TIDMATST
Alliance Trust PLC ("the Company")
LEI: 213800SZZD4E2IOZ9W55
28 July 2023
Strong performance in a volatile market
Results for six months ended 30 June 2023
Six months
to 30 June Year to 31
2023 December 2022 Change
Share Price 1,008.0p 948.0p 6.3%
Net Asset Value ('NAV')
per Share(1) 1,086.5p 989.5p 9.8%
NAV Total Return(2) 11.1% -7.1%
Total Shareholder Return
('TSR')(2) 7.6% -5.8%
MSCI ACWI Total Return 7.8% -8.1%
Discount to NAV -7.2% -4.2%
Key Points
-- For the six months ended 30 June 2023, the Company's NAV Total Return2
was 11.1%, significantly outperforming its benchmark index, the MSCI All
Country World Index ('MSCI ACWI') which returned 7.8%.
-- Total Shareholder Return2 ('TSR') was 7.6%, due to a widening of the
discount, which compared favourably with peers3 (-7.2% as of 30 June 2023
vs -11.1% for the AIC Global Sector average).
-- Second interim dividend of 6.34p per share declared, up from 6.18p for
the first interim dividend. Increased dividend level is expected to be at
least maintained for the third and fourth interim dividends, giving an
expected annual dividend increase of 5% year-on-year.
-- After completing a tenure of nine years, Gregor Stewart will step down
from the Board and his role as Chairman at the year-end and will be
succeeded by Dean Buckley, who joined the Board in March 2021.
Gregor Stewart, Chairman of Alliance Trust PLC, commented:
"I am pleased to report that the Company significantly
outperformed the market and most of its peers in the first half of
2023, despite volatile market conditions. This demonstrates the
benefit of our diversified, high conviction approach. Although the
economic outlook remains highly uncertain, the Board believes the
strategy is well designed to navigate different market environments
and continue delivering attractive capital growth and a rising
dividend.
"I feel very privileged and proud to have served as a Director
and Chairman of the Company for the last nine years, steering it
through significant changes. I have no doubt Dean will serve the
Company well as Chairman."
(1) GAAP Measure
(2) Alternative Performance Measure
(3) The reference to the Company's peers is to the members of
the Association of Investment Companies Global Sector.
About Alliance Trust PLC
Alliance Trust aims to deliver long-term capital growth and
rising income from investing in global equities at a competitive
cost. We blend the top stock selections of some of the world's best
active managers, as rated by Willis Towers Watson, into a single
diversified portfolio designed to outperform the market while
carefully managing risk and volatility. Alliance Trust PLC is an
AIC Dividend Hero with 56 consecutive years of rising
dividends.
https://www.alliancetrust.co.uk
For more information, please contact:
Mark Atkinson, Senior Director -- Client Sarah Gibbons-Cook
Management, Wealth & Retail
Willis Towers Watson Quill PR
Tel: 07918 724303 Tel: 020 7466 5050 /
sarah@quillpr.com
Alliance Trust PLC Interim Report 2023
INVESTING FOR GENERATIONS
Catering for every generation, Alliance Trust aims to grow your
capital over time and provide rising income by investing in global
equities.
Investment objective
The Company's objective is to be a core investment for investors
that delivers a real return over the long term through a
combination of capital growth and a rising dividend. The Company
invests primarily in global equities across a wide range of
different sectors and industries to achieve its objective.
A CORE HOLDING FOR ALL GENERATIONS
Our portfolio's unique blend of Stock Pickers and their
customised stock selections make Alliance Trust a strong, core
holding for long-term investors seeking capital growth and rising
income. Whatever your financial goal, be it saving for university
or a first home, building a pension or leaving a legacy, we're
built to help you achieve this.
Proven resilience
Established in 1888, we've successfully navigated two world
wars, multiple economic crises, the Covid-19 pandemic and numerous
political upheavals.
Low maintenance
Our ready-made portfolio does all the hard work for you. With
thousands of funds to choose from, it can be daunting finding the
time and having the confidence to be your own wealth manager. By
using experts to select and monitor a team of top-rated Stock
Pickers, who in turn choose their most attractive stocks, we
provide a simple, high-quality way to invest in global equities at
a competitive cost.
Diversified by country, industry and style
Our approach doesn't depend on the skill of a single
high-profile individual. It's a team effort which means the
portfolio can add value through varying stock market cycles and
deliver more consistent returns.
All of our Stock Pickers have different but complementary
approaches to investing. This means our holdings are well
diversified across countries, industries and investment styles to
seek a wide range of opportunities while minimising risk.
Focused stock picking
Although well diversified, we avoid hugging the Company's
benchmark index(1) by asking the Stock Pickers to choose no more
than 20 stocks(2) in which they have the highest level of
conviction.
When combined, our portfolio's country and sector exposures
resemble the index(1) but its individual holdings are very
different. This high level of divergence is designed to maximise
potential for outperformance.
Expert manager selection
All the Stock Pickers are chosen by our Investment Manager,
Willis Towers Watson ('WTW'), a leading global investment
business.
WTW researches thousands of managers globally, before selecting
a diverse team of expert Stock Pickers for Alliance Trust.
To control risk, WTW then balances the amount of capital
allocated to each of them. Due to the modular construction of the
portfolio, if a Stock Picker needs to be replaced, this can be done
smoothly.
Responsible ownership
Our approach to investment is forward-thinking. To help protect
the returns of the next generations, we include consideration of
environmental, social and governance factors in the selection of
our Stock Pickers who in turn include these factors in their
investment processes. We place particular emphasis on engaging with
companies to drive change in harmful business practices that may
threaten long-term corporate profitability.
Rising dividend
We're proud of our 56-year track record of dividend growth,
which is one of the longest in the investment trust industry.
1. MSCI All Country World Index. 2. Apart from GQG Partners, who
also manage a dedicated emerging markets mandate with up to 60
stocks.
OUR PERFORMANCE
FINANCIAL HIGHLIGHTS AS AT 30 JUNE 2023
KEY PERFORMANCE INDICATORS
In the tables below we set out the Key Performance Indicators
('KPIs') the Board uses to measure performance. The benchmark we
use is the MSCI All Country World Index ('MSCI ACWI') in sterling
with net dividends reinvested.
Share Price
30 June 2021 993.0p
---------------- --------
30 June 2022 904.0p
---------------- --------
31 December 2022 948.0p
---------------- --------
30 June 2023 1,008.0p
---------------- --------
Net Asset Value Total Return(1)
6 months to 30 June
2021 14.8%
-------------------- ------
6 months to 30 June
2022 -10.5%
-------------------- ------
Year to 31 December
2022 -7.1%
-------------------- ------
6 months to 30 June
2023 11.1%
-------------------- ------
Total Shareholder Return(1)
6 months to 30 June
2021 11.1%
-------------------- ------
6 months to 30 June
2022 -11.3%
-------------------- ------
Year to 31 December
2022 -5.8%
-------------------- ------
6 months to 30 June
2023 7.6%
-------------------- ------
Total Dividend(2) (, 3)
First 2 Interim Dividends 7.4p
for 2021
------------------------- -----
First 2 Interim Dividends 12.0p
for 2022
------------------------- -----
Year to 31 December 2022 24.0p
------------------------- -----
First 2 Interim Dividends 12.5p
for 2023
------------------------- -----
1. Alternative Performance Measure (see page 33 of the Interim
Report 2023 for further information). 2. GAAP Measure. 3. Total
dividend rounded to one decimal place.
NET ASSET VALUE TOTAL RETURN (%)(1)
This measures the performance of our assets. It combines any
change in the Net Asset Value ('NAV') with dividends paid by the
Company.
Alliance Trust MSCI ACWI
------------------- -------------- ---------
6 months 11.1 7.8
------------------- -------------- ---------
1 year 15.4 11.3
------------------- -------------- ---------
3 years 37.7 32.9
------------------- -------------- ---------
5 years 50.5 53.3
------------------- -------------- ---------
Since 1 April 2017 68.9 67.6
------------------- -------------- ---------
Source: Morningstar and Refinitiv Datastream
NAV Total Return based on NAV including income with debt at fair
value and after Stock Picker and WTW investment fees.
TOTAL SHAREHOLDER RETURN (%)(1)
This demonstrates the return our shareholders receive through
dividends and capital growth of the Company.
Alliance Trust MSCI ACWI
------------------- -------------- ---------
6 months 7.6 7.8
------------------- -------------- ---------
1 year 14.3 11.3
------------------- -------------- ---------
3 years 37.1 32.9
------------------- -------------- ---------
5 years 49.0 53.3
------------------- -------------- ---------
Since 1 April 2017 66.5 67.6
------------------- -------------- ---------
Source: Morningstar and Refinitiv Datastream
COMPARISON AGAINST PEERS (%)
This shows our NAV Total Return against that of the Global AIC
Sector Average and the Morningstar universe of UK retail global
equity funds (open ended and closed ended).
