REG - Aurora Investment - Annual Report for the year ended 31 December 2023
27/03/2024 07:00
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RNS Number : 4181I Aurora Investment Trust PLC 27 March 2024
Aurora Investment Trust PLC
LEI: 2138007OUWIZFMAGO575
Annual Report for the year ended 31 December 2023
.
Strategic Report
Financial and Performance Highlights
Objective
To provide shareholders with long-term returns through capital and income
growth by investing predominantly in a portfolio of UK listed companies.
Policy
Phoenix Asset Management Partners Limited ("Phoenix") was appointed as
Investment Manager on 28 January 2016. Phoenix seeks to achieve the Company's
Objective by investing, primarily, in a portfolio of UK listed equities.
The portfolio will remain relatively concentrated. The exact number of
individual holdings will vary over time but typically the portfolio will
consist of 15 to 20 holdings.
The Investment Policy of the Company can be found on page 7.
Benchmark
Performance is benchmarked against the FTSE All-Share Index (total return),
representing the overall UK market.
Dividend
The Board proposes to pay a final dividend of 3.45p per ordinary share (2022:
2.97p) to be paid on 20 June 2024 to shareholders who appear on the register
as at 10 May 2024, with an ex-dividend date of 9 May 2024.
Annual General Meeting ("AGM")
The AGM of the Company will be held at 25 Southampton Buildings, London WC2A
1AL on 12 June 2024 at 1 p.m. There will be no Investment Manager presentation
at the AGM. Instead, there will be a separate Investment Manager presentation
and Q&A event at 3.30 p.m. on 9 October 2024 at the
Queen Elizabeth II Centre, Broad Sanctuary, Westminster, London SW1P 3EE.
.
Chair's Statement
I am pleased to present the Aurora Investment Trust PLC annual report for the
year ended 31 December 2023.
Performance
Performance for the year to 31 December 2023 was very positive, with a Net
Asset Value (NAV) per share total return* of 36.3% (2022: -19.1%). The share
price total return* was 28.5% (2022: -16.3%) compared to the Company's
benchmark
FTSE All Share Index total return of 7.9% (2022: 0.3%).
The portfolio saw strong performance across the board with no notable
detractors in the major holdings above a 3% weight. Top contributors were
Barratt Developments which contributed 6.9% (+53% in the year), Frasers Group
which contributed 6% (+29% in the year) and Hotel Chocolat which contributed
4% (after a bid by Mars at 175% premium).
Hotel Chocolat is a useful illustration of Phoenix's philosophy. They devote
their attention to understanding a small number of businesses in depth and are
patient waiting for them to reach the right price. In the case of Hotel
Chocolat, they had monitored the business since its IPO in 2016 and only in
2022 did it reach a price which allowed Phoenix to invest. In late 2023 it was
acquired by Mars at a price slightly higher than the intrinsic value estimated
by Phoenix.
For further details on the portfolio and performance, see the Investment
Manager's Review by Phoenix on pages 14 to 21.
*Alternative Performance Measure (see page 96)
The Investment Manager and Performance Fees
2023 was the eighth year of Phoenix's management of the Company's portfolio,
since they took over in January 2016. Throughout that time, Phoenix has
employed a focused and patient investment approach.
Phoenix uniquely receives no annual management fee. Instead, they are solely
remunerated from an annual performance fee, equal to one third of any
outperformance of the Company's NAV against its benchmark, the FTSE All Share
Index (total return).
The performance fee is paid by issuance of the Company's ordinary shares,
which are subject to a fixed three-year clawback period. That means issued
shares will be returned by the Investment Manager in the event any
outperformance versus the index reverses on the third-year anniversary. If
outperformance fully reverses, the Investment Manager receives nothing.
In the years ending 2019, 2020 and 2021 the Investment Manager was awarded
shares in settlement of performance fees earned. The shares awarded for 2019
performance were clawed back in 2022, with 530,311 shares returned to the
Company and cancelled. Following strong performance in 2023, the shares
awarded for the 2020 performance were retained, with Phoenix earning a
performance fee of £560,903 for 2022 and 2023. In accordance with the
Investment Management Agreement, 80% of this fee was settled in January 2024
with 172,373 shares issued to Phoenix at 260.32p each, which was the
prevailing published NAV per share at the time of issue. The remaining 20%
will be settled following publication of this annual report.
Following this share issue, the Company's issued share capital is now
76,250,833 ordinary shares of 25p, each carrying one voting right. The Company
does not hold any shares in Treasury.
Share Price Discount
The Board closely monitors the discount at which the Company's shares trade to
NAV. During 2023 the discount widened from 4.4% at the end of 2022 to 10.0% at
the end of 2023.
Closing the discount remains a key objective of the Board and marketing
activities are considered a key part of the strategy for achieving this.
Phoenix along with Liberum, the Company's broker, and Frostrow Capital as
investor relations and marketing adviser continue to promote the Company
proactively.
The Board is seeking to renew the power granted to it by shareholders to buy
back shares at the forthcoming annual general meeting. The Board will also
seek to renew its powers to issue new shares in order to be able to issue
shares to investors should the shares return to a premium, as well as to
enable the issue of shares to the Investment Manager in respect of performance
fees earned.
Growth of the Company
Another key objective of the Board is growing the Company, with a medium-term
target of £250 million. During the year the Company's market capitalisation
increased from £149 million at 31 December 2022, to £188 million at 31
December 2023. Central to growing the Company to our target will be closing
the discount, so this is the Board's first priority.
Annual General Meeting ("AGM") and separate Investment Manager presentation
event
This year's AGM will be held at the Company's registered office, 25
Southampton Buildings, London WC2A 1AL, on 12 June 2024 at 1 p.m. to consider
the business set out in the Notice of Meeting on pages 100 and 101 and, like
last year, will not include an Investment Manager presentation. Last year the
Board decided to hold a separate event in October instead of combining an
Investment Manager presentation with the AGM. This presentation was well
attended and the Board has decided to follow the same formula this year.
