REG - Alliance Trust PLC - 2019 Final Results
Alliance Trust PLC
6 March 2020
Outperformance in 2019
Results for the year ended 31 December 2019
Financial Highlights
As at 31 Dec 2019
As at 31 Dec 2018
Year-on-year change
Share price
840.0p
688.0p
+22.1%
NAV per share2
875.9p
723.6p
+21.0%
Total dividend2
13.96p
13.55p
+3.0%
Performance Highlights
- In 2019, the Trust's Total Shareholder Return1 for 2019 was 24.3% (2018: -6.1%) and the Trust's Net Asset Value (NAV) Total Return1 was 23.1% (2018: - 5.4%) versus 21.7% (2018: -3.3%) for its benchmark, the MSCI All Country World Index (MSCI ACWI)
- Since the appointment of Willis Towers Watson (WTW) as the Trust's Investment Manager in April 2017, the Total Shareholder Return was 28.9% and the Trust's NAV Total Return was 27.1%, outperforming the MSCI ACWI which returned 25.5%
- The Trust's Equity Portfolio Total Return, before fees, since the appointment of WTW was 29.2%, 3.7% ahead of the MSCI ACWI. This is an approximation of what the Trust's NAV Total Return would have been between the appointment of WTW and 31 December 2019 had the Trust not held the non-core investments and subsidiaries which have now been sold
- Ongoing Charges Ratio (OCR)1 for 2019 was 0.64%, down from 0.65% in 2018
- The year began with the Trust's shares trading at a discount of 4.9% and ended 2019 at a discount of 4.1%. The Trust bought back 4.6m shares in 2019 compared to 14.0m in 2018
- The Trust raised its total ordinary dividend for 2019 by 3.0% to 13.96p, marking the 53rd consecutive annual increase.
Gregor Stewart, Chairman of Alliance Trust PLC commented:
"I am pleased to report that 2019 was a good year for the Trust; it outperformed its benchmark and many of our peers, despite political and macroeconomic headwinds. We have increased the dividend for the 53rd consecutive year, raising it by 3.0%. In 2019, our Total Shareholder Return was 24.3% and our NAV Total Return was 23.1%, versus 21.7% for our benchmark, the MSCI ACWI and a median return of 22.4% for our peers*.
"Our investment strategy has also performed well since WTW was appointed in April 2017, delivering a Total Shareholder Return of 28.9% and a NAV Total Return of 27.1% versus 25.5% for the MSCI ACWI.
"During 2019, we completed the simplification of the Trust by selling our subsidiary, Alliance Trust Savings, and virtually all our remaining non-core assets. As a result, we are now fully focused on global equities, something the Board has been working towards for the last four years. We expect the Trust's new streamlined structure to lead to continued improvement in returns to shareholders, making us an attractive core holding for generations of investors for many years to come."
1. Alternative Performance Measure
2. GAAP Measure
* Peer group is the Morningstar universe of UK retail global equity funds (closed and open ended).
About Alliance Trust PLC
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, as rated by Willis Towers Watson, into a single diversified portfolio designed to outperform the market while carefully managing risk and volatility. Alliance Trust is an AIC Dividend Hero with 53 consecutive years of rising dividends.
https://www.alliancetrust.co.uk
For more information, please contact:
Mark Atkinson
Head of Marketing and Investor Relations
Sarah Gibbons-Cook
Alliance Trust PLC
Quill PR
Tel: 07918 724303
Tel: 020 7466 5050 / AllianceTrust@quillpr.com
-ENDS-
CHAIRMAN'S STATEMENT
"I am delighted that in my first Chairman's Statement I can report that 2019 was a good year for the Trust, despite these unusual and uncertain times overshadowed by Brexit and now the coronavirus. We saw strong returns from our investments, outperforming our benchmark and our peers not only over the last 12 months but also since we adopted our multi-manager strategy in April 2017. We have also increased our ordinary dividend for the past 53 years. Virtually all of our non-core investments have been sold; the Trust is now well-positioned for continued outperformance."
The Trust delivered a strong investment performance in 2019. We ended the year with a NAV Total Return of 23.1% and a Total Shareholder Return (TSR) of 24.3%; our benchmark index, the MSCI ACWI, returned 21.7%. The main reason for this, which is explained in more detail in our Investment Manager's report, is down to the performance of the stocks selected by our nine Stock Pickers.
We are a long-term investor so we do not want to concentrate too much on performance over 12 months. Our multi-manager approach is also delivering over a longer period. Between 1 April 2017, when we appointed WTW as our Investment Manager and 31 December 2019, our NAV Total Return was 27.1% and our TSR was 28.9%, both comfortably ahead of the MSCI ACWI which returned 25.5% for the same period. On page 8 of the Annual Report we provide an estimate of how the Trust would have performed had we not owned Alliance Trust Savings or held the non-core investments, which we have now sold.
COMMITTING TO AN INCREASING DIVIDEND
I am pleased to report that we are declaring a fourth interim dividend for 2019 of 3.49p per share. This brings the total dividend for the year to 13.96p, an increase of 3% on last year. The Trust has increased its ordinary dividend for the past 53 years and the Board expects this to continue.
The Trust has strong revenue reserves from which it can continue to pay dividends even if there should be a shortfall in the income from our portfolio in any year. To further strengthen our dividend coverage and provide the potential to increase dividends, we are asking shareholders to approve a conversion of our Merger Reserve to a distributable reserve; if successful this change will mean we will have an additional £645.3m available to support increased dividend levels in the future. We will also be giving our shareholders the opportunity to approve our progressive Dividend Policy. We report in more detail on page 35 of the Annual Report.
We are introducing a Dividend Reinvestment Plan which will be administered by our Registrars. This will be available for the June 2020 dividend and shareholders will be able to join the Plan from 31 March 2020. This will enable shareholders to increase their holding in the Trust in a cost-effective way.
NARROWING OUR DISCOUNT
We increased our focus on the Trust's sales, marketing and investor relations activities in 2019 and we have seen demand for the Trust's shares from existing as well as new investors. These activities included an increased number of meetings with shareholders and potential shareholders, which helped us maintain our understanding of the needs of investors. The increased demand for shares will naturally narrow the discount at which our shares trade, thereby benefitting existing shareholders. This focus will continue in 2020. During 2019, the Trust bought back a total of only 4.6m shares compared to 14.0m in 2018 and added £1.9m to the Net Asset Value for remaining shareholders. The average discount for the year was 5.0% and we ended the year at 4.1% (4.9% in 2018). While I am pleased at the progress made to date, we expect to see the discount narrow further as a result of continuing strong performance and increased demand. We report in more detail on our discount and share buyback activity on page 36 of the Annual Report.
CONTROLLING COSTS
We have continued to control costs resulting in the Trust's administrative expenses reducing to £5.9m from £6.5m in 2018. This includes the reduction in Directors' remuneration that we implemented in July 2019. At the year-end we are reporting an Ongoing Charges Ratio of 0.64%, which remains competitive for a global, active equity, multi-manager trust. We report in more detail on our costs on page 34 of the Annual Report.
