Final Results
09/03/2023 07:00
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Alliance Trust PLC (“the Company”)
LEI: 213800SZZD4E2IOZ9W55
9 March 2023
Resilient Performance
Results for the year ended 31 December 2022
Performance Highlights
* The Company’s Total Shareholder Return(1) (TSR) was -5.8%; its Net Asset
Value (NAV) Total Return(1) was -7.1%.
* Both the TSR(1) and NAV Total Return(1) were ahead of our benchmark, the
MSCI ACWI, which returned -8.1%.
* We also outperformed most peers in the Association of Investment Companies
(‘AIC’) Global Sector where the average TSR(1) was -23.2%.
* Performance benefitted from the portfolio’s balanced style exposures,
avoiding the worst of growth stock declines.
* Total dividend of 24.0p per ordinary share declared for the year ended 31
December 2022, a 26% increase on 2021.
* The Company expects to extend its 56-year track record of increasing
dividends.
Gregor Stewart, Chairman of Alliance Trust PLC, commented:
“We are pleased that our performance was more resilient than the market and
ahead of most of our peers in the AIC Global Sector.”
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 56 consecutive years of rising dividends.
https://www.alliancetrust.co.uk
For more information, please contact:
Mark Atkinson Senior Director Client Management, Wealth & Retail Sarah Gibbons-Cook
Willis Towers Watson Quill PR
Tel: 07918 724303 Tel: 020 7466 5050
Mark.Atkinson@wtwco.com AllianceTrust@quillpr.com
1 Alternative Performance Measure. Total Shareholder Return (TSR) is the
return to shareholders after reinvesting the net dividend on the date that the
share price goes ex-dividend. Net Asset Value (NAV) Total Return is a measure
of the performance of the Company’s Net Asset Value (NAV) over a specified
time period. It combines any change in the NAV and dividends paid.
-ENDS-
CHAIRMAN’S STATEMENT
“We are pleased that our performance was more resilient than the market and
ahead of most of our peers in the AIC Global Sector.”
VOLATILE MARKET BACKDROP
There were few places for investors to hide in 2022. The return of high
inflation after a 40-year absence, the war in Ukraine, higher interest rates
and fears of recession, sent most asset prices tumbling. Equities suffered
less than bonds but still ended the year down on the previous year. Against
this challenging backdrop, the Company delivered an encouraging performance
against its benchmark index, the MSCI All Country World Index (MSCI ACWI) and
outperformed most of its competitors in the Association of Investment
Companies (AIC) Global Sector. In its report, our Investment Manager, Willis
Towers Watson (‘WTW’) analyses this performance. While any negative annual
return is frustrating, we remain focused on long-term performance and are
encouraged by last year’s progress relative to competitors and the index.
RESILIENT PERFORMANCE
In the year to 31 December 2022, the Company’s Net Asset Value (NAV) Total
Return was -7.1 % (2021: 18.6%), outperforming our benchmark index, the MSCI
ACWI which returned -8.1% (2021: 19.6%). The Company’s Total Shareholder
Return (TSR) was -5.8% (2021: 16.5%), as the discount to NAV at which the
shares traded narrowed. The average TSR of the AIC Global Sector peer group
was -23.2%.
Our portfolio’s longer term returns also compare well with our peers.
Between 1 April 2017, when we adopted our multi-manager strategy, and 31
December 2022, the Company’s TSR was 54.7% against the average share price
return of the AIC Global Sector peer group of 41.2%. We estimate that anyone
investing £100 in April 2017 will have seen the value of their investment
grow to £155 if they had reinvested their dividends.
The Board is satisfied that the Company’s long-term performance has been
consistent with its objective of delivering real returns and a rising
dividend. It is also pleased with the performance versus peers. The only
disappointment is that the Company has not yet outperformed its benchmark
index by the target set when the investment strategy was adopted on 1 April
2017.
As part of its annual review of the performance of the Investment Manager, the
Board also considered WTW’s performance over the first five-year period
since its appointment. The main findings of the review reinforced the
Board’s judgement that the investment strategy is sound, and the Board
continues to endorse WTW’s investment approach.
INCREASED DIVIDEND
The Board has declared a fourth interim dividend of 6.0p per share which
brings the full year dividend to 24.0p. Following the step up in dividend
levels from the second half of 2021, this is a 26% increase on the prior year
and the 56th consecutive annual increase in the ordinary dividend. With a
share price of 948.0p at year end, the full year dividend represents a yield
of 2.5%. Following a year of particularly high income from certain stocks in
the portfolio, I am pleased to report that Earnings Per Share (‘EPS’) for
the year ended 31 December is 26.14p per share (2021: 15.48p). Given this high
level of earnings in 2022, the Board has taken the opportunity to take
advantage of the Company’s structure as an investment trust and add to the
Company’s already significant distributable reserves.
BORROWING AND GEARING
There were no major changes to the Company’s long-term borrowing
arrangements during 2022. As market interest rates rose, the value of the
fixed rate loans on the Company’s balance sheet declined resulting in a
higher NAV, thus enhancing overall performance for the year.
STABLE DISCOUNT
As shareholders are aware, one of the Board’s strategic objectives is the
maintenance of a stable discount. The Company’s average discount over the
year was 5.9%, equal to that of the prior year. As at 31 December 2022 the
Company’s discount was 4.2% (2021: 5.3%). This compared favourably with the
average discount for the AIC Global Sector of 7.4% as at the year end. During
the year under review, the Company bought back 15.5 million shares. These
share buybacks helped to support the stability of the discount and enhanced
the NAV Total Return by 0.3%. The Board will continue to use share buybacks as
appropriate, and invest in promotional activity, such as investor events,
designed to raise the Company’s profile, to support the management of the
discount. We hope, in time, to convert our discount into a premium as the
benefits of our long-term strategy gain wider recognition.
STRENGTHENED OPERATING MODEL
As previously announced, we made some operational changes at the end of 2022
which were the outcome of the work undertaken by the Board to strengthen the
Company’s operating model. Juniper Partners Limited (‘Juniper’) has been
appointed as Company Secretary and will also provide finance, fund
administration and accounting services to the Company from 1 April 2023. WTW
was also appointed to provide further marketing, public relations, and
investor relations services. The changes will benefit shareholders by reducing
risk in the Company’s operating model and should also enhance the
Company’s communications. The Board is pleased that despite the changes, it
has been able to continue to work with members of the Company’s Executive
team in their new roles with either Juniper or WTW.
BOARD SUCCESSION
As part of our succession planning, we have made a number of changes to the
Board over the past three years. The most recent of these being the
appointment of Vicky Hastings and Milyae Park to the Board in September 2022.
Vicky has extensive experience in fund management, both as a fund manager and
business leader, while Milyae’s diverse career spans financial services,
retail, and technology. They have brought further diversity of skills and
fresh perspectives to the Board.
I would like to express my thanks to Anthony Brooke for his significant
contribution to the Board over the past seven and a half years. Anthony joined
the Board in 2015 and will complete his tenure at the Annual General Meeting
on 27 April 2023.
PORTFOLIO WELL POSITIONED FOR UNCERTAIN ECONOMIC OUTLOOK
The outlook for the global economy remains highly uncertain and equity markets
remain volatile. If inflation and interest rates have peaked in the US and the
UK, as some analysts believe, and the war in Ukraine comes to an end, equity
markets may rally. On the other hand, they may fall further if we descend into
a deep recession. Coherent arguments can be made for both a bull and a bear
case. The good news is that the success of our investment strategy does not
hinge on macroeconomic outcomes. Regardless of the immediate outlook, our
Stock Pickers remain resolutely focused on finding excellent businesses with
exciting prospects. The speculative froth topping the valuations of many
growth stocks has been blown away by higher interest rates and harsher
economic conditions. We now look forward to the possibility of company
fundamentals, not sentiment, driving share prices, if not for the short term,
certainly in the long run.
