Final Results
07/03/2024 07:00
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Alliance Trust PLC (‘the Company’)
LEI: 213800SZZD4E2IOZ9W55
7 March 2024
Strong Outperformance in Volatile Market
Annual results for the year ended 31 December 2023
Performance Highlights
* The Company’s share price was 1,112.0 pence (£11.12) as at 31 December
2023, representing a Total Shareholder Return(1) of 20.2%. This was 4.9% ahead
of its benchmark, the MSCI All Country World Index (‘MSCI ACWI’), which
returned 15.3%.
* The Company’s Net Asset Value Total Return(1) of 21.6%, as at 31 December
2023, was 6.3% ahead of benchmark.
* The Company has delivered a Total Shareholder Return of 79.3% over the
five-year period to 31 December 2023, equivalent to 12.4% per annum.
* A fourth interim dividend 6.34p has been declared, bringing the total
dividend for the year ended 31 December 2023 to 25.2p per share. This is a 5%
increase on the previous year, the 57th consecutive annual increase.
Dean Buckley, Chair of Alliance Trust PLC, commented:
“In a volatile market environment, Alliance Trust reported strong returns,
outperforming the MSCI ACWI and most of its peers in the Association of
Investment Companies (’AIC’) Global Sector. These results extend the
Company’s long-term track record of attractive outright gains and relative
performance.
In a highly concentrated market, it was reassuring to note that the driver of
the Company’s outperformance in 2023, was the broadly-based, skilled stock
picking approach, rather than the result of any significant style, country, or
sector biases.
I am pleased to say that this year also marks the 57th consecutive annual
dividend increase a track record which is one of the longest in the investment
trust industry, and one which the Board is confident can be extended well into
the future.
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 57 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 Director
Willis Towers Watson Quill PR
Tel: 07918 724303 Tel: 07702 412680
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 NAV over a specified time
period. It combines any change in the NAV and dividends paid.
-ENDS-
FINANCIAL HIGHLIGHTS AS AT 31 DECEMBER 2023
SHARE PRICE NET ASSET VALUE (‘NAV’) PER SHARE
1,112.0p 1,175.1p
(2022: 948.0p) (2022: 989.5p)
TOTAL SHAREHOLDER RETURN (1) NAV TOTAL RETURN (1)
+20.2% +21.6%
(2022: -5.8%) (2022: -7.1%)
DISCOUNT TO NAV (1) TOTAL DIVIDEND (2)
-5.4% 25.2p
(2022: -4.2%) (2022: 24.0p)
The above data is as at 31 December 2023
31 December 2023 31 December 2022 % Change
Net assets/shareholders’ funds (£’000) 3,336,688 2,895,019 15.3
Shares in issue (excluding ordinary shares held in Treasury) 283,964,600 292,579,600 -2.9
NAV per share (p) 1,175.1 989.5 18.7
NAV Total Return (%) (1) 21.6 -7.1
Share price (p) 1,112.0 948.0 17.3
Total dividend per share (p) (2) 25.2 24.0 5.0
Tota Shareholder Return (%) (1) 20.2 -5.8
Discount to NAV (%) (1) -5.4 -4.2
Ongoing Charges Ration (%) (1) 0.62 0.61
1. Alternative Performance Measure – see page 102 of the Annual Report for
further information.
2. Total dividend rounded to one decimal place.
Notes:
NAV per share including income with debt at fair value.
NAV Total Return based on NAV including income with debt at fair value and
after all costs.
Source: Morningstar and Juniper.
CHAIR’S STATEMENT
“It is with pleasure that I present the Annual Report for the year ended 31
December 2023, my first report as Chair.”
2023: A GOOD YEAR FOR SHAREHOLDERS
2023 was a surprisingly positive year for financial markets, with global
equities delivering strong gains despite a challenging economic and
geopolitical backdrop. I am pleased to report that our Net Asset Value
(’NAV’) Total Return of 21.6% was significantly higher than the 15.3%
return from our benchmark, the MSCI All Country World Index (’MSCI ACWI’).
It also compared favourably with the average returns of our two peer groups,
16.3% for the Association of Investment Companies (‘AIC’) Global Sector
investment trust peer group and 12.7% for the Morningstar universe of UK
retail global equity funds (open-ended and closed-ended). By design, this
outperformance was largely due to good stock picking, rather than the result
of any significant style, country, or sector biases. The slight widening of
the Company’s discount, from 4.2% at the start of the year to 5.4% at the
end, led to a marginally lower Total Shareholder Return (’TSR’) of 20.2%.
DIVIDEND INCREASED FOR 57(TH) CONSECUTIVE YEAR
The Board declared a fourth interim dividend of 6.34p on 20 February 2024. As
a result, the dividend for the full year increased by 5.0% from the prior year
to 25.2p per share (2023: 24.0p). This year’s dividend increase marks the
57th consecutive annual increase, a track record which is one of the longest
in the investment trust industry, and one the Board is confident can be
extended well into the future.
RESILIENT PERFORMANCE TRACK RECORD
It was, therefore, a good year for our shareholders, one that built on the
solid foundations laid in prior years and, through the continued strong
compounding of returns, boosted longer term performance metrics. Given our
style-balanced approach, the Board is pleased to see the Company’s
investment strategy working as intended, avoiding dramatic swings of
performance relative to benchmark and growth or value biased strategies, and
delivering resilient returns through a range of market environments. These
environments included Brexit, Covid, the war in Ukraine, surging interest
rates to contain inflation and escalating tensions in the Middle East. At
year-end, our performance was in the top quarter of the Morningstar peer group
of global trusts and funds over one, three, and five years.
THREE AWARDS
It is also encouraging to see that the turnaround since the introduction of
the multi-manager strategy in 2017 has been recognised externally. We won
three awards in 2023: the Global category of the 25th Investment Company of
the Year Awards run by Investment Week, in association with the AIC; Best
Marketing Campaign in the AIC’s Shareholder Communications Awards; and Most
Effective Brand Strategy Small Company in the Awards for Marketing
Effectiveness organised by the Financial Services Forum. These awards raised
our profile and may help us attract the attention of new investors, which
benefits existing shareholders if it leads to increased demand for our shares
and a higher share price. Our marketing efforts will continue in 2024 with the
launch of a refreshed brand.
DEBT COSTS LOWERED
Like homeowners with variable rate mortgages, we were disappointed by the
increase in the cost of servicing our floating-rate debt. After a thorough
review of our debt arrangements, we replaced a meaningful proportion of those
facilities with fixed rate loans at attractive rates. Full details on the
refinancing of the Company’s debt can be found on page 52 of the Annual
Report. Willis Towers Watson (‘WTW’), our investment manager, is confident
that using borrowed money to buy attractive stocks will, in the long run,
produce returns that exceed borrowing costs. Hence, our continued faith in the
strategic use of gearing, although on a tactical basis WTW used gearing
sparingly in 2023 given its caution about the near-term economic and market
outlook. You can read more about WTW’s market outlook in its report.
DISCOUNT REMAINED STABLE
The widening of investment trust discounts was much discussed in 2023. At its
worst point, the average trust’s shares traded at a discount of 16.9%. This
was a wider discount to the value of the industry’s underlying assets than
at any time since the 2008 Global Financial Crisis. In part, this reflected
weak investor sentiment and increased competition from attractive savings
rates on deposit accounts. However, the Company fared better than most, with
its average discount remaining relatively stable throughout the year at 6.0%
(2022: 5.9%). This compared favourably with the average discount for the AIC
Global Sector of 9.8%.
