD1 3JP.
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 two of the Trust’s stock
pickers, Andrew Wellington of Lyrical Asset Management and
Rob Rohn of Sustainable Growth Advisers.
FINANCIAL CALENDAR
Proposed dividend payment dates for the financial year to
31 December 2019 are on or around:
• 1 July 2019
• 30 September 2019
• 31 December 2019
• 31 March 2020
COMMON REPORTING STANDARDS
You may have received requests from the Trust’s 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, the Trust is
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 these requests have to be made.
If you have any queries on the validity of any document
received from our Registrars, you can contact them directly
on 0370 889 3187.
KEY INFORMATION DOCUMENT
Investment trust companies (and other providers of
investment products) are required to publish a Key
Information Document (KID). This required the inclusion of
standardised illustrations of theoretical risk and returns.
The intention is to allow investors to enable a comparison
of different investment products across a wide range of
financial sectors. Caution should be used in using KIDs as
the sole basis for your investment decisions.
Alliance Trust PLC | Annual Report and Financial Accounts 2018 I
II
III
IV OTHER INFORMATION
TEN-YEAR RECORD
A ten-year record of the Trust’s Financial Performance is provided below.
Assets £m as at
Total assets
Loans
Net assets
Net asset value (p)
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
31 Dec
2018
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
2,678
(227)
2,411
NAV per share
377.7
439.0
405.8
444.9
516.5
544.8●
559.0●
667.5●
777.7●
723.6●
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
210.7
178.6
198.3
217.8
265.8
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
688.0
785.0
672.0
5
–
11
–
7
–
7
–
12
–
11
–
13
–
6
–
5
–
7
–
226.0
197.0
225.5
266.4
306.7
Year ended 31 January 11 mths to 11 mths to
2012
2011 31 Dec 2011
2010
2013
2014
2015
2016
2017
2018
Year ended 31 December
Profit after tax
£61.1m
£63.8m
£61.9m
£55.6m
£60.6m
£68.8m
Earnings per share
Dividends per share
Special dividend
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∆
£65.9m
£48.5m
£41.4m
12.77p
12.77p
–
12.86p
13.16p
–
12.18p
13.55p
–
Performance %
(rebased at 31 Jan
2009) as at
NAV per share
Closing price per share
Earnings per share
Dividends per share
(excluding special)
Cost of running
the Trust
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
31 Dec
2018
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
148
174
228
257
117
169
Year ended 31 January 11 mths to 11 mths to
2012
2011 31 Dec 2011
2010
Year ended 31 December
2013
2014
2015
2016
2017
2018
Total expenses
£16.0m
£17.0m
£16.0m
£18.7m
£21.5m
£20.8m
£23.9m
£16.8m
£17.4m
£ 17.4m
Ongoing charges ratio
(excluding capital
incentives***)
Total expense ratio
●With debt at fair value.
*Source: Morningstar UK Ltd.
0.64%
0.69%
0.53%
0.56%**
0.60%
0.60%**
0.67%
0.71%
0.75%
0.80%
0.60%
0.64%
0.59%
0.63%
0.43%
0.54%
0.54%
0.58%
0.65%
0.68%
†Includes capital dividend paid December 2015.
∆Capital dividend paid December 2015.
**Administrative expenses used in calculating these ratios have been annualised given the financial reporting period was for 11 months, except for incentives which were on an actual basis.
***The AIC’s recommended methodology for the calculation of an Ongoing Charges figure states that for self-managed companies costs relating to compensation schemes which
are linked directly to investment performance should be excluded from the calculation of the principal Ongoing Charges figure.
Alliance Trust PLC | Annual Report and Financial Accounts 2018
101
CONTACT
Alliance Trust PLC
8 West Marketgait
Dundee
DD1 1QN
Tel +44 (0)1382 321010
Email investor@alliancetrust.co.uk
www.alliancetrust.co.uk
V & A Museum of Design (photograph courtesy of Ross Fraser McLean)