AIC Global Sector
Alliance Peer Group Average NAV Total
Trust Median Return (unweighted)
------------------- -------- ---------- --------------------
6 months 11.1 5.8 9.0
------------------- -------- ---------- --------------------
1 year 15.4 10.5 11.8
------------------- -------- ---------- --------------------
3 years 37.7 26.4 19.8
------------------- -------- ---------- --------------------
5 years 50.5 43.9 40.5
------------------- -------- ---------- --------------------
Since 1 April 2017 68.9 60.3 69.3
------------------- -------- ---------- --------------------
Source: Morningstar and the Association of Investment
Companies.
NET ASSET VALUE (PENCE)(2)
This shows the value per share of the investments held by the
Company less its liabilities (including borrowings).
31 December 2019 875.9
----------------- -------
31 December 2020 933.9
----------------- -------
31 December 2021 1090.0
----------------- -------
31 December 2022 989.5
----------------- -------
30 June 2023 1,086.5
----------------- -------
Source: Morningstar and Refinitiv Datastream
NAV includes income and with debt at fair value.
1. Alternative Performance Measure (see page 33 of the Interim
Report 2023). 2.GAAP Measure.
CHAIRMAN'S STATEMENT
"In volatile market conditions, our strategy proved successful,
with our Net Asset Value Total Return for the six months ended 30
June 2023 beating our benchmark index by 3.3% and the AIC Global
Sector peer group average by 2.1%."
STRONG INVESTMENT PERFORMANCE
I am pleased to report strong investment performance for the six
months ended 30 June 2023. Our Net Asset Value ('NAV') Total Return
was well ahead of our benchmark index(1) and the majority of the
Company's peers(2) .
The Company's NAV Total Return was 11.1%, outperforming our
benchmark's return of 7.8% by 3.3%. Total Shareholder Return
('TSR') of 7.6% was slightly behind the benchmark due to a widening
of the discount. Nevertheless, our discount remained narrower than
most of our peers. During the period under review, the Company's
market capitalisation also increased by 4.2% to GBP2.89bn.
Markets have remained volatile in the first half of the year,
swinging between optimism and pessimism about the outlook for the
economy and companies' prospects with each release of data. The
ongoing ramifications from the Covid pandemic and the war in
Ukraine have compounded the battle to contain inflation and
necessitated rapid increases in interest rates by central banks. At
the same time, the potential for the use of Artificial Intelligence
('AI') to become widespread and disrupt industries has prompted a
resurgence in the valuations of technology stocks. Against that
background, it is pleasing to see that our outperformance was
principally due to strong stock selection across a variety of
sectors.
INCREASED DIVID
We have announced a second interim dividend for 2023 of 6.34p
(2022: 6.00p). The total of the first two interim dividends for
2023 is 12.52p, representing an increase of 4.3% on the same
payments for 2022. Earnings per share for the six months ended 30
June 2023 were 11.71p per share (30 June 2022: 12.46p).
Although income receipts have stabilised in 2023, having built
up significant distributable reserves, the Company expects to pay a
higher dividend in 2023 and beyond. Barring unforeseen
circumstances, the Board expects to declare third and fourth
interim dividends for 2023 of at least the same amount as the
second interim dividend. This would result in a total dividend for
2023 of at least 25.20p, an increase of 5% on the Company's 2022
dividend. Based on the Company's share price on 30 June 2023, this
level of total dividend would result in an annual dividend yield of
2.5%.
STABLE DISCOUNT
One of the Board's strategic objectives is to maintain a stable
share price discount to NAV, with our long-term aim being to
transition the Company's share price to a premium. The Company's
average discount over the period was 5.9%, this compared favourably
to the average sector discount of 9.4% over the same period.
In order to support the relative stability of the discount,
during the six months to 30 June 2023, shares equivalent to 2.0% of
the number of shares in issue at the start of the period were
bought back. The extent of buybacks in the most recent period has
been elevated across the sector. We believe share buybacks play an
important role in limiting discount volatility, adding value to
continuing shareholders and together with sustained demand for our
shares from retail investors, succeeded in keeping the discount
much narrower than the AIC Global Sector average.
BOARD SUCCESSION
As many of you will be aware, Anthony Brooke who joined the
Board in 2015, stepped down as a Director of the Company at the
conclusion of the Annual General Meeting ('AGM') on 27 April 2023.
At the same meeting, shareholders strongly supported the
appointments of Vicky Hastings and Milyae Park, who both joined the
Board in September 2022. As shareholders will know, we have been
working carefully on Board succession, as our long-standing
Directors complete their expected tenure. We are delighted with the
refreshment of the Board, as well as grateful for the skill,
commitment and passion of those who have recently left.
The next stage in this process is my own retirement. I will be
stepping down from the Board and my role as Chairman at the end of
the year. By that time I will have been a Director of the Company
for nine eventful years, which has seen the Company transform and
simplify, to focus on global equities through a multi-manager
investment approach.
Sarah Bates, our Senior Independent Director, was tasked with
leading the process to identify and appoint my successor. The
Nomination Committee carefully considered the role requirements and
sought the advice of an independent search consultant in relation
to potential external candidates. Following this review the Board,
on the recommendation of the Nomination Committee, has agreed that
Dean Buckley should succeed me as Chairman of the Company. In
accordance with best corporate governance practice, Dean's
appointment, like that of all our Directors, will continue to be
subject to annual re-election by shareholders at the AGM. As many
of you will know, Dean has a wealth of experience in fund
management and has in-depth knowledge of investment trusts. Since
he joined the Board in March 2021, Dean has brought new ideas and a
different perspective to the Board and I have no doubt will serve
the Company well as Chairman. To ensure a smooth transition to
Dean, we will work together between now and the end of the year,
prior to me stepping down from the Board with effect from 31
December 2023. Although my time at the helm is not yet up, I feel
very privileged and proud to serve as a Director and Chairman of
your Company, working with my colleagues to steer it through what
has been a volatile market in recent years.
STRENGTHENED OPERATING MODEL
Further to my statement in the Annual Report for the financial
year ended 31 December 2022, I am pleased to announce that the
final stage of the changes to the Company's operating model have
been completed, following the successful transfer of the finance,
fund accounting and administration services to Juniper Partners
Limited ('Juniper') on 1 April 2023. This should result in a more
resilient infrastructure for the Company, as most of the previous
Executive Team have now moved to Juniper and have a wider resource
surrounding them. We are also pleased that the marketing
relationship with our Investment Manager, Willis Towers Watson
('WTW') has been simplified and expanded. Following the
improvements to the operating model, the Company's ongoing charges
ratio continues to remain within our target of 0.65%.
CONTINUED SHAREHOLDER ENGEMENT
I am delighted to advise that we will be holding a further
investor forum in Edinburgh at the Edinburgh International
Conference Centre ('EICC') on 7 September 2023 at which
shareholders will be provided with an investment update from our
Investment Manager and one of our Stock Pickers. An Investor Forum
will also be held in London on 27 October 2023. Further details of
these events will be made available on the Company's website in due
course.
Having taken soundings from investors, the Company is also
investing in its brand and website to improve communication with
shareholders, raise the profile of the Company and attract a new
generation of investors.
If you have not yet done so, I would encourage you to subscribe
to receive the quarterly newsletter, monthly factsheet and other
Company news and events by visiting www.alliancetrust.co.uk or by
scanning the QR code on page 38 of the Interim Report 2023.
OUTLOOK
The results so far this year have been pleasing, and whilst WTW
believes that there is still a risk of economic disappointment in
the months ahead, we are confident that the portfolio is well
positioned for continued long-term growth.
Gregor Stewart
Chairman
27 July 2023
1. The Company's benchmark index is the MSCI All Country World
Index, referred to in this Interim Report as the 'MSCI ACWI', the
'benchmark' or the 'Index'.
2. The reference to the Company's peers is to the members of
Association of Investment Companies ('AIC') Global Sector.
INVESTMENT MANAGER'S REPORT
STRONG PERFORMANCE OVER A VOLATILE PERIOD
Global equity markets rose in the first half of 2023, despite
sticky inflation, rising interest rates and financial instability.
Defying widespread warnings of recession, economic growth remained
positive in all the major economies, and corporate earnings were
stronger than expected. Most developed equity markets, including
the US, UK, the eurozone and Japan, posted gains, although emerging
markets lost value, especially China which suffered from
disappointment over the pace of the country's post-pandemic
rebound.
REGIONAL SPLIT IN RETURNS
North America 10.2%
------------------ ------
Europe excluding
UK 9.0%
------------------ ------
UK 2.6%
------------------ ------
Japan 6.9%
------------------ ------
Pacific excluding
Japan -5.1%
------------------ ------
Emerging Markets -0.8%
------------------ ------
China -10.5%
------------------ ------
Source: MSCI Inc. Total returns shown in GBP as at 30 June
2023.
High quality, large-cap growth stocks were the main drivers of
market returns, especially in the technology and telecom sectors in
the US, although the consumer discretionary sector also did
well.
SECTOR SPLIT IN RETURNS
Consumer Staples -1.9%
----------------------- -----
Energy -7.6%
----------------------- -----
Financials -2.0%
----------------------- -----
Health Care -4.9%
----------------------- -----
Industrials 7.4%
----------------------- -----
Information Technology 29.5%
----------------------- -----
Real Estate -6.4%
----------------------- -----
Communication Services 18.7%
----------------------- -----
Utilities -6.1%
----------------------- -----
Consumer Discretionary 16.9%
----------------------- -----
Materials -1.2%
----------------------- -----
Source: MSCI Inc. Total returns shown in GBP as at 30 June 2023.