It is always difficult to pinpoint the precise reasons for movements in the
Company’s discount because there are so many factors involved, not all of
them within our control. We attribute our discount stability to good
investment performance and marketing, which stimulated demand for our shares,
as well as the continued use of share buybacks. During the year, the Company
bought back 8.6 million shares (2.9% of shares in issue as at 31 December
2022), versus 15.5 million in 2022. These share buybacks enhanced the NAV
Total Return by 0.2%.
OPERATIONAL CHANGES SUCCESSFULLY IMPLEMENTED
As discussed in last year’s Annual Report, we made some operational changes
at the end of 2022, appointing Juniper Partners Limited (‘Juniper’) as
company secretary and WTW to provide further marketing and distribution,
public relations, and investor relations services. As previously detailed in
the Interim Report, with effect from 1 April 2023, Juniper was also appointed
to provide administration, finance and accounting services. The Board is
pleased to report that these changes have been operating successfully.
SUCCESSION PLANNING
As part of the Board’s succession planning, Gregor Stewart stepped down at
the end of December, having served a total of nine years, of which just over
four were as Chair. I am honoured to replace him. On behalf of the Board, I
would like to thank Gregor wholeheartedly for his enthusiasm and commitment as
a Director and leadership as Chair. Gregor’s tenure was through a demanding
period which saw the simplification of the Company’s business and
implementation of the current investment strategy. Gregor left the Board on a
high note, with the Company delivering strong performance and receiving a
handful of awards. As previously reported in the Interim Report, Anthony
Brooke stepped down as a Director of the Company at the conclusion of the
Annual General Meeting (’AGM’) on 27 April 2023.
ANNUAL GENERAL MEETING
The Board looks forward to being able to meet shareholders again at this
year’s AGM, which will be held at the Apex Hotel in Dundee on 25 April 2024.
For those shareholders who are not able to attend in person, we will be live
streaming the event. As well as the formal business of the meeting, there will
be an investor forum afterwards featuring two of our stock pickers, as well as
members of WTW’s investment team. There will be another in-person investor
forum in London in the Autumn. In addition, shareholders can engage with the
Company and its stock pickers via online presentations during the year.
KEEP UP TO DATE WITH COMPANY INFORMATION
The Company’s website contains a vast amount of information such as details
of shareholder meetings and investor forums, monthly factsheets, quarterly
newsletters, and stock picker updates, as well as the Annual and Interim
Reports. I would encourage you to visit the website to keep up to date on the
performance of the Company. The QR code at the foot of page 7 of the Annual
Report will take you directly to the appropriate section on the website, where
you can also subscribe to receive these updates direct to your e-mail.
As always, the Board welcomes communication from shareholders and I can be
contacted through the company secretary at investor@alliancetrust.co.uk.
OUTLOOK
Although inflation appears to have peaked and the next move in interest rates
is likely to be down, the timing and pace of the expected easing of monetary
policy by central banks is not clear. Cuts in interest rates may not arrive as
soon or as quickly as the market expected towards the end of last year. As a
result, the outlook for corporate earnings might not be as rosy as implied by
some elevated stock prices. A soft landing, where economic growth shifts down
to a lower gear but avoids global recession, is possible, but is not
guaranteed. Nevertheless, every market environment produces winners and
losers, and we are confident that our diversified but highly selective
approach to stock picking will continue to add value for shareholders.
Alliance Trust’s innovative multi-manager investment strategy has already
demonstrated strong performance through a variety of market conditions and the
Board believes it can continue to build on that track record in the coming
years.
Dean Buckley
Chair
6 March 2024
INVESTMENT MANAGER’S REPORT
STRONG INVESTMENT PERFORMANCE AGAINST A CHALLENGING MARKET BACKDROP
2023 could hardly have started with a less favourable backdrop. After 2022’s
market rout, equities were surrounded by uncertainty fuelled by rising
interest rates, sticky inflation, and geopolitical conflict. It was therefore
a surprise that stock markets generally performed so well. Indeed, on Wall
Street many stocks ended the year at or near record highs. But it was a
roller-coaster ride through the year, with markets suffering extreme mood
swings from optimism and pessimism and back. A large proportion of the
market’s gains were made in the final quarter of 2023 after the US Federal
Reserve signalled that interest rates could come down if inflation continued
to decline.
The “Santa rally” from late October meant that the Company’s benchmark
index, the MSCI ACWI, which includes developed and emerging markets, delivered
a total return (with dividends reinvested) of 15.3% for the year. The overall
pattern of market returns was broadly speaking the reverse of 2022, with US
mega-cap, tech-related stocks leading the way after the previous year’s sell
off. The so called “Magnificent Seven” – Nvidia, Microsoft, Tesla,
Apple, Amazon, Meta and Alphabet – were responsible for over 50% of the MSCI
ACWI’s gains. Some of these advances were fuelled by excitement over the
potential impact of Artificial Intelligence (‘AI’) on their future
profits. However, in some cases at least, share price advances were
underpinned by strong current earnings. During Covid, the share prices of many
of the “Magnificent Seven” were fuelled largely by bullish sentiment;
today, business fundamentals count, too.
There was more to the equity rally than US tech-related stocks, especially
towards the end of 2023 when the rally broadened out. After decades of
stagnation, the Japanese economy and stock market finally showed signs of
life, with the Nikkei 225 index rising by more than 30%. However, depreciation
of the yen trimmed the value of share price gains in sterling by half.
Continental Europe and some emerging markets also posted strong gains for the
year, though not China which failed to rebound after the lifting of Covid
restrictions and had negative returns. The UK continued to lag the US and
continental Europe, with the FTSE All-Share index returning 7.9%.
With relatively high interest rates ending the era of “free money”, it is
possible that the greater breadth of market returns in 2023 showed that
investors were focussing on company specifics to identity potential winners
and losers.
The Company’s portfolio significantly outperformed the market in 2023,
delivering a NAV Total Return of 21.6%, versus 15.3% for the index.
Importantly, this outperformance was primarily driven, as intended, by our
blend of stock pickers choosing a wide range of outperforming stocks from
across the world, rather than country, sector or investment style exposures,
although relative returns also benefitted from gearing and share buybacks. The
table below shows the full breakdown of returns. We believe our managers’
stock picking skills could become increasingly important in what is likely to
be a period of continuing macroeconomic instability.
CONTRIBUTION ANALYSIS
Contribution to Return in 2023 %
Benchmark Total Return 15.3
Asset Allocation -0.3
Stock Selection 6.3
Gearing and Cash 1.0
Investment Manager Impact 7.0
Portfolio Total Return 22.3
Share Buybacks 0.2
Fees/Expenses -0.6
NAV Including Income, Debt at Par 21.9
Change in Fair Value of Debt -0.4
NAV Including Income, Debt at Fair Value 21.6
Change in Discount -1.4
Total Shareholder Return 20.2
Source: Performance and attribution data sourced from WTW, Juniper, MSCI,
FactSet and Morningstar as at 31 December 2023. Percentages may not add due to
rounding.
