- Part 2: For the preceding part double click ID:nRSa2230Ma
110
At 30 June / 31 December 1,836,364 2,255,113 2,508,359
Merger reserve
At 1 January, 30 June and 31 December 645,335 645,335 645,335
Capital redemption reserve
At 1 January 6,679 5,838 5,838
Own shares purchased and cancelled in the period/year 3,493 285 841
At 30 June / 31 December 10,172 6,123 6,679
Revenue reserve
At 1 January 111,450 111,921 111,921
Profit for the period/year 29,421 42,322 65,870
Dividends (25,176) (32,001) (66,329)
Unclaimed dividends (redistributed)/returned 66 (2) (12)
At 30 June / 31 December 115,761 122,240 111,450
Total equity
At 1 January 3,284,142 2,939,280 2,939,280
At 30 June / 31 December 2,616,458 3,041,686 3,284,142
* The accounts are presented as Company only, see Note 2.
Balance sheet (unaudited)* £000 Note 30 June 2017 30 June 2016 31 Dec 2016 (audited)
Non-current assets
Investments held at fair value 10 2,763,573 3,343,951 3,474,197
Property, plant and equipment:
Office premises 4,500 4,540 4,500
Other fixed assets - 29 24
Pension scheme surplus 8 38 235 83
Deferred tax asset 72 1,238 72
2,768,183 3,349,993 3,478,876
Current assets
Outstanding settlements and other receivables 14,111 42,535 9,821
Recoverable overseas tax 3,080 2,754 2,997
Cash and cash equivalents 103,134 41,458 49,430
120,325 86,747 62,248
Total assets 2,888,508 3,436,740 3,541,124
Current liabilities
Outstanding settlements and other payables (16,118) (68,057) (14,051)
Tax payable (3,991) (3,991) (3,991)
Bank loans 13 (131,000) (200,000) (120,000)
(151,109) (272,048) (138,042)
Total assets less current liabilities 2,737,399 3,164,692 3,403,082
Non-current liabilities
Unsecured fixed rate loan notes 13 (120,800) (121,670) (118,800)
Deferred tax liability (72) (1,238) (72)
Amounts payable under long term Investment Incentive Plan (69) (98) (68)
(120,941) (123,006) (118,940)
Net assets 2,616,458 3,041,686 3,284,142
Equity
Share capital 14 8,826 12,875 12,319
Capital reserve 1,836,364 2,255,113 2,508,359
Merger reserve 645,335 645,335 645,335
Capital redemption reserve 10,172 6,123 6,679
Revenue reserve 115,761 122,240 111,450
Total Equity 2,616,458 3,041,686 3,284,142
All net assets are attributable to the equity holders.
* The accounts are presented as Company only, see Note 2.
Net asset value per ordinary share attributable to equity holders
Basic (£) 9 £7.42 £5.91 £6.67
Diluted (£) 9 £7.41 £5.91 £6.67
Cash flow statement (unaudited)* £000 6 months to30 June 2017 6 months to30 June 2016* Year to31 Dec 2016(audited)
Cash flows from operating activities
Profit before tax 329,424 219,680 639,708
Adjustments for:
Gains on investments (298,595) (188,713) (591,755)
Loss on fair value of debt 2,000 12,670 9,800
Foreign exchange (gain)/loss (6,807) (4,691) 2,527
Depreciation - (122) 57
Disposals and transfers of fixed assets (20) - (174)
Loss on revaluation of offices premises - - 40
Share based payment expense - 223 110
Finance costs 3,033 4,143 7,693
Movement in pension scheme surplus (1) (19,465) (15,360)
Operating cash flows before movements in working capital 29,034 23,725 52,646
Decrease/(Increase) in receivables 278 (7,528) (392)
(Decrease)/Increase in payables (4,650) 1,863 5,962
Net cash (outflow)/inflow from operating activities before income tax 24,662 18,060 58,216
Taxes paid (2,933) (4,482) (12,129)
Net cash inflow from operating activities 21,729 13,578 46,087
Cash flows from investing activities
Proceeds on disposal at fair value of investments through profit and loss 5,948,159 586,168 1,481,435
Purchase of investments at fair value through profit and loss (4,936,674) (398,933) (1,054,086)
Disposal/(Purchase) of plant and equipment 44 389 (6)
Disposal of other intangible assets - 920 917
Proceeds on transfer of property, plant and equipment to Group companies - - 395
Net cash inflow from investing activities 1,011,529 188,544 428,655
Cash flows from financing activities
Dividends paid - Equity (25,176) (32,001) (66,329)
Unclaimed dividends (redistributed)/returned 66 (2) (12)
Purchase of own shares (969,102) (56,171) (195,841)
Bank loan drawdowns 11,000 - -
Repayment of borrowing - (90,000) (170,000)
Interest payable (3,149) (4,148) (7,570)
Net cash outflow from financing activities (986,361) (182,322) (439,752)
Net increase in cash and cash equivalents 46,897 19,800 34,990
Cash and cash equivalents at beginning of period/year 49,430 16,967 16,967
Effect of foreign exchange rate changes 6,807 4,691 (2,527)
Cash and cash equivalents at the end of period/year 103,134 41,458 49,430
* The accounts are presented as Company only, see Note 2.