INVESTING RESPONSIBLY
We believe that if we invest responsibly not only will our shareholders benefit but so will wider society. All of our Managers have processes in place to ensure that they have regard for Environmental, Social and Governance (ESG) matters when they select investments for the Trust. We have strengthened our approach to responsible investing by appointing external experts Hermes EOS (Equity Ownership Services)1. Hermes EOS not only provides guidance to our Managers on voting at company meetings, but uses its size (they represent asset owners and asset managers with more than £662bn) to encourage positive change in the way companies run their businesses. You can read more about this topic on page 17 of the Annual Report.
BORROWING TO IMPROVE PERFORMANCE
We regularly review the funding structure of the Trust and at the end of the year one of our existing facilities was expiring. We took the opportunity to refinance all of our other short-term borrowings and entered two new revolving credit facilities totalling £200m. Following the refinancing exercise, the Trust's weighted average interest on all borrowings remained at 3.1%.
CREATING A DIVERSE AND EFFECTIVE BOARD
On behalf of the Board, I would like to thank Lord Smith for his hard work and dedication as Chairman and for successfully leading the Board through a period of significant change. I am pleased to welcome Jo Dixon who joined the Board in January 2020 and takes on the role of Chair of the Audit & Risk Committee in March. Jo's appointment adds to the Board's existing skills and expertise, particularly its financial and audit knowledge, and also means that we have achieved our target of 33% female representation on the Board.
It was gratifying that the work carried out to refocus the Trust was recognised in the 2019 Citywire Investment Trust awards in which we were named Best Board. The judges commended the Board for the changes that had been made, saying it had tackled issues "head on" and implemented significant change "at a rapid pace". In the table below, you can see what we have achieved against the commitments we made following the announcement of the strategic review in 2016 and subsequently.
ANNUAL GENERAL MEETING
We are again intending to hold our AGM in Dundee in 2020. We are aware of the potential impact of the coronavirus on such meetings and, if we need to make any change to our plans, we will do what we can to provide as much notice as possible to shareholders. Normally, I would look forward to welcoming you to meet some of our managers after the AGM. This year, I am sure you will understand why, we have decided not to hold an investor forum after the meeting. We will, however, aim to arrange something similar in Scotland in the not too distant future. I hope as many shareholders as possible will be able to attend the event and meet with me, or one of my fellow Directors, and some of our Stock Pickers.
In addition to the normal AGM business and giving shareholders the opportunity to approve our Dividend Policy (see page 35 of the Annual Report) and changes to our Merger Reserve we will be asking shareholders to approve some minor changes to our Articles of Association and the appointment of BDO as the Trust's new Auditor. As always, I and my other Directors, would be delighted to talk to any shareholders who manage to attend.
OUTLOOK
The outlook for the global economy and financial markets is, as always, uncertain. The coronavirus is an international problem that will impact directly or indirectly everyone. Our Stock Pickers have made some minor changes as part of their ongoing review of their stock selections. We are confident that the Trust remains well placed to be a core investment for our shareholders for generations to come, through a portfolio designed to outperform but with less volatility and risk than investments in equity funds with only one manager.
Gregor Stewart
Chairman
We announced the outcome of our strategic review and our intention to move to a multi-manager global equity investment in December 2016. Since then we have taken a number of decisions to enable us to complete the simplification of the Trust and we set out below the progress we have made.
Decision
What has been achieved
To focus on global equities through a multi-manager approach.
Following a shareholder vote, WTW was appointed on 1 April 2017.
The Trust is now almost completely invested in global equities.
To increase our outperformance target to 2% p.a. over the MSCI All Country World Index, net of costs, over rolling three-year periods.
We outperformed the MSCI ACWI between 1 April 2017 and 31 December 2019 by 3.4% in terms of our Total Shareholder Return and by 1.6% in terms of our NAV Total Return and are encouraged by performance to date as we approach the third anniversary of WTW's appointment. See page 8 of the Annual Report for further information.
To maintain our progressive dividend policy and build on Alliance Trust's record of year-on-year dividend growth.
We have now increased our dividend for 53 consecutive years. Actions are underway to further enhance dividend payment capability.
To seek outperformance at a competitive cost, below 0.65%.
At the end of 2019, our OCR was 0.64%.
Sales of Alliance Trust Investments and Alliance Trust Savings.
The sale of Alliance Trust Investments completed in April 2017 and that of Alliance Trust Savings in June 2019. A total of £72.5m was received for these two businesses which was invested in global equities.
A proactive programme of share buybacks to be introduced and to achieve significantly narrower discount.
At the end of November 2016, the month before we announced the outcome of our strategic review, the discount was 10.3%. As at 31 December 2019, it had narrowed to 4.1%. Between those dates, £1.3bn was spent on share buybacks. The extent of share buybacks reduced by 67% between 2018 and 2019.
1. Known as EOS at Federated Hermes since 1 January 2020.
INVESTMENT MANAGER'S REPORT
STRONG PERFORMANCE IN A CHALLENGING MARKET FOR ACTIVE MANAGERS
The Trust's Total Shareholder Return for the year was 24.3% and the Trust's NAV Total Return was 23.1%, against the MSCI ACWI return of 21.7%. The Trust's NAV Total Return includes the impact of the Trust's buybacks, gearing, fees and costs. In future, the NAV Total Return will be better aligned with the return generated by the equity portfolio, given the sale of the Trust's legacy assets and Alliance Trust Savings (ATS).
The Trust's Equity Portfolio Total Return before fees for the year was 22.9%. Between 1 April 2017 when we were appointed and 31 December 2019, the Equity Portfolio Total Return before fees was 29.2%, 3.7% ahead of the Trust's benchmark.
The Trust's Equity Portfolio Total Return before fees between 1 April 2017 and 31 December 2019 is a good approximation of what the Trust's NAV Total Return would have been had the Trust not held its legacy non-core investments. The Equity Portfolio Total Return excludes the positive impact of leverage and buybacks seen in the NAV. The strong performance of the Trust's equity portfolio demonstrates the value of investing longer term in a portfolio of our Stock Pickers' highest conviction stocks. This performance has been achieved in what has been a challenging environment for active managers, given the low dispersion and narrow leadership of US mega cap technology stocks driving markets.
RELATIVE RETURNS AGAINST BENCHMARK SINCE APPOINTMENT OF WTW (%)
Total Shareholder Return
3.4
NAV Total Return
1.6
Equity Portfolio Total Return before fees
3.7
Passive alternative iShares ETF
0.1
Peer Group Median
-1.1
Source: BNY Mellon Performance & Risk Analytics Europe Limited, Morningstar and MSCI Inc. The passive alternative iShares is the BlackRock iShares MSCI ACWI ETF. The Peer Group is the Morningstar universe of UK retail global equity funds (open ended and closed ended). The performance of the Passive Alternative iShares ETF and Peer Group is after fees. The Trust's NAV Total Return reflects the impact of holding non-core investments and Alliance Trust Savings until 30 June 2019.
MARKET UNCERTAINTY LEADS TO NEW RISKS AND OPPORTUNITIES
Global equity markets experienced solid growth in 2019, rebounding strongly from the sell-off in the fourth quarter of 2018.
Softening global economic data saw central banks act. The Federal Reserve in the US changed its tightening course and cut interest rates in July, September and October. Similar measures were adopted across many other regions to help stimulate economic activity. This accommodating central bank stance helped spur equity markets on, despite the economic weakness seen globally and continued market uncertainty, with the US/China trade dispute continuing to dominate headlines for a second year.