REAPING THE BENEFITS OF COMPOUNDING
As long-term investors, one strong calendar year’s performance is not the
best way to judge the success of our investment strategy. We prefer to focus
on the impact of compounding of returns over time. It is, therefore,
reassuring to see that last year’s gains versus benchmark have incrementally
built on steady past performance to deliver outperformance of the benchmark in
all key time periods.
For the three years ended 31 December 2023, the cumulative NAV Total Return
was 33.9% with relatively low volatility, versus 26.8% for the MSCI ACWI (see
chart on page 9 of the Annual Report). On an annualised basis, this equates to
a NAV Total Return of 10.2% per annum, compared to 8.2% for the benchmark.
Over five years and the period since we were appointed (1 April 2017 to 31
December 2023), the portfolio has delivered an annualised outperformance of
0.6% and 0.5% respectively. While this level of outperformance is less than we
aspire to in the long run, it compares favourably with returns from most
active managers and passive fund equivalents, after costs.
STOCK PICKER ALLOCATIONS
As in previous years, we kept all our so called “factor” positions well
balanced relative to the benchmark in 2023 through regular small adjustments
to stock picker allocations, allowing stock selection to shine through as the
key source of return. However, we did add a Japan specialist, Dalton
Investments (’Dalton’) in July, which was discussed in detail in the
Interim Report. Excluding Dalton, the table on page 15 of the Annual Report
which details stock picker weights at the beginning and end of the year shows
little change. But this disguises the fact that, to keep pace with shifting
market dynamics, from one factor to another, we regularly take money away from
the best performing stock pickers and give it to those who are
underperforming. It may seem counterintuitive to trim exposure to
“winners” and increase exposure to “losers”, but this process helps to
keep portfolio exposures balanced across sectors, countries, and styles,
thereby avoiding the build-up of excessive concentration risks that can result
from leaving allocations unchanged. The idea is to ensure that stock selection
based on business fundamentals makes the key difference to returns, not over
or underweight sector or country exposures, which can be subject to
sentiment-based mood swings.
However, this rebalancing process is not automatic. Although we have target
weights for each stock picker, changing allocations is ultimately a judgment
call. For example, we did not add to Jupiter Asset Management (’Jupiter’)
or Lyrical Asset Management (‘Lyrical’) last year, despite their
underperformance, as they often invest in smaller companies that are
inherently riskier than the stocks typically chosen by of some of the other
stock pickers, such as Veritas Asset Management (’Veritas’), who tend to
focus on large, higher-quality value, companies.
SKILLED STOCK SELECTION DROVE RETURNS
The strategy clearly worked. Most of our stock pickers outperformed the MSCI
ACWI, with the outperformers having a variety of investment styles and
exposures. Vulcan Value Partners (‘Vulcan’), which buys high quality
stocks when their share prices drop below estimated long term value, was the
biggest contributor to the portfolio’s outperformance. Vulcan’s
concentrated selection of stocks rose collectively by almost 50%. Its most
successful holdings included two of the “Magnificent Seven”, Microsoft and
Amazon, but Vulcan’s top five contributors also included the industrial
conglomerate General Electric and the private equity group KKR, whose share
prices rose by 85% and 70% respectively.
Veritas and Sustainable Growth Advisors (’SGA’), both of which focus on
high quality growth stocks, were close behind Vulcan, along with growth-style
specialist Sands Capital (’Sands’), and Metropolis Capital
(‘Metropolis’), which has a value-based investment philosophy. Veritas and
SGA both benefitted from owning Amazon and Alphabet, but, as with Vulcan, not
all their top contributors were US tech-related businesses. Veritas’ largest
contributors to portfolio outperformance included Safran, the French aerospace
and defence company, and Aena, the Spanish industrial group; SGA’s
contribution was topped by MercardoLibre, Latin America’s answer to eBay.
Sands was actually the strongest performer of all the managers in absolute
terms but its low weight in the portfolio, means that it did not contribute as
much to the portfolio’s outperformance as the others. Sands’ biggest
individual contributor was the US software company ServiceNow and
Metropolis’ was Alphabet.
At the other end of the spectrum, the holdings in aggregate of Black Creek
Investment Management (’Black Creek’) and Jupiter failed to keep up with
the market, but both picked some notable individual winners, as did GQG
Partners (‘GQG’) whose overall return was market-like in 2023. For
example, Black Creek’s investment in Ebara, the Japanese industrial
equipment manufacturer, returned 60% and was among the biggest individual
contributors to portfolio performance. Jupiter’s holdings in Kyndryl, the US
technology infrastructure business spun out of IBM in 2021, posted a gain of
76% and GQG’s investment in Petrobras, the Brazilian state-owned oil and
natural gas major, delivered a return of almost 80%.
DIVERSE RANGE OF STOCKS OUTPERFORMED
Looking at the portfolio as a whole, it is clear that selective exposure to
the “Magnificent Seven” stocks was a significant driver of portfolio
returns last year. But it is important to point out that we had no exposure to
Tesla, had a relatively low weight in Apple and a below benchmark weight in
Nvidia early in the year when the stock soared, which detracted from relative
performance. This demonstrates a selective approach to the “Magnificent
Seven” by our stock pickers based on their assessment of business
fundamentals, as opposed to treating them as a homogenous entity. Such was the
rally among the “Magnificent Seven” that they accounted for approximately
30% of the S&P 500 at year end, or the same as the market capitalisation of
Japan, Canada and the UK combined(1). This represents enormous concentration
risk in the benchmark which we are keen to mitigate, via active management.
Unlike the index, our returns were not reliant on a cluster of dominant
players. Indeed, in aggregate, a greater proportion of our gains came from
relatively small incremental contributions from diversified exposure to a wide
variety of stocks in different industries. You can see from the pie charts on
page 10 of the Annual Report that 53% of the benchmark’s return came from
the “Magnificent Seven”. However, they accounted for only 34% of the
portfolio’s return.
Our stock pickers are not complacent about the ability of “big tech”
companies to continue to dominate the market, hence continued exposure to
Amazon, Microsoft, and Alphabet, which are all in the portfolio’s top ten
positions. However, our stock pickers remain wary of AI hype. As with the
internet bubble 20 years ago and other innovative technologies like cloud
computing, it could take several years before the clear winners of AI emerge,
and they will not necessarily be the early front runners. So, while the
portfolio does have exposure to AI, through Microsoft and a small position in
Nvidia, for example, our stock pickers seek to profit from AI on a
company-by-company basis, rather than treating AI as a broad theme. Having
been through a euphoric period in which it was obligatory for every tech
company to develop an AI strategy, it is now approaching the time when
investors are likely to begin demanding real revenue and profits from the
technology. Active management of exposures to AI, including within mega caps,
will therefore be key.
1. Source:
https://apolloacademy.com/wp-content/uploads/2024/01/010324-Chart.pdf
STOCK PICKERS’ ADJUSTED HOLDINGS
Apart from regular rebalancing between selected stock pickers and the addition
of Dalton, there were no major changes to our portfolio positioning in 2023.
However, the stock pickers themselves adjusted their holdings. This could have
happened for a variety of reasons. For example, stocks reaching their estimate
of fair value and profits being taken, companies failing to live up to
expectations and positions being sold, or cheap stocks being bought because
their share prices have fallen well below fair value.