Gregor Stewart
Chairman
8 March 2023
INVESTMENT MANAGER’S REPORT
“AN ISLAND OF STABILITY”
The Collins Dictionary’s word for the year is “permacrisis”, a
portmanteau of “permanent” and “crisis”. It seems appropriate, as the
world has lurched from one unprecedented event to another in the past few
years. First Brexit, then the Covid pandemic, quickly followed in February
last year by Russia’s invasion of Ukraine. The return of a land war to
Europe began to reshape geo-politics and triggered sharp rises in food and
energy prices, adding to inflationary pressures already building due to supply
chain disruption and ultra-loose monetary policy linked to Covid. Interest
rates decisively reversed direction, finally ending the cycle of rate
reductions that began in the Great Financial Crisis. It hardly needs to be
said that 2022 was one of the toughest environments on record for investors.
It was also a year in which it was difficult for investment managers focusing
on bottom-up stock picking to add value.
Not surprisingly, most asset classes delivered negative returns. With the war
driving up energy and raw materials prices, only commodities bucked the
downward trend.
The Company’s benchmark, the MSCI ACWI, which includes developed and
developing markets, returned -8.1% during the year. The Company’s NAV Total
Return also fell but was more resilient than the benchmark returning -7.1%,
while a narrowing of the discount meant that TSR declined by 5.8%. The
portfolio therefore outperformed the index in a challenging market
environment. It also declined in value by a lot less than those investment
trusts with a growth-style bias which have led the way in recent years. In the
words of one analyst, Alliance Trust was “an island of stability”.(1)
1. Source: Quoted Data.
GROWTH STOCKS LED MARKET DECLINE
Within the equity market, previously high-flying growth stocks in the US
suffered some of the sharpest declines. Having contributed the most to
performance in prior years, stocks such as Meta, Tesla, Alphabet, Microsoft,
Amazon and Apple, accounted for approximately half of the decline in the MSCI
ACWI in 2022.(2) Lesser-known growth stocks, such as Shopify, Snap, and
DocuSign also suffered steep declines in value. Meanwhile, defensive, and less
glamorous value stocks generally did well, though measuring returns in
aggregate by investment style masked what was largely a switch in fortune
between the technology (‘tech’) and energy sectors, with the latter
soaring in value. The about-turn in sector performance is easily explained by
the abrupt reversal in the interest rate cycle since late 2021/early 2022.
Higher borrowing costs dented optimism about the future earnings potential for
many ‘jam tomorrow’ tech companies, while soaring prices for commodities
boosted near-term cash flows and profits for ‘jam today’ energy and raw
materials companies. On a country basis, the UK stock market did relatively
well last year, with the FTSE 100 managing a modest gain of 0.9%, due to its
concentration of energy and raw materials companies. Chinese equities fell
significantly, as its economy remained semi-closed through much of the year
due to persistent Covid lockdowns, though these had begun to ease by the end
of 2022 because of public pressure.
2. Source: WTW, FactSet.
BALANCED STOCK EXPOSURE HELPED PERFORMANCE
The portfolio’s outperformance versus the market and most peers in 2022
stemmed from maintaining a balanced exposure to countries, sectors, and
styles, and focusing on stock picking as the primary source of returns,
although having slightly more money in aggregate invested in the UK than the
index added value. In addition, the Company’s NAV Total Return benefitted
over the period from the decline in the fair value of the Company’s fixed
rate debt with rising bond yields. Offsetting some of this benefit was the
impact of the portfolio being geared in a falling market as you can see from
the table below.
CONTRIBUTION ANALYSIS (%)
12 months to 31 December 2022 %
Portfolio -7.4
Gearing -0.8
Cost of Gearing -0.3
Share Buybacks 0.3
Expenses -0.6
Cash & accruals 0.1
Change in Fair Value of debt 1.6
NAV Total Return -7.1
Change in discount 1.3
Total Shareholder Return -5.8
MSCI ACWI Total Return -8.1
Source: WTW, Bank of New York Mellon. Data as at 31 December 2022.
Whereas in previous years, our diversified stance had held back performance
versus the market and many growth-style peers, due to the concentration of
returns in a handful of expensive US growth stocks, in 2022 it enabled us to
avoid the worst of the tech rout and, at the same time, benefit from the
recovery in energy stocks. Not owning Tesla and Apple boosted relative returns
versus the index, and although we continue to own some other fallen growth
stars such as Amazon, salesforce.com and Alphabet, the relative modesty of our
exposures helped to contain the damage. The oil companies ExxonMobil in the US
(held by GQG Partners ‘GQG’), BP in the UK (held by Jupiter Asset
Management ‘Jupiter’) and Petrol Brasileiro (‘Petrobras’) in Brazil
(held by GQG) were among the biggest contributors to relative returns. Our
Stock Pickers also found winners in defence, where BAE Systems (held by
Veritas Asset Management ‘Veritas’) and Booz Allen Hamilton (held by Black
Creek Investment Management ‘Black Creek’) benefitted from rising demand
due to increased government spending. Our positions in healthcare and
financials, with US-based UnitedHealth Group (held by GQG and Veritas), and
Indian bank HDFC (held by GQG) also boosted returns.
In terms of the Stock Pickers, GQG contributed most to the portfolio’s
outperformance, having correctly timed its exit from many overpriced tech
stocks in 2021 and increased its exposure to cheaper energy companies. Jupiter
and Black Creek, which both have a bias towards value stocks, also did well,
while the Stock Pickers with a growth-style bias, such as Sands Capital
(‘Sands’) and Sustainable Growth Advisors (‘SGA’), which had performed
well in prior years during the growth boom, were hit by the deratings of many
of the stocks that they owned. We retain high conviction in the skill of both
Sands and SGA to add value to the portfolio in the longer term, even though
many of the stocks that they own may have been out of favour during 2022.
TOP 5 STOCK CONTRIBUTORS AND DETRACTORS TO RETURN RELATIVE TO BENCHMARK IN
2022
Top 5 contributors
Name Country Sector Average Active Weight (%) 2022 Total Return in Sterling (%) Attribution Effect Relative to Benchmark (%)
Petrobras Brazil Energy 1.7 71.9 0.9
Tesla United States Consumer Discretionary (1.1) (60.6) 0.7
ExxonMobil United States Energy 0.9 107.9 0.6
H&R Block United States Consumer Discretionary 0.5 78.4 0.5
BAE Systems United Kingdom Industrials 0.7 60.9 0.4
Top 5 detractors
Name Country Sector Average Active Weight (%) 2022 Total Return in Sterling (%) Attribution Effect Relative to Benchmark (%)
salesforce.com United States Information Technology 1.1 (41.9) (0.5)
Charter Communications United States Communication Services 0.9 (41.9) (0.4)
Adidas Germany Consumer Discretionary 0.8 (45.7) (0.4)
Alphabet United States Communication Services 1.5 (32.1) (0.4)
Sea Limited Singapore Communication Services 0.2 (74.2) (0.3)
Source: WTW, The Bank of New York Mellon, FactSet. Data as at 31 December
2022.