The impact of the trade dispute was particularly felt across emerging markets, with the MSCI Emerging Markets benchmark lagging the main index, up only 13.9% in sterling terms over the year.
Yet again, US markets dominated most major regions, up 25.8% in sterling terms versus 21.7% for the MSCI ACWI, mostly led by large cap technology companies. The Information Technology sector was up 41.2% in sterling terms over 2019. The weakest sector was Energy, up 8.4%, with performance dragged down by unease about sluggish global growth and oversupply as well as worrying headlines, particularly regarding Middle East tensions and global climate concerns.
Investment in US companies in aggregate represented the Trust's largest holding, accounting for over 50% of the portfolio, at 31 December 2019. Information Technology was also a significant exposure, accounting for 18.5% of the portfolio. This contributed positively to the absolute portfolio return. The Trust had only 3% allocated to Energy stocks.
Whilst US large cap technology stocks led the market for a significant part of the year, it was not plain sailing all the time. Towards the end of summer 2019 we saw a reversal in the trend, with some of the more growth focused stocks pulling back in favour of value stocks. As such, the Trust's value Managers were able to recover some ground, whereas the Trust's growth Managers' strong momentum was somewhat tapered in the latter part of the year.
The divergent returns from different styles, countries and sectors has been significant and has persisted for many years. It is unpredictable as to when their directions might change. This unpredictability is a key driver behind our risk management approach of balancing the allocation of the Trust's portfolio across a range of global Stock Pickers with different perspectives and investment approaches to control the overall risk of the portfolio. Our focus on risk management has meant that the Trust's portfolio demonstrated its all-weather robustness this year, able to perform strongly in both phases of the market, solidly keeping up while growth momentum dominated, as well as in the reversal back towards value.
THE NEXT PHASE OF BREXIT
With the Brexit Withdrawal Bill passing the House of Commons, the UK is now in the negotiation phase for a trade deal with the European Union. This clearly means that uncertainty remains, with a no deal outcome still on the table. However, one hurdle has been overcome. The Trust had 12% allocated to UK stocks as at end December 2019, with 4.8% in UK stocks in the MSCI ACWI benchmark. This is an overweight versus the benchmark, but an underweight relative to many Investment Trust peers that often have a greater allocation to the UK. The Trust has a global portfolio, focusing on seeking opportunities across a wide universe. Many of the UK stocks the portfolio invests in, are global companies, with global revenues.
How UK shares will fare during 2020 will depend, in part, on the outcome of the negotiations. However, the thorough bottom-up analysis undertaken by our Stock Pickers should ensure that the Trust holds companies with attractive long-term fundamentals, which should fare well in the long run, whatever the outcome.
GROWING CONCERNS AROUND CLIMATE RISK IMPACTS
2019 saw increasingly common heatwaves, floods and wildfires around the globe having a devastating impact on lives and livelihoods, as well as the environment. There is rising public awareness and pressure on world leaders to address climate risk and reconsider their dependency on fossil fuels, and to design a transition to net zero carbon emissions.
Corporations and investors are now also starting to more consistently evaluate their impact on the environment and reassess their investment beliefs. We have identified climate change as a critical and systemic priority, given the risk it presents to our clients' investments, the ongoing resilience of the savings universe, and the planet as a whole. Within the Trust's investment process, we consider the potential impacts of Environmental, Social and Governance (ESG) factors such as climate change. We cover this in more detail on page 15 of the Annual Report.
STOCK PERFORMANCE ANALYSIS
Looking in more detail at stocks that drove the Trust's performance relative to its benchmark index, the table below illustrates the stocks that made the biggest difference to the Trust's performance against its benchmark index in the year and includes both stocks held and those not held by the Trust.
Name
Country
Sector
Average Active Weight
2019 Total Return in Sterling
Attribution Effect relative to benchmark
TOP 5 CONTRIBUTORS
Qorvo, Inc.
United States
Information Technology
0.4%
84%
0.5%
New Oriental Education & Technology Group
China
Consumer Discretionary
0.7%
113%
0.4%
Charter Communications
United States
Communication Services
1.0%
64%
0.3%
Crown Holdings, Inc.
United States
Materials
0.9%
68%
0.3%
CGG
France
Energy
0.4%
136%
0.3%
TOP 5 DETRACTORS
Apple, Inc.*
United States
Information Technology
-2.1%
81%
-0.9%
Qurate Retail, Inc.
United States
Consumer Discretionary
0.5%
-58%
-0.6%
Glanbia Plc
United Kingdom
Consumer Staples
0.5%
-40%
-0.4%
Baidu, Inc.
China
Communication Services
0.7%
-23%
-0.4%
Pearson PLC
United Kingdom
Communication Services
0.5%
-31%
-0.3%
Equity Portfolio Total Return
22.9%
1.2%
MSCI ACWI
21.7%
Source: FactSet and WTW; Estimated attribution metrics calculated using the Brinson methodology using monthly data. *Apple, Inc. was not held by the Trust and as such represents an opportunity loss rather than a financial loss.
STOCKS THAT IMPROVED PERFORMANCE
The Trust's strongest driver of relative performance in 2019 was Qorvo, a US-based semiconductor company that is one of the three major players that make radio frequency and power amplification systems for mobile devices including mobile phones, tablets and, increasingly, devices included in the Internet of Things. There is a meaningful tailwind to this industry and business as the transition from 4G to 5G occurs across the globe. Qorvo's share price increased strongly in the fourth quarter after the company posted quarterly results that topped analysts' expectations.
New Oriental Education (EDU), a leading provider of tutoring services in China, was the second-best contributor to performance. It posted impressive growth over the past year, benefiting from classroom expansions and strong increases in student enrolment. An area of recent strength has been its Overseas Testing segment, which has benefited from reforms that management made to its offering catering to younger students. Greater classroom utilisation and lower outlays for sales and marketing have also provided a lift to its margins.
STOCKS THAT DETRACTED FROM PERFORMANCE
Among the stocks in the portfolio, the main detractor during the year was Qurate, which was down 58% for the year. Qurate is a leader in TV-based retail shopping, and one of the largest e-commerce retailers in the US. Qurate's first two earnings reports were disappointments, missing estimates by 17% and 9% as the company experienced changes in product mix that impacted profitability, as well as increases in customer acquisition costs. There have been similar challenges in the past at the company, and these have proven temporary. During the year, the company's multiple compressed from 10x to 6x forward earnings, making it very attractive from a valuation perspective.
Apple is a stock we did not hold in the portfolio as it did not constitute one of our Stock Pickers 'best ideas'. The stock benefited from the US technology mega cap momentum and rallied strongly over the year. It is the largest stock in the index, accounting for over 2% of the MSCI ACWI benchmark and hence had a meaningful impact on the relative performance of the portfolio versus the benchmark.
STOCK PICKERS' PERFORMANCE
We are very pleased with how the Stock Pickers we have selected for the Trust performed over the year. Many active managers have struggled to outperform a market driven by the narrow leadership of US mega cap information technology stocks, that we have experienced over the last two years.
If we were to take all the stocks in the MSCI ACWI and re-weight them at each quarter-end evenly so that they are equal weight, their performance over 2018 and 2019 would have been 4.6% and 6.1% lower than that of the actual MSCI ACWI market cap weighted index in US dollar terms. This illustrates the dominance of a small number of very large stocks over the period, with many other stocks in the index under-performing, making this a rather challenging environment.