Accordingly, a separate Investment Manager presentation event will be held at
3.30 p.m. on 9 October 2024 at the Queen Elizabeth II Centre, Broad Sanctuary,
Westminster, London SW1P 3EE. This event is intended to be of interest to both
existing and prospective Aurora shareholders and will include multiple
speakers from the Investment Manager. It is intended for this event to be
recorded and made available afterwards on the Company's website.
With respect to the AGM, the Board strongly encourages shareholders to
register their votes online in advance of the meeting by visiting
www.signalshares.com and following the instructions on the site. Appointing a
proxy online will not restrict shareholders from attending the meeting in
person should they wish to do so and will ensure their votes are counted if
they are not able to attend. Shareholders are invited to send any questions
they may have to the Company Secretary by email to info@frostrow.com ahead of
the meeting.
Dividend
The Board is recommending a final dividend of 3.45p (2022: 2.97p) per ordinary
share, to be paid on 20 June 2024 to shareholders who appear on the register
as at 10 May 2024. The ex-dividend date is 9 May 2024. This dividend will be
proposed at the forthcoming AGM to be held on 12 June 2024. The Company's
dividend policy, which is to distribute substantially all net revenue
proceeds, remains unchanged and can be found on page 7 of this Annual Report.
Outlook
2023's performance was very welcome, but there remains significant value in
the portfolio, with Phoenix estimating a discount to intrinsic value of 130%.
The Company's shares, particularly trading on close to a 10% discount to NAV,
offer an excellent opportunity to access Phoenix's differentiated strategy of
investing in a concentrated portfolio of great, thoroughly researched
businesses at attractive prices.
Lucy Walker
Chair
26 March 2024
.
Investment policy and results
The Company seeks to achieve its investment objective by investing
predominantly in a portfolio of UK listed companies. The Company may from time
to time also invest in companies listed outside the UK and unlisted
securities. The investment policy is subject to the following restrictions,
all of which are at the time of investment:
• The maximum permitted investment in companies listed outside the UK
at cost price is 20% of the Company's gross assets;
• The maximum permitted investment in unlisted securities at cost
price is 10% of the Company's gross assets;
• There are no pre-defined maximum or minimum sector exposure levels
but these sector exposures are reported to and monitored by the Board in order
to ensure that adequate diversification is achieved;
• The Company's policy is not to invest more than 15% of its gross
assets in any one underlying issuer (measured at the time of investment)
including in respect of any indirect exposure through Castelnau Group Limited
("Castelnau");
• The Company may from time to time invest in other UK listed
investment companies, but the Company will not invest more than 10% in
aggregate of the gross assets of the Company in other listed closed-ended
investment funds; and
• Save for Castelnau Group Limited, the Company will not invest in any
other fund managed by the Investment Manager.
While there is a comparable index for the purposes of measuring performance
over material periods, no attention is paid to the composition of this index
when constructing the portfolio and the composition of the portfolio is likely
to vary substantially from that of the index. The portfolio will be relatively
concentrated. The exact number of individual holdings will vary over time but
typically the portfolio will consist of holdings in 15 to 20 companies. The
Company may use derivatives and similar instruments for the purposes of
capital preservation.
The Company does not currently intend to use gearing. However, if the Board
did decide to utilise gearing the aggregate borrowings of the company would be
restricted to 30% of the aggregate of the paid-up nominal capital plus the
capital and revenue reserves.
Any material change to the investment policy of the Company will only be made
with the approval of shareholders at a general meeting. In the event of a
breach of the Company's investment policy, the Directors will announce through
a Regulatory Information Service the actions which will be taken to rectify
the breach.
Dividend Policy
The Company does not have a fixed dividend policy. However, the Board expects
to distribute substantially all of the net revenue arising from the investment
portfolio. Accordingly, the Company is expected to pay an annual dividend that
may vary each year.
Borrowing Policy
The Company is not prohibited from incurring borrowings for working capital
purposes, however the Board has no current intention to utilise borrowings.
Whilst the use of borrowings should enhance the total return on the ordinary
shares where the return on the Company's underlying assets is rising and
exceeds the cost of borrowing, it will have the opposite effect where the
underlying return is falling, further reducing the total return on the
ordinary shares. As a result, the use of borrowings by the Company may
increase the volatility of the NAV per share.
The Company has a policy not to invest more than 10% of its gross assets in
other UK listed investment companies. As a consequence of its investments, the
Company may therefore itself be indirectly exposed to gearing through the
borrowings from time to time of these underlying investment companies.
Purpose and Key Performance Indicators ("KPI's")
The Company's purpose is encapsulated in its investment objective, which is to
provide shareholders with long-term returns through capital and income growth
by investing predominantly in a portfolio of UK listed companies. The Board
measures the Company's success in attaining its objective by reference to KPIs
as follows:
a. To make an absolute total return for Shareholders on a long-term
basis;
b. To make a relative total return for shareholders on a long-term
basis, as measured against the Company's benchmark, the FTSE All-Share Index
(total return);
c. The Board seeks to ensure that the operating expenses of running
the Company as a proportion of NAV (the Ongoing Charges Ratio) are kept to a
minimum; and
d. The discount/premium to NAV per share at which the Company's shares
trade is also closely monitored in view of its effect on shareholder returns.
These are alternative performance measures ("APMs"). The Financial Statements
(on pages 71 to 94) set out the required statutory reporting measures of the
Company's financial performance. However, the Board additionally assesses the
Company's performance against these APMs, which are viewed as being
particularly relevant for the Company. These APMs are widely used in reporting
within the investment company sector and the Directors believe they enhance
the comparability of information and assist investors in understanding the
Company's performance. Further information on each of the KPI's is set out
below. Definitions of the APMs and the basis of their calculation are set out
on pages 95 and 96.