Real Estate return shown is as at 31 May 2023 due to data
availability.
After last year's sharp sell-off, the share prices of many
tech-related companies rebounded, due to resilient earnings. Many
were further boosted by a burst of investor enthusiasm for AI
applications such as ChatGPT, the widely publicised interactive
chatbot launched in November 2022. However, the gains among
tech-related stocks did not always extend to more speculative
opportunities, suggesting investors are being more discriminating
this time around between tech and telecom companies with current
earnings and those whose valuations rest on potential profitability
in the future.
The Company's portfolio significantly outperformed the market,
delivering a NAV Total Return of 11.1%, this compared favourably
against the Index which returned 7.8%. Total Shareholder Return was
7.6%, this was slightly lower than the Index due to a widening of
the Company's discount to 7.2% as at 30 June 2023.
STOCK SELECTION DROVE OUTPERFORMANCE
The portfolio's outperformance of the Index for the six months
ended 30 June 2023 was largely due to good stock selection by our
Stock Pickers, though they performed well at different points in
varying market conditions, highlighting the benefits of a
multi-manager approach with built-in diversification benefits.
For example, at the start of the year, when investors were
generally in a buoyant mood, eight of our nine stock pickers did
well, especially the value managers with small and mid-cap holdings
in the UK and Europe, which initially outperformed the US; only
last year's best performing Stock Picker, GQG Partners ('GQG'),
lagged the market, largely due to its relatively high exposure to a
reversal in commodity stocks following last year's bull run.
After problems in US regional banks surfaced in March 2023, the
market mood became more risk-averse, and investors crowded into the
perceived safety of mega-cap US tech-related, growth stocks. At
that point, Stock Pickers with exposure to some of these stocks,
such as Sands Capital ('Sands'), Sustainable Growth Advisers
('SGA') and Vulcan Value Partners ('Vulcan'), leapt ahead; GQG also
began to catch up, having rotated some of its exposure into
technology stocks, such as Apple and Nvidia, during the first half
of the year and away from commodities (ExxonMobil and Exelon) and
consumer staples (Walmart).
Markets rotated again in June, with our value managers once
again coming to the fore.
REDUCED HEADWIND FROM US MARKET CONCENTRATION
In the past, we have highlighted how a very concentrated market
dominated by a small number of mega-cap technology-related stocks
has been a headwind to our broadly diversified strategy. However,
while relative performance was hurt by our underweight positions in
four of the stocks that led the mega-cap rally, namely Tesla, Meta,
Apple and chip maker Nvidia, this time we had compensating
overweight positions in three of the others, that is Alphabet,
Amazon and Microsoft.
We also benefitted from a less skewed spread of regional
returns. Europe and Japan performed better than previously, albeit
losing ground and being overtaken by the US towards the end of the
period under review.
Stepping back and looking at the six-month period as a whole,
Alphabet, Microsoft, and Amazon were among the biggest contributors
to relative returns, along with Latin America's e-commerce leader
MercadoLibre. In addition, a range of non-tech related names also
added value. These included sports clothing and footwear
manufacturer Adidas, and cement and aggregate producer Heidelberg
Materials (both Germany). It also included Kuehne & Nagel, the
Swiss-based logistics group, and French jet engine maker Safran.
Petrobras, Latin America's largest energy group, was also a
significant contributor. Its share price bucked the trend in its
sector, rising over 40%, having endured wild swings at the start of
the year as investors worried that Brazil's new president would use
the government's controlling stake in the company to take a more
interventionist approach. Although the president appointed a new
chief executive, investors were reassured that their worst fears
were not realised.
AVOIDING TROUBLED US REGIONAL BANKS
Our relative returns also benefitted from our lack of exposure
to poorly performing US regional bank stocks, which suffered a
series of business failures starting with Silicon Valley Bank
('SVB'). While SVB held a large proportion of safe assets
(government bonds), it was unable to convert these into sufficient
cash to meet withdrawals because their value was depressed by
rising interest rates. The run on SVB had a domino effect on the
failure of other regional US banks and to Credit Suisse in Europe,
but swift action by policymakers to guarantee deposits in the US
and the forced merger of Credit Suisse with UBS calmed fears of
another 2008-style global banking crisis. Even so, the
vulnerability of the financial system to the pressures of sharply
rising interest rates remains a concern.
Our exposure to the financial sector is in part through payment
processing companies, such as Visa. Where we own banks, it is
mainly in emerging markets' companies like HDFC Bank and ICICI Bank
in India. Both banks are diversified by customer base, robust in
terms of balance sheets and have a less saturated market than US
regional banks, with better demographics and growth
opportunities.
Aside from our underweight positions in Apple, Nvidia, Meta and
Tesla, the main detractors from our returns versus the Index
included Vale, the Brazilian mining group, and Glencore, the
Swiss-based commodities business, both of whom suffered from weaker
demand for commodities, last year's best performing asset class.
Other stocks which detracted from performance were UnitedHealth
Group and British American Tobacco, which underwent a management
reshuffle.
STOCK PICKER ALLOCATIONS: ADDING A JAPAN SPECIALIST
We did not make any major changes to portfolio positioning in
terms of Stock Picker weightings during the first half of the year,
although we did give GQG some additional capital following its
underperformance in the early part of the year. This was funded
from the strongest outperformers, namely Vulcan, Sands and Lyrical
Asset Management ('Lyrical'). Towards the end of the first half we
further trimmed the allocations to Sands, Vulcan and SGA, which all
benefited from the AI rally. These reallocations of capital helped
maintain the portfolio's balanced exposure to different market
factors. After the period under review, on 24 July we added a
specialist Japan manager, Dalton Investments ('Dalton'), to the
line-up. This was funded with capital from the other Stock Pickers,
principally Black Creek Investment Management ('Black Creek'),
Metropolis Capital ('Metropolis'), Sands, GQG and Veritas Asset
Management ('Veritas').
After years of economic malaise, corporate governance reforms
instigated in 2014 by then Prime Minister Shinzo Abe are leading to
a significant shift in how Japan's corporations are run. These
changes are making them much more shareholder-friendly and, in
turn, are helping to breathe new life into the economy.
Many of these developments stem from a decision by the Tokyo
Stock Exchange ('TSE') in January 2023 to force companies to
disclose action plans to increase their price to book ratio
(calculated by dividing the company's stock price per share by the
value of all its assets minus liabilities) to 1x. The reform should
deter companies from hoarding cash and galvanise them into action
to generate value for shareholders. Dalton says this has the
potential to be a huge boon to the Japanese market and particularly
to value managers with a focus on engagement or activism.
Mix these corporate developments in with a solid economy, a weak
currency, and low inflation and interest rates compared to much of
the developed world, and Japan represents an attractive place to
invest. Despite recent stock market gains, Japan is still trading
at a modest discount to its long-term average and a substantial
discount to other regions. We are not taking a big macro bet on
Japan but believe that hiring a skilled manager like Dalton will
enable us to better capture the most attractive stock-specific
opportunities.
ABOUT DALTON
Dalton is a value focused manager headquartered in Los Angeles
with several other offices including Tokyo. The firm is
independently owned by its senior executives and investment
professionals who invest in its strategies alongside clients,
ensuring an alignment of interests. It was established in 1999 to
pursue investment opportunities arising from the Asian financial
crisis and now offers a small range of Asia-focused and global
emerging markets equity strategies.
Dalton looks to exploit mispricing opportunities in the most
under-researched companies in Japan, which generally steers its
focus to small and mid-cap companies. The concentrated, up to
20-stock mandate that Dalton is managing for Alliance Trust is run
by the firm's Chief Investment Officer and co-founder James D.
Rosenwald, plus a team of six analysts based in Tokyo.
WTW has a positive view of this strategy largely predicated on
the experience and differentiated insights of James D. Rosenwald,
combined with the disciplined nature of the investment process and
depth of analytical support provided by his team. We believe James
is an entrepreneurial and experienced investor with good foresight,
market savviness and a large network of contacts. We also believe
the strategy is well specified and consistently executed within an
attractive opportunity set which is a relatively less efficient
part of the Japanese market.
James has a strong heritage, which includes working for George
Soros as an investor in the Korean market. He has been investing in
Japan since his teens when he began working with his grandfather,
who had previously worked with Benjamin Graham, the British-born
American economist who is widely known as the father of value
investing.
The firm's investment philosophy is based on four
principles:
-- Buy good businesses with strong cash flows and balance sheets who have a
"moat" against competition
-- Seek shares that trade at a material discount to intrinsic value, looking
to double money over 3-5 years
-- Identify companies with an alignment of interest between the business
owner/management and minority shareholders
-- Identify a demonstrable track record of managing capital effectively and
rewarding minority shareholders.
A STOCK PICKER'S MARKET
Moving into the second half of the year, we are excited by the
long-term potential of our holdings, with many performing much
better operationally than is currently recognised in their share
prices. However, the US has once again become very concentrated in
a small number of very large-cap US tech-related stocks, and we are
cautious about how such a concentrated market at large will evolve
in the near term.