ANNUAL PERFORMANCE (%)
Year
MSCI ACWI
Equal Weighted (US$)
MSCI ACWI (US$)
2019
21.18
27.30
2018
-13.52
-8.93
2017
26.42
24.62
Source: MSCI Inc.
As would be expected, there was some variation in the manager returns, with some performing strongly and others doing less well. Of the Trust's nine global Stock Pickers, six have outperformed the MSCI ACWI over 2019 and six have also outperformed in the period between 1 April 2017 and 31 December 2019. The emerging markets stocks in the Trust's portfolio have come in line with the MSCI Emerging Markets index over both time frames. Two of the global Stock Pickers have outperformed by more than 20% since April 2017, one has underperformed by more than 20% over the same time frame, with the remaining Stock Pickers within a +/-10% range since April 2017.
DIVERSIFIED HIGH CONVICTION SMOOTHS RETURNS
The chart on page 11 of the Annual Report illustrates just how critical risk management of the portfolio exposures is. An individual Manager's return path can be quite volatile. Allocating to a single manager's concentrated portfolio can be a bumpy ride. However, blending the stock selection of complementary Stock Pickers into a portfolio that is risk-managed in terms of style, sector and country exposures, and diversified across a number of manager strategies, leads to a much smoother return path.
PERFORMANCE OF THE TRUST RELATIVE TO ITS BENCHMARK
Over 2019, the Trust's equity portfolio, before costs, has outperformed its MSCI ACWI benchmark by 1.2%. We believe in the power of stock selection. We look to find and appoint the best Stock Pickers. We blend their 'best ideas' stock choices into a diversified and risk-controlled portfolio that exhibits no significant sector, regional or currency tilts. Performance in the long term is therefore driven by those stocks and not macro risks. During 2019, we did not implement any currency hedging for the Trust nor did the Trust have any exposure to derivative products. Our reference benchmark is unhedged, and our currency exposure is in line with our country allocations. As part of our portfolio risk management we monitor and manage our country and currency exposure, aiming to not diverge significantly away from the benchmark allocations. We are able to hedge currency risk as required, depending on our view of the risk profile. The charts below demonstrate the total added value through sector and regional allocation as well as stock selection impacts.
ATTRIBUTION BY SECTOR (%)
Asset allocation by sector
0.2
Stock selection within sectors
1.0
Source: WTW and FactSet. Estimated attribution metrics calculated using the Brinson
methodology using monthly data.
ATTRIBUTION BY REGION (%)
Asset allocation by region
-0.5
Stock selection within regions
1.7
Source: WTW and FactSet. Estimated attribution metrics calculated using the Brinson
methodology using monthly data.
Stock selection was the key driver of performance
In 2019 the Trust's sector allocation had a slightly positive impact on performance. An overweight to Information Technology and underweight to Energy benefited performance, however, this was partially offset by a small negative impact from a cash drag in a rising equity market.
Stock selection was positive over the year, especially among Materials and Financials.
In terms of regional positioning, the Trust had an underweight position to the US versus the MSCI ACWI, and overweight to the UK and Europe. This, along with our small cash position, acted as a drag on relative performance against the benchmark in 2019 leading to a slightly negative allocation impact.
REGION
North America
50.7%
Europe
20.3%
Asia & Emerging Markets
14.1%
UK
12.1%
Stock Picker Cash
2.8%
Source: The Bank of New York Mellon (International) Ltd and MSCI Inc.
SECTOR
Information Technology
18.5%
Consumer Discretionary
14.6%
Financials
13.9%
Industrials
13.1%
Communication Services
12.0%
Health Care
10.3%
Consumer Staples
5.7%
Materials
5.2%
Energy
3.1%
Real Estate
0.8%
Stock Picker Cash
2.8%
Source: The Bank of New York Mellon (International) Ltd and MSCI Inc.
PORTFOLIO CHANGES
During 2019, the Trust announced the appointment of Vulcan Value Partners as an additional Stock Picker. Vulcan adds a differentiated source of active return and gives us an additional way to manage. In particular, Vulcan gives more flexibility to manage the portfolio's exposure to the US, which accounts for over 50% of global equity markets. It was an opportune time to add Vulcan as it had only reopened its strategy to new business in the early part of 2019. We were pleased to have secured Vulcan for the Trust.
Vulcan's primary objective is to minimise the risk of permanently losing capital over a long-term, five-year time horizon. It seeks to invest in quality companies that display substantial competitive advantages that will allow them to earn attractive cash returns and demands a high margin-of-safety in terms of value over price. If the team is not comfortable holding a stock for five years, then it will not qualify for investment. Vulcan is a quality value investor and specialises in larger cap stocks. The team there has a global perspective and, like the Trust's other eight global Stock Pickers, has no geographical constraints on the stocks they choose for the Trust's portfolio. Vulcan tends to invest mostly in US-domiciled businesses. The team focus on capital preservation and long-term compounding opportunities from very high-quality businesses that can grow in value over the long term.
The Trust strengthened its approach to responsible investment in 2019 through the appointment of Hermes EOS.* Hermes EOS provides voting recommendations to the Trust's Stock Pickers. They also engage with companies that the Trust invests in and on public policy. We cover this more on page 17 of the Annual Report.
In 2019, turnover was 52%. This reflected the day-to-day investment activities of our Stock Pickers, the appointment of Vulcan with a subsequent rebalancing of the portfolio and the investment of proceeds from the sale of non-core investments.
Significant additions to the Trust's portfolio over the course of the year included US technology firm Nvidia, designer of graphics processing units (GPUs) for the gaming market as well as computer electronics systems for the mobile computing and automotive sectors. The Trust also established a position in KKR and Co, a US-based investment firm with specific focus in private equity and corporate buyouts. KKR has developed a global portfolio of companies, totalling over 100, generating over US$120bn in annual sales. Its portfolio includes UK-based cybersecurity consultants Darktrace and US-based consumer electronics company Sonos. The Trust's positions in IMCD, a UK-based chemical and food ingredients distributor, and in Daikin, a Japanese air conditioning manufacturer were sold following share price appreciation.
*Hermes EOS was renamed EOS at Federated Hermes in January 2020.
PORTFOLIO RISK AND POSITIONING
The Trust's portfolio continues to show a level of absolute volatility that is similar to that of the benchmark index (with an annualised volatility of 12.3% for the portfolio and 11.8% for the benchmark as at 31 December 2019).
Risk Summary
Active risk
2.3%
Portfolio volatility
12.3%
Active share
80%
Benchmark volatility
11.8%
Beta
1.02
Number of Companies as at 31 December 2019*
Portfolio
164
Benchmark
3,050
Source: FactSet, BNY Mellon Performance & Risk Analytics Europe Limited and MSCI Inc.
The Glossary on page 104 of the Annual Report explains the meaning of the above terms.
* The figures shown in the Number of Companies table above for Portfolio and Benchmark are different from those used for the calculation of the corresponding risk analysis. This is due to the classification of stocks for risk purposes, that we may invest in more than one class of share in a company and limited data coverage for certain stocks.
The Trust delivers a very high level of Active Share (80% as at 31 December 2019) with significantly lower active risk and a similar level of absolute risk to the Trust's benchmark.