The Chair's Statement on pages 4 to 6 incorporates a review of the highlights
during the year.
The Investment Management Review and Outlook on pages 14 to 21 gives details
on investments made during the year and how performance has been achieved.
Performance (KPIs a and b)
The Company's performance in absolute terms and relative to the FTSE All-Share
Index (total return) benchmark since Phoenix was appointed as Investment
Manager in 2016 is shown below:
Cumulative since Year to Year to
28 January 2016 31 December 31 December
to 31 December 2023
2023
2022
%
%
%
NAV per share (total return) 93.7 36.3 (19.1)
Share price (total return) 77.9 28.5 (16.3)
Benchmark (total return) 73.9 7.9 0.3
The Directors regard the Company's share price total return to be the overall
measure of performance over the long term, since it approximates the return in
the hands of shareholders. It combines the change in the share price with the
dividends paid to shareholders, which are added back as though reinvested at
the ex-dividend date.
The Directors regard the Company's NAV per share total return to be a key
indicator of the Investment Manager's performance. The NAV per share total
return is the change in the Company's NAV per share with distributions to
shareholders added back.
The Board monitors these against the Company's benchmark and peer investment
companies.
The Company's performance under both of these total return measures was strong
in 2023.
Ongoing charges (KPI c)
Ongoing charges represent the costs that shareholders can reasonably expect
the Company to pay from one year to the next under normal circumstances,
excluding performance fees and taxation.
Phoenix does not earn an ongoing annual management fee, but instead is paid an
annual performance fee, only if the benchmark is outperformed, equal to one
third of the outperformance of the Company's NAV against its FTSE All-Share
Index (total return) benchmark.
The Board monitors the Company's other operating costs carefully and aims to
maintain a sensible balance between good quality services and costs. Based on
the Company's average net assets for the year ended 31 December 2023, the
Company's ongoing charges figure calculated in accordance with the Association
of Investment Companies ("AIC") methodology was 0.45% (2022: 0.45%). As the
size of the Company grows the ongoing charge figure, is expected to reduce.
Premium/Discount to NAV (KPI d)
The discount of the price at which the Company's shares trade to the NAV per
share is considered a key indicator of performance as it impacts the share
price total return and can provide an indication of how investors view the
Company's performance and its investment objective. Accordingly, it is closely
monitored by the Board as discussed in the Chair's Statement on page 5. The
share price closed at a 10.0% discount to the NAV per share as at 31 December
2023 (2022: 4.4% discount). During the course of the year, based on the daily
published NAVs per share (which are not adjusted to comply with IFRS 2 (see
pages 10 and 60), the Company's shares traded at a discount of between 5.0%
and 14.1%, with an average discount of 10.4% (2022: the Company's shares
traded between a premium of 1.6% and a discount of 13.6% to NAV per share,
with an average discount of 5.4%). Discount is further discussed on pages 5
and 38.
Revenue Result and Dividend
The Company's revenue after tax for the year ended 31 December 2023 was
£2,661,000 (2022: £2,263,000). The Board is recommending the payment of a
final dividend of 3.45p per share (2022: 2.97p per share). This dividend, if
approved by shareholders, will be paid on 20 June 2024 to shareholders on the
register as at 10 May 2024; the shares will be marked ex-dividend on 9 May
2024. In accordance with IFRS, this dividend is not reflected in the financial
statements for the year ended 31 December 2023.
Our registrar, Link Group ("Link"), administers a Dividend Re-Investment Plan
("DRIP") on behalf of the Company whereby direct shareholders resident in the
United Kingdom can choose for Link to apply their cash dividend to buy further
shares in the market. The last date by which shareholders may elect for the
DRIP to be applied for their 2023 dividend is 30 May 2023. Details about the
DRIP, including the terms and conditions and how to join or exit the DRIP are
available at www.signalshares.com or by calling Link on +44 (0)371 664 0300.
Calls are charged at the standard geographic rate and will vary by provider.
Calls outside the United Kingdom will be charged at the applicable
international rate. Lines are open between 9:00am and 5:30pm, Monday to
Friday, excluding public holidays in England and Wales.
Five Year Summary
Year Year end Dividend per Year end
NAV per Share Share in respect Share price
(pence)
of the year
(mid-market)
(pence)
(pence)
Year ended 31 December 2019 232.07 4.50 237.00
Year ended 31 December 2020 216.93 0.55 207.00
Year ended 31 December 2021 253.78 1.84 234.50
Year ended 31 December 2022 203.45 2.97 194.50
Year ended 31 December 2023 274.34 3.45 247.00
Net Asset Value per Ordinary Share
The table below is a reconciliation between the NAV per share as at 31
December 2023 announced on the London Stock Exchange on 2 January 2024 and the
NAV per share disclosed in these financial statements. The difference is
principally the result of amortising performance fees over the vesting period
in accordance with IFRS 2 - Share-based Payment, in these financial
statements, whereas the NAV per share as at 31 December 2023 published on 2
January 2024 treated the performance fees as earned on 31 December 2023, in
accordance with the investment management agreement. The remaining reconciling
balances relate to adjustment of the unquoted investment valuation and
expenses, due to timing lag.
NAV per
share
NAV
p
£'000
NAV as published on 2 January 2024 207,802 273.14
Add back performance fees accrued under non-IFRS 2 approach 673 0.89
Deduct performance fees accounted for under IFRS 2 (166) (0.22)
Adjustments on final valuation of unquoted investment and expenses 405 0.53
NAV as disclosed in these financial statements 208,714 274.34
.