Examples of position changes in 2023 included:
* Black Creek sold out of Germany’s Heidelberg Materials following
significant share price appreciation and reinvested profits in US listed
Elanco Animal Health, which produces medicines and vaccines that help prevent
and treat disease in livestock and pets. Elanco trades at an attractive
valuation, particularly when compared to its larger peer, Zoetis. Black Creek
believes that Elanco can accelerate sales growth and increase its
profitability in the coming years based on new product launches and improved
operating efficiencies.
* Lyrical sold Lincoln Financial after it surprised investors by writing down
the value of some of its assets and bought shares in Gen Digital, a global
consumer, cyber safety provider based in the US. Cyber safety was synonymous
with computer anti-virus software, but as people spend more of their lives
online across many devices, threats have expanded beyond computer viruses. The
ever-increasing volume and sophistication of online threats drives long term
organic growth potential for the company.
* Veritas sold CVS Health due to growing doubts about its business model and
established a position in Diageo, the UK based drinks company that has built
an industry leading portfolio of brands through focused investment, and, in
many countries, a dedicated route to market. Diageo can influence the
evolution of luxury spirits across different categories and occasions,
including super premium scotch and tequila. It is also growing brands of the
future, including zero and lower alcohol choices through a combination of
acquisition, developing their own brands, and investing in entrepreneurs
through the Diageo backed accelerator programme. This high-quality exposure to
a multi decade theme of premiumisation of developed market consumption makes
the investment in Diageo very attractive.
* SGA bought shares in Aon, a commercial insurance broker that helps clients
better manage risk, employee retirement, and health benefits. Aon monetises
its insights, mainly through highly recurring commissions and fees, which
provide predictable cash flows. The company has also been taking on higher
margin businesses which are enabled by analytics and has been successful
delivering consistent revenue growth and margin expansion over the years. SGA
expects overall steady growth based on rising premiums in risk, health, and
increases in retirement assets over a three-to-five-year investment horizon.
* Sands sold Edward Lifesciences following a weakening of its conviction in
the company and bought shares in Roper Technologies, a diversified industrial
technology company that operates over 40 businesses in more than 40 niche
markets. The company sells software and engineered products and solutions
across four segments: application software, network software and systems,
measurement and analytical solutions, and process technologies. The corporate
strategy prioritises cash flow growth, which Roper then seeks to deploy into
acquiring new businesses. Roper maintains strict investment criteria when
evaluating acquisition targets, and its rigorous standards are based on its
proprietary “cash return on investment” metric. The company is
indiscriminate in the types of businesses it seeks to own; rather, it focuses
exclusively on free cash generation and management quality. Each business is
decentralised and operates autonomously, with a mandate to grow and generate
cash. Sands’ research suggests that Roper is an acquirer of choice for
engaged management teams that desire to continue independent operations. It
expects steady cash flow growth as Roper executes on its disciplined
acquisition and growth strategy.
Overall, total stock turnover was 43.0% of the portfolio in 2023, down from
56.7% in 2022.
UNCERTAIN OUTLOOK
Although the year ended on a high note for stock markets, it is not easy to
predict how they will evolve in 2024. Most economists and analysts were wrong
footed by the global economy in 2023, which highlights the difficulty of
basing an investment strategy on macroeconomic developments. That is why WTW
places limited emphasis on second guessing the speed of global Gross Domestic
Product (’GDP’) growth, or which country will be up or down, and instead
we leave it to our managers to decide if and how macroeconomic conditions
impact their choice of holdings.
Even so, the macroeconomic outlook does influence the level of gearing that we
set and manager allocations. In a world where geopolitics is back on the
investment agenda and there are multiple elections on the horizon, including
in the US, India, the European Parliament, and the UK, the short-term outlook
for equities is more than usually uncertain. We are conscious that the full
impact of past interest rate increases has yet to fully filter through to the
real economy, for example, on debt refinancing by households and corporations.
It is possible, therefore, that recession may just have been postponed rather
than avoided if people pull in their horns. Although hoped for interest rate
reductions may limit the damage of a downturn on companies’ earnings, a soft
landing is not assured. Even if recession is avoided, growth could remain
sluggish. Finally, notwithstanding any future reductions, with interest rates
back to a more normal level historically, there could be continued competition
for equities from the perceived safety of bonds and cash. We therefore remain
cautious and are keeping the portfolio’s net gearing low.
We are, however, excited about the prospects for active management and the
companies in the portfolio. Macroeconomic and market volatility typically
leads to higher differentiation of valuations between stocks, which skilled
stock pickers can exploit for long term advantage. In 2023, our fund managers
demonstrated that, collectively, they can add significant value despite a
challenging macroeconomic backdrop. We remain confident that they can continue
to do well by selectively investing in companies with strong fundamentals
rather than following short-term trends that often drive indices. We, in turn,
will continue to dynamically manage the stock pickers and their allocations in
the light of evolving market conditions to ensure the portfolio strikes a
comfortable balance between reward and risk. They will seek the rewards; we
will manage risk.
RESPONSIBLE INVESTMENT
As stewards of the Company’s assets, we apply high standards of responsible
investment to managing the portfolio. Environmental, Social and Governance
(’ESG’) factors can all influence returns, so these risk factors are
integrated into WTW’s investment processes, including assessing how managers
evaluate ESG risk in their decisions over what stocks to purchase. Climate
change poses significant risks to investment returns from many companies,
which is why both we and the Company have pledged to have its assets
transitioned to achieve Net Zero by 2050 at the latest, with an interim target
of reducing portfolio emissions by 50% by 2030, relative to 2019.
There was a reduction last year in the portfolio’s weighted average carbon
intensity (which measures carbon emissions as a proportion of revenue) to 74.5
tCO(2)e/$M Sales from 117 tCO(2)e/$M Sales in 2022. However, progress towards
Net Zero will not be linear. Emissions from the portfolio are dependent on
holdings, which can change from year to year as our stock pickers seek value
for investors. Even so, the direction of travel is clearly set out and if
companies are perceived as being slow to adapt to a Net Zero world, we will
generally vote against or engage with them to encourage positive changes to
business practices. We believe this is preferable to excluding them from the
portfolio, since exclusion merely passes the responsibility of ownership to
other investors who may be less scrupulous about adherence to ESG standards or
regulation. As well as engaging with companies on climate change, our stock
pickers, together with stewardship provider EOS at Federated Hermes
(‘EOS’), focused on a wide range of other issues last year. These
engagements included:
* Dalton seeking to rationalise the structure of Japan based Seven & I, which
operates a wide variety of businesses, including convenience stores,
superstores, food services and financial services. In an ongoing engagement,
Dalton is urging the company to spin off its 7 Eleven global convenience store
business to enhance corporate value.
* SGA engaging with Yum! Brands (owner of KFC, Pizza Hut, and Taco Bell) to
improve labour, health and safety, environmental performance and ethics within
its protein supply chains.
* Veritas challenging Meta by voting against management for the business to
report on online child exploitation to provide shareholders more information
about how well the company is managing these risks.