Average active weight is the average difference between the weight of the
stock in the portfolio and the weight of the stock in the benchmark over the
period.
PORTFOLIO TURNOVER REFLECTED NEW OPPORTUNITIES
Our role as Investment Manager is to select the best Stock Pickers available
globally and blend them together into a balanced portfolio, reallocating
capital between them where necessary to control risk. We consciously did not
change the strategic stance of the portfolio during the year, although we
terminated River and Mercantile Asset Management’s (‘R&M’) mandate in
March due to a change in corporate ownership which we thought could undermine
the firm’s investment culture. At the time, R&M’s relatively small
allocation accounted for approximately 6% of the portfolio. This capital was
redistributed to existing Stock Pickers with similar investment approaches,
principally Jupiter and Black Creek, to retain the portfolio’s overall style
balance, although some of the capital also went to GQG.
Stock Picker weights evolved naturally during the year due to share price
fluctuations and there was some turnover in positions by the Stock Pickers,
most notably GQG’s shift between sectors. Total stock turnover was 56.7%,
partly due to the reallocation of R&M’s capital, without which it would have
been below 50%. At that level, stock turnover equates to an average two-year
holding period. This may seem short for an investment approach focused on
investing for generations. However, last year was anything but normal. The
volatility of share prices created many new opportunities and our Stock
Pickers actively exploited them.
Examples of outright sales in 2022 included Novo Nordisk, which was disposed
of by SGA and replaced with ICON. ICON is a leading contract research
organisation specialising in the strategic development, management, and
analysis of programs that support clinical development. ICON’s scale enables
it to expedite the clinical trial process and provide more comprehensive
offerings, allowing it to charge premium prices.
Sands purchased Keyence and sold Twilio. Twilio, a California-based business
selling communication tools, was sold due to weakening fundamentals,
indications of a deteriorating competitive position, and waning confidence in
management’s execution. Keyence is a leading designer of high-end factory
automation sensors and sensor systems. Despite the tech sell off, Sands
expects the company to maintain its leadership position as it expands into new
industries, solutions, and applications over the next decade, that should
hopefully result in sustained above-average earnings growth.
Vulcan Value Partners (‘Vulcan’) added CBRE Group and General Electric Co.
(‘GE’) to the portfolio. CBRE is the largest commercial real estate
services provider in the world, with over 100,000 employees generating $17bn
of net revenue. CBRE serves both corporate occupiers of real estate and real
estate investors. GE is an industrial company that operates in aviation,
healthcare, renewal energy, and power. Vulcan believes that GE’s management
has made considerable progress in simplifying the company’s structure and
de-risking the balance sheet.
Black Creek sold Nutrien, the world’s largest crop nutrient company, whose
share price increased sharply as fertiliser prices rose to all-time highs, and
purchased Stericycle, a leading global provider of regulated waste disposal
services to businesses. Black Creek was attracted by Stericyles’s valuation,
which is temporarily depressed as it goes through a multi-year restructuring
programme which will leave it stronger in the long run.
The portfolio’s positioning at the end of the year remained broadly neutral
versus the benchmark across countries, sectors, and styles. Even so, the
portfolio was marginally overweight in the UK and in industrials where some of
our Stock Pickers see opportunities from investment in new capacity. The
portfolio was also underweight in the US. These overweight and underweight
sector/country positions were the byproducts of bottom-up stock selection
versus top-down allocations and were well within our risk tolerance. Despite
top-down similarities, the portfolio was vastly different to the index in
terms of stocks, with an Active Share of 79%, ensuring stock selection drives
relative returns.
UNCERTAIN MARKET OUTLOOK
After a tough year for investors, it may be tempting to think that the worst
of the bear market is over. However, we expect continued economic uncertainty
to produce more market volatility. On the positive side, there are some
encouraging signs that inflation pressures may have peaked in the US and UK.
This means we may be approaching the end of the cycle of rising interest
rates. If that is the case, it is plausible that the global economy could
achieve a soft landing, in other words a cyclical slowdown that avoids a deep
and widespread recession. But a hard landing seems just as likely if interest
rates remain at current levels and corporate earnings fail to meet optimistic
expectations. Hence gross gearing at year end was 7.8%, at the lower end of
our typical 7.5-12.5% range, reflecting our caution about the market outlook.
We believe the Company’s portfolio is well positioned, with balanced
exposure to stocks that can survive, and even thrive, in the current high
inflation environment, as well as many companies who are financially strong
enough to weather a recession. We also have exposure to many high-quality
cyclical stocks with temporarily depressed valuations that could benefit
disproportionately from an economic rebound. This reflects the fact that our
approach does not attempt any big calls on the future direction of the market.
We believe there are potential mispricing opportunities across the market,
whether it is among growth stocks that have been oversold or value stocks
whose earnings prospects are underappreciated. Our goal is simply for our
Stock Pickers to pick the right companies with the best long-term
opportunities for superior returns.
FUNDAMENTALS DRIVE RETURNS IN THE LONG TERM
We are reassured that, altogether, the portfolio has more attractive
characteristics than our benchmark, namely a lower valuation, a higher
dividend yield and more stable projected earnings growth. We also take comfort
from empirical evidence that, notwithstanding short-term fluctuations due to
changes in market sentiment, share prices follow company fundamentals in the
long run.
It is notable that since our appointment on 1 April 2017, the price
appreciation achieved through improvements in the underlying businesses of
portfolio companies, as opposed to changes in market sentiment, is much
greater than that of the benchmark. By contrast, the benchmark has benefitted
disproportionally in recent years from over-excitement about the earnings
potential of fashionable high tech growth stocks.
As the more challenging economic environment forces investors to become
increasingly hard-headed in their assessment of corporate prospects, we
believe that the fundamentally strong companies in the Company’s portfolio,
whether they are classified as growth or value or something in between, will
gain greater recognition. Since the adoption of the multi-manager approach on
1 April 2017, after all costs, the NAV Total Return has performed in line with
low-cost passive products and has outperformed the AIC Global Sector. Given
that market returns are no longer as concentrated as they have been in recent
years we are growing more confident that we will outperform the benchmark from
here. It is a trite analogy, but we believe that a slow and steady pace wins
the investment race, even if it lacks the excitement and bursts of speed
associated with more adventurous strategies. We aim to offer investors a
smooth path to the finishing line.
RESPONSIBLE INVESTMENT:
THE ALLIANCE TRUST APPROACH
As stewards of approximately £3bn of assets, we apply high standards of
Responsible Investment to managing the investment portfolio on behalf of
shareholders. Environmental, Social and Governance (ESG) factors can all have
a significant impact on the Company’s ability to deliver growth in capital
and rising dividends. ESG risk factors are therefore integrated into the
investment processes by the Company’s Investment Manager, Willis Towers
Watson (WTW), to protect financial returns. WTW has a rigorous approach to
Responsible Investing:
1. WTW conducts due diligence on the Company’s Stock Pickers to ensure they
have a long-term mindset, exercise voting rights and engage with companies on
ESG considerations.
2. WTW has appointed EOS at Federated Hermes (EOS), a renowned stewardship
specialist, to provide an additional layer of engagement with companies,
policy makers and regulators. With over $1.6 trillion(1) under advice, this
gives EOS more weight when lobbying for profitable change than one Stock
Picker would have as a standalone investor.
3. WTW monitors the portfolio and challenges the Stock Pickers when it feels
their analysis could be improved, particularly in relation to climate change.
WTW has extensive resources in this area, comprising 90 specialists analysing
company-by-company the financial implications of climate change.