1 General Information
The information contained in this report for the period ended 30 June 2017
does not constitute statutory accounts as defined in section 434 of the
Companies Act 2006. A copy of the statutory accounts for the year ended 31
December 2016 has been delivered to the Registrar of Companies. The auditor's
report on those financial statements was prepared under s495 and s496 of the
Companies Act 2006. The report was not qualified, did not contain an emphasis
of matter paragraph and did not contain statements under section 498(2) or (3)
of the Companies Act.
The interim results are unaudited. They should not be taken as a guide to the
full year.
2 Accounting Policies
Basis of preparation
The annual financial statements were prepared using accounting policies
consistent with International Financial Reporting Standards (IFRS) as adopted
by the EU. The condensed set of financial statements included in this half
yearly financial report have been prepared in accordance with IAS 34 'Interim
Financial Reporting', as adopted by the EU.
The Annual Report for the year ended 31 December 2016 presented both Company
only financial statements of the Company as well as consolidated Group
financial statements consisting of the Company and its wholly owned subsidiary
Alliance Trust Services Limited (ATSL).
This was because the activities of ATSL were previously material to the
Company, which is no longer the case given a cessation of the services
provided due to the new investment approach. The Board has therefore decided
that, on the basis of materiality, it is now appropriate to no longer prepare
consolidated financial statements, and to now present the results of the
Company on a Company only basis. This interim report presents prior period
Company only results to ensure consistency. The Company continues to recognise
its subsidiaries as investments at fair value through the income statement.
Going concern
The Directors have a reasonable expectation that the Company has sufficient
resources to continue in operational existence for the foreseeable future.
Accordingly the financial statements have been prepared on a going concern
basis.
Segmental reporting
The Company has identified a single operating segment, the investment trust,
which aims to maximise shareholders returns. As such no segmental information
has been included in these financial statements.
Application of accounting policies
The same accounting policies, presentations and methods of computation are
followed in these financial statements as were applied in the Group's last
annual audited financial statements with the exception of the changes that
have been made to the basis of preparation.
Group Consolidation
The Company qualifies as an investment entity under IFRS 10 meeting all the
key characteristics and as a result recognises its subsidiaries as investments
at fair value through the income statement.
All subsidiaries within the Group are valued at fair value through the income
statement as they do not provide services that relate directly to the
investment activities of the Company or they are themselves regarded as an
investment entity.
3 Income
£000 6 months to30 June 2017 6 months to30 June 2016 Year to31 Dec 2016
Deposit interest 23 (1) 4
Dividend income 35,661 49,950 82,903
Mineral rights income 1,453 826 1,685
Property rental income 335 - -
Recharged costs 1 - 191
Total income 37,473 50,775 84,783
4 Finance Costs
6 months to 30 June 2017 6 months to 30 June 2016 Year to 31 Dec 2016
£000 Revenue Capital Total Revenue Capital Total Revenue Capital Total
Bank loans and unsecured fixed rate loan notes 1,009 2,024 3,033 1,381 2,762 4,143 2,586 5,107 7,693
Total finance costs 1,009 2,024 3,033 1,381 2,762 4,143 2,586 5,107 7,693
Finance costs include interest of £2.2m (£2.2m at 30 June 2016 and £4.3m at 31
December 2016) on the £100m 4.28% unsecured fixed rate loan notes which were
drawn down in July 2014 for 15 years.