Overall, EOS and our stock pickers engaged with 95 companies in the portfolio
on 539 issues and objectives throughout the year. Of these, the environmental
category accounted for 28% of the total. Meanwhile, our stock pickers voted on
all available proposals, casting votes at 3,522 resolutions. Of these
resolutions, they voted against company management on 410 and abstained from
voting on 53 occasions. The topics and the breakdown of the ways in which our
stock pickers voted are detailed on page 13 of the Annual Report.
OUR STOCK PICKERS
HOW WE MANAGE THE COMPANY’S PORTFOLIO
WTW has overall responsibility for managing the Company’s portfolio. It’s
our job to select a diverse team of expert stock pickers, each of whom invest
in a customised selection of 10-20 of their ‘best ideas’. We then allocate
capital to them, relative to the risks they represent. For example, small-cap
stocks are typically more risky than large-cap stocks, so on average a
small-cap specialist would tend to receive less capital than a stock picker
who focuses on large-cap stocks. However, the allocations do not remain
static; we keep them under constant review and vary them over time according
to market conditions, with the goal of keeping our exposures to different
parts of global stocks markets well balanced.
We encourage our stock pickers to ignore the benchmark and only buy a small
number of stocks in which they have strong conviction, while we manage risk
through the stock picker allocations. On their own, each of the stock
picker’s high conviction mandates has the potential to perform well. This is
supported by our experience of managing high conviction portfolios and
academic evidence(1). But concentrated selections of stocks can be volatile
and risky, so we mitigate these dangers by blending stock pickers with
complementary investment approaches or styles, which can be expected to
perform differently in different market conditions. This smooths out the peaks
and troughs of performance associated with concentrated single-manager
strategies.
Several of the stock pickers in the current portfolio have been with us since
inception of the multi-manager strategy, though we do actively monitor and
rearrange the line-up where necessary. There was one addition to the team in
2023. As previously detailed, in July we added a specialist Japan manager,
Dalton. This was funded with capital from the other stock pickers, principally
Black Creek, Metropolis, Sands, GQG and Veritas. Additional information on
Dalton can be found on page 12 of the Interim Report for the six months ended
30 June 2023.
We invest a lot of time and effort on identifying skilled stock pickers for
the Company’s portfolio, undertaking extensive qualitative and quantitative
analysis. This due diligence process 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.
Our views are formed over extended periods from multiple interactions with the
managers, including regular meetings. We look beyond past performance numbers
to try to understand their ‘competitive edge’. This involves examining and
interrogating processes for selecting stocks, adherence to this process
through different market conditions, team dynamics, training, and experience.
Performance track records are just a single data point, and, without the
context of the additional information, they are unlikely to persuade us that a
stock picker is skilled.
Once selected, we tend to form long-term partnerships with our stock pickers,
generally only taking them out of the portfolio if something fundamental
changes, such as the departure of a key individual from the business or a
change in business strategy or fortunes. With highly active, concentrated
portfolios, short-term underperformance is to be expected and is not a reason
to doubt a stock picker if they are adhering to their philosophy and process.
We do, however, keep a constant eye out for talent and may bring new managers
into the portfolio at the expense of an incumbent if they are a better fit.
1. Sebastian & Attaluri, Conviction in Equity Investing, The Journal of
Portfolio Management, Summer 2014.
INVESTMENT PORTFOLIO
OUR 30 LARGEST INVESTMENTS AT 31 DECEMBER 2023
Name Country of Listing Value of Holding (£m) % of Total Assets
1 Alphabet United States 140.9 4.2
2 Microsoft United States 137.6 4.1
3 Amazon.com United States 111.4 3.3
4 Visa United States 92.1 2.8
5 Nvidia United States 71.8 2.2
6 Mastercard United States 60.4 1.8
7 Petrobras Brazil 55.2 1.7
8 UnitedHealth Group United States 50.1 1.5
9 TotalEnergies France 44.2 1.3
10 Meta United States 43.9 1.3
11 MercadoLibre Uruguay 40.3 1.2
12 Airbus France 39.7 1.2
13 Diageo United Kingdom 39.7 1.2
14 ASML Netherlands 37.1 1.1
15 Canadian Pacific Canada 36.8 1.1
16 HDFC Bank India 36.5 1.1
17 Adani Enterprises India 33.5 1.0
18 VINCI France 32.7 1.0
19 AIA Hong Kong 32.1 1.0
20 Fiserv United States 31.6 0.9
21 Novo Nordisk Denmark 31.5 0.9
22 The Cooper Companies United States 31.4 0.9
23 Intuit United States 31.3 0.9
24 Autodesk United States 31.2 0.9
25 Workday United States 31.2 0.9
26 Danaher United States 31.2 0.9
27 S&P Global United States 30.9 0.9
28 Yum! Brands United States 30.7 0.9
29 ICON Ireland 30.7 0.9
30 Safran France 29.7 0.9
Source: Bloomberg, WTW, MSCI, Juniper, FactSet
Note: All figures are subject to rounding differences.
A full list of holdings can be found on pages 16 to 28 of the Annual Report.
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.
INCREASED DIVIDEND
As previously noted in the Chair’s Statement, the Company has increased its
total dividend for the year ended 31 December 2023 to 25.2p per ordinary share
(2022: 24.00p), a 5.0% increase on the previous year.
Dividend 2023 (p) 2022 (p) % increase
1 (st)Interim 6.18 6.00 3.0
2 (nd)Interim 6.34 6.00 5.7
3 (rd)Interim 6.34 6.00 5.7
4 (th)Interim 6.34 6.00 5.7
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 57-year
track record of annual dividend increases for many years.
The Company’s Dividend Policy (as detailed above), Investment Objective (as
detailed on page 2 of the Annual Report) and Investment Strategy all remain
unchanged. The Board aims to continue delivering a rising dividend year after
year as well as capital growth.
The chart on page 29 of the Annual Report shows the growth in the Company’s
dividend over the last 57 years. It also shows what has been achieved for
investors to date. 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 £28,755 at the end of 2023, and £6,619 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.
AMPLE RESERVES
The Company’s distributable reserves at 31 December 2023 were £3.3bn (2022:
£2.9bn). Of these, the Company’s revenue reserve was £84.3m (2022:
£102.3m), realised capital reserves were £2.7bn (2022: £2.7bn) and
unrealised capital reserves were £0.6bn (2022: £0.1bn). Both elements of the
capital reserves are readily convertible to cash.
FOURTH INTERIM DIVIDEND
A fourth interim dividend of 6.34p per ordinary share will be paid on 28 March
2024 to shareholders who are on the register at close of business on 29
February 2024. The fourth interim dividend will be paid from both income and
revenue reserves. The provisional payment dates for the 2024 financial year
can be found on page 107 of the Annual Report.
ONGOING CHARGES & DISCOUNT
ONGOING CHARGES(1)
The Company’s Ongoing Charges Ratio (‘OCR’) marginally increased to
0.62% (2022: 0.61%). The new operating model, as described in the 2022 Annual
Report, was implemented during the year whereby WTW was appointed to provide
further marketing and distribution, public relations and investor relations
services. In addition, Juniper was appointed as company secretary and to
provide administration, finance and accounting services. As a consequence, a
larger proportion of costs are now variable, rather than fixed. Total
administrative expenses were £2.9m (2022: £6.5m) and investment management
expenses were £16.3m (2022: £12.8m). Further details of the Company’s
expenses are provided in Note 4 of the financial statements on page 85 of the
Annual Report. 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. The Company’s costs remain competitive for an
actively managed multi-manager global equity investment company.