We have retained a broadly balanced exposure of manager styles, sector and geographical exposures in 2019 relative to the benchmark. This has been an appropriate method to manage risk as performance of the different investment styles, markets and sectors has evolved during 2019. This has helped the Trust deliver robust performance and avoid being held hostage to any one particular risk factor.
The Trust's global Stock Pickers are not constrained by geography or sectoral limits and are able to seek out opportunities in a global universe. This means that the stocks selected by each individual Stock Picker can have quite different sector or country allocations, that are a direct outcome of their stock picks. Whilst constructing the Trust's portfolio, our top-down portfolio risk management process ensures that no significant style sector or country positions relative to the benchmark are present and that the risk and return profile of the portfolio is driven by stock selection as opposed to macro tilts.
GEARING TO ENHANCE RETURNS
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 for the Trust of around 7.5%-8.5% throughout the year. This has had a positive impact on performance. By late March 2019, when equity valuations were back at pre-October 2018 levels, we reduced the Trust's gearing slightly. This decision was proved right during May when volatility returned to the market. We moved the Trust's gearing back to around 8% and then managed it in the range of approximately 7.5% to 8.5% for the rest of the year.
In December we replaced the Trust's short-term credit facilities with two new short-term credit facilities totalling £200m. During the process the Trust received several offers from which the Board was able to select the most attractive pricing. The Trust's total gearing level remained unchanged as a result the new facilities.
OUTLOOK
The coronavirus has dominated news flow in early 2020. Undoubtedly, the Chinese and global economy will suffer some short-term cyclical impacts. However, whilst there are a wide number of potential outcomes, we believe that most scenarios lead to modestly improving level of global growth by 2021 and beyond. Despite these comments, risks remain skewed to the downside in areas such as the feeble manufacturing sector straining from the onslaught of the trade war impacts. Central banks now have little ammunition left to prevent potential recessionary pressures. This, as well as headwinds from the continued geopolitical risks, the initial shock of the coronavirus, and with US elections and further Brexit trade deal negotiation uncertainty still ahead, may result in subdued equity returns.
Performance momentum in 2019 was yet again dominated by a continuation of the US large cap technology theme although, as we progressed through the year, we saw glimpses of a turnaround towards other parts of the market. The jury is still out on whether we are seeing a blip in the market or whether this is a true rotation back towards value stocks that will be sustained going forward. If the global economy starts to pick up, these stocks may indeed come back in favour; many of them are currently priced at very attractive levels, well positioned for a strong rebound.
Because economic policy and political uncertainty are elevated globally, it is increasingly difficult to predict economic outcomes. In such uncertain markets, diversification and robust risk management is critical.
OUR APPROACH TO RESPONSIBLE INVESTING
A core part of our research, selection and monitoring procedure is an assessment of ESG risks and opportunities. We expect Stock Pickers to have a demonstrable process in place that identifies and assesses material ESG factors.
Where sustainability themes could realistically impact stock prices over the possible holding period, Stock Pickers are expected to reflect this in their investment thesis, decision-making and/or ownership activities. We explore how they identify, assess and act on the sustainability risks inherent in their stock selections for the Trust, using internal and external ESG information in order to analyse, monitor and challenge their approach.
When constructing the Trust's portfolio, we review it through a sustainability lens which aims to measure the portfolio's resiliency to ESG risks, including climate risk and long-term trends that could materially impact it.
An illustration of the Trust's Climate Risk exposures as at 31 December 2019 is set out below.
CLIMATE RISK EXPOSURES (tCO2e)
Alliance Trust equity portfolio
MSCI ACWI
Carbon Emissions/$M Invested
89.9
129.3
Carbon Intensity
138.4
227.2
Weighted Average Carbon Intensity
113.9
189.0
Source: MSCI ESG Research LLC.
This shows that at that time the Trust's portfolio's carbon footprint is significantly better than its benchmark. The table below shows it has much lower exposure to companies owning fossil fuel reserves. The tables are based on MSCI ESG Research data, which is one of the various data sources we utilise in our analysis. Although the Trust's portfolio's carbon footprint should be generally lower than that of the benchmark over the long term, there are shorter term scenarios where this might not be the case. Some companies may be making very significant progress on moving to carbon neutrality, and so their historic emissions used in carbon metric calculations, may be a poor guide to future emissions.
While the Trust has not placed any ethical or value-based restrictions on the types of stocks in which its Stock Pickers can invest, it has prohibited investment in armaments made illegal under international law via the Inhuman Weapons Convention, and those weapons covered by standalone conventions.
WEIGHT OF HOLDINGS OWNING FOSSIL FUEL RESERVES (%)
Alliance Trust equity portfolio
MSCI ACWI
Any Reserve
3.0
7.4
Thermal Coal
0.6
1.5
Gas
2.4
4.7
Oil
2.4
4.8
Source: MSCI ESG Research LLC.
Effective Stewardship
We support the Trust's view that by engaging with the companies in which it invests, the Trust can contribute to the long-term success of those companies, help reduce the negative impacts that they may have on the environment and society and improve long-term returns to the Trust's shareholders by managing downside risks.
We take a strong and engaged approach to the investment industry, helping to shape it for the benefit of all participants through our collaborative initiatives, not least the Thinking Ahead Institute. This is a not-for-profit research think-tank, which brings together asset owners, asset managers and academics to debate the issues surrounding responsible investing. The aim is to use collective power and action to raise standards and improve outcomes for end investors. More information can be found at: www.thinkingaheadinstitute.org
Assessing a manager's level of stewardship is an integral part of our manager research, selection and monitoring process. We aim to appoint Stock Pickers for the Trust who actively engage with the companies in which they invest. When necessary, we also engage with the Trust's Stock Pickers and guide them towards better practices.
The Trust's Stock Pickers exercise the voting rights in respect of the stocks in which they have invested for the Trust. Between 1 January 2019 and 31 December 2019, they cast 3,082 votes at company meetings. They voted against or abstained from voting on 344 of these. Of the votes against management, the key topics voted on were Board Structure, with 38.1% of the votes against management as well as Capital Structure and Remuneration both representing just over 20% of votes against management.
VOTING SUMMARY
Number of votes exercised with management on each topic
88.8%
Number of eligible votes exercised that were against management
8.4%
Number of eligible votes that were abstentions
2.8%
Source: WTW.
ELIGIBLE VOTES EXERCISED THAT WERE AGAINST MANAGEMENT
Board Structure
38.1%
Business Strategy and Risk Management
8.6%
Capital Structure
20.6%
Environmental
1.6%
Of which climate change related
0.4%
Other Governance
6.2%
Remuneration
20.2%
Social or Ethical
2.7%
Other
1.6%
Source: WTW.
FOCUS ON ENGAGEMENT AND CASE STUDIES
In June 2019, Hermes EOS was engaged, via WTW, to assist the Trust in meeting its responsibilities as a long-term shareholder. Hermes EOS is a leading stewardship provider with a focus on achieving positive change. It works on behalf of investors including corporate sponsored and sector pension funds, sovereign wealth funds, wealth managers and asset managers from 13 countries who entrust it with the stewardship of approximately £662bn in assets under advice (as at 31 December 2019), which provides Hermes EOS with significant leverage during its engagement activities. Its dedicated team of engagement and voting specialists enables pension funds and other longer-term institutional investors to achieve their fiduciary responsibilities and be more active owners of companies. In addition to providing the Trust's Stock Pickers with voting advice and recommendations to help them make better informed decisions, Hermes EOS also engages with companies in which its clients have invested and engages on public policy on their behalf.