5 Taxation
UK corporation tax for the period to 30 June 2017 is calculated at the average
rate of 19.3% (20.0% for the period to 30 June 2016) of the estimated
assessable profits for the period. A reduction in the main rate of UK
corporation tax to 19.3% was substantively enacted in April 2017. Taxation for
overseas jurisdictions is calculated at the rates prevailing in the respective
jurisdictions, such taxation mainly comprises withholding taxes levied on the
investment returns generated on foreign investments such as overseas dividend
income.
6 Dividends paid
£000 6 months to30 June 2017 6 months to30 June 2016 Year to31 Dec 2016
Fourth interim dividend for the year ended 31 December 2015 of 3.3725p per share - 17,473 17,473
First interim dividend for the year ended 31 December 2016 of 2.8250p per share - 14,528 14,528
Second interim dividend for the year ended 31 December 2016 of 2.8250p per share - - 14,528
Third interim dividend for the year ended 31 December 2016 of 3.8500p per share - - 19,800
Fourth interim dividend for the year ended 31 December 2016 of 3.2740p per share 13,507 - -
First interim dividend for the year ended 31 December 2017 of 3.290p per share 11,669 - -
25,176 32,001 66,329
7 Earnings Per Share
From continuing operations
The calculation of the basic and diluted earnings per share is based on the
following data:
6 months to 30 June 2017 6 months to 30 June 2016 Year to 31 Dec 2016
£000 Revenue Capital Total Revenue Capital Total Revenue Capital Total
Ordinary sharesEarnings for the purposes of basic earnings per share being net profit attributable to equity holders of the parent 29,421 297,153 326,574 42,322 174,147 216,469 65,870 563,223 629,093
Number of sharesWeighted average number of ordinary shares for the purposes of basic earnings per share 378,350,366 516,332,453 515,646,212
Weighted average number of ordinary shares for the purposes of diluted earnings per share 378,870,625 517,100,606 516,414,688
The diluted figure is the weighted average of the entire number of shares in
issue.
The weighted average number of ordinary shares is arrived at by excluding
456,886 (698,062 at 30 June 2016 and 698,062 at 31 December 2016) ordinary
shares held by the Trustee of the Employee Benefit Trust.
IAS 33.41 requires that shares should only be treated as dilutive if they
decrease earnings per share or increase the loss per share. The earnings per
share figures on the income statement reflect this.
8 Pension Schemes
The Company sponsors two pension arrangements.
The Alliance Trust Companies' Pension Fund (the 'Scheme') is a funded defined
benefit pension scheme which was closed to future accrual on 2 April 2011. On
31 May 2016 the Trustees of the Scheme purchased an annuity with Legal &
General. The purpose of this transaction was to align the assets of the Scheme
with long-term liabilities and to reduce risk on long-term liabilities.
Employees are entitled to receive contributions into their own Self Invested
Personal Pension ('SIPP') provided by ATS.
Defined Benefit Scheme
The 2016 Annual Report contains disclosure of the funding and purchase of an
annuity policy by the Trustees of the Scheme with Legal & General in May 2016
to match the Scheme's liabilities to its members. The Statement of
Comprehensive Income for the period to June 2017 reports a defined benefit
plan actuarial loss and expenses of £46,000 (30 June 2016 net actuarial loss
of £26.1 million and 31 December 2016 net actuarial loss of £26.6 million).
Given the purchase of the annuity policy the assets of the Scheme are matched
to the long-term liability obligations and the actuarial loss represents the
movement in the period on the Scheme bank account.