Top Holdings
as at 31 December 2023
Company Sector Holding Valuation Percentage Date Average Share Market
in Company
£'000
of net assets
of first
cost per
price
capitalisation
%
purchase
share*
Million
Frasers Group plc Retail 4,968,886 45,242 21.7 Jun-07 £2.93 £9.11 £4,124
Barratt Developments plc Construction 5,866,312 33,004 15.8 Nov-18 £4.87 £5.63 £5,483
Castelnau Group Limited# Financial 36,421,421 27,316 13.1 Oct-21 £0.92 £0.75 £239
Ryanair Holdings Plc Leisure 928,600 15,349 7.4 May-19 €8.34 €19.08 €21,742
Netflix Inc Technology & 33,500 12,794 6.1 Apr-22 $164.00 $486.86 $213,089
Entertainment
Lloyds Banking Group plc Financial 25,977,000 12,392 5.9 Sep-08 £0.57 £0.48 £30,326
Hotel Chocolat Group plc Food & 2,638,800 9,711 4.7 Jul-22 £0.23 £3.68 £506
Beverage
RHI Magnesita N.V. Materials 260,970 9,030 4.3 Jan-20 £33.55 £34.60 £1,631
easyJet Plc Leisure 1,667,168 8,503 4.1 Sep-16 £8.62 £5.10 £3,866
Bellway Plc Construction 306,940 7,858 3.8 Oct-12 £21.47 £25.60 £3,058
AO World plc Retail 6,396,000 6,274 3.0 Dec-21 £0.93 £0.98 £568
Other holdings (less than 3%) 14,736 7.1
Total holdings 202,209 96.9
Other current assets and liabilities 6,505 3.1
Net assets 208,714 100.0
* Average net cost including sales.
# Castelnau is a multi-sector financial holding company listed on the
Specialist Fund Segment of the London Stock Exchange. Castelnau is also
managed by Phoenix and its value is excluded from the Company's net assets
when calculating performance fees earned by Phoenix to avoid double charging.
.
Portfolio Analysis
as at 31 December 2023
Sector Percentage of Net
Assets
%
Retail 24.7
Financial* 22.2
Construction 19.6
Leisure 13.9
Technology & Entertainment 6.1
Food & Beverage 5.5
Materials 4.3
Insurance 0.6
Other current assets and liabilities 3.1
Total 100.0
* Castelnau is included in the Financial classification as it is a
multi-sector financial holding company
.
Statement from the Chief Investment Officer of the Investment Manager
A portfolio of undervalued businesses that are compounding their retained
capital at high rates is something that time works wonders for. If intrinsic
value keeps growing without an accompanying rise in share prices, the
invisible elastic that connects them becomes stretched. That's where we were
when we wrote at the end of 2022, and in 2023 that force finally resulted in
the price of the Company's portfolio holdings performing ahead of the growth
in intrinsic value. That said, the elastic remains very stretched, with 130%
upside in our view, and there is a cheap market for us to keep adding future
value through.
There are some emerging signs to suggest the persistent and increasing
relative undervaluation of the UK has reached its zenith. We will make the
most of the cheapness while it lasts, but no matter what the market conditions
there are always industries and companies having short-term problems that
create opportunities for the prepared and patient investor. Our approach has
delivered long-term outperformance in all types of markets because ultimately
it's about investing in a business-like way, backing businesses we can
understand and monitor, with superior and enduring economics, available at
attractive prices and run by those we trust to look after our capital and
deploy it intelligently whilst reporting to us honestly.
It is an approach full of variance and rich in lessons for continuous
improvement when things do not go as expected. We have always strived to be a
learning organisation and so we mine those lessons to improve our approach. As
a result I believe we are a much better manager of your money today than we
were 25 years ago even with the growth in assets.
Gary Channon
Chief Investment Officer
Phoenix Asset Management Partners
26 March 2024
.
Investment Management Review and Outlook
Over the year to 31 December 2023 the NAV per share total return was 36.3% and
the share price total return was 28.5%. The FTSE All-Share total return was
7.9% over the same period. Since Phoenix began managing Aurora Investment
Trust PLC on 27 January 2016, the Company's NAV per share has risen 93.7%
versus 73.9% for the FTSE All-Share index. Net assets at year-end were £208.7
million (2022: £154.8 million).
The strong performance in 2023 recovered the underperformance in 2022 and a
new high-water mark was reached for performance versus the FTSE All-Share
index. This resulted in a performance fee being earned at the end of the year.
This fee was circa £561,000, or 0.2% of NAV.
As a reminder, if a performance fee is payable, it is paid by way of the
issuance of Ordinary Shares, which are subject to a fixed three-year clawback
period. If the outperformance versus the index reverses on the third-year
anniversary, some or all the issued shares will be returned. If outperformance
fully reverses, Phoenix will receive nothing.
On 31 December 2023, a clawback test for the year ended 31 December 2020 was
carried out, and the performance fee awarded at the end of 2020 was not clawed
back since outperformance had continued for the three-year clawback period.
Performance for 2024 to date has been benign. As of 29 February, the NAV had
fallen 1.9% for the year-to-date, versus a 1.1% fall for the FTSE All-Share
index.
Performance Review
From a performance perspective, 2023 was influenced by expectations of lower
interest rates as inflation was brought under control.
The first half of the year saw positive price performances across the
portfolio. On 30 June 2023 the NAV per share total return for the period was
12.4%, versus 2.5% for the benchmark.
Individual stock moves of note at the half year included AO World and Netflix,
up 52% and 49% respectively. The portfolio's low-cost airline holdings,
easyJet and Ryanair, also benefitted from the ongoing recovery in travel to
end the half year up 49% and 41%.
The second half of the year saw further positive price action taking the NAV
per share total return generated for the year to 36.3%, versus 7.9% for the
FTSE All-Share index.
The biggest contribution to the full year performance was Barratt
Developments, which contributed 6.9% to the NAV rise following a 53% share
price rise during the year.
Frasers Group was the largest holding at the year end. It contributed 6% to
the NAV
rise following a 28% increase in its share price.