The economic backdrop is deteriorating. Despite rapid increases
in interest rates, it is still possible that inflation will fall
without a recession, particularly in the US where the rate of price
rises has peaked, and growth remains robust. Moreover, the use of
AI has the potential to boost productivity and increase corporate
earnings, with a knock-on effect on share prices. Goldman Sachs
estimate that AI could increase US productivity by 1.5 percentage
points per year over a 10-year period, which would imply that the
S&P 500's fair value would be about 9% higher than it is today.
In that scenario, the rest of the US market could catch up with big
tech.
Equally, the sector could be enjoying a bout of euphoria which
is divorced from economic reality. The long-predicted recession may
not have materialised, but high interest rates may be needed for
longer than expected to squeeze inflation out of the system,
especially in Europe and the UK. And many forward-looking
indicators are already flashing red. These include an inverted US
Treasury yield curve -- with shorter-term bond yields higher than
longer-term bond yields -- which has historically preceded a
downturn.
WARY OF HYPE
Although it has huge potential, we are wary of much of the hype
surrounding AI. As with the internet bubble 20 years ago, it could
take several years before the clear AI winners emerge. In the
meantime, some of today's front runners may fall by the wayside.
So, while we do have exposure to AI, through Microsoft, for
example, our Stock Pickers are playing it company by company rather
than as a portfolio theme.
It is important to remember that the economic impact of interest
rate hikes by the US Federal Reserve, the European Central bank and
the Bank of England have yet to be fully felt, among consumers and
businesses. Typically, interest rate changes take 18 months to
filter through to the real economy, even longer perhaps in the UK
where mortgage borrowers face large increases in repayments as
their fixed-rate deals come to an end. It would therefore be
complacent to believe the risk of recession has disappeared
altogether; history's most anticipated recession could still be on
track, albeit slightly delayed.
On balance, we believe equity markets are not sufficiently
pricing in potential future near-term weakness in the economy and
corporate earnings. As a precaution, we are keeping gearing low to
minimise the impact of potential short-term equity market declines.
At the end of June, gross gearing was 7.2%. This was just below the
typical 7.5%-12.5% range, driven by market appreciation and us
keeping gearing unchanged since reducing it to the low end of the
range at the end of 2022. While we keep gearing under review, we
are wary of increasing it when the outlook for equity markets
generally remains challenging, despite being positive on the
portfolio from a fundamental, bottom-up perspective. We remain
diversified across countries, sectors and investment styles to
reduce risk, and have faith in our Stock Pickers selecting the best
stocks to continue adding value to portfolio returns relative to
peers and the Index.
COMBINED STOCK PICKER ALLOCATIONS
There have been no major changes to the portfolio structure in
the first half of the year, with capital allocations kept in
balance by fluctuating market movements. These movements ensured
that the portfolio retained a balanced exposure to styles, sectors
and regions, thereby avoiding taking any significant macro or
factor bets and relying on stock selection to drive portfolio
returns.
REGION
North America 57.9%
------------------------ -----
Asia & Emerging Markets 15.7%
------------------------ -----
Europe 14.9%
------------------------ -----
UK 9.5%
------------------------ -----
Stock Picker Cash 2.0%
------------------------ -----
Source: Juniper Partners Limited.
As at 30 June 2023
SECTOR
Information Technology 20.7%
----------------------- -----
Financials 18.9%
----------------------- -----
Industrials 14.2%
----------------------- -----
Communication Services 10.8%
----------------------- -----
Health Care 10.7%
----------------------- -----
Consumer Discretionary 9.5%
----------------------- -----
Consumer Staples 4.7%
----------------------- -----
Materials 3.6%
----------------------- -----
Energy 3.3%
----------------------- -----
Stock Picker Cash 2.0%
----------------------- -----
Real Estate 0.9%
----------------------- -----
Utilities 0.7%
----------------------- -----
Source: Juniper Partners Limited.
As at 30 June 2023
Note: On 24 July 2023, the Company added a new specialist Japan
manager, Dalton Investments, to the Stock Picker line up. This
resulted in a small overweight to Japan relative to the
benchmark.
INVESTMENT PORTFOLIO
OUR LARGEST 30 INVESTMENTS AT 30 JUNE 2023
Value of
Country of Holding % of
Name Listing Sector GBPm Total Assets
------------------ ---------------- ------------------ -------- -------------
Communication
1 Alphabet United States Services 154.9 4.7
------------------ ---------------- ------------------ -------- -------------
Alphabet is a holding company that engages
in the acquisition and operations of different
firms. It is best known as a parent company
for Google but holds other subsidiaries as
well. The company, through its subsidiaries,
provides web based search, advertisements,
maps, software applications, mobile operating
systems, consumer content, enterprise solutions,
commerce and hardware product. Alphabet dominates
the online search market with Google's global
share above 80%, via which it generates strong
revenue growth and cash flow.
-------------------------------------------------------- -------- -------------
Information
2 Microsoft United States Technology 153.4 4.6
------------------ ---------------- ------------------ -------- -------------
Microsoft develops, manufactures, licenses,
sells and supports software products including
operating systems, server applications, business
& consumer applications and software/development
tools for the Internet and intranets. In addition,
it develops video game consoles and digital
music entertainment devices. Microsoft is an
established player in the tech sector and continues
to evolve and innovate to maintain this position.
We see the potential for solid growth driven
by a still significant opportunity for its
Azure cloud-computing business and within its
suite of office and productivity solutions.
-------------------------------------------------------- -------- -------------
Consumer
3 Amazon.com United States Discretionary 124.3 3.7
------------------ ---------------- ------------------ -------- -------------
Amazon.com is an American multinational technology
company that focuses on e-commerce, online
advertising, cloud computing, digital streaming,
and artificial intelligence. Amazon offers
personalised shopping services, web-based credit
card payments, and direct shipping to customers.
In addition, it operates a cloud platform that
offers services globally. Amazon's revenue
growth does not only benefit from increases
in online shopping. The opportunity for growth
is also driven by the strength and execution
in AWS, its cloud computing business.
-------------------------------------------------------- -------- -------------
Information
4 Visa United States Technology 100.3 3.0
------------------ ---------------- ------------------ -------- -------------
Visa is an American multinational financial
services corporation. It describes itself as
a global payments technology company that works
to enable consumers, businesses, banks, and
governments to use digital currency. It facilitates
electronic funds transfers throughout the world,
most commonly through Visa branded credit cards,
debit cards and prepaid cards across a broad
clientele from retail to corporate. The company
is a dominant player within payment solutions
and with cross-border travel volumes increasing,
this could help sustain double-digit revenue
growth for years to come.
-------------------------------------------------------- -------- -------------
5 UnitedHealth Group United States Health Care 70.4 2.1
------------------ ---------------- ------------------ -------- -------------
UnitedHealth Group describes itself as a health
and well-being company, offering health care
coverage and benefits through UnitedHealthcare,
and technology and data-enabled care delivery
through Optum. It also manages organised health
systems across the United States and provides
employers products and resources to plan and
administer employee benefit programs. UnitedHealth
Group is the largest health insurer in the
world. Due to its size, stability, dividends,
and positioning, it holds a dominant position
in the largest healthcare industry in the world.
-------------------------------------------------------- -------- -------------
Information
6 Mastercard United States Technology 64.6 1.9
------------------ ---------------- ------------------ -------- -------------
Mastercard is an American technology company
in the global payments business. It works with
a wide range of consumers across individuals
to corporations to governments to enable and
facilitate electronic forms of payment. It
provides technological solutions and enablement
of electronic payment solutions. Mastercard
is a firm that has shown good stability and
quality with its earnings, holding one of the
dominant positions amongst payment solutions.
-------------------------------------------------------- -------- -------------
Information
7 Nvidia United States Technology 55.6 1.7
------------------ ---------------- ------------------ -------- -------------
Nvidia is a world-leading supplier of artificial
intelligence hardware and software, based in
California. Example products which the company
designs include graphics processing units ('GPUs')
and systems on a chip ('SoCs') for the mobile
computing and automotive markets.
-------------------------------------------------------- -------- -------------
8 Petrobras Brazil Energy 47.5 1.4
------------------ ---------------- ------------------ -------- -------------
Petrobras, based in Brazil, where it is 54%
state-owned, is Latin America's largest oil
and gas company. It refines, markets, trades,
transports and supplies oil products. The company
also operates oil tankers, distribution pipelines,
marine, river and lake terminals, thermal power
plants, fertiliser plants, and petrochemical
units.
-------------------------------------------------------- -------- -------------
Information
9 ASML Netherlands Technology 38.3 1.2
------------------ ---------------- ------------------ -------- -------------
ASML is a Dutch technology corporation headquartered
in Veldhoven, Netherlands. The firm develops
and manufactures photolithography machines
which are subsequently used in the production
of computer chips.
-------------------------------------------------------- -------- -------------
Information
10 Meta United States Technology 37.2 1.1
------------------ ---------------- ------------------ -------- -------------
Meta is an American multinational technology
conglomerate headquartered in California. The
firm owns and operates Facebook, Instagram,
Threads, and WhatsApp, among others. It is
one of the 'Big Five' information technology
companies in the United States.