30 June 2017 30 June 2016 31 Dec 2016
% per annum % per annum % per annum
Retail Price Index Inflation 3.60 3.30 3.65
Consumer Price Index Inflation 2.70 2.40 2.75
Rate of discount 2.55 3.25 2.70
Allowance for pension in payment increases of RPI (subject to a maximum increase of 5% p.a) 3.45 3.20 3.50
Allowance for revaluation of deferred pensions of CPI (subject to a maximum increase of 5% p.a) 2.70 2.40 2.75
9 Net Asset Value Per Ordinary Share
The calculation of the net asset value per ordinary share is based on the
following:
30 June 2017 30 June 2016 31 Dec 2016
Equity shareholder funds (£000) 2,616,458 3,041,686 3,284,142
Number of shares at period end - Basic 352,542,360 514,277,739 492,005,870
Number of shares at period end - Diluted 352,999,246 514,975,801 492,703,932
The number of ordinary shares has been reduced by 456,886 (698,062 at 30 June
2016 and 698,062 at 31 December 2016) ordinary shares held by the Trustee of
the Employee Benefit Trust in order to arrive at the Basic figures above.
10 Hierarchical valuation of financial instruments
The Company refines and modifies its valuation techniques as markets develop.
While the Company believes its valuation techniques to be appropriate and
consistent with other market participants, the use of different methodologies
or assumptions could result in different estimates of fair value at the
balance sheet date.
The table below analyses financial instruments carried at fair value, by
valuation method. The different levels have been defined as follows:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or
liabilities
Level 2 - Inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (that is, as prices) or
indirectly (that is, derived from prices)
Level 3 - Inputs for the asset or liability that are not based on observable
market data (that is, unobservable inputs)
The following table analyses the fair value measurements for the Company's
assets and liabilities measured by the level in the fair value hierarchy in
which the fair value measurement is categorised at 30 June 2017. All fair
value measurements disclosed are recurring fair value measurements.
Company valuation hierarchy fair value through income statement
As at 30 June 2017
£000 Level 1 Level 2 Level 3 Total
Listed investments 2,590,883 - - 2,590,883
Foreign exchange contracts - (1) - (1)
Unlisted investments
Private Equity - - 96,959 96,959
Alliance Trust Savings - - 61,500 61,500
Mineral rights - - 14,109 14,109
Other - - 123 123
2,590,883 (1) 172,691 2,763,573
As at 30 June 2016
£000 Level 1 Level 2 Level 3 Total
Listed investments 3,124,036 - - 3,124,036
Foreign exchange contracts - 4,690 - 4,690
Unlisted investments
Private Equity - - 124,500 124,500
Alliance Trust Savings - - 54,000 54,000
Alliance Trust Investments - - 19,800 19,800
Alliance Trust Finance - - 720 720
Mineral rights - - 14,778 14,778
Other - - 1,427 1,427
3,124,036 4,690 215,225 3,343,951
As at 31 Dec 2016
£000 Level 1 Level 2 Level 3 Total
Listed investments 3,250,069 - - 3,250,069
Foreign exchange contracts - 6,853 - 6,853
Unlisted investments
Private Equity - - 113,007 113,007
Alliance Trust Savings - - 61,500 61,500
Alliance Trust Investments - - 28,276 28,276
Mineral rights - - 13,187 13,187
Other - - 1,305 1,305
3,250,069 6,853 217,275 3,474,197
There have been no transfers during the year between Levels 1, 2 and 3.
Fair Value Assets in Level 1
The quoted market price used for financial investments held by the Company is
the current bid price. These investments are included within Level 1 and
comprise of equities, and derivatives.
Fair Value Assets in Level 2
The fair value of financial instruments that are not traded in an active
market (for example, over-the-counter derivatives) is determined using
valuation techniques. These valuation techniques maximise the use of
observable market data where it is available and with minimal reliance on
entity specific estimates.
Fair Value Assets in Level 3
From 1 April 2017 Level 3 assets, excluding the valuation of Alliance Trust
Savings (ATS), are reviewed at least annually by the Valuation Committee of
Willis Towers Watson (WTW) 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 Alliance Trust Investments. The
valuation of Alliance Trust Savings is reviewed at least annually by the Audit
and Risk Committee with valuations recommended to the Board of the Company.