In November, Hotel Chocolat received a bid approach from Mars at a 175%
premium to the prevailing share price. The share price was up 138% over the
year as a whole and contributed 4% to the NAV.
After the bid, we wrote to investors with a reminder of our investment
premise, which we believe was a vindication of our approach and an example of
the under valuation of companies within the UK market. We continue to believe
that today.
An excerpt from that investment premise is below. In it we outlined our
intrinsic value for the company at £3.50 per share. The bid from Mars was
£3.75. It also highlights the patience in our approach as we were aware of
the company prior to its float but were unable to invest at that time due to
price. However, our ongoing monitoring allowed us to act quickly when
subsequent price falls gave us that opportunity.
"Hotel Chocolat listed on the London Stock Exchange in 2016, with both
founders retaining a significant stake in the business. As of December 31st,
2022, they each own 27.1% of the company. We have known both Angus and Peter
for a long time and hold them in high regard.
We believe that the key moat for the business is its strong brand and
resulting customer loyalty, which it has cultivated through a combination of
innovation, creativity, disciplined pricing, and direct distribution. In so
doing, it has also avoided the pitfalls that led to the downfall of one of its
competitors, Thorntons.
One of the company's great recent innovations has been the Velvetiser hot
chocolate machine, which is increasingly becoming a staple household appliance
and has formed the foundations of an effective subscription model. As a
product, it creates loyal, repeat-customers who repurchase the chocolate
sachets. The repeat purchases and subscription service also provide the
company with a steady revenue stream in an industry where consumer purchases
are usually very seasonal (Christmas, Easter and Valentine's Day are the main
chocolate-shopping opportunities).
The differentiated taste of Hotel Chocolat's chocolate, stems from its "More
Cacao, Less Sugar" mantra. Cacao is around five times more expensive than
sugar, but the company is committed to cacao always being the number-one
ingredient in its chocolate, even in milk and white varieties. This
differentiates the product from those of many of the Group's competitors, in
which sugar is frequently the primary ingredient. The high-cacao content
within Hotel Chocolat's chocolate, also enables them to justify a higher
price-point and enables them a higher degree of price-elasticity as their
consumer is likely to be more driven by quality than price.
The company navigated the challenges of Covid admirably, succeeding in not
only switching from being a primarily store-based to an online business during
the lockdowns, but managing to grow sales by 21% between FY20 and FY21.
We have long admired Hotel Chocolat, so much so that at the time of the IPO we
were considering investing in the business. Although this didn't happen
because the price was above our limit, we continued to keep a close eye on the
company. Last year, following the announcement of the closure of the Japanese
and US businesses, Hotel Chocolat's share price dropped, opening an
opportunity for us to invest. This is a company built on experimentation and
innovation and it is inevitable that not every experiment will lead to
success. However, we believe that the market had overreacted, that the
underlying strength of the UK business remained, and that the doors to
overseas expansion had not permanently closed. Indeed, earlier this year Hotel
Chocolat announced that it had found a new partner for its Japanese joint
venture.
In some ways, the shock of the drop has had a positive cathartic effect, with
the business rationalising and cutting back on areas into which it had perhaps
strayed too far (such as coffee machines & pods and beauty products). At
the same time, we believe they haven't lost the innovative skill upon which
their hitherto success has been built, and which will enable it to continue to
grow in the future.
We have modelled out a range of potential scenarios to determine Hotel
Chocolat's intrinsic value. A central scenario values the UK business alone at
£3.50 per share. The bottom of that IV range is around £2.00 a share. We
invested at £1.35, which, based on the central case, would result in an
upside to IV of c. 160%."
The portfolio's low-cost airline holdings continued to perform strongly in the
second half of the year. easyJet ended the year up 57.1%, with Ryanair up
56.2%. Both contributed circa 3% to NAV.
Other share price moves of note, but with a lower impact on NAV due to their
weight, included AO World up 89.1%, Netflix up 65.1%, RHI Magnesita up 64% and
Bellway up 42.9%.
There were no fallers of note in the major holdings above a 3% weight.
Activity Review
The year was one of modest investment activity, which reflected our confidence
in the portfolio.
One material change of note during the first half was a 5% increase in the
Castelnau holding following its bid for Dignity PLC.
We wrote about Dignity PLC in the interim report published in July 2023. We
highlighted the potential upside, the downside protection from the value
embedded in the crematoria business and freehold estate alongside the
potential growth from an expansion in the funeral plan market.
The transformation at Dignity is now underway and all of the elements of the
original investment thesis hold true today.
The increase in the Castelnau holding was partially funded by a reduction in
easyJet and this was followed by a further reduction in the second half.
In Q4 we made a modest increase to the Lloyds holding and we sold some Hotel
Chocolat rather than wait for the bid to close.
At the very end of year we began to add a new holding. The price moved away
from our target, but we hope to provide an update on it in the future if we
establish a material holding.
Outlook
As outlined above, our low activity level in 2023 was a reflection of our
confidence in the portfolio. We entered 2024 with a portfolio that we believe
is cheap despite a 2023 return that has taken the NAV to an all-time high. The
upside to intrinsic value is 130%, which is attractive in historical terms.
In his year end message to investors, Gary Channon wrote:
"We expect to continue to be able to deliver you long-term investment returns
that significantly exceed those of the market and most of our peers.
Our edge remains the ability to focus effort, think clearly, do nothing for
long periods of time, act occasionally when it makes sense and with a longer
time horizon than most market participants.
That ability is because of the investors we work for, and we thank you for
that"
In the same year end message, Gary wrote a thought piece on the potential
impact of generative AI on the economy and the whole world of business. He
compares it to our experience of the rise of the internet. It is reproduced
below and it remains topical
today.