Hermes EOS is also involved in a number of collaborative engagements, including Climate Action 100+, which is an investor-led initiative to ensure the world's largest corporate greenhouse gas emitters take necessary action on climate change. Hermes EOS is among over 370 investors with over US$35tn under management who have signed up to the initiative.
We provide an illustration of the activity undertaken by Climate Action 100+ within the BP case study on page 18 of the Annual Report.
As a holder of BP, we voted in favour of the shareholder resolution brought forward by Climate Action 100+ at the company's Annual General Meeting. The Climate Action 100+ resolution encouraged further disclosures by BP, including enhanced reporting requirements, which would provide clarity on how the company's strategy is consistent with the Paris Agreement. The Paris Agreement aims to keep the increase in global average temperature to well below 2 degrees Celsius. Greater disclosure across companies will allow investors to more clearly evaluate the climate risk exposure present in their portfolio and take appropriate action. It will also help companies to set out robust plans towards a transition to a low carbon economy. This is a good example of discussions with companies undertaken over a period of time, leading to successful resolutions being passed to implement positive change.
Since their appointment in June 2019, Hermes EOS has engaged on a range of 248 Environmental, Social and Governance issues and objectives with 65 companies held by the Trust. Of the 130 specific engagement objectives Hermes EOS discussed with the companies during the period, it recorded progress on 23% using its milestone measurement system. Hermes EOS measures and monitors progress on all engagements, setting clear objectives and specific milestones for its most intensive engagements. The specific milestones used to measure progress in an engagement vary depending on each concern and its related objective. In selecting companies for engagement, it takes account of ESG risks, its ability to create long-term shareholder value and the prospects for engagement success.
ISSUES AND OBJECTIVES ENGAGED
Environmental
21.8%
Social and Ethical
27.0%
Governance
30.2%
Strategy, Risk and Communication
21.0%
Source: Hermes EOS.
MILESTONE STATUS OF ENGAGEMENT
Numbers of Engagement Objectives
No Change
Positive Progress
Strategy, Risk and Communication
25
8
Governance
41
12
Social and Ethical
30
11
Environmental
41
11
Source: Hermes EOS.
HERMES EOS CASE STUDIES
To provide some context of the type of discussions Hermes EOS are involved in, we illustrate below two case studies of their engagement activities. This demonstrates Hermes EOS's collective bargaining power and how, over a number of years, they can influence companies to bring about positive change.
BP
As part of the Climate Action 100+ initiative1, Hermes EOS have been co-leading the collaborative investor engagement with BP. The company had demonstrated leadership on climate change. However, Hermes EOS remained concerned that the company had not yet demonstrated that its strategy is consistent with the goals of the 2015 Paris Agreement. In addition, they wanted the company to explain the consequences of this strategy for its future business model and long-term investment proposition.
Following a lengthy period of collaborative engagement, Hermes EOS helped facilitate the development of a shareholder resolution calling for the company to set out a business strategy that is consistent with the goals of the Paris Agreement on climate change. It was co-filed by 9.6% of shareholders, supported by the board and subsequently passed with the support of over 99% of shareholders.
1. A global investor engagement initiative to reduce greenhouse gas emissions. It targets the world's 100+
largest corporate greenhouse gas emitters steering them towards necessary action on climate change.
In May 2019, Facebook signed up to the Christchurch Call to Action to tackle the spread of terrorist content online and introduced a "one-strike" policy for those who violate new livestreaming rules1.
Hermes EOS have pushed for the company to be clearer on its strategy to extricate itself from the reputational, legal and regulatory issues it faces. There has been more investment in content governance but there is no clear, coherent plan with objectives and milestones so that stakeholders can judge progress.
As a result, Hermes EOS recommended a vote against the lead director and the chair of the audit and risk committee. Hermes EOS backed shareholder proposals, including a request for a report concerning the content governance crisis, which would help to resolve in part their concerns. Hermes EOS continues to engage with the company, including as part of the Christchurch Call to Action.
1. https://www.bbc.co.uk/news/technology‑48276802
The above case studies demonstrate the power of engagement, especially when performed by skilled professionals, pulling asset power from many stakeholders, and joining in a common voice to deliver better outcomes for investors, as well as society at large.
INVESTMENT DISPOSALS
PRIVATE EQUITY
In 2018, a sales process was undertaken to sell most of the Trust's remaining assets and the sale was completed in December 2018 leaving holdings valued at £14.8m in limited partnerships that were close to their termination dates. In 2019, these investments were realised and at the end of 2019 the Trust holds interests in only a handful of investments which are in the process of winding up and as such have no residual value and one investment where there is the potential of some return, dependent on an international arbitration process (it is currently held at a value of £63,000). The total distributions received in 2019 were £9.0m. The net proceeds received from these disposals and distributions were reinvested in the Trust's global equity portfolio. Private Equity had a negligible impact on the Trust's performance in 2019.
MINERAL RIGHTS
The Trust has held mineral rights in North America for over 100 years. The Board decided to market these assets for sale in 2018 and by the end of that year an agreement had been entered into to sell more than half the holdings. By 31 December 2019 the sales process was complete and all of the mineral rights held in North America have now been sold. Sales proceeds of £11.1m after costs of disposal were received in 2019 which were reinvested in the Trust's global equity portfolio. Mineral Rights had a negligible impact on the Trust's performance in 2019.
ALLIANCE TRUST SAVINGS (ATS)
The sale of ATS to Interactive Investor Limited completed on 28 June 2019. The total consideration payable for the business, including the office premises was £40m, subject to post-completion adjustments. The net proceeds after costs associated with the disposal of £34.2m were reinvested in the Trust's global equity portfolio. ATS had a negligible impact on the Trust's performance in 2019.
COST AND PERFORMANCE MEASURES
The Trust has reduced its Ongoing Charges Ratio from 0.65% to 0.64%. Total administrative expenses were £5.9m, a reduction from 2018 when they were £6.5m. Investment management expenses were £11.7m (2018: £10.9m).
The Trust incurred several one-off costs during the year including the transaction costs relating to the sale of Alliance Trust Savings, office relocation, property and IT separation. The total of one-off costs for the year was £0.7m, of which £0.4m was related to property matters which are not connected to the ongoing investment business of the Trust.
The Board has a policy of adopting a one quarter revenue and three quarters capital allocation for management fees, financing costs and other indirect expenses where this is consistent with the AIC Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts.
In 2019 the Trust completed its business simplification. The Trust's portfolio is now almost wholly listed equities which are valued daily. Going forward the Trust will report on its OCR calculated using its average daily NAV in accordance with AIC guidelines, rather than its historic approach of using the average of the 1 January and 31 December NAV values. The OCR for 2019 calculated using the average daily NAV was 0.62%.
ONGOING CHARGES RATIO (%)
2015
0.59
2016
0.43
2017
0.54
2018
0.65
2019
0.64
Source: Alliance Trust and FactSet.
An explanation of how the Ongoing Charges Ratio is calculated can be found on page 105 of the Annual Report.
TOTAL EXPENSES (£M)
2015
24.0
2016
16.8
2017
17.4
2018
17.4
2019
17.6
Source: Alliance Trust and FactSet.