-------------------------------------------------------- -------- -------------
11 AstraZeneca United Kingdom Health Care 36.0 1.1
------------------ ---------------- ------------------ -------- -------------
12 Airbus France Industrials 34.7 1.0
------------------ ---------------- ------------------ -------- -------------
13 TotalEnergies France Energy 34.5 1.0
------------------ ---------------- ------------------ -------- -------------
14 Bureau Veritas France Industrials 33.1 1.0
------------------ ---------------- ------------------ -------- -------------
Consumer
15 MercadoLibre Uruguay Discretionary 30.7 0.9
------------------ ---------------- ------------------ -------- -------------
16 VINCI France Industrials 30.3 0.9
------------------ ---------------- ------------------ -------- -------------
17 Canadian Pacific Canada Industrials 29.8 0.9
------------------ ---------------- ------------------ -------- -------------
18 DBS Bank Singapore Financials 29.8 0.9
------------------ ---------------- ------------------ -------- -------------
19 Glencore United Kingdom Materials 29.8 0.9
------------------ ---------------- ------------------ -------- -------------
20 HDFC Bank India Financials 29.1 0.9
------------------ ---------------- ------------------ -------- -------------
21 Safran France Industrials 28.4 0.9
------------------ ---------------- ------------------ -------- -------------
The Cooper
22 Companies United States Health Care 28.2 0.9
------------------ ---------------- ------------------ -------- -------------
23 Novo Nordisk Denmark Health Care 27.7 0.8
------------------ ---------------- ------------------ -------- -------------
Murata Information
24 Manufacturing Japan Technology 27.4 0.8
------------------ ---------------- ------------------ -------- -------------
25 Fiserv United States Financials 27.2 0.8
------------------ ---------------- ------------------ -------- -------------
Information
26 Apple United States Technology 26.8 0.8
------------------ ---------------- ------------------ -------- -------------
Information
27 Texas Instruments United States Technology 26.6 0.8
------------------ ---------------- ------------------ -------- -------------
28 ICON Ireland Health Care 26.5 0.8
------------------ ---------------- ------------------ -------- -------------
Communication
29 Interpublic Group United States Services 25.9 0.8
------------------ ---------------- ------------------ -------- -------------
Information
30 salesforce.com United States Technology 25.8 0.8
------------------ ---------------- ------------------ -------- -------------
Top 30 Investments 1,434.8 43.1
------------------ ---------------- ------------------ -------- -------------
A full list of investments held in the portfolio is available on
the Company's website at www.alliance trust.co.uk
Note: All figures are subject to rounding differences.
RESPONSIBLE INVESTMENT
In the six months to 30 June 2023, EOS at Federated Hermes
engaged with 85 companies held in the portfolio on a range of over
390 issues and objectives. Key areas of engagement included climate
change, human and labour rights, human capital and board
effectiveness. Over the same period, the Company's Stock Pickers
cast 2,877 votes at 166 company meetings. They voted on all the
proposals that could be voted on in the period. The Company's Stock
Pickers voted against management on 301 proposals and abstained on
52 proposals. Of the votes exercised against company management,
the most frequently recurring themes were compensation and director
election.
HOW OUR STOCK PICKERS VOTED
Votes exercised with management 87.7%
----------------------------------- -----
Votes exercised against management 10.5%
----------------------------------- -----
Votes abstained 1.8%
----------------------------------- -----
Source: EOS at Federated Hermes, WTW, ISS. Data to 30 June
2023.
REASONS FOR VOTING AGAINST MANAGEMENT
Audit Related 0.3%
----------------------- -----
Capitalisation 6.3%
----------------------- -----
Company Articles 0.3%
----------------------- -----
Compensation 23.6%
----------------------- -----
Corporate Governance 1.7%
----------------------- -----
Director Election 35.2%
----------------------- -----
Director Related 6.3%
----------------------- -----
E&S Blended 0.7%
----------------------- -----
Environmental 10.3%
----------------------- -----
Miscellaneous 0.3%
----------------------- -----
Non-Routine Business 1.0%
----------------------- -----
Routine Business 1.3%
----------------------- -----
Social 11.6%
----------------------- -----
Strategic Transactions 0.7%
----------------------- -----
Takeover Related 0.3%
----------------------- -----
Percentage figures above are of eligible votes exercised that
were against management.
Source: EOS at Federated Hermes, WTW, ISS. Data to 30 June
2023.
Percentages may not cast to 100 due to rounding differences.
OTHER INFORMATION
PRINCIPAL AND EMERGING RISKS
In common with other financial services organisations, the
Company's business model results in inherent risks.
The Directors have carried out a robust assessment of the
principal and emerging risks facing the Company and how these are
continuously monitored and managed.
In pursuit of its strategic objectives the Company faces the
following principal and emerging risks:
-- Investment, Counterparty and Financial Risks -- Market, Investment
Performance, Credit and Counterparty, Capital Structure and Financial
-- Operational -- Cyber Attack and Outsourcing
-- Environmental, Social and Governance ('ESG') factors including Climate
Change
-- Legal and Regulatory Non-Compliance
These risks, and the way in which they are managed, are
described in more detail within the How We Manage Our Risks section
on pages 35 to 40 of the Annual Report for the year ended 31
December 2022, which is available on the Company's website at
www.alliancetrust. co.uk. The Board believes these principal risks
and uncertainties are applicable to the remaining six months of the
financial year, as they were to the six months ended 30 June
2023.
Emerging risks facing the Company have largely remained
unchanged since those detailed in the Annual Report for the year
ended 31 December 2022, namely geopolitical tension, inflation, and
economic recession. During the first half of 2023, market and
investor confidence in the banking sector was also severely
impacted as a result of the collapse of three US banks -- Silicon
Valley Bank, Signature Bank and First Republic Bank.
In addition, we witnessed the collapse of one of Switzerland's
leading financial institutions -- Credit Suisse, which resulted in
its takeover by UBS. The ongoing war in Ukraine and tensions
between China and the West with regards to Taiwan also continue to
impact market and investor confidence. These emerging risks are
considered by the Board alongside its principal risks. The Board
remains of the view that active management of the concentrated
'best ideas' approach employed by the Company will be able to take
advantage of any volatility as it creates opportunities. The Board
believes that the Company's globally diversified multi-manager
portfolio will be less volatile and, hopefully, a more rewarding
investment.
RELATED PARTY TRANSACTIONS
There were no transactions with related parties during the six
months ended 30 June 2023 which have a material effect on the
results or the financial position of the Company.
GOING CONCERN STATEMENT
As at 30 June 2023, while there have been market changes over
the period the Board does not consider that in relation to its
ability to continue as a going concern that there have been any
significant changes to these factors. The Directors, who have
reviewed budgets, forecasts and sensitivities, consider that the
Company has adequate financial resources to enable it to continue
in operational existence for the foreseeable future. Accordingly,
the Directors believe it is appropriate to continue to adopt the
going concern basis.
The factors impacting on going concern are set out in detail in
the Company's Viability Statement on pages 62 and 63 of the Annual
Report for the year ended 31 December 2022. Factors considered
included Financial Strength, Investment, Liquidity, Dividends,
Reserves, Discount, Significant Risks, Borrowings, Reserves,
Security and Operations.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
-- The condensed set of financial statements have been prepared in
accordance with IAS 34 "Interim Financial Reporting" as adopted by the UK,
and give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company;
-- The interim management report includes a fair review of the information
required by:
a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and
b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual report that could do so.
Signed on behalf of the Board
Gregor Stewart
Chairman
27 July 2023
FINANCIAL STATEMENTS
CONDENSED INCOME STATEMENT (UNAUDITED) FOR THE PERIODED 30 JUNE
2023
Year to
6 months to 30 6 months to 30 31 December 2022
June 2023 June 2022 (audited)
GBP000 Note Revenue Capital Total Revenue Capital Total Revenue Capital Total
--------------------------- ---- ------- ------- ------- ------- --------- --------- ------- --------- ---------
Income 3 42,102 - 42,102 46,907 - 46,907 95,521 - 95,521
Gain/(loss) on investments
held at fair value
through profit or
loss - 289,726 289,726 - (422,539) (422,539) - (358,675) (358,675)
Profit on fair value
of debt - 2,765 2,765 - 38,274 38,274 - 54,682 54,682
Total 42,102 292,491 334,593 46,907 (384,265) (337,358) 95,521 (303,993) (208,472)
Investment management
fees 4 (2,451) (5,438) (7,889) (1,671) (5,010) (6,681) (3,197) (9,586) (12.783)
Administrative expenses (1,239) (200) (1,439) (2,921) (452) (3,373) (5,562) (912) (6,474)
Finance costs 5 (1,063) (3,190) (4,253) (1,018) (3,050) (4.068) (2,156) (6,469) (8,625)
Foreign exchange
(losses)/gains - (3,284) (3,284) - 3,291 3,291 - 486 486
Profit/(loss) before
tax 37,349 280,379 317,728 41,297 (389,486) (348,189) 84,606 (320,474) (235,868)
Taxation 6 (3,323) (185) (3,508) (3,565) (233) (3,798) (6,435) (342) (6,777)
Profit/(loss) for
the period/year 8 34,026 280,194 314,220 37,732 (389,719) (351,987) 78,171 (320,816) (242,645)
--------------------------- ---- ------- ------- ------- ------- --------- --------- ------- --------- ---------
All profit/(loss) for the period/year is attributable to equity holders.