"During 2023 we passed the 25th anniversary of the launch of Phoenix. It has
been an extremely interesting period in which to invest and is bookended by
two profound technological innovations, the world wide web (often just called
the internet) and generative AI. Looking at how the first shaped business and
investing over the past 25 years has some useful lessons for how to think
about the latter. There has also been a further form of innovation in business
management not often discussed which we think, when combined with generative
AI makes, in our opinion, what is about to come quite different from the past.
The first websites emerged in the mid-1990s. Yahoo and Amazon launched, and
then Google launched in the same year of Phoenix's founding in 1998. Phoenix
started in the later stages of a stock market bubble in the shares of
technology, media and telecoms (TMT) companies. That bubble peaked in early
2000 but only after having sucked in huge amounts of capital that funded the
foundational infrastructure for the internet and mobile telephony. Investors
in it did terribly but society benefited. When investors are excited about an
industry, it doesn't need profits to grow and invest, it can just raise more
and more capital.
Our approach to investing led us to see more threat than opportunity. Fast
innovation makes forecasting the future with a degree of confidence difficult.
The disruptive nature of the rise of ecommerce meant that it wasn't enough to
just handicap those estimates (i.e. by requiring a higher return) because we
weren't talking about differing growth rates. It was more like Schumpeter's
creative destruction which would see businesses made worthless. We don't
invest where there is a reasonable risk of permanently losing money.
We weren't averse to looking for opportunity, but our experiences demonstrate
the difficulty from an investment perspective. For example, we believed in
2001 that smartphones would be 'a thing', and this was when that was not the
consensus view. We were invested in the company that provided the operating
system for all the upcoming smartphones, used by all the leading makers of the
day; Nokia, Motorola, Ericsson, Sony, etc. but there you see the problem.
Smartphones did become a big thing but none of the leading mobile phone
manufacturers survived and even before that Psion sold the business with the
operating system in (Symbian). In investing that is called getting it wrong!
The internet has profoundly changed business but interestingly it has happened
at the pace of consumer behaviour changes not at the pace the technology could
handle. The rise of e-commerce has transformed retail, but it has varied
depending on the consumer. Food shopping is often cited as one of the least
favourite shopping experiences by consumers and yet it was very slow to shift
online. It had only reached a 7% penetration rate in the UK before Covid and
then as soon as Covid passed it fell back and is today only 10%.
The UK has the highest penetration of online retail in the world, it currently
sits at 27% of all retail sales, and that has dramatically changed the
competitive landscape, creating winners and losers. The winners in most
sectors have been the incumbent operators who were able to adapt their
business models. Amazon was more the exception than the rule because it turns
out that supply chain and logistics are critical and physical stores can be an
advantage. For example, only 1 of the top 10 fashion retailers is a pure
online player (ASOS).
The emergence of online searching and social media radically transformed
advertising as a more targeted and measurable means of reaching customers.
This caused ad spending to switch away from traditional media and completely
reshaped the advertising industry, which is now dominated by Google, Meta
(Facebook), Amazon, Alibaba and ByteDance (TikTok). This happened at the pace
at which consumers moved online, which was quicker than their adoption of
ecommerce. The internet and then social media have become the way consumers
often begin their journey towards an act of consumption, and therefore, the
gatekeepers to those audiences have built highly valuable franchises.
Investment discussion is dominated by the sort of macro factors that are
largely cyclical and cause oscillations in economic progress. This is very
relevant to the near term but becomes much less important as your time horizon
increases to the point of irrelevance over the very long term. It doesn't
matter how many business cycles we've had in the UK over the past 25 years or
even when they happened. We know they will keep happening. What is much more
important for investors are secular trends, i.e. those changes that occur over
the long term that are not cyclical in nature. The most important ones during
our history of investing have been those related to the rise of the internet
and the changes that had on commerce.
There has, however, been another innovation that hasn't attracted much
attention or discussion, but which could cause even bigger changes in the
coming decade, when combined with what might be coming with AI. The
"innovation" is a new way of doing business, a culture, that gives a big
competitive advantage versus the traditional way. Because this new way of
working emerged in what were mainly technology companies it was easy to miss,
their success has been attributed to the specifics of what they did rather
than explained by a way of operating, a culture-based edge. It took us 2
decades to figure it out and pretty much all we do is watch businesses.
There are a few key ingredients to this new way of working that are key: they
develop through trial and error, they empower deep into the organisation which
devolves and multiplies decision making, they execute at speed by breaking
projects into small releasable iterations, they use data and science to make
decisions and they foster a culture in which this can happen.
The two most studied companies at Phoenix in the past 25 years have probably
been Amazon and Google because they touch just about every area of commerce.
Following what they do and trying to interpret it misses the point though,
they have evolved not through grand strategy from the top but as a result of
the interaction between innovation through trial and error and the results of
those iterations.
At the heart of this new model is a better understanding of human motivation
which originally came from Maslow. When you are trying to get the best out of
people who are doing complex, creative and innovative tasks then the
traditional management tools of reward and punishment, carrot and stick, do
not work; what works, in the words of Daniel Pink, who has written well on the
subject, is Autonomy, Mastery and Purpose. (He summarises his work well in a
TED Talk called The Puzzle of Motivation. His book on the topic is Drive: The
Surprising Truth About What Motivates Us). The businesses that have developed
this new way of working have built cultures that tap into this.
It's not easy to do and has been a continually evolving affair but it links a
whole group of companies, with a North California connection whose combined
market capitalisation is now greater than that of all the stock markets in
Europe. These companies, although defending their intellectual property, have
been very open about this aspect of their business. The Netflix culture deck
was shared with the world in 2009 and has been downloaded millions of times
and has influenced lots of businesses. Google has shared lots of its practices
and its whole OKR (objective and key results) framework and toolkits openly
which again have influenced many other businesses. Amazon also has been open
about the way it operates and innovates. The closer you get to this topic the
more you see how the cross influences have occurred. Andrew McAfee, a
professor previously at Harvard and now at MIT Sloan, has spent his career
around these businesses and has written a very good book on the subject called
The Geek Way.