1. Source:
https://www.hermes-investment.com/uk/en/institutions/eos-stewardship/eos-team/
TARGETING NET ZERO GREENHOUSE GAS (GHG) EMISSIONS
Climate change poses significant risks to investment returns from many
companies, which is why the Company has pledged to have its assets managed to
achieve Net Zero by 2050 at the latest, with an interim target of reducing
portfolio emissions by 50% by 2030, relative to 2019.
However, the transition to Net Zero by 2050 will not be linear. There will be
times when it will be attractive to invest in innovative companies developing
solutions to climate change. But there will also be times when it will make
financial sense to buy mispriced shares in traditional energy companies. We
benefitted last year from GQG correctly seeing in 2021 that the shares of many
traditional energy companies were trading well below levels that were
justified by their future profitability. Increased allocations to
high-emitting stocks such as Heidelberg Materials, ExxonMobil and Petrobras,
among others, meant that overall portfolio emissions rose year-on-year.
However, the weighted average carbon intensity (which measures carbon
emissions as a proportion of revenue) ended the year lower than the index.
Although there was a handful of stocks driving up portfolio emissions last
year, two-thirds of the portfolio holdings by weight were either on or
transitioning towards a clear path to Net Zero. The key to tackling the
laggards is to engage and keep encouraging them in the right direction.
GQG, as a responsible owner of ExxonMobil, for example, made two specific
engagements in the past 18 months. During these discussions, GQG urged
ExxonMobil to improve its climate disclosures, as it believes that ExxonMobil
is investing in de-carbonisation more widely than is appreciated. GQG is
encouraged that three new directors with sustainability expertise have been
appointed to the ExxonMobil board of directors and that ExxonMobil announced
its ambition for Net Zero greenhouse gas emissions by 2050. GQG has also
recently engaged with Petrobras on our behalf.
In addition to GQG’s efforts with these companies, EOS has an ongoing
programme of engagement with them and some of the world’s largest emitters
of greenhouse gases, arguing for more sustainable long-term business models,
reductions in greenhouse gases and improved governance and disclosure. EOS
plays a key role in support of Climate Action 100+(1), an investor led
initiative with the support of over 700 investors, representing more than $68
trillion(2) of assets under management that aims to ensure the world’s
largest corporate greenhouse emitters take the necessary action on climate
change.
Climate Action 100+(1) is engaging with 166 companies, accounting for over 80
percent of global corporate industrial greenhouse gas emissions. While many of
these companies are improving their disclosures, and embracing Net Zero
commitments, their real-world activities are not yet sufficient to shift their
business models to align with Net Zero goals. This demonstrates the need to
continue to escalate engagement activity with the highest emitters to ensure
Net Zero goals are met. As the transition gains momentum, EOS will continue to
engage with such companies to ensure that they recognise the reality of a Net
Zero economy, that they factor this into their financial and strategic
planning, and that they deploy capital to address the risks and capture the
opportunities presented by the transition.
1. https://www.climateaction100.org/
2. Source https://www.climateaction100.org/about/
ENGAGEMENT TO DRIVE POSITIVE CHANGE
As well as engaging on climate change, we, together with EOS and our Stock
Pickers are also focused on a wide range of governance and social issues.
These issues get less scrutiny by regulators concerned about greenwashing and
are not always as easy to assess with data. It is, however, possible to
address them through engagement.
For example, Jupiter successfully engaged with Bayer, the German listed
pharmaceutical, consumer health and agricultural sciences company, to help
persuade the CEO to step down after a series of missteps by voting against
management, supervisory boards and the remuneration report. Metropolis Capital
(‘Metropolis’) engaged with News Corp over the company’s use of a
“poison pill” provision to prevent activist investors, competitors or
other potential acquirers from taking control of the company. The provision
had never been voted upon by shareholders. Following feedback from investors,
including Metropolis, News Corp terminated the provision.
Sands challenged Entegris on how it sources materials and tools for
semiconductor manufacturing. Semiconductor companies have exposure to conflict
minerals such as tantalum, tin, tungsten, and gold, given that many of these
are integral components of manufacturing electronic circuits. Sands is
encouraged that Entegris has hired a senior employee to enhance its public
disclosures and responsible mineral sourcing and is transitioning away from
materials sourced from Russia.
In addition to engagements by the Stock Pickers, EOS engaged with 103
companies within the Alliance Trust portfolio on 493 issues and objectives
throughout the year. Of these engagements, the environmental category
accounted for 27% of total engagement, with 75% of environmental engagements
relating to climate change.
Meanwhile, our Stock Pickers voted on all voteable proposals, casting votes on
3,444 resolutions at investee company meetings. Of these resolutions, they
voted against company management on 323 and abstained from voting on 109
occasions. Of the key votes against management, the issues voted on were
governance-related issues such as remuneration and director election.
OUR STOCK PICKERS
HOW WE MANAGE THE COMPANY’S PORTFOLIO
We have overall responsibility for the management of the Company’s
portfolio. We have built and manage a team of diverse, best-in-class(1) Stock
Pickers, each of whom invest in a bespoke selection of typically 10-20 of
their ‘best ideas’. ‘Investing For Generations’ is the backbone of the
philosophy of the Company. It brings long-term principles into how we invest
your money, including ESG considerations. This helps us define our investment
approach, ensuring that the Stock Pickers’ thinking and practices are
aligned with the core beliefs of the Company and that they invest responsibly.
We consider this a key factor for long-term success.
HOW WE CHOOSE OUR STOCK PICKERS
We aim to forge abiding partnerships with our Stock Pickers, enabling them to
focus on what they do best. Our Stock Pickers are focused on the long term and
do not necessarily look at volatility as a risk, but more as an opportunity:
risk is more associated with the permanent loss of capital. There was one
change to the Stock Picker line up in 2022. R&M’s mandate was terminated
after a change in ownership. We were concerned that this could prove a
distraction for the investment team. The capital allocated to R&M was
redistributed among the remaining Stock Pickers with similar characteristics
to retain balanced exposure to different styles of investment, sectors and
regions. We are, however, always on the lookout for new Stock Pickers and the
advantage of the multi-manager structure is that we can easily change the
line-up without disrupting the whole portfolio.
We invest significant time, research and effort in identifying Stock Pickers
for the Company’s portfolio, leveraging our extensive research network,
robust process and expertise. Our approach involves identifying the skills and
characteristics we believe are essential in good Stock Pickers. We believe the
key to identifying tomorrow’s high-performing Stock Pickers lies in
extensive due diligence combined with qualitative and quantitative analysis.
This due diligence focuses on:
* the investment processes, resources and decision-making that make up the
Stock Picker’s competitive advantage;
* the culture and alignment of the organisation that leads to sustainability
of that competitive advantage;
* their approach to responsible investment. We aim to appoint Stock Pickers
who actively engage with the companies in which they invest and have an
effective voting policy. When necessary, we challenge the Stock Pickers and
guide them towards better practices; and
* the operational infrastructure that minimises risk from a compliance,
regulatory and operational perspective.