Earnings per share
attributable to
equity holders
Basic (pence per
share) 8 11.71 96.41 108.12 12.46 (128.65) (116.19) 26.14 (107.28) (81.14)
Diluted (pence per
share) 8 11.71 96.41 108.12 12.46 (128.65) (116.19) 26.14 (107.28) (81.14)
The Company does not have any other comprehensive income and
hence profit/(loss) for the period/year, as disclosed above, is the
same as the Company's total comprehensive income.
CONDENSED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) FOR THE
PERIODED 30 JUNE 2023
Distributable reserves
--------------------------------- ---------------------
Capital Realised Unrealised
Share redemption capital capital Revenue Total distributable
GBP000 Note capital reserve reserve reserve reserve reserves Total
------------- ----------- ---------- -------- --------------------- -----------
At 1 January
2022 7,703 11,295 2,763,783 481,177 95,222 3,340,182 3,359,180
Total Comprehensive
Income:
Profit/(loss)
for the
year - - 56,607 (377,423) 78,171 (242,645) (242,645)
Transactions
with owners,
recorded
directly
to equity:
Ordinary
dividend
paid 7 - - - - (71,086) (71,086) (71,086)
Unclaimed
dividends
returned - - - - 27 27 27
Own shares
purchased (389) 389 (150,457) - - (150,457) (150,457)
At 31 December
2022 (audited) 7,314 11,684 2,669,933 103,754 102,334 2,876,021 2,895,019
--------------------- ---- -------- ------------- ----------- ---------- -------- --------------------- -----------
At 1 January
2022 7,703 11,295 2,763,783 481,177 95,222 3,340,182 3,359,180
Total Comprehensive
income
Profit/(loss)
for the
period - - 73,334 (463,053) 37,732 (351,987) (351,987)
Transactions
with owners,
recorded
directly
to equity:
Ordinary
dividend
paid 7 - - - - (35,673) (35,673) (35,673)
Unclaimed
dividends
returned - - - - 18 18 18
Own shares
purchased (259) 259 (100,322) - - (100,322) (100,322)
At 30 June
2022 7,444 11,554 2,736,795 18,124 97,299 2,852,218 2,871,216
--------------------- ---- -------- ------------- ----------- ---------- -------- --------------------- -----------
At 1 January
2023 7,314 11,684 2,669,933 103,754 102,334 2,876,021 2,895,019
Total Comprehensive
income
Profit for
the period - - 42,673 237,521 34,026 314,220 314,220
Transactions
with owners,
recorded
directly
to equity:
Ordinary
dividend
paid 7 - - - - (35,347) (35,347) (35,347)
Own shares
purchased (143) 143 (57,287) - - (57,287) (57,287)
------------- ----------- --------------------- -----------
At 30 June
2023 7,171 11,827 2,655,319 341,275 101,013 3,097,607 3,116,605
--------------------- ---- -------- ------------- ----------- ---------- -------- --------------------- -----------
The GBP341.3 million of Unrealised Capital reserve (GBP18.1
million at 30 June 2022 and GBP103.8 million at 31 December 2022)
arising on the revaluation of investments is subject to fair value
movements and may not be readily realisable at short notice. As
such it may not be entirely distributable. The capital reserve
includes movements on the unsecured fixed rate loans of GBP2.8
million (GBP38.3 million as at 30 June 2022 and GBP54.7 million at
31 December 2022) which are not distributable.
CONDENSED BALANCE SHEET (UNAUDITED) AS AT 30 JUNE 2023
30 June 31 December
GBP000 Note 2023 30 June 2022 2022 (audited)
----------- --------------- -----------------
Non-current assets
Investments held at fair value
through profit or loss 10 3,254,091 3,042,835 3,012,492
Right of use asset - 403 54
------------------------------------- ----------- --------------- -----------------
3,254,091 3,043,238 3,012,546
Current assets
Outstanding settlements and other
receivables 11,721 29,166 9,648
Cash and cash equivalents 63,702 73,547 88,864
------------------------------------- ----------- --------------- -----------------
75,423 102,713 98,512
Total assets 3,329,514 3,145,951 3,111,058
Current liabilities
Outstanding settlements and other
payables (9,033) (23,189) (9,344)
Bank loans 11 (63,500) (91,500) (63,500)
Lease liability - (250) (38)
------------------------------------- ----------- --------------- -----------------
(72,533) (114,939) (72,882)
Total assets less current
liabilities 3,256,981 3,031,012 3,038,176
Non-current liabilities
Unsecured fixed rate loan notes
held at fair value 11 (140,376) (159,549) (143,141)
Lease liability - (247) (16)
------------------------------------- ----------- --------------- -----------------
(140,376) (159,796) (143,157)
------------------------------------- ---- ----------- --------------- -----------------
Net assets 3,116,605 2,871,216 2,895,019
------------------------------------- ---- ----------- --------------- -----------------
Equity
Share capital 12 7,171 7,444 7,314
Capital redemption reserve 11,827 11,554 11,684
Capital reserve 2,996,594 2,754,919 2,773,687
Revenue reserve 101,013 97,299 102,334
------------------------------------- ----------- --------------- -----------------
Total equity 3,116,605 2,871,216 2,895,019
------------------------------------- ---- ----------- --------------- -----------------
All net assets are attributable
to the equity holders.
Net asset value per ordinary share
attributable to equity holders
Basic and diluted (GBP) 9 10.87 9.64 9.89
----------- --------------- -----------------
CONDENSED CASH FLOW STATEMENT (UNAUDITED) FOR THE PERIODED 30
JUNE 2023
Year to
6 months 6 months 31 December
to to 2022
GBP000 30 June 2023 30 June 2022 (audited)
--------------- --------------- --------------
Cash flows from operating activities
Profit/(loss) before tax 317,728 (348,189) (235,868)
Adjustments for:
(Gains)/losses on investments (289,726) 422,539 358,675
Gains on fair value of debt (2,765) (38,274) (54,682)
Foreign exchange losses/(gains) 3,284 (3,291) (486)
Depreciation - 101 174
Finance costs 4,253 4,068 8,625
Scrip dividends - (344) (503)
Operating cash flows before movements
in working capital 32,774 36,610 75,935
Increase in receivables (913) (5,010) (3,189)
Decrease in payables (1,303) (178) (1,153)
--------------------------------------------- --------------- --------------- --------------
Net cash inflow from operating activities
before income tax 30,558 31,422 71,593
Taxes paid (3,713) (4,280) (7,302)
--------------------------------------------- --------------- --------------- --------------
Net cash inflow from operating activities 26,845 27,142 64,291
Cash flows from investing activities
Proceeds on disposal at fair value of
investments through profit and loss 791,489 1,687,322 2,202,258
Purchases of fair value through profit
and loss investments (743,307) (1,504,000) (1,920,913)
Net cash inflow from investing activities 48,182 183,322 281,345
Cash flows from financing activities
Dividends paid -- equity (35,347) (35,673) (71,086)
Unclaimed dividends returned - 18 27
Purchase of own shares (56,654) (100,064) (149,033)
Repayment of bank debt - (89,000) (117,000)
Principal paid on lease liabilities - (126) (293)
Interest paid on lease liabilities - (11) (17)
Finance costs paid (4,904) (3,931) (8,435)
Net cash outflow from financing activities (96,905) (228,787) (345,837)
Net decrease in cash and cash equivalents (21,878) (18,323) (201)
Cash and cash equivalents at beginning
of period/year 88,864 88,579 88,579
Effect of foreign exchange rate changes (3,284) 3,291 486
--------------------------------------------- --------------- --------------- --------------
Cash and cash equivalents at the end
of period/year 63,702 73,547 88,864
--------------------------------------------- --------------- --------------- --------------
Notes to the financial statements
1 GENERAL INFORMATION
The information contained in this report for the period ended 30
June 2023 does not constitute statutory accounts as defined in
section 434 of the Companies Act 2006. A copy of the statutory
accounts for the year ended 31 December 2022 has been delivered to
the Registrar of Companies. The auditor's report on those financial
statements was prepared under s495 and s496 of the Companies Act
2006. The report was not qualified, did not contain an emphasis of
matter paragraph and did not contain statements under section
498(2) or (3) of the Companies Act.
The interim results are unaudited and have not been reviewed by
the Company's auditors. They should not be taken as a guide to the
full year.