All of those companies talk about culture as something they have to keep
working hard to maintain. Microsoft turned into a hierarchical bureaucracy,
stagnated and was overtaken by its competitors and was missing out on
innovation until Satya Nadella took over as CEO in 2014. The company's value
had not changed in the previous 16 years since Phoenix launched but it has
increased 10-fold since he took over. What did he do? He changed the culture,
tapping into all the best of what he saw amongst their competitors. He
embraced empowerment and a goal-driven approach to leadership (like OKRs as
used by Google) rather than decision by what are referred to in these new
companies as HiPPOs (Highest Paid Person's Opinion). He started by teaching
and fostering empathy, an understanding of human beings and from the top he
changed the culture at Microsoft in what has to be one of the biggest and
probably most valuable cultural transformations in corporate history.
It may be no accident that Microsoft has gone from an innovation laggard to
being the owner of OpenAI and at the cutting edge of the generative AI
revolution.
As we take the lessons from investing in the past 25 years and apply them to
thinking about how AI will impact the future, one of the biggest differences
we see is that whereas the changes brought about by the internet were very
influenced by the pace of consumer adoption, a lot of the benefits of AI are
internal to businesses and can therefore be deployed at the pace businesses
can handle. Change therefore is likely to be quicker and more impactful, both
positive and negative.
Much has been written about the seeming lack of productivity growth that has
followed from the internet and we have written on this before. We believe it
is due to the nature of change, and the measurement of productivity which is
generally GDP per person. Ecommerce takes an activity that was not part of
GDP, like going to the shop to buy something, and replaces it with something
that is, a low paid delivery driver brings your shopping or meal to you for a
small cost. This adds lots of low value, low productivity output and doesn't
measure the big quality of life improvement. In our 25 years the number of
people in logistics in the UK has trebled at a time when the total workforce
has grown 28% (ONS Labour force data). This growth has exceeded that in
computer programming or information services. In fact, the only category with
higher growth has been what the ONS calls activities at Head Office and
Management Consultancy. Lots of the other benefits of the internet are quality
of life, greater information and knowledge and do not show up in productivity
data.
AI looks to be different, very different. Generative AI is going to be able to
replace a lot of current roles in the workforce. For example, the UK has
800,000 call centre workers, most of those jobs are likely to be done more
efficiently and cost effectively by tools utilising generative AI. The change
will happen as pioneering companies figure out how to do it and the rest will
then follow or go out of business. Paying attention to how management teams
are thinking and acting on this is going to be very crucial work for us. Many
of these improvements will not give a permanent competitive advantage and so
the value is most likely to flow to consumers, but for businesses with strong
economic moats and pricing power these improvements will flow to shareholders.
Whereas the rise of ecommerce required a judgement about consumer behaviour
and adoption curves, AI doesn't. It requires a judgement about the willingness
and capability of organisations to adopt innovations. This is where the
cultural advantage discussed above comes into play. Those companies that are
already set up to continuously improve through innovative trial and error have
a distinct advantage.
In evolutionary biology, the rate at which a species evolves is impacted by
how much mutation (or variation) there is and how quickly replication happens.
Humans evolve at the pace we reproduce at, which is over 20 years, whereas for
some bacteria it is minutes. We think this is a useful model for thinking
about how competitive landscapes develop where those companies who are trying
the newest things the fastest, evolve and adapt more quickly than those who
are more traditional. The culture of the likes of Netflix, Google or Amazon is
highly suited to tying lots of permutations of how AI can help their business
and as they find things that work, they can execute quickly. Because they are
not waiting on consumer adoption for the effects, then the pace at which they
get ahead of competitors who are not set up in the same way is greater.
All the above is learnable and can be copied. Business management innovation
is happening everywhere and what you want most in a business is that hunger
and curiosity to keep learning and trying to improve. We just think it's going
to be even more important in the future than it has been in the past.
In the past 25 years we have navigated a huge change in the way commerce
happens and we've done it by applying the same investment philosophy, focusing
on a small number of businesses we could understand well enough to value. We
have devoted most of our time to monitoring these businesses, their customers
and their competitive landscapes and using our findings to update our
assessments and judgements.
We have also been continuously improving as we've learned by doing and
analysing. We believe we are a much more competent organisation than we were
25 years ago, and we need to be because we are working with a bigger pool of
capital (£1.5bn vs £6m). AI is improving our productivity too. For example,
one of the monitoring programmes we have been running for Barratt Developments
since 2008 which involves stripping their individual construction site
websites periodically and comparing the change in order to estimate sales
rates, used to take up a considerable amount of time for the analyst who did
it but now one analyst has written a tool assisted by ChatGPT that runs it
automatically. In this way we are able to capture more data, more frequently
and with only minimal work from the analyst. By itself it is not an edge
because anyone else could do the same but, combined with the way we work, it
is.
We have a portfolio shaped by all of the above and believe that the businesses
we are invested in are either set to benefit or at least not be hurt by what
is coming. Frasers is an example of the former, a business built by trial and
error, it is not the result of a grand vision by Mike Ashley of what a
retailer should be but rather as the result of a way of operating that
combines trial and error with analysis of the results, (the analytical team
surrounding Mike were known as the "statos"). Trials, which include
acquisitions, are also designed to have limited or protected downside, so
failures don't hurt but are an accepted part of business, and successes are
backed and multiplied. Applying AI should be a great advantage for Frasers but
first they have to figure out the how. They have a culture and mindset that
should lead them to do that. Barratt is an example of the latter, i.e. not
likely to be hurt by AI. This is because the essence of the business is the
ability to source and build on land to the UK regulatory standard at a price
that makes sense at secondary market prices. AI may improve productivity in
some areas but not in a way at the moment that seems to threaten to disrupt
the competitive landscape."