The WTW Valuation Committee considers the appropriateness of the valuation
models and inputs, using the various valuation methods in accordance with the
Company's valuation policy. The WTW Valuation Committee will determine and
advise the Board of the Company on the appropriateness of any valuation of the
underlying assets.
The following table shows the reconciliation from the beginning balances to
the ending balances for fair value measurement in Level 3 of the fair value
hierarchy.
£000 June 17 June 16 Dec 16
Balance at 1 January 217,275 220,790 220,790
Net gain/(loss) from financial instruments at fair value through profit or loss 9,390 (17,304) 1,551
Purchases at cost 1,823 17,817 18,629
Sales proceeds (49,948) (9,187) (37,308)
Realised (gain)/loss on sale (5,849) 3,109 13,613
Balance at 30 June / 31 December 172,691 215,225 217,275
Investments in subsidiary companies (Level 3) are valued in the Company's
accounts at £124.9m (£168.0m at 30 June 2016 and £169.8m at 31 December 2016)
being the Directors' estimate of their fair value, using the guidelines and
methodologies on valuation published by the International Private Equity and
Venture Capital Association issued in December 2015 and where applicable
external valuations. This includes a valuation of ATS at £61.5m (£54.0m at 30
June 2016 and £61.5m at 31 December 2016). This represents the Directors' view
of the amount for which the subsidiary could be exchanged between
knowledgeable willing parties in an arm's length transaction. This does not
assume that the Company currently has any intention to sell the subsidiary in
the future. The Directors have used several valuation methodologies as
described in the guidelines to arrive at their best estimate of fair value,
including discounted cash flow calculations, revenue and earnings multiples
and recent market transactions where available. Alliance Trust Investments
Limited (ATI), reported with a fair value of £28.3m as at 31 December 2016,
was sold to Liontrust Asset Management PLC in April 2017 for consideration
consisting of Liontrust ordinary shares, cash and contingent deferred
consideration.
The Directors assessed the fair value of ATS. No change has been made to the
fair valuation of ATS as at 30 June 2017. As part of the ongoing review of
fair value, the Directors will assess the fair value of ATS prior to the year
end.
The fair value of ATI as at 31 December 2016 the fair valuation of ATI was
based on the value of the sale transaction to Liontrust Asset Management PLC.
This valuation was based on the fair value of Liontrust shares used as
consideration and the net asset value of ATI excluding any deferred contingent
amounts. This transaction was concluded on 1 April 2017.
Mineral rights are carried at fair value and are valued in the Company's
accounts at £14.1m (£14.8m at 30 June 2016, £13.2m at 31 December 2016) being
the Directors' estimate of their fair value, using the guidelines and
methodologies on valuation published by the Oklahoma Tax Commission and for
non-producing properties, the Lierle US Price Report.
The table below details how an increase or decrease in the input variables
would impact the valuation disclosed for the relevant Level 3 assets.
£000Investment Fair Valueat June 2017 Valuation Method Unobservableinputs Input Inputsensitivity +/- Change invaluation +/-
Alliance Trust Savings 61.500 Average of discounted cash flow DCF Discount rate 12.5% 0.5% 3,800/(3,500)
Mineral Rights 14,109 Oklahoma Tax Commission multiples and Lierle US Price report (for non producing properties). Revenue multiple - gas 7 1 1,300/(1,300)
Revenue multiple - oil 4 1 700/(700)
Revenue multiple - 4 1 600/(600)
products/condensate
Average bonus 1 0.5 1,600/(1,600)
multiple non producing
The change in valuation disclosed in the above table shows the direction an
increase or decrease in the respective input variables would have on the
valuation result. For ATS the Board has taken advice from an external valuer
to apply a degree of independence and external challenge into the valuation.
For mineral rights, an increase in the revenue multiple and average bonus
multiple would lead to an increase in the estimated value.