2 ACCOUNTING POLICIES
Basis of preparation
These condensed interim financial statements for the six months
to 30 June 2023 have been prepared in accordance with IAS 34
'Interim financial reporting' and also in accordance with the
measurement and recognition principles of UK adopted international
accounting standards ('IASs') but are not the Company's statutory
accounts. They include comparators extracted from the Company's
statutory accounts but do not include all of the information
required for full annual financial statements and should be read in
conjunction with the 2022 Annual Report and Accounts, which were
prepared in accordance with the requirements of the Companies Act
2006 and in accordance with UK-adopted international accounting
standards. Those accounts have been reported on by the Company's
auditors and delivered to the Registrar of Companies. The report of
the auditor was (i) unqualified, (ii) did not include a reference
to any matters to which the auditor drew attention by way of
emphasis without qualifying their report and (iii) did not contain
a statement under section 498(2) or (3) of the Companies Act
2006.
The Association of Investment Companies ('AIC') issued a
Statement of Recommended Practice: Financial Statements of
Investment Companies ('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.
Going concern
The Directors having assessed the principal and emerging risks
of the Company have, at the time of approving the financial
statements, a reasonable expectation that the Company has adequate
resources to continue in operational existence for at least 12
months from date of approval. The Company's assets, the majority of
which are investments in quoted equity securities and are readily
realisable, significantly exceed its liabilities. The Company's
bank loan facilities are due to expire on 16 December 2023, but
this does not impact the Company's ability to continue in
operational existence. They therefore continue to adopt the going
concern basis of accounting in preparing the financial statements.
The Company's business activities, together with the factors likely
to affect its future development and performance are set out in the
Strategic Report of the Annual Report for the financial year ended
31 December 2022.
Segmental reporting
The Company has identified a single operating segment, the
investment trust, which aims to maximise shareholders returns. As
such no segmental information has been included in these financial
statements.
Application of accounting policies
The same accounting policies, presentations and methods of
computation are followed in these financial statements as were
applied in the Company's annual audited financial statements for
the financial year ended 31 December 2022.
3 INCOME
Year to
6 months to 6 months to 31 December
GBP000 30 June 2023 30 June 2022 2022
Income from investments
Listed dividends -- UK 6,527 7,061 14,795
Listed dividends -- Overseas 35,059 39,666 80,135
41,586 46,727 94.930
----------------------------- ------------- ------------- ------------
Other income
Property rental income - 165 257
Other interest 515 12 323
Other income 1 3 11
516 180 591
----------------------------- ------------- ------------- ------------
Total income 42,102 46,907 95,521
----------------------------- ------------- ------------- ------------
4 INVESTMENT MANAGEMENT FEES
The fees paid to WTW include GBP7,251,000 for investment
management services, which is allocated 25% to revenue and 75% to
capital. A further fee of GBP638,000 for support services is
recorded directly to revenue.
5 FINANCE COSTS
6 months to 30 June 6 months to 30 June
2023 2022 Year to 31 December 2022
------------------------ ------------------------
GBP000 Revenue Capital Total Revenue Capital Total Revenue Capital Total
----------------- ------- ------- ------ ------- ------- ------ ------- ------- ------
Bank loans
interest and
associated
costs 385 1,155 1,540 237 712 949 583 1,750 2,333
4.28% unsecured
fixed rate
notes 528 1,585 2,113 535 1,605 2,140 1,070 3,210 4,280
2.657% unsecured
fixed rate
notes 66 198 264 66 198 264 133 399 532
2.936% unsecured
fixed rate
notes 73 219 292 73 219 292 147 440 587
2.897% unsecured
fixed rate
notes 72 216 288 72 216 288 145 435 580
Interest on lease
liabilities - - - 4 7 11 4 13 17
Other finance
costs (61) (183) (244) 31 93 124 74 222 296
Total 1,063 3,190 4,253 1,018 3,050 4,068 2,156 6,469 8,625
----------------- ------- ------- ------ ------- ------- ------ ------- ------- ------
The Company attributes finance costs, 25% to revenue and 75% to
capital profits.
6 TAXATION
In the six months to 30 June 2023 the Company incurred a tax
charge of GBP3.5 million relating to withholding tax on dividends
received.
7 DIVIDS PAID
6 months to 6 months to Year to 31
GBP000 30 June 2023 30 June 2022 December 2022
2021 fourth interim dividend of
5.825p per share - 17,752 17,752
2022 first interim dividend of
6.000p per share - 17,921 17,921
2022 second interim dividend of
6.000p per share - - 17,791
2022 third interim dividend of
6.000p per share - - 17,622
2022 fourth interim dividend of
6.000p per share 17,498 - -
2023 first interim dividend of
6.180p per share 17,849 - -
35,347 35,673 71,086
-------------------------------- ------------- ------------- --------------
8 EARNINGS PER SHARE
6 months to 30 June 2023 6 months to 30 June 2022 Year to 31 December 2022
--------------------------------------------------------- -------------------------- ----------------------------- -----------------------------
GBP000 Revenue Capital Total Revenue Capital Total Revenue Capital Total
--------------------------------------------------------- ------- ------- -------- ------- --------- --------- ------- --------- ---------
Ordinary shares
Earnings for the purposes of basic earnings per share
being net profit attributable to equity holders 34,026 280,194 314,220 37,732 (389,719) (351,987) 78,171 (320,816) (242,645)
--------------------------------------------------------- ------- ------- -------- ------- --------- --------- ------- --------- ---------
Number of shares
Weighted average number of ordinary shares for the
purposes of:
---------------------------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share 290,635,815 302,936,193 299,027,659
--------------------------------------------------------- -------------------------- ----------------------------- -----------------------------
Diluted earnings per share 290,635,815 302,936,655 299,027,937
--------------------------------------------------------- -------------------------- ----------------------------- -----------------------------
9 NET ASSET VALUE PER ORDINARY SHARE
The calculation of the net asset value per ordinary share is
based on the following:
30 June 30 June 31 December
GBP000 2023 2022 2022
Equity shareholder funds 3,116,605 2,871,216 2,895,019
Number of shares at period end -- Basic
and diluted 286,844,600 297,760,600 292,579,600
10 HIERARCHICAL VALUATION OF FINANCIAL INSTRUMENTS
Accounting Standards recognise a hierarchy of fair value
measurements, for financial instruments measured at fair value in
the Balance Sheet, which gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs (Level 3).
The classification of financial instruments depends on the lowest
significant applicable input.
The table below analyses financial instruments carried at fair
value, by valuation method. The different levels have been defined
as follows:
Level 1 Unadjusted, fully accessible and current quoted prices
in active markets for identical assets or liabilities.
Included within this category are investments listed
on any recognised stock exchange.
Level 2 Quoted prices for similar assets or liabilities or
other directly or indirectly observable inputs which
exist for the period of investment. Examples of such
instruments would be forward exchange contracts and
certain other derivative instruments.
Level 3 Valued by reference to valuation techniques using
inputs that are not based on observable market data.
The value is the Directors' best estimate, based on
advice from relevant knowledgeable experts, use of
recognised valuation techniques and on assumptions
as to what inputs other market participants would
apply in pricing the same or similar instrument. Included
within this category are direct or pooled private
equity investments.
All fair value measurements disclosed are recurring fair value
measurements.
Company valuation hierarchy fair value through income
statement:
As at 30 June 2023
GBP000 Level 1 Level 2 Level 3 Total
Assets
Listed investments 3,254,057 - - 3,254,057
Unlisted investments
Other - - 34 34
----------------------------------
Total assets 3,254,057 - 34 3,254,091
Liabilities
Unsecured fixed rate loan notes - - (140,376) (140,376)
----------------------------------
Total liabilities - - (140,376) (140,376)
---------------------------------- --------- ------- --------- ---------
As at 30 June 2022
GBP000 Level 1 Level 2 Level 3 Total
Assets
Listed investments 3,042,801 - - 3,042,801
Unlisted investments
Other - - 34 34
----------------------------------
Total assets 3,042,801 - 34 3,042,835
Liabilities
Unsecured fixed rate loan notes - - (159,549) (159,549)
----------------------------------
Total liabilities - - (159,549) (159,549)
---------------------------------- --------- ------- --------- ---------
As at 31 December 2022
GBP000 Level 1 Level 2 Level 3 Total
Assets
Listed investments 3,012,458 - - 3,012,458
Unlisted investments
Other - - 34 34
----------------------------------
Total assets 3,012,458 - 34 3,012,492
Liabilities
Unsecured fixed rate loan notes - - (143,141) (143,141)
----------------------------------
Total liabilities - - (143,141) (143,141)
---------------------------------- --------- ------- --------- ---------
There have been no transfers during the period between Levels 1,
2 and 3.
The following table shows the reconciliation from the beginning
balances to the ending balances for fair value measurement in Level
3 of the fair value hierarchy.
30 June 30 June 31 December
GBP000 2023 2022 2022
----------------------------------- ------- ------- -----------
Balance at 1 January 34 34 34
Sales proceeds - - (292)
Gains on investments - - 292
-----------------------------------
Balance at 30 June / 31 December 34 34 34
----------------------------------- ------- ------- -----------
Investments in subsidiary companies (Level 3) are valued in the
Company's accounts at GBP34k (GBP34k at 30 June 2022 and at 31
December 2022).