REDUCED SHARE BUYBACKS
The Company bought back 2.9% (2022: 5.0%) of its issued share capital during
the year, purchasing 8,615,000 of which 8,335,000 were cancelled and 280,000
shares held in Treasury. It is our intention that all future share buybacks
will be held in Treasury. The total cost of the share buybacks was £86.1m
(2022: £149.6m). The weighted average discount of shares bought back in the
year was 6.2%. Share buybacks contributed a total of 0.2% to the Company’s
NAV performance in the year.
STABLE 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 6.0% (2022: 5.9%).
As at 31 December 2023, the Company’s share price discount was 5.4% (2022:
4.2%). The average discount (unweighted) for the AIC Global Sector was 9.8%.
1. Alternative Performance Measure (see page 102 of the Annual Report for
details).
HOW WE MANAGE OUR RISK
In order to manage the risks facing the Company, the Board maintains and
reviews a Risk Register and Heat Map. The Risk Register details all principal
and emerging risks facing the Company at any given time. The principal risks
facing the Company, as determined by the Board, are Market Risk, Investment
Performance Risk, Strategy & Market Rating, Capital Structure & Financial
Risk, Operational Risk, and Legal & Regulatory Risk.
As part of its review process, the Board considers input on the principal and
emerging risks facing the Company from its key service providers WTW and
Juniper. Any risks and their associated risk ratings are then discussed, and
the Risk Register and Heat Map updated accordingly, with additional monitoring
put in place as required.
PRINCIPAL RISKS
The principal risks facing the Company and how the Board aims to manage these
risks are detailed below.
Risk and potential impact Risk rating How we manage the risk
Market Risk Market risk is the risk of loss on the Company’s portfolio of investments in absolute terms, caused by adverse price movements. Examples of market risk Increased Geopolitical and macro-economic uncertainty has increased. Interest rates continue to affect market valuations. * Short-term market movements will inevitably occur; however, the investment manager chooses a blend of stock pickers and styles to provide diversification with the aim of providing a factor neutral portfolio position.
arising from falls in equity prices include economic and political events, interest rate movements, and fluctuations in foreign exchange rates. * The Board regularly receives portfolio updates from the investment manager whereby changes in equity prices, interest rate movements, fluctuations in foreign exchange rates, and market outlook is considered and discussed.
Investment Performance Risk Investment performance risk is the risk of relative underperformance of the Company against its investment objective or against a relevant Decreased The Company’s investment portfolio produced positive returns in 2023, outperforming its benchmark and many of its peers. * The Company’s investment policy is monitored by the Board to ensure it continues to remain appropriate and is being adhered to by the investment manager.
benchmark and closed and open-ended peer group which makes the Company an unattractive investment proposition. Poor consideration of ESG and climate risk factors could * The Board regularly reviews and challenges the performance of the investment manager and individual stock pickers.
adversely affect the Company’s investment performance and reputation. * The Board receives regular portfolio and market updates from the investment manager on the portfolio’s performance against the Company’s benchmark and peer group as well as updates on the performance of individual stock pickers.
* The Board receives income forecasts and scenario analysis before determining dividends.
* The Board conducts an annual evaluation of the investment manager.
* The investment manager’s approach to ESG and climate risk factors is embedded within its overall assessment of investment risk. A tailored ESG framework applies across all stages of the Company’s investment process. This includes ongoing monitoring of the underlying stock picker’s ESG reporting.
Strategy & Market Rating This risk accrues from any of the following having an impact on the level at which the shares trade in relation to the underlying Net Asset Stable The Company’s investment objective, policy and strategy produced positive returns in 2023. The Company’s share price traded consistently relative to underlying NAV throughout 2023 unlike many closed-ended peers. No issues of concern raised by major shareholders. * The Board regularly reviews the Company’s investment objective, policy and strategy to ensure it remains appropriate.
Value: The Company’s investment objective and policy are not deemed appropriate; uncompetitive investment performance or secular changes in investor demand. Any of these * The Board regularly reviews the Company’s share register and hears from the investment manager and the Company’s broker on all marketing/investor relations and shareholder meetings.
may lead to demand for the Company’s shares decreasing as the Company becomes an unattractive investment opportunity. * The performance of, and market demand for shares in the Company’s peer group is also compared.
* The Board monitors the Company’s share price discount, and working with the broker and investment manager undertakes periodic share buy backs, as appropriate, to meet its strategic objective of maintaining a stable discount.
* The Annual General Meeting and investor forums provide an opportunity for investors to engage directly with the Board.
* Meetings are held with major shareholders by the investment manager and/or Chair upon request or on an ad hoc basis.
Capital Structure & Financial Risk Inappropriate capital structure. Liquid resources insufficient to meet liabilities. Decrease in the valuation of assets amplified by Stable A full review of the Company’s borrowing facilities was undertaken in 2023 (details of which can be found on page 52 of the Annual Report). * The Board receives regular updates on the capital structure of the Company including, share capital (issued and held in Treasury), borrowings, structure of reserves, level of gearing and buy back authorities.
any gearing that the Company may have. * The Company’s investments are in quoted securities that are readily realisable.
* The investment manager has delegated authority to utilise gearing within preset limits and provides regular reporting to the Board.
* Active review and management of borrowing limits and associated costs by the Board.
* Shareholder authority is sought annually in relation to share buybacks to support the management of the discount.
* Shareholder authority is sought annually in relation to share issuances to facilitate the issuance of shares when there is market demand.
* Review of reports from the company secretary in relation to share buyback activity and level of distributable reserves.
* Review of reports from the company secretary confirming compliance with all legal, regulatory and commercial requirements (e.g. loan covenants).
Operational Risk All of the Company’s operational functions are outsourced to third party service providers. The Company’s key service providers are WTW (AIFM and Stable Outsourced service providers were consolidated during 2022/23 with no adverse impact on the standard of service received. Cyberattacks against non-primary targets are becoming more widespread. * The performance of the Company’s key service providers is subject to annual review by the Board. This includes a review of audited internal controls reports provided by the key service providers. In addition, the investment manager and company secretary also provide comment on the performance of the AIFM, depositary, custodian, registrar, and corporate broker to aid the Board in their review of these providers.
investment manager), Juniper (company secretary, administration, finance and accounting services), NatWest Trustee and Depositary Services (depositary), BNY Mellon * Any breaches in controls which have resulted in incidents or errors are required to be immediately notified to the Board along with proposed remediation actions.
(custodian), Computershare Investor Services (registrar), and Investec (corporate broker). The Company is therefore reliant on the effective controls, processes, people, * The technology platforms of all key service providers are subject to regular testing, including penetration testing, vulnerability scans and patch management. Reporting on the testing undertaken by each service provider is reviewed by the Board annually.
and systems, in place at its service providers to ensure the smooth day-to-day operations of the Company. Operational risks include cybercrime, IT systems failure, * Disaster recovery plans are in place at the investment manager, company secretary and administrator as well as at the Company’s other key service providers. The results of disaster recovery tests are shared with the Board.
inadequacy of oversight and controls, climate risk, and ineffective disaster recovery planning by the investment manager, administrator or other key service providers
resulting in operational failure. A failure in the operation controls of the Company’s service providers could result in financial, legal or regulatory and reputational
damage for the Company.