We do not believe that quantitative assessments on their own provide enough
information to give us an advantage in assessing the potential of a Stock
Picker to outperform. Our Manager Research team formulates a view on each
Stock Picker we seek to rate over a series of meetings. We look beyond past
performance numbers to try to understand what ‘competitive edge’ each
Stock Picker has and whether that edge is likely to be sustainable in the
future. We dig deeper into the investments made by each Stock Picker using a
case study methodology to understand the depth of fundamental analysis
involved in investment decisions. We look at matters such as the team’s
process for selecting stocks, adherence to this process through different
market conditions, relevant team dynamics, training and experience as well as
performance track record. We see the track record as just a single data point
and, without the context of the additional data we assess, it is unlikely to
persuade us that a Stock Picker is skilled. Our expectation of success further
rises where we engage with Stock Pickers to structure bespoke high conviction,
concentrated strategies usually of 10 to 20 stocks, at an attractive cost and
we believe portfolios are more robust when we diversify across Stock Pickers
with differing approaches. High Active Share and concentrated portfolios are
advantageous. Academic research supports this(2). The broadest opportunity set
is provided by unrestricted global mandates, to allow skilled Stock Pickers
the widest scope.
1. As rated by WTW.
2. Sebastian & Attaluri, Conviction in Equity Investing, The Journal of
Portfolio Management, Summer 2014.
DIVIDEND
DIVIDEND POLICY
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.
DIVIDEND
As previously noted in the Chairman’s Statement, the Company has increased
its total dividend for the year ended 31 December 2022 to 24.00p per ordinary
share (2021: 19.05p), a 26% increase on the previous year.
During the year under review, the Board was pleased to be able to pay
shareholders a consistent quarterly dividend of 6.0p per ordinary share, being
an increase on the corresponding quarterly dividend payments in the previous
financial year. The total of the first and second interim dividends
represented an increase of 62.1% on the same payments for 2021. Details of the
payments can be found below.
Dividend 2022 (p) 2021 (p) % increase
1 (st)Interim 6.0 3.702 62.1
2 (nd)Interim 6.0 3.702 62.1
3 (rd)Interim 6.0 5.825 3.0
4 (th)Interim 6.0 5.825 3.0
The Board is of the opinion that the increased level of total dividend is both
sustainable and affordable and it expects to extend the Company’s 56-year
track record of annual dividend increases for many years.
The Company’s Dividend Policy (as detailed above), Investment Objective and
Investment Strategy all remain unchanged.
The Board aims to continue delivering a rising dividend year after year as
well as capital growth. If you had invested £100 in the Company at the start
of 1968 and you had reinvested your dividends in additional shares, you would
have shares worth £23,926 at the end of 2022, and £5,643 if you did not.
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 the yield on similar investment trusts.
The Board will continue to take advantage of the Company’s structure as an
investment trust and will use both its investment income and its significant
accumulated distributable reserves to fund dividend payments.
The Company policy of paying quarterly interim dividends means that
shareholders have certainty of the date on which they will receive their
income but means they are not asked to approve the final dividend. However,
each year shareholders are given the opportunity to share their views on the
Company’s dividend by being asked to approve the Company’s Dividend
Policy.
INCOME & DISTRIBUTABLE RESERVES
The Company’s income receipts from dividends in 2022 saw a significant
increase to £94.9m (2021: £61.9m). The same level of dividend income may not
continue in 2023.
The Company’s distributable reserves at 31 December 2022 were £2.9bn (2021:
£3.3bn). Of these, the Company’s revenue reserve was £102.3m (2021:
£95.2m), realised capital reserves were £2.7bn (2021: £2.8bn) and
unrealised capital reserves were £0.1bn (2021: £0.5bn). Both elements of the
capital reserves are readily convertible to cash.
FOURTH INTERIM DIVIDEND DECLARATION
A fourth interim dividend of 6.0p per ordinary share will be paid on 31 March
2023 to shareholders who are on the register at close of business on 10 March
2023. The fourth interim dividend will be fully paid from income, with no
requirement to utilise revenue reserves.
ONGOING CHARGES & DISCOUNT
ONGOING CHARGES(1)
The Company’s Ongoing Charges Ratio (OCR) marginally increased to 0.61%
(2021: 0.60%). Total administrative expenses were £6.5m (2021: £5.9m) and
investment management expenses were £12.8m (2021: £14.1m). 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 which is
consistent with the Association of Investment Companies (AIC) Statement of
Recommended Practice: Financial Statements of Investment Trust Companies and
Venture Capital Trusts. The Company’s costs remain competitive for an
actively managed multi-manager global equity investment company.
1. Alternative Performance Measure
SHARE BUYBACKS
The Company bought back 5.0% of its issued share capital during the year,
purchasing 15,537,581 shares for cancellation. The total cost of the share
buybacks was £149.6m. The weighted average discount of shares bought back in
the year was 6.3%. All the shares bought back were cancelled. Share buybacks
contributed a total of 0.3% to the Company’s NAV performance in the year.
DISCOUNT(1)
One of the Company’s strategic objectives is the maintenance of a stable
share price discount to Net Asset Value.
During the year under review, the Company’s share price traded at an average
discount of 5.9%.
As at 31 December 2022, the Company’s share price discount was 4.2% (2021:
5.3%). The average discount (unweighted) for the AIC Global Sector was 7.4%.
HOW WE MANAGE OUR RISKS
STRATEGIC OBJECTIVES
The strategic objectives of the Company are to:
* Consistently meet the investment performance targets set by the Board;
* Continue its policy of paying a progressive dividend;
* Maintain a stable discount; and
* Provide good value to its shareholders.
The Board determines the levels of risk that it is prepared to accept to
achieve the Company’s strategic objectives. It then monitors whether there
is a possibility of any of these risk levels being breached (through Early
Warning Indicators, or EWIs) and, if there is, it will take action to bring
the level of risk back within the EWI it has set. During the year, the EWI’s
were reviewed to ensure they remained appropriate. No changes were made to the
list of EWIs.
At the year end, there were three measures which triggered their EWIs. Details
of which are as follows:
Portfolio Performance: The EWI was triggered due to the underperformance of
the portfolio against the MSCI ACWI over a rolling three-year period.
Portfolio Turnover: The EWI was triggered as a result of increased turnover
due to Stock Picker changes and trading in the portfolio when Stock Pickers
took advantage of opportunities in the market.
Operational Risk: The EWI was triggered as a result of factsheet errors.
Additional controls have subsequently been put in place to mitigate the risk
of future errors being made.
PRINCIPAL AND EMERGING RISKS
In common with other financial services organisations, the Company’s
business model results in inherent risks. The Directors have carried out a
robust assessment of the principal and emerging risks facing the Company and
how these are continuously monitored and managed.
As an investment company, investment risk has the potential to impact the
Company significantly. We explain on the next page how we mitigate against the
potential impact of this risk. 2022 was a challenging year as a result of
geopolitical tension, inflation and the risk of many economies entering into
recession, all of which adversely impacted the global economy. The market
outlook for 2023 remains highly uncertain as policy makers continue to battle
inflation without triggering a deep recession. The backdrop of the war in
Ukraine also continues to impact market and investor confidence.
The other area where we see risk evolving relates to ESG. In addition to
considering the potential adverse impact of ESG factors on the Company’s
reputation and financial performance, a specific climate change risk, along
with mitigating activities at Company and portfolio level, is being monitored.
CONSIDERING THE COMPANY’S STAKEHOLDERS (S172 STATEMENT)
The Company’s Directors have a number of obligations including those under
section 172 of the Companies Act 2006. These obligations relate to how the
Board takes account of a number of factors in making its decisions –
including the impact of its decisions on employees, suppliers and the local
community as well as shareholders. The Board is focused on its
responsibilities to stakeholders, corporate culture and diversity as well as
contributing to wider society and takes account of stakeholder interests when
making decisions on behalf of the Company. Examples of the principal decisions
taken by the Board during the year under review are detailed below.