Private equity investments, both fund-of-fund and direct, included under Level
3, are valued in accordance with the International Private Equity and Venture
Capital Valuation Guidelines issued in December 2015. Unlisted investments in
private equity are stated at the valuation as determined by the WTW 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. However, if the General Partner does not feel the manager is
reflecting a fair value they will select a valuation methodology that is most
appropriate for the particular investments in that fund and generate a fair
value. In those circumstances the General Partner believes the most
appropriate methodologies to use to value the underlying investments in the
portfolio are: price of a recent investment, multiples, net assets, and
industry valuation benchmarks. An entity is not required to create
quantitative information to comply with this disclosure requirement if
quantitative unobservable inputs are not developed by the entity when
measuring fair value (for example, when an entity uses prices from prior
transactions or third-party pricing information without adjustment). WTW
receives information from the General Partner on the underlying investments
which is subsequently reviewed by the WTW Valuation Committee. Where the WTW
Valuation Committee does not feel that the valuation is appropriate, a
recommendation of the appropriate fair value will be made to the Board of the
Company.
No interrelationships between unobservable inputs used in the above valuations
of Level 3 investments have been identified.
11 Financial Commitments
As at 30 June 2017 the Company had financial commitments, which have not been
accrued, totaling £26.0m (£26.0m at 30 June 2016 and £28.5m at 31 December
2016). These amounts were in respect of uncalled subscriptions in investments
structured as limited partnerships all of which relates to investments in our
private equity portfolio. This is the maximum amount that the Company may be
required to invest. These LP commitments, which can include recallable
distributions received, may be called at any time up to an agreed contractual
date. The Company may choose not to fulfil individual commitments but may
suffer a penalty should it do so, the terms of which vary between
investments.
The Company has provided letters of comfort in connection with banking
facilities made available to certain of its subsidiaries. The Company provided
letters to AT2006 and ATREP GP confirming ongoing support for at least 12
months from the date the annual financial statements were signed, to make
sufficient funds available if needed to enable them to continue trading, meet
commitments and not to seek repayment of any amounts outstanding.
The Company provides ongoing regulatory support for ATS in the context of its
role as a consolidated bank holding company when required.
12 Share Based Payments
The Company operates three share based payment schemes. Full details of these
schemes (Long term incentive plans (LTIP), Deferred bonus and All Employee
Share Ownership Plan (AESOP)) are disclosed in the December 2016 Annual Report
and financial statements and the basis of measuring fair value is consistent
with that disclosed therein.
Long Term Incentive Plan ('LTIP')
Details of the LTIP awards are disclosed in the 2016 Annual Report.
The Company continues to operate the 2015 LTIP.
In the period ended 30 June 2017 no new awards were made and no Company shares
were purchased (nil at 30 June 2016 and 31 December 2016). There was no charge
to the Company income statement during the period in respect of LTIP awards
(£213,000 at 30 June 2016 and £1,000 at 31 December 2016).
13 Bank loans and unsecured fixed rate loan notes
£000 As at30 June 2017 As at30 June 2016 As at31 Dec 2016
Bank loans repayable within one year 131,000 200,000 120,000
Analysis of borrowings by currency:
Bank loans - Sterling 131,000 200,000 120,000
The weighted average % interest rates payable:
Bank loans 0.97% 1.24% 0.96%
The Directors' estimate of the fair value of the borrowings:
Bank loans 131,000 200,000 120,000
Unsecured fixed rate loan notes 120,800 121,670 118,800
The effective interest rates payable:
Unsecured fixed rate loan notes 2.29% 2.33% 2.52%
£100m of unsecured fixed rate loan notes were drawn down in July 2014, over 15
years at 4.28%.The basis of the fair value estimate is disclosed in the Annual
Report.
The total weighted average % interest rates payable: 2.40% 2.25% 2.47%
14 Share Capital
£000 As at30 June 2017 As at30 June 2016 As at31 Dec 2016
Allotted, called up and fully paid:
352,999,246 (514,975,801 at 30 June 2016 and 492,703,932 at 31 December 2016) ordinary shares of 2.5p each 8,826 12,875 12,319
Share Buybacks
£000 As at30 June 2017 As at30 June 2016 As at31 Dec 2016
Ordinary shares of 2.5p each
Opening share capital 12,319 13,160 13,160
Share buybacks (3,493) (285) (841)
Closing share capital 8,826 12,875 12,319
The Interim Report and Accounts will be available on the Company's website
www.alliancetrust.co.uk later today.
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