Legal & Regulatory Risk As an investment company listed on the London Stock Exchange, the Company is required to adhere to a variety of legal and regulatory requirements. Stable The Company has remained compliant with legal and regulatory requirements throughout 2023. * Review of the Company’s Annual Report and financial statements by an independent auditor provides the Board with assurance that the Company has met all required legal and regulatory requirements.
Should the Company fail to adhere to all legal and regulatory requirements, it risks facing financial and legal penalties, reputational damage, and potentially losing its * On at least an annual basis, the Board receives reports from all the Company’s key service providers in respect of their compliance with legal and regulatory obligations.
status as an investment trust. * Regulatory risks and controls are examined under operational risks, set out above.
* Any errors or breaches in respect of legal and regulatory non-compliance are to be reported to the Board immediately along with remediation actions.
* Directors receive quarterly compliance reports from WTW and Juniper which include details on the results of any regulatory visits.
* Shareholder documentation is subject to stringent review prior to circulation.
EMERGING RISKS
Emerging risks are typified by having a high degree of uncertainty and may
result from sudden events, new potential trends or changing specific risks
where the impact and probable effect is hard to assess. As the assessment
becomes clearer the risk may be added to the Risk Matrix of ‘known’ risks.
The Board is currently monitoring a number of emerging risks: Geopolitical
tension is an ever-increasing emerging risk for the Company due to ongoing
conflicts across the world and the affect that they may have on global
markets. Numerous governmental elections will also be taking place across the
world in 2024, with particular focus on the US, UK and Indian elections. It is
estimated that nearly 50% of the world’s population are eligible to vote in
elections during the coming year. Stubborn underlying inflation, slow monetary
policy response with a subsequent risk of recession, continues to adversely
impact equity markets. Our investment manager has advised that the market
outlook for 2024 remains highly uncertain.
Dean Buckley
Chair
6 March 2024
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, as set out on pages 31 to 34 of the Annual
Report. The Company’s Investment Objective, which was approved by
shareholders in April 2019, is set out on page 2 of the Annual Report. After
the year-end but prior to approval of these Accounts, the Board reviewed its
performance against its strategic objectives and its management of the
principal and emerging risks facing the Company.
The Board received regular updates on performance and other factors that could
impact on the viability of the Company.
The Board also engaged with WTW on the longer-term impact of climate change
and other societal change factors on the portfolio, and how the portfolio
should 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 deliver a real return over the long term through a combination of 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 2023 the Company had Total Assets of
£3.6bn, with net gearing of 4.5% and gross gearing of 7.1%. At the year-end
the Company had £85.0m 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 WTW carried out a liquidity analysis and stress test which
indicated that around 93% of the Company’s portfolio could be sold within a
single day and a further 6% within 10 days, without materially influencing
market pricing. WTW performs liquidity analysis and stress testing on the
Company’s portfolio of investments on an ongoing basis under both current
and stressed conditions. WTW 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. The Company has sufficient funds to meet its Dividend
Policy commitments.
* Reserves: The Company has large reserves (at 31 December 2023 it had £3.3bn
of distributable reserves and £11.9m 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 (see page 30 of the Annual Report).
* Significant Risks: The Company has a risk and control framework (see pages
31 to 34 of the Annual Report) 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 as
set out in Note 18 on pages 92 to 98 of the Annual Report.
* Borrowing: As detailed on page 52 of the Annual Report, the Board undertook
a review of the Company’s borrowing facilities in 2023. Following review,
the Company has increased its Fixed Rate Loan Notes (‘Notes’) from £160m
to £220.6m and repaid its existing bank borrowing, the result of which being
that the Company’s weighted average borrowing costs have reduced by 0.9% per
annum. The Board has also diversified the number of bank counterparties and
terms to maturity of Notes. The Company comfortably meets its banking
covenants.
* 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. As previously detailed,
the Board concluded the work it was undertaking to strengthen its 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 the period to 31 December 2025. 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 directors’ 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 Financial Statements, taken as a whole, are fair, balanced
and understandable and provides the information necessary for shareholders to
assess the Company’s position, 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
The Report of the Directors on pages 35 to 55 (other than pages 54 to 55 which
form part of the Strategic Report) of the Annual Report and Accounts has been
approved by the Board. The Directors have chosen to include information
relating to future development of the Company and relationships with
suppliers, customers and others and their impact on the Board’s decisions on
pages 49 to 53 of the Strategic Report.
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
Dean Buckley
Chair
6 March 2024
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2023
Year to 31 December 2023 Year to 31 December 2022
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Income 69,591 1,678 71,269 95,521 - 95,521
Gain/(loss) on investments held at fair value through profit or loss - 578,715 578,715 - (358,675) (358,675)
(Loss)/gain on fair value of debt - (11,371) (11,371) - 54,682 54,682
Total 69,591 569,022 638,613 95,521 (303,993) (208,472)
Investment management fees (5,074) (11,228) (16,302) (3,197) (9,586) (12,783)
Administrative expenses (2,558) (344) (2,902) (5,562) (912) (6,474)
Finance costs (2,380) (7,141) (9,521) (2,156) (6,469) (8,625)
Foreign exchange (losses)/gains - (3,737) (3,737) - 486 486
Profit/(loss) before tax 59,579 546,572 606,151 84,606 (320,474) (235,868)
Taxation (6,231) (251) (6,482) (6,435) (342) (6,777)
Profit/(loss) for the year 53,348 546,321 599,669 78,171 (320,816) (242,645)
All profit/(loss) for the year is attributable to equity holders.
Earnings per share attributable to equity holders
Basic (pence per share) 18.55 189.98 208.53 26.14 (107.28) (81.14)
Diluted (pence per share) 18.55 189.98 208.53 26.14 (107.28) (81.14)
The Company does not have any other comprehensive income and hence the total
profit/(loss) for the year, as disclosed above, is the same as the Company’s
total comprehensive income.
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2023
Distributable reserves
Share capital Capital redemption reserve Realised capital reserve Unrealised capital reserve Revenue reserve Total distributable reserves Total Equity
£000 £000 £000 £000 £000 £000 £000
At 1 January 2022 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 dividends paid - - - - (71,086) (71,086) (71,086)
Unclaimed dividends returned - - - - 27 27 27
Own shares purchased (389) 389 (150,457) - - (150,457) (150,457)
Balance at 31 December 2022 7,314 11,684 2,669,933 103,754 102,334 2,876,021 2,895,019
Total Comprehensive income:
Profit for the year - - 75,430 470,891 53,348 599,669 599,669
Transactions with owners, recorded directly to equity:
Ordinary dividends paid - - - - (71,378) (71,378) (71,378)
Unclaimed dividends returned - - - - 14 14 14
Own shares purchased (208) 208 (86,636) - - (86,636) (86,636)
Balance at 31 December 2023 7,106 11,892 2,658,727 574,645 84,318 3,317,690 3,336,688
The £574.6m (2022: £103.8m) of unrealised 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 unrealised capital reserve includes unrealised gains on the
fixed rate loans of £5.5m (2022: £16.9m) which are not distributable.