Shareholders
The Board engages with the Company’s shareholders in a number of ways – at
the AGM and investor events; through its investor relations and marketing
activities, including meetings between individual shareholders and members of
the Board; and via its website, annual and interim reports, newsletters and
factsheets. Shareholders had the opportunity to join three investor forums
during the year which took place in person and virtually. Details of all
future Company events will be made available on our website,
www.alliancetrust.co.uk, and all shareholders who have provided us with their
email contact details will be sent electronic invitations.
The Head of Investor Relations and Marketing and Broker reported regularly to
the Board on meetings with shareholders, sharing their views and also
reporting on any changes to the composition of the share register.
Shareholders wishing to communicate directly with the Board can do so by
contacting the Company Secretary by e-mail or post.
Following the relaxation of Covid-19 restrictions and for the first time in
three years, the Board was pleased to welcome shareholders in person to the
Company’s AGM. Those shareholders who were not able to attend in person were
able to view the meeting and ask questions remotely. The Company’s 135th AGM
to be held in April 2023 will have the same facility.
The Company continued to reunite shareholders with ‘lost’ shares and
dividends. During the year under review, the Company was able to reunite
shareholders with 292,800 dormant shares with a value of £2.8 million and
£17,400 of unclaimed dividends.
The Board concluded its work to simplify and strengthen the Company’s
operating model. This resulted in the appointment of Juniper as Company
Secretary with effect from 31 December 2022. Juniper will also provide
finance, administration, and fund accounting services to the Company with
effect from 1 April 2023. The Company also appointed TWIM to provide it with
further marketing, public relations and investor relations services with
effect from 31 December 2022.
The changes to the Company’s operating model have not impacted the
management of the Company’s portfolio. The changes will benefit shareholders
by reducing risk in the Company’s operating model. In addition, the
Company’s communications will benefit from additional input due to the
closer proximity between marketing and investment colleagues.
The Board considered the impact of the changes on the Company’s small
Executive team. Following the changes to the Company’s operating model, the
Board was pleased that the majority of the Executive team joined either
Juniper or WTW, apart from one employee who retired. The Board was also
mindful of its Dundee heritage of which it is very proud and was pleased that
those employees who were based in the Company’s Dundee office will remain
there with Juniper having taken over responsibility for the office premises.
The Investment Association maintains a public register of companies who have
received significant shareholder opposition to resolutions put to shareholders
at general meetings. At the Company’s Annual General Meeting held on 21
April 2022, all resolutions put to shareholders were duly passed with no
significant votes against cast.
Employees
During the year under review, the Company had a small Executive team of five
people who had all been employed for a number of years. There was therefore no
need to seek to recruit staff nor a need to consider any promotions. Should
such a requirement have arisen the Company would have based its decisions
solely on the individual’s suitability. There was no discrimination on any
basis and, should any employee have suffered from a health condition or
disability, reasonable adjustments would have been made to allow them to
continue to have the same opportunities as any other employee.
The Company had two part-time employees (one male and one female). The most
senior employee was female and all other employees reported directly to her.
All the employees were British and white. All employees had the flexibility to
work from home or in the office. The table below provides the gender,
ethnicity and colour split of the workforce of the Company and the Board as at
31 December 2022.
As at 31 December 2022 Male Female White British Asian British
Board 3 (37.5%) 5 (62.5%) 7 (87.5%) 1 (12.5%)
Senior Board Positions* 1 (50%) 1 (50%) 2 (100%) 0 (0%)
Senior Managers 2 (66.7%) 1 (33.3%) 3 (100%) 0 (0%)
Other Staff 0 (0%) 2 (100%) 2 (100%) 0 (0%)
Total 6 (38.5%) 9 (61.5%) 14 (92.3%) 1 (7.7%)
* Chair and Senior Independent Director.
With effect from 31 December 2022, the Company had no employees. This was
primarily as a result of the changes made to the Company’s operating model.
Society
The Company and WTW are targeting Net Zero greenhouse gas emissions by 2050
for the Company’s portfolio and aims to reduce emissions over the medium
term on a pathway that is consistent with the goals of the Paris Agreement and
the principles of the Institutional Investors Group on Climate Change Net Zero
Investing Framework. The Board believes that meeting these commitments will
improve risk adjusted returns.
The Company has an energy efficient office. However, for most of 2022 staff
have been working partly from the office and partly from home. The Board has
agreed that the day-to-day business operations of the Company should be carbon
neutral and it is Net Zero for its non-portfolio related carbon emissions. The
Company encourages electronic communications with shareholders whenever
possible and uses certifiably sustainable paper for the Annual Report and its
other communications. The Company will continue to seek to minimise the impact
of its operations on the environment.
The Company influences how its investee companies operate through its
responsible investment activities. The Company’s investment approach takes
account of the external impact of investee companies’ activities on the
environment, their practices’ social acceptability, and their good
governance.
The Board has maintained a limited number of types of investment restrictions.
During the year, the Board added a restriction on investment in Russia and
Belarus.
The Company considers that it does not fall within the scope of the Modern
Slavery Act 2015, and it is not, therefore, obliged to make a slavery and
human trafficking statement. The Company considers its supply chains to be of
low risk as its suppliers are typically professional advisers. A statement
from WTW, the Company’s Investment Manager, on the steps it takes to
investigate and mitigate the risk of modern slavery and human trafficking can
be found on WTW’s website (www.willistowerswatson.com).
The Company conducts its business honestly, fairly and with transparency and
takes anti-bribery measures very seriously. The Company is committed to
implementing and enforcing effective measures to counter bribery and
corruption and has a zero-tolerance approach to acts of bribery and corruption
by Directors, employees or anyone acting on the Company’s behalf. The
Company also has zero tolerance for financial crime such as tax evasion or the
facilitation of tax evasion.
Community
The Board, while supportive of the aims of many charities, believes that the
Company should not divert shareholders’ funds to finance them save in
occasional circumstances where there is a close link to the Company or its
heritage. The Company has been a supporter of the V&A Dundee since 2015 and
made a payment of £50,000 in the year. The Company also provided £200 to
fund prizes at Dundee University.
Staff were, if they requested it, given time off work to participate in
charitable activities or to allow them to support the charities in which they
are involved.
Service Providers
The Company has outsourced various activities, not least, the management of
the Company’s portfolio to WTW and the responsibilities of safekeeping the
Company’s assets to its Depositary and Custodian.
The Company favours working with suppliers on a long-term basis. For material
contracts, the Board will normally conduct a tender process with associated
due diligence prior to appointment. Where possible, consideration is given to
suppliers local to Dundee. The performance of suppliers is subject to
oversight by the Board. The Board receives and considers reporting detailing
the performance of the Company’s service providers. The Audit and Risk
Committee also reviews the performance of the Company’s Auditor and makes
recommendation to the Board on its continuing appointment.
The Company complies with its obligations under the Reporting on Payment
Practices and Performance Regulations.
Other principal decision taken during the year are as follows:
Success planning
Chris Samuel retired as a Director of the Company following the conclusion of
the AGM held on 21 April 2022. Anthony Brooke also informed the Board of his
intention to retire as a Director of the Company at the 2023 AGM. In
accordance with its succession planning the Company undertook a search for new
Directors to join the Board. The Company appointed Cornforth Consulting to
assist with this process. Following an extensive review of candidates,
including a formal interview process, Vicky Hastings and Milyae Park were
appointed as Directors of the Company on 29 September 2022. Vicky has
extensive experience in fund management, both as a fund manager and business
leader, while Milyae’s diverse career spans financial services, retail, and
technology. They have brought further diversity and fresh perspectives to the
Board.