TOTAL EXPENSE RATIO (%)
2015
0.80
2016
0.54
2017
0.58
2018
0.68
2019
0.66
Source: Alliance Trust and FactSet.
An explanation of how the Total Expense Ratio is calculated can be found on page 105 of the Annual Report.
DIVIDENDS
DIVIDEND POLICY
Since 2006 the Trust has paid quarterly interim dividends on or around the ends of June, September, December and March. Due to the timing of our Annual General Meeting, in April or May, the Trust has not proposed a final dividend (paid in March) to the AGM for approval, preferring to give shareholders certainty of the dates on which they will receive their income.
Recognising that shareholders should be able to make their views on the Trust's dividend known, the Board has decided to submit its Dividend Policy to shareholders for approval each year. The Trust will continue to have a progressive dividend policy, paying a dividend that increases year on year. The wording of the Policy is intended to give shareholders clarity on the Board's approach to making decisions on the amount, structure and timing of returns to shareholders. The following Policy will be submitted for approval to the next Annual General Meeting:
Subject to market conditions and the Company's performance, financial position and outlook, the Board will seek to pay a dividend that increases year on year. The Company expects to pay four interim dividends per year, on or around the last day of June, September, December and March, and will not, generally, pay a final dividend for a particular financial year.
In determining the level of future dividends, the Board will take into account factors such as any anticipated increase or decrease in dividend cover, projected income, inflation and yield on similar investment trusts.
The Board will seek to use the income from investments to satisfy its dividend payments, but may also, when this income is insufficient, use part of the Company's distributable reserves. In addition, should there be a year in which income is unexpectedly high, some of that income may be retained in the distributable reserves or a special dividend may be declared.
DISTRIBUTABLE RESERVES
While all of the dividends paid in the calendar year ending 31 December 2019 have been met from income without recourse to the Trust's reserves, the Board recognises that when the Trust's income is insufficient to meet the cost of an increased dividend, part of its distributable reserves may be used to meet the cost. We do not set an income target for our Investment Manager as this could unnecessarily constrain its freedom to act. The Trust currently cannot use its Merger Reserve (£645.3m) for payment of dividends.
The Board is proposing to convert its Merger Reserve into a distributable reserve which could, if necessary, be used to support the payment of dividends. This is a process which requires shareholder and Court approval.
If approved by shareholders and the Court, the Board has no intention of making immediate use of the funds currently forming the Merger Reserve. The proposal is being recommended as a means of providing additional flexibility in the future.
In terms of process, the Merger Reserve would have to be capitalised and a share issue declared. This is a technical step and would not require any shares to be physically issued. These shares would then be cancelled with Court approval. Once approved by shareholders, a Court hearing would then take place. Assuming the approval of the Court is given (a process expected to take 10 weeks), the Merger Reserve would then be converted into a reserve that could be distributed.
The process will not reduce the total capital of the Trust but, if approved, will increase the proportion of the Trust's reserves capable of being distributed in the future. Details of the Trust's reserves can be found on page 91 of the Annual Report.
DIVIDEND DECLARATION
The Ordinary Dividend for 2019 will increase by 3% to 13.96p. A fourth interim dividend of 3.49p will be paid on 31 March 2020 to shareholders who are on the register on 20 March 2020. The payments dates for the 2020 financial year can be found on page 108 of the Annual Report.
SHARE CAPITAL AND WAIVER OF DIVIDENDS
The Trust's issued share capital as at 31 December 2019 comprised 329,065,733 Ordinary 2.5p shares of which 334,182 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 4,560,287 shares at a cost of £35.0m.
There are no preference shares or shares held in Treasury.
REPORT OF DIRECTORS AND RESPONSIBILITY STATEMENT
The Report of the Directors, including the Directors' responsibility statement, on pages 46 to 59 of the Annual Report, the description of the Trust and how it operates contained on pages 2, 3 and 42 of the Strategic Report and pages 64 to 67 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.
Gregor Stewart
Chairman
5 March 2020
Income statement for the year ended 31 December 2019
Year to 31 December 2019
Year to 31 December 2018
£000
Revenue
Capital
Total
Revenue
Capital
Total
Income
60,814
-
60,814
55,145
-
55,145
Profit/(loss) on fair value designated investments
-
536,228
536,228
-
(162,664)
(162,664)
Loss on fair value of debt
-
(15,317)
(15,317)
-
(361)
(361)
Total revenue
60,814
520,911
581,725
55,145
(163,025)
(107,880)
Investment management fees
(2,931)
(8,794)
(11,725)
(2,713)
(8,139)
(10,852)
Administrative expenses
(4,893)
(969)
(5,862)
(5,466)
(1,076)
(6,542)
Finance costs
(1,810)
(5,456)
(7,266)
(1,618)
(4,817)
(6,435)
Loss on other assets held at fair value
-
(56)
(56)
-
(2,180)
(2,180)
Foreign exchange losses
-
(3,926)
(3,926)
-
(2,722)
(2,722)
Profit/(loss) before tax
51,180
501,710
552,890
45,348
(181,959)
(136,611)
Tax
(3,946)
-
(3,946)
(3,986)
-
(3,986)
Profit/(loss) for the year
47,234
501,710
548,944
41,362
(181,959)
(140,597)
All profit/(loss) for the year is attributable to equity holders.
Earnings per share attributable to equity holders
Basic (p per share)
14.30
151.84
166.14
12.18
(53.60)
(41.42)
Diluted (p per share)
14.28
151.68
165.96
12.17
(53.53)
(41.36)
Statement of comprehensive income
Year to 31 December 2019
Year to 31 December 2018
£000
Revenue
Capital
Total
Revenue
Capital
Total
Profit/(loss) for the year
47,234
501,710
548,944
41,362
(181,959)
(140,597)
Items that will not be reclassified subsequently to profit or loss:
Defined benefit plan net actuarial loss
-
-
-
-
(38)
(38)
Retirement benefit obligations deferred tax
-
-
-
-
6
6
Other comprehensive loss
-
-
-
-
(32)
(32)
Total comprehensive income/(loss) for the year
47,234
501,710
548,944
41,362
(181,991)
(140,629)
All total comprehensive income/(loss) for the year is attributable to equity holders.
Statement of changes in equity for the year ended 31 December 2019
£000
2019
2018
Called-up share capital
At 1 January
8,342
8,691
Own shares purchased and cancelled in the year
(115)
(349)
At 31 December
8,227
8,342
Capital reserve
At 1 January
1,639,172
1,923,439
Profit/(loss) for the year
501,710
(181,959)
Defined benefit plan actuarial net loss
-
(32)
Own shares purchased and cancelled in the year
(34,987)
(102,276)
At 31 December
2,105,895
1,639,172
Merger reserve
At 1 January and at 31 December
645,335
645,335
Capital redemption reserve
At 1 January
10,656
10,307
Own shares purchased and cancelled in the year
115
349
At 31 December
10,771
10,656
Revenue reserve
At 1 January
107,684
111,861
Profit for the year
47,234
41,362
Dividends paid
(45,754)
(45,545)
Unclaimed dividends returned
-
6
At 31 December
109,164
107,684
Total Equity at 1 January
2,411,189
2,699,633
Total Equity at 31 December
2,879,392
2,411,189
Balance sheet as at 31 December 2019
£000
2019
2018
Non‑current assets
Investments held at fair value
3,050,010
2,580,765
Right of use asset
797
-
3,050,807
2,580,765
Current assets
Outstanding settlements and other receivables
13,409
13,574
Cash and cash equivalents
97,486
81,168
Asset classified as held for sale
-
2,755
110,895
97,497
Total assets
3,161,702
2,678,262
Current liabilities
Outstanding settlements and other payables
(19,661)
(18,752)
Bank loans
(65,000)
(67,000)
Lease liability
(251)
-
(84,912)
(85,752)
Total assets less current liabilities
3,076,790
2,592,510
Non‑current liabilities
Unsecured fixed rate loan notes held at fair value
(196,638)
(181,321)
Lease liability
(760)
-
(197,398)
(181,321)
Net assets
2,879,392
2,411,189
Equity
Share capital
8,227
8,342
Capital reserve
2,105,895
1,639,172
Merger reserve
645,335
645,335
Capital redemption reserve
10,771
10,656
Revenue reserve
109,164
107,684
Total Equity
2,879,392
2,411,189
All net assets are attributable to equity holders.