BALANCE SHEET AS AT 31 DECEMBER 2023
2023 2022
£000 £000
Non-current assets
Investments held at fair value through profit or loss 3,482,329 3,012,492
Right of use asset - 54
3,482,329 3,012,546
Current assets
Outstanding settlements and other receivables 9,321 9,648
Cash and cash equivalents 84,974 88,864
94,295 98,512
Total assets 3,576,624 3,111,058
Current liabilities
Outstanding settlements and other payables (9,792) (9,344)
Bank loans - (63,500)
Lease liability - (38)
(9,792) (72,882)
Total assets less current liabilities 3,566,832 3,038,176
Non-current liabilities
Fixed rate loan notes held at fair value (215,144) (143,141)
Bank loans (15,000) -
Lease liability - (16)
(230,144) (143,157)
Net assets 3,336,688 2,895,019
Equity
Share capital 7,106 7,314
Capital redemption reserve 11,892 11,684
Capital reserve 3,233,372 2,773,687
Revenue reserve 84,318 102,334
Total equity 3,336,688 2,895,019
All net assets are attributable to equity holders.
Net asset value per ordinary share attributable to equity holders
Basic and diluted (£) £11.75 £9.89
The financial statements were approved by the Board of Directors and
authorised for issue on 6 March 2024.
They were signed on its behalf by:
Jo Dixon
Chair of the Audit and Risk Committee
CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2023
2023 2022
£000 £000
Cash flows from operating activities
Profit/(loss) before tax 606,151 (235,868)
Adjustments for:
(Gains)/losses on investments (578,715) 358,675
Losses/(gains) on fair value of debt 11,371 (54,682)
Foreign exchange losses/(gains) 3,737 (486)
Depreciation - 174
Finance costs 9,521 8,625
Scrip dividends - (503)
Operating cash flows before movements in working capital 52,065 75,935
Decrease/(increase) in receivables 1,599 (3,189)
Decrease in payables (36) (1,153)
Net cash inflow from operating activities before tax 53,628 71,593
Taxes paid (6,654) (7,302)
Net cash inflow from operating activities 46,974 64,291
Cash flows from investing activities
Proceeds on disposal of investments 1,600,165 2,202,258
Purchases of investments (1,489,643) (1,920,913)
Net cash inflow from investing activities 110,522 281,345
Net cash inflow before financing 157,496 345,636
Cash flows from financing activities
Dividends paid - equity (71,378) (71,086)
Unclaimed dividends returned 14 27
Purchase of own shares (88,060) (149,033)
Repayment of bank debt (63,500) (117,000)
Drawdown of bank debt 15,000 -
Issue of loan notes 60,632 -
Principal paid on lease liabilities - (293)
Interest paid on lease liabilities - (17)
Finance costs paid (10,357) (8,435)
Net cash outflow from financing activities (157,649) (345,837)
Net decrease in cash and cash equivalents (153) (201)
Cash and cash equivalents at the start of the year 88,864 88,579
Effect of foreign exchange rate changes (3,737) 486
Cash and cash equivalents at end of the year 84,974 88,864
The financial information set out above does not constitute the Company's
statutory financial statements for the years ended 31 December 2023 or 2022,
but is derived from those financial statements. Statutory accounts for 2022
have been delivered to the Registrar of Companies and those for 2023 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
The financial statements have been prepared in accordance with UK-adopted
international accounting standards (‘IASs’).
The financial statements have been prepared on the historical cost basis,
except that investments and fixed rate notes are stated at fair value through
the profit and loss. The Association of Investment Companies (‘AIC’)
issued a Statement of Recommended Practice: Financial Statements of Investment
Companies (‘AIC SORP’) in July 2022. The Directors have sought to prepare
the financial statements in accordance with the AIC SORP where the
recommendations are consistent with IFRS. The Company qualifies as an
investment entity.
1. INCOME
An analysis of the Company's revenue is as follows:
2023 2022
£000 £000
Revenue:
Income from investments
Listed dividends – UK 12,836 14,795
Listed dividends - Overseas 55,761 80,135
68,597 94,930
Other income
Property rental income - 257
Other interest 987 323
Other income 7 11
994 591
Total allocated to revenue 69,591 95,521
Capital:
Income from investments
Listed dividends – Overseas 1,678 -
Total allocated to capital 1,678 -
Total income 71,269 95,521
During the year ended 31 December 2023 the Company received a special dividend
of £1,678,000 from Swire Pacific which was treated as a capital dividend.
2. DIVIDENDS
Dividends Paid
2023 2022
£000 £000
2021 fourth interim dividend 5.825p per share - 17,752
2022 first interim dividend 6.000p per share - 17,921
2022 second interim dividend 6.000p per share - 17,791
2022 third interim dividend 6.000p per share - 17,622
2022 fourth interim dividend 6.000p per share 17,498 -
2023 first interim dividend 6.180p per share 17,849 -
2023 second interim dividend 6.340p per share 18,028 -
2023 third interim dividend 6.340p per share 18,003 -
71,378 71,086
We also set out below the total dividend payable in respect of the financial year, which is the basis on which the requirements of Section 1158/1159 of the Corporation Tax Act 2010 are considered.
2023 2022
Dividends Earned £000 £000
2022 first interim dividend 6.000p per share - 17,921
2022 second interim dividend 6.000p per share - 17,791
2022 third interim dividend 6.000p per share - 17,622
2022 fourth interim dividend 6.000p per share - 17,498
2023 first interim dividend 6.180p per share 17,849 -
2023 second interim dividend 6.340p per share 18,028 -
2023 third interim dividend 6.340p per share 18,003 -
2023 fourth interim dividend 6.340p per share 18,003 -
71,883 70,832
3. EARNINGS PER SHARE
The calculation of the basic and diluted earnings per share is based on the
following data:
2023 2022
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
Ordinary shares
Earnings for the purpose of basic earnings per share being net profit/(loss) attributable to equity holders 53,348 546,321 599,669 78,171 (320,816) (242,645)
Number of shares
Weighted average number of ordinary shares for the purposes of:
Basic earnings per share 287,573,436 299,027,659
Diluted earnings per share 287,573,436 299,027,937
The basic figure is arrived at by reducing the number of ordinary shares by
nil (2022: nil) ordinary shares held in a trust that was set up to satisfy
awards made under historic share award schemes (no new awards will be made).
The 1,611 ordinary shares held in trust were sold on 3 March 2022. The trust
was terminated on 1 April 2022.
4. RELATED PARTY TRANSACTIONS
There are amounts of £1,222 (2022: £1,222) and £34,225 (2022: £34,225)
owed to AT2006 and The Second Alliance Trust Limited, respectively, at
year-end.
There are no other related parties other than those noted below.
Transactions with key management personnel
Details of the Non-Executive Directors are disclosed on pages 36 to 38 of the
Annual Report.
For the purpose of IAS 24 ‘Related Party Disclosures’, key management
personnel comprised the Non-Executive Directors of the Company.
Details of remuneration are disclosed in the Remuneration Report on pages 60
to 65 of the Annual Report.
2023 2022
£000 £000
Total emoluments 350 329
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 136th Annual General Meeting of the Company will be held on 25 April 2024
commencing at 11:00 a.m. at the Apex City Quay Hotel & Spa, 1 West Victoria
Dock Road, Dundee DD1 3JP. 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