Dividends
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. During the year, the Board considered income receipts, forecast
dividends, inflation, and the dividend yield of other investment trusts in the
AIC Global Sector. The Board was pleased to be able to pay total dividends of
24.00p per ordinary share for the financial year ended 31 December 2022, a 26%
increase on the previous year. The Board aims to continue delivering a rising
dividend year after year as well as capital growth.
VIABILITY AND GOING CONCERN STATEMENTS
VIABILITY STATEMENT
The Board has assessed the prospects and viability of the Company beyond the
12 months required by the Going Concern accounting provisions.
The Board considered the current position of the Company and its prospects,
strategy and planning process as well as its principal and emerging risks in
the current, medium and long term. The Company’s Investment Objective was
approved by shareholders in April 2019. After the year-end but prior to
approval of these Accounts, the Board reviewed how it is performing against
its strategic objectives and its principal and emerging risks.
The Board received regular updates on performance and other factors that could
impact on the viability of the Company.
The Board also engaged with the Investment Manager on the longer term impact
of climate change and other societal change factors on the portfolio, and how
the portfolio will be transitioned to a Net Zero greenhouse gas emissions
position by 2050.
The Board has concluded that there is a reasonable expectation that the
Company will be able to continue in operation and meet its liabilities as they
fall due for at least the next five years; the Board expects this position to
continue over many more years to come. The Company’s Investment Objective is
to achieve capital growth and a rising dividend and the Board regards the
Company’s shares as a long-term investment. The Board believes that a period
of five years is considered a reasonable period for investment in equities and
is appropriate for the composition of the Company’s portfolio.
In arriving at this conclusion, the Board considered:
* Financial Strength: As at 31 December 2022 the Company had Total Assets of
£3.1bn, with net gearing of 4.7% and gross gearing of 7.8%. At the year end
the Company had £88.9m of cash or cash equivalents.
* Investment: The portfolio is invested in listed equities across the globe.
The portfolio is structured for long-term performance; the Board also
considers five years as being an appropriate period over which to measure
performance.
* Liquidity: The Company is closed-ended, which means that there is no
requirement to realise investments to allow shareholders to sell their shares.
The Directors consider this structure supports the long-term viability and
sustainability of the Company and have assumed that shareholders will continue
to be attracted to the closed-ended structure due to its liquidity benefit.
During the year the Investment Manager carried out a liquidity analysis and
stress test which indicated that around 94% of the Company’s portfolio could
be sold within a single day and a further 6% within 10 days, without
materially influencing market pricing. The Investment Manager performs
liquidity analysis and stress testing on the Company’s portfolio of
investments on an ongoing basis under both current and stressed conditions.
The Investment Manager remains comfortable with the liquidity of the portfolio
under both of these market conditions. The Board would not expect this
position to materially alter in the future.
* Dividends: The Company has significant accumulated distributable reserves
which together with investment income can be used to support payment of the
Company’s dividend. Investment income from the Company’s portfolio
increased significantly in 2022 to £94.9m from £61.9m in 2021 which enhanced
this position. The Company has sufficient funds to meet its Dividend Policy
commitments.
* Reserves: The Company has large reserves (at 31 December 2022 it had £2.9bn
of distributable reserves and £19.0m of other reserves).
* Discount: The Company has no fixed discount control policy. The Company will
continue to buy back shares when the Board considers it appropriate and to
take advantage of any significant widening of the discount and to produce NAV
accretion for shareholders.
* Significant Risks: The Company has a risk and control framework which
includes a number of triggers which, if breached, would alert the Board to any
potential adverse scenarios. The Board has approved various sensitivities to
market, credit, liquidity and gearing.
* Borrowing: The Company has put in place unsecured long-term borrowing
arrangements of various durations going out to 2053 amounting to £160.0m. In
addition the Company at the year end had drawn £63.5m of its approved
borrowing facilities of £250.0m plus an accordion option of a further
£50.0m. The Company comfortably meets its banking covenant tests.
* Security: The Company retains title to all assets held by the Custodian
which are subject to further safeguards imposed on the Depositary.
* Operations: Throughout the year under review, the Company’s key service
providers continued to operate in line with service level agreements with no
significant errors or breaches having been recorded. The Company concluded the
work it was undertaking to strengthen its operating model with changes being
made effective from 31 December 2022. The Board concluded that these changes
would reduce risk in the Company’s operating model.
GOING CONCERN STATEMENT
In view of the conclusions drawn in the foregoing Viability Statements, which
considered the resources of the Company over the next 12 months and beyond,
the Directors believe that the Company has adequate financial resources to
continue in existence for at least 12 months from the date of approval of
these accounts. Therefore, the Directors believe that it is appropriate to
continue to adopt the Going Concern basis in preparing the financial
statements.
DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with UK adopted international accounting
standards and applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors are required to prepare the
financial statements in accordance with UK adopted international accounting
standards. Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view of
the state of affairs of the Company and of the profit or loss for that period.
In preparing these financial statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgements and accounting estimates that are reasonable and prudent;
* state whether they have been prepared in accordance with UK adopted
international accounting standards, subject to any material departures
disclosed and explained in the financial statements;
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business; and
* prepare a Director’s report, a strategic report and Directors’
remuneration report which comply with the requirements of the Companies Act
2006.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company’s transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006.
They are also responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of fraud and
other irregularities. The Directors are responsible for ensuring that the
Annual Report and Accounts, taken as a whole, are fair, balanced, and
understandable and provides the information necessary for shareholders to
assess the performance, business model and strategy.
Website publication
The Directors are responsible for ensuring the Annual Report and the financial
statements are made available on a website. Financial statements are published
on the Company’s website in accordance with legislation in the United
Kingdom governing the preparation and dissemination of financial statements,
which may vary from legislation in other jurisdictions. The maintenance and
integrity of the Company’s website is the responsibility of the Directors.
The Directors’ responsibility also extends to the ongoing integrity of the
financial statements contained therein.
REPORT OF DIRECTORS AND RESPONSIBILITY STATEMENT
Each of the Directors confirm to the best of their knowledge that:
* the Financial Statements, prepared in accordance with the applicable set of
UK adopted International Accounting Standards, give a true and fair view of
the assets, liabilities, financial position and profit or loss of the Company;
* the Annual Report includes a fair view of the development and performance of
the business and the position of the Company together with a description of
the principal risks and uncertainties that the Company faces; and
* in the opinion of the Board, the Annual Report and Financial Statements
taken as a whole, is fair, balanced and understandable and provides the
information necessary to assess the Company's performance, business model and
strategy.
On behalf of the Board
Gregor Stewart
Chairman
8 March 2023
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2022
Year to 31 December 2022 Year to 31 December 2021
£000 Revenue Capital Total Revenue Capital Total
Income 95,521 - 95,521 62,282 - 62,282
(Loss)/gain on investments held at fair value through profit or loss - (358,675) (358,675) - 500,959 500,959
Profit on fair value of debt - 54,682 54,682 - 11,957 11,957
Total 95,521 (303,993) (208,472) 62,282 512,916 575,198
Investment management fees (3,197) (9,586) (12,783) (3,532) (10,595) (14,127)
Administrative expenses (5,562) (912) (6,474) (5,003) (919) (5,922)
Finance costs (2,156) (6,469) (8,625) (1,958) (5,876) (7,834)
Foreign exchange gains/(losses) - 486 486 - (3,999) (3,999)
Profit/(loss) before tax 84,606 (320,474) (235,868) 51,789 491,527 543,316
Taxation (6,435) (342) (6,777) (3,110) (183) (3,293)
Profit/(loss) for the year 78,171 (320,816) (242,645) 48,679 491,344 540,023
All profit/(loss) for the year is attributable to equity holders.