11 BANK LOANS AND UNSECURED FIXED RATE LOAN NOTES
As at
As at As at 31 December
GBP000 30 June 2023 30 June 2022 2022
Bank loans repayable within one year 63,500 91,500 63,500
-------------------------------------------- ------------- ------------- ------------
Analysis of borrowings by currency:
Bank loans -- Sterling 63,500 91,500 63,500
The weighted average % interest rates
payable:
Bank loans 4.89% 1.21% 1.70%
The Directors' estimate of the fair value
of the borrowings:
Bank loans 63,500 91,500 63,500
--------------------------------------------
At 30 June 2023 the Company has a GBP150m facility which will
expire on 16 December 2023 and a GBP100m facility which will also
expire on 16 December 2023. As at 30 June 2023 GBP63.5m of the
GBP100m facility has been drawn down (GBP91.5m at 30 June 2022 and
GBP63.5m at 31 December 2022). The loans are drawn down through a
utilisation request and are repayable on the maturity date of that
utilisation. Loans have been classified as short term in line with
the date of repayment within the utilisation request.
UNSECURED FIXED RATE LOAN NOTES
As at As at As at
GBP000 30 June 2023 30 June 2022 31 December 2022
4.28 per cent. Unsecured fixed rate loan notes due
2029 96,247 106,644 98,434
------------------------------------------------------ ------------- ------------- -----------------
2.657 per cent. Unsecured fixed rate loan notes due
2033 16,203 18,288 16,378
2.936 per cent. Unsecured fixed rate loan notes due
2043 14,478 17,544 14,644
2.897 per cent. Unsecured fixed rate loan notes due
2053 13,448 17,073 13,685
------------------------------------------------------
140,376 159,549 143,141
------------------------------------------------------ ------------- ------------- -----------------
GBP100m of unsecured fixed rate loan notes were drawn down in
July 2014, over 15 years at 4.28%.
On 28 November 2018 the Company issued GBP60m unsecured fixed
rate loan notes each of GBP20m and with maturities of 15, 25 and 35
years and coupons for each respective tranche of 2.657%, 2.936% and
2.897%.
The fair value of unsecured debt is estimated by an independent
third party by discounting future cash flows using quoted benchmark
interest yield curves as at the end of the reporting period and by
obtaining lender quotes for borrowings of similar maturity to
estimate credit risk margin. Any change to these unobservable
inputs, or the comparative borrowings used, would result in a
change in the fair value. The fair value of the items classified as
loans and borrowings are classified as Level 3 under the
hierarchical fair value hierarchy.
The total weighted average % interest rates payable: 4.06% 2.98% 2.91%
12 SHARE CAPITAL
As at As at As at
GBP000 30 June 2023 30 June 2022 31 December 2022
Allotted, called up and fully paid:
286,844,600 (297,760,600 at 30 June 2022 and 292,579,600
at 31 December 2022) ordinary shares of 2.5p each 7,171 7,444 7,314
Share Buybacks
As at As at As at
GBP000 30 June 2023 30 June 2022 31 December 2022
Ordinary shares of 2.5p each
Opening share capital 7,314 7,703 7,703
Share buybacks (143) (259) (389)
Closing share capital 7,171 7,444 7,314
--------------------------------------------------------- ------------- ------------- -----------------
GLOSSARY OF TERMS
Throughout this document we use several defined terms including
specific terms to describe performance. Where not described in
detail elsewhere we set out here what these terms mean.
AIC is the Association of Investment Companies. The AIC sector
classification provides meaningful and relevant categories for
numerous forms of analysis, including performance rankings, data
tables and peer group comparisons. The AIC Global Sector is a peer
group of investment trusts managing predominantly global equity
strategies. The number of members of the peer group varies from
time to time depending on trusts entering or leaving that
sector.
Discount is where the share price of an investment trust is
below its net asset value. As of the 30 June 2023 the Company's
shares traded at a discount of 7.2% (31 December 2022: 4.2%).
Gearing, at its simplest, is borrowing. Just like any other
public company, an investment trust can borrow money to invest in
additional investments for its portfolio. The effect of the
borrowing on the shareholders' assets is called 'gearing'. If the
Company's assets grow, the shareholders' assets grow
proportionately more because the debt remains the same. But, if the
value of the Company's assets falls, the situation is reversed.
Gearing can therefore enhance performance in rising markets but can
adversely impact performance in falling markets.
Gearing (Gross) = Total Gearing and is a measure of the
Company's financial leverage. It is calculated by dividing the
Company's total borrowings (unless otherwise indicated these are
valued at par) by its Net Asset Value. The Gross Gearing
calculation includes any cash and cash equivalents or non-equity
holdings. As at 30 June 2023, the Company had Gross Gearing of 7.2%
(31 December 2022: 7.8%).
Gearing (Net) is a measure of the Company's financial leverage
and after considering cash balances, it is calculated by dividing
the Company's net borrowings (ie total borrowings minus cash and
cash equivalents) by its Net Asset Value. Unless otherwise
indicated, borrowings are valued at par. As at 30 June 2023, the
Company had Net Gearing of 5.2% (31 December 2022: 4.7%).
Investment Manager means the investment manager appointed by the
Company to manage its portfolio. As at 30 June 2023, this was
Towers Watson Investment Management Limited, a member of the Willis
Towers Watson group of companies.
Leverage for the purposes of the Alternative Investment Fund
Managers Directive ('AIFMD'), is a term used to describe any method
by which the Company increases its exposure, whether through
borrowing (gearing) or through leverage embedded in derivative
positions, or by any other means. As required by AIFMD, the
Company's leverage is calculated using two methods: the gross
method which gives the overall total exposure, and the commitment
method which takes into account hedging and netting offsetting
positions. As the leverage calculation includes exposure created by
the Company's investments, it is only described as 'leveraged' if
its overall exposure is greater than its Net Asset Value. This is
shown as a leverage ratio of greater than 100%. Details of the
Leverage employed for the Company is disclosed annually by WTW in
its AIFMD Disclosure which can be found on the Company's
website.
Stock Picker means a manager selected and appointed by Willis
Towers Watson to invest the Company's portfolio.
MSCI means MSCI Inc. which provides information relating to the
benchmark, the MSCI All Country World Index ('MSCI ACWI'), against
which the performance target for the equity portfolio has been set.
MSCI's disclaimer regarding the information provided by it and
referenced by the Company can be found on the Company's
website.
MSCI All Country World Index ('MSCI ACWI') is a market
capitalisation weighted index designed to provide a broad measure
of equity-market performance throughout the world. It is comprised
of stocks from both developed and emerging markets. This measures
performance in Sterling. The variant of the MSCI ACWI used is the
Net Dividend Reinvested ('NDR') variant of the MSCI ACWI. This
variant gives the return that a shareholder could expect to
actually receive because it includes the effects of foreign
withholding tax on dividend payments.
NAV Total Return is a measure of the performance of the
Company's Net Asset Value ('NAV') over a specified time period. It
combines any change in the NAV and dividends paid. The comparator
used for the Company's NAV Total Return is the MSCI ACWI total
return. The Company's NAV Total Return after fees and including
income with debt at fair value, was 11.1% as at 30 June 2023 (31
December 2022: -7.1%).
Net Asset Value ('NAV') is the value of the Company's total
assets less its liabilities (including borrowings). The Company's
NAV per share is calculated by dividing this amount by the number
of ordinary shares in issue and is stated on an 'including income'
basis with debt at fair value. The Company's balance sheet Net
Asset Value as at 30 June 2023 was GBP3.12bn which, divided by
286,844,600 ordinary shares in issue on that date, gave a NAV per
share of 1,086.5p (31 December 2022: 989.5p).
Ongoing Charges Ratio ('OCR') is the total expenses (excluding
borrowing costs) incurred by the Company as a percentage of the
Company's average NAV (with debt at fair value). We calculate the
OCR in line with the industry standard using the average of net
asset values at each NAV calculation date. The OCR as at 31
December 2022 was 0.61%.
Ongoing Charges represent the Company's total ongoing costs and
are calculated in accordance with the guidelines issued by the
Association of Investment Companies ('AIC').
Peer Group Median is the median of the Morningstar universe of
UK retail global equity funds (open ended and closed ended). The
number of members of the peer group varies from time to time
depending on funds entering or leaving that sector.
Responsible or Sustainable Investment is an investment strategy
that integrates financial-driven strategies with non-financial
Environmental, Social and Governance ('ESG') factors and
stewardship for the purpose of managing long-term risk and/or
enhancing long-term returns.
Stewardship represents active ownership practices, such as
engagement and voting, aimed at achieving positive change in a
company's ESG practices and delivering improved risk management and
long-term investment returns outcomes, as well as a more
sustainable outcome for society and all stakeholders.
Total Assets represents non-current assets plus current assets,
before deduction of liabilities and borrowings.
Total Shareholder Return ('TSR') is the return to shareholders
after reinvesting the net dividend on the date that the share price
goes ex-dividend. The comparator used for the Company's TSR is the
MSCI ACWI total return. This measure shows the actual return
received by a shareholder from their investment. The Company's TSR
for the 6 months to 30 June 2023 was 7.6% (31 December 2022:
-5.8%).
The Interim Report will be available on the Company's website
later today.
(END) Dow Jones Newswires
July 28, 2023 02:00 ET (06:00 GMT)
Copyright (c) 2023 Dow Jones & Company, Inc.
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