Alliance Trust PLC - Final Results
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 Return1
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 Return1 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 |
1Alternative 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
RETURN1 |
NAV TOTAL RETURN1 |
+20.2% |
+21.6% |
(2022: -5.8%) |
(2022: -7.1%) |
|
|
DISCOUNT TO NAV1 |
TOTAL DIVIDEND2 |
-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
57TH 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 combined1.
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 tCO2e/$M Sales from 117
tCO2e/$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 evidence1. 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 |
1st Interim |
6.18 |
6.00 |
3.0 |
2nd Interim |
6.34 |
6.00 |
5.7 |
3rd Interim |
6.34 |
6.00 |
5.7 |
4th 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
CHARGES1
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
DISCOUNT1
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 arising from falls in equity prices include
economic and political events, interest rate movements, and
fluctuations in foreign exchange rates. |
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.
- 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 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 adversely
affect the Company’s investment performance and reputation. |
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.
- The Board regularly reviews and challenges the performance of
the investment manager and individual stock pickers.
- 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 Value:
The Company’s investment objective and policy are not deemed
appropriate; uncompetitive investment performance or secular
changes in investor demand. Any of these may lead to demand for the
Company’s shares decreasing as the Company becomes an unattractive
investment opportunity. |
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.
- 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.
- 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 any gearing that
the Company may have. |
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.
- 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 investment manager), Juniper (company secretary,
administration, finance and accounting services), NatWest Trustee
and Depositary Services (depositary), BNY Mellon (custodian),
Computershare Investor Services (registrar), and Investec
(corporate broker).
The Company is therefore reliant on the effective controls,
processes, people, 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,
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.
|
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.
- 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.
- 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.
- 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.
|
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.
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 status as an
investment trust. |
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.
- 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.
- 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.
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