Earnings per share attributable to equity holders
Basic (p per share) 26.14 (107.28) (81.14) 15.48 156.23 171.71
Diluted (p per share) 26.14 (107.28) (81.14) 15.48 156.22 171.70
The Company does not have any other comprehensive income and hence the total
profit/(loss), as disclosed above, is the same as the Company’s total
comprehensive income.
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2022
Distributable reserves
£000 Share capital Capital redemption reserve Merger reserve Realised capital reserve Unrealised capital reserve Revenue reserve Total distributable reserves Total Equity
At 1 January 2021 8,040 10,958 645,335 1,850,043 389,750 99,174 2,338,967 3,003,300
Total Comprehensive income:
Profit for the year - - - 399,917 91,427 48,679 540,023 540,023
Transactions with owners, recorded directly to equity:
Ordinary dividend paid - - - - - (52,680) (52,680) (52,680)
Unclaimed dividends returned - - - - - 49 49 49
Own shares purchased (337) 337 - (131,512) - - (131,512) (131,512)
Transfer to capital reserves - - (645,335) 645,335 - - 645,335 -
At 31 December 2021 7,703 11,295 - 2,763,783 481,177 95,222 3,340,182 3,359,180
Total Comprehensive income/(loss):
Profit/(loss) for the year - - - 56,607 (377,423) 78,171 (242,645) (242,645)
Transactions with owners, recorded directly to equity:
Ordinary dividend paid - - - - - (71,086) (71,086) (71,086)
Unclaimed dividends returned - - - - - 27 27 27
Own shares purchased (389) 389 - (150,457) - - (150,457) (150,457)
At 31 December 2022 7,314 11,684 - 2,669,933 103,754 102,334 2,876,021 2,895,019
The £103.8m (2021: £481.2m) of Capital reserve arising on the revaluation of
investments is subject to fair value movements and may not be readily
realisable at short notice, as such it may not be entirely distributable. The
capital reserve includes movements on the unsecured fixed rate loans of
£54.7m (2021: £12.0m) which are not distributable.
BALANCE SHEET AS AT 31 DECEMBER 2022
£000 2022 2021
Non - current assets
Investments held at fair value 3,012,492 3,650,282
Right of use asset 54 504
3,012,546 3,650,786
Current assets
Outstanding settlements and other receivables 9,648 14,624
Cash and cash equivalents 88,864 88,579
98,512 103,203
Total assets 3,111,058 3,753,989
Current liabilities
Outstanding settlements and other payables (9,344) (15,863)
Bank loans (63,500) (180,500)
Lease liability (38) (251)
(72,882) (196,614)
Total assets less current liabilities 3,038,176 3,557,375
Non - current liabilities
Unsecured fixed rate loan notes held at fair value (143,141) (197,823)
Lease liability (16) (372)
(143,157) (198,195)
Net assets 2,895,019 3,359,180
Equity
Share capital 7,314 7,703
Capital redemption reserve 11,684 11,295
Capital reserve 2,773,687 3,244,960
Revenue reserve 102,334 95,222
Total Equity 2,895,019 3,359,180
All net assets are attributable to equity holders.
Net Asset Value per ordinary share attributable to equity holders
Basic and diluted (£) £9.89 £10.90
Cash flow statement for the year ended 31 December 2022
£000 2022 2021
Cash flows from operating activities
(Loss)/profit before tax (235,868) 543,316
Adjustments for:
Losses/(gains) on investments 358,675 (500,959)
Gains on fair value of debt (54,682) (11,957)
Foreign exchange (losses)/gains (486) 3,999
Depreciation 174 203
Finance costs 8,625 7,834
Scrip dividends (503) (854)
Operating cash flows before movements in working capital 75,935 41,582
Increase in receivables (3,189) (1,074)
Decrease in payables (1,153) (1,206)
Net cash inflow from operating activities before income tax 71,593 39,302
Taxes paid (7,302) (3,454)
Net cash inflow from operating activities 64,291 35,848
Cash flows from investing activities
Proceeds on disposal at fair value of investments through profit and loss 2,202,258 3,817,847
Purchases of fair value through profit and loss investments (1,920,913) (3,717,464)
Net cash inflow from investing activities 281,345 100,383
Cash flows from financing activities
Dividends paid - Equity (71,086) (52,680)
Unclaimed dividends returned 27 49
Purchase of own shares (149,033) (131,512)
(Repayment)/Drawdown of bank debt (117,000) 35,500
Principal paid on lease liabilities (293) (250)
Interest paid on lease liabilities (17) (25)
Finance costs paid (8,435) (7,465)
Net cash outflow from financing activities (345,837) (156,383)
Net decrease in cash and cash equivalents (201) (20,152)
Cash and cash equivalents at beginning of year 88,579 112,730
Effect of foreign exchange rate changes 486 (3,999)
Cash and cash equivalents at end of year 88,864 88,579
The financial information set out above does not constitute the Company's
statutory financial statements for the years ended 31 December 2022 or 2021,
but is derived from those financial statements. Statutory accounts for 2021
have been delivered to the Registrar of Companies and those for 2022 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
UK-adopted international accounting standards (IASs), this announcement does
not itself contain sufficient information to comply with IASs. The Company
will publish full financial statements that comply with IASs on its website.
1. Income
An analysis of the Company's revenue is as follows:
£000 2022 2021
Income from investments
Listed dividends - UK 14,795 12,961
Listed dividends - Overseas 80,135 48,913
94,930 61,874
Other income
Property rental income 257 321
Other interest 323 54
Other income 11 33
591 408
Total income 95,521 62,282
2. Total Company expenses of £19,257k (2021: £20,049k)
consist of investment management fees of £12,783k (2021: £14,127k) and
administrative expenses of £6,474k (2021: £5,922k). Administrative expenses
include property and other costs not connected to the ongoing investment
business of the Company of £672k (2021: £471k).
3. The diluted earnings per share is calculated using the
weighted average number of ordinary shares, which includes nil (2021: 1,611)
shares held in a trust that was set up to satisfy awards made under historic
share award schemes. 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.
Where there is a connection with the maintenance or enhancement of the value
of the Company’s investments and it is consistent with the AIC SORP, the
Company attributes indirect expenditure including management fees and finance
costs, 25% to revenue and 75% to capital profits. Specific exceptions to this
general principle are:
* Expenses which under the AIC SORP are chargeable to revenue profits are
recorded directly to revenue.
* Expenses connected with rental income and mineral rights income are included
as administrative expenses.
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 135th Annual General Meeting of the Company will be held on 27 April 2023
commencing at 11:00 a.m. at the V&A Dundee, 1 Riverside Esplanade, Dundee DD1
4EZ. Subject to there being no restrictions in place at the time, shareholders
will be welcome to attend in person. In any event we will stream the AGM live
to shareholders and they will be able to submit questions in advance or during
the meeting. Full details of how to view the meeting and submit questions will
be sent to all shareholders and will be on the Company’s website.
Shareholders are recommended to lodge proxies for their votes before the
meeting so that they can be certain their votes will be counted