Net Asset Value per ordinary share attributable to equity holders
Basic (£)
£8.76
£7.24
Diluted (£)
£8.75
£7.23
Cash flow statement for the year ended 31 December 2019
£000
2019
2018
Cash flows from operating activities
Profit/(loss) before tax
552,890
(136,611)
Adjustments for:
(Gains)/losses on investments
(536,228)
162,664
Losses on fair value of debt
15,317
361
Foreign exchange losses
3,926
2,722
Depreciation
187
-
Loss on revaluation of office premises
56
2,180
Finance costs
7,266
6,435
Scrip dividend
(350)
-
Movement in pension scheme loss
-
6
Operating cash flows before movements in working capital
43,064
37,757
Decrease/(increase) in receivables
6,399
(2,288)
(Decrease)/increase in payables
(4,206)
5,848
Net cash flow from operating activities before income taxes
45,257
41,317
Taxes paid
(1,539)
(5,220)
Net cash inflow from operating activities
43,718
36,097
Cash flows from investing activities
Proceeds on disposal at fair value of investments through profit and loss
1,691,941
1,849,279
Purchases of fair value through profit and loss investments
(1,627,201)
(1,747,167)
Disposal of asset held for sale
2,699
-
Net cash inflow from investing activities
67,439
102,112
Cash flows from financing activities
Dividends paid ‑ Equity
(45,754)
(45,545)
Unclaimed dividends returned
-
6
Purchase of own shares
(34,987)
(102,276)
Bank loans and unsecured fixed rate loan notes raised
-
60,000
Repayment of bank debt
(2,000)
(66,000)
Property finance lease
(271)
-
Finance costs paid
(7,901)
(6,312)
Net cash outflow from financing activities
(90,913)
(160,127)
Net cash increase/(decrease) in cash and cash equivalents
20,244
(21,918)
Cash and cash equivalents at beginning of year
81,168
105,808
Effect of foreign exchange rate changes
(3,926)
(2,722)
Cash and cash equivalents at end of year
97,486
81,168
The financial information set out above does not constitute the Company's statutory financial statements for the years ended 31 December 2019 or 2018, but is derived from those financial statements. Statutory accounts for 2018 have been delivered to the Registrar of Companies and those for 2019 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.
The same accounting policies, presentations and methods of computation are followed in these financial statements as were applied in the Company's last annual audited financial statements, other than those stated in the Annual Report.
Basis of accounting
While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Company will publish full financial statements that comply with IFRSs on its website.
1. Income
An analysis of the Company's revenue is as follows:
£000
2019
2018
Income from investments
Listed dividends ‑ UK
14,542
11,071
Listed dividends ‑ Overseas
44,127
40,497
Distributions from Collective Investment Schemes
-
235
58,669
51,803
Other income
Property rental income
324
785
Mineral rights income
974
2,144
Other interest
764
344
Other income
83
69
2,145
3,342
Total income
60,814
55,145
The mineral rights income disclosed above represents gross income received. Against this the Company paid associated expenses of £243k (£341k), with US tax of 20% payable on the net income.
2. Total Company administrative expenses of £17,587k (£17,394k) consist of investment management fees of £11,725k (£10,852k) and administrative expenses of £5,862k (£6,542k).
3. The diluted earnings per share is calculated using the weighted average number of ordinary shares, which includes 334,182 (407,316) ordinary shares acquired by the Trustee of the Employee Benefit Trust ("EBT") with funds provided by the Company. The basic earnings per share is calculated by excluding these shares. The basic Net Asset Value per share calculation also excludes these shares.
4. All expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the income statement, the Company, where consistent with the AIC SORP is attributing indirect expenditure including investment management fees and finance costs one quarter 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.
5. Investments in subsidiary companies (Level 3) are valued in the Company's accounts at £0.1m (£38.1m).
On 28 June 2019 the sale of Alliance Trust Savings to Interactive Investor Limited was completed. The total consideration payable for the business was £40m which included the Company's office premises at 8 West Marketgait, Dundee and was subject to post completion adjustments. The valuation for 2018 was carried at the sale value to Interactive Investor Limited adjusted for transaction costs.
Private equity investments, both fund-to-fund and direct included under Level 3, are valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines issued in December 2018. Unlisted investments in private equity are stated at the valuation as determined by the TWIM Valuation Committee based on information provided by the General Partner. The General Partner's policy in valuing unlisted investments is to carry them at fair value. The General Partner will generally rely on the fund's investment manager's fair value at the last reported period, rolled forward for any cashflows.
An entity is not required to create quantitative information to comply with this disclosure requirement if quantitative unobservable inputs are not developed by the entity when measuring fair value (for example, when an entity uses prices from prior transactions or third-party pricing information without adjustment).TWIM receives information from the General Partner on the underlying investments which is subsequently reviewed by the TWIM Valuation Committee. Where the TWIM Valuation Committee does not feel that the valuation is appropriate, an adjustment will be made.
No interrelationships between unobservable inputs used in the above valuations of Level 3 investments have been identified.
DIVIDEND REINVESTMENT PLAN
The Dividend Reinvestment Plan (DRIP) will be available for the June 2020 dividend and onwards. Further information, including Terms & Conditions and an Election Form will be sent to existing shareholders with their Dividend Confirmation payable 31 March 2020. Alternatively, these are also available to view at
www.computershare.co.uk/DRIP from 31 March 2020.
APPOINTMENT OF CHAIR OF AUDIT AND RISK COMMITTEE
Jo Dixon has been appointed Chair of the Audit and Rick Committee with effect from 6 March 2020. This follows Chris Samuel standing down as Interim Chairman of the Audit and Risk Committee.
ANNUAL REPORT
The Annual Report will be available in due course on the Company's website www.alliancetrust.co.uk. It will also be made available to the public at the Company's registered office, River Court, 5 West Victoria Dock Road, Dundee DD1 3JT and at the offices of the Company's Registrar, Computershare Investor Services PLC, Edinburgh House, 4 North St Andrew Street, Edinburgh EH2 1HJ after publication.
In addition to the full annual report, up-to-date performance data, details of new initiatives and other information about the Company can be found on the Company's website.
ANNUAL GENERAL MEETING
The 132nd Annual General Meeting of the Trust will be held at 11am on Thursday 23 April 2020 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.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.ENDFR BCGDXSDGDGGU
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