Steve Tatters Director
Phoenix Asset Management Partners
26 April 2023
.
Phoenix UK Fund Track Record*
Year Investment NAV Return FTSE All-Share NAV
Return (Net)
Index Per Share
(Gross)
%
%
(A Class)
%
£
1998 (8 mths) 17.6 14.4 (3.3) 1,143.71
1999 (1.3) (4.6) 24.3 1,090.75
2000 24.7 23.0 (5.8) 1,341.46
2001 31.7 26.0 (13.1) 1,690.09
2002 (17.8) (20.1) (22.6) 1,349.64
2003 51.5 49.8 20.9 2,021.24
2004 14.1 11.2 12.8 2,247.26
2005 1.4 0.3 22.0 2,254.99
2006 9.5 8.3 16.8 2,442.90
2007 3.4 2.3 5.3 2,498.40
2008 (39.5) (40.2) (29.9) 1,494.31
2009 62.8 59.7 30.2 2,386.48
2010 1.1 0.0 14.7 2,386.37
2011 3.0 1.9 (3.2) 2,430.75
2012 48.3 42.2 12.5 3,456.27
2013 40.5 31.3 20.9 4,539.47
2014 1.9 0.1 1.2 4,544.25
2015 20.1 14.7 0.9 5,211.13
2016 9.1 7.6 16.8 5,605.58
2017 21.5 16.3 13.1 6,518.69
2018 (13.6) (14.7) (9.5) 5,558.97
2019 30.3 27.7 19.1 7,098.36
2020 (3.9) (4.9) (9.7) 6,748.66
2021 23.4 18.7 18.3 8,011.17
2022 (16.7) (17.4) 0.2 6,619.32
2023 33.6 32.5 7.7 8770.25
Cumulative 1,501.1 777.0 258.9 n/a
Annualised Returns 11.4 8.8 5.1 n/a
Source: Phoenix. All figures shown are net of fees and do not account for an
investor's tax position. The FTSE All-Share Index is
shown with dividends re-invested. The Fund's inception date is May 1998.
* Whilst the investment strategy is the same in all material respects, the
portfolio holdings will not necessarily be the same and investors in the
Company will have no exposure to the investment performance of the Phoenix UK
Fund. For illustrative purposes only, not a recommendation to buy or sell
shares in the Fund.
Past performance is not a reliable indicator of future performance.
.
Report under Section 172 of the Companies Act 2006
Directors' duty to promote the success of the Company
Section 172 of the Companies Act 2006 requires the Directors to seek to
promote the success of the Company for the benefit of its members as a whole,
having regard to the likely consequences of any decision in the long term, the
need to foster the Company's business relationships with suppliers and others,
the impact of the Company's operations on the community and the environment,
the desirability of the company maintaining a reputation for high standards of
business conduct, and the need to act fairly as between members of the
Company.
The Board seeks to understand the views of the Company's shareholders and
their interests, and those of its other key stakeholders, and to consider
these, together with the other matters set out in section 172, in Board
discussions and decision-making. The Board keeps engagement mechanisms under
review so that they remain effective and in fulfilling their duties the
Directors carefully consider the likely consequences of their actions over the
long term.
The following describes how the Directors have had regard to the views of the
Company's stakeholders in their decision-making.
Shareholders
The Investment Manager regularly meets the largest shareholders and beneficial
owners and reports back to the Board on those meetings. Liberum Capital
Limited ("Liberum"), the Company's corporate broker, and Frostrow Capital LLP
("Frostrow"), in its capacity as the Company's investor relations &
marketing adviser, also meet with investors and seek to understand their
views, which they relay to the Board. Additionally, the Company Chair is
available to meet with investors on request and did engage with certain
shareholders during the year. Through these interactions and other
communications the Board and the Investment Manager seek to promote a
supportive investor base of long-term investors.
The Board communicates with investors twice a year via the Annual Report and
Half-yearly Report and more frequently via the Company's website which hosts
various information, including news reports, video presentations by the
Investment Manager and monthly factsheets. Additionally, the NAV per share is
announced daily via a regulatory information service.
Shareholders may attend the Company's AGM, at which the Directors are
available in person to meet with shareholders and to answer their questions.
As was the case last year, the AGM will not include a presentation from the
Investment Manager. Instead, a separate Investment Manager presentation and
Q&A event will be held at 3.30 p.m. on 9 October 2024 at the Queen
Elizabeth II Centre, Broad Sanctuary, Westminster, London SW1P 3EE. This event
is intended to be of interest to both existing and prospective Aurora
shareholders and will include multiple speakers from the Investment Manager.
It is intended for this event to be recorded and made available afterwards on
the Company's website.
The Notice of Meeting on pages 100 and 101 sets out the business of the AGM
and each resolution is explained in Explanatory Notes to the Resolutions,
which follow the Notice, starting on page 106. Separate resolutions are
proposed for each substantive issue. The Company Chair, and where relevant,
each Committee Chair, welcomes engagement with the Company's shareholders (and
the Company's other key stakeholders) on significant issues raised by them at
the AGM or at other times. Details of the votes cast on each resolution will
be announced via a regulatory information service shortly after the AGM and
published on the Company's website.
At each of its regular meetings the Board tracks shareholder changes and
monitors the evolving shareholder profile. A list of the largest shareholders
in the Company can be found on page 41.
Shareholder interactions in the year did not result in substantive actions
being taken, although they did feature in Board discussions.
Other stakeholders
As an externally managed investment company, the Company has no employees and
all operational activities are outsourced to third party service providers.
These include the Investment Manager, the Company Secretary and Administrator,
the Registrar, the Depositary, the Custodian, lawyers and financial advisers.
The Board has identified these service providers to be key stakeholders in
the Company, together with its shareholders and investee companies. The Board
is aware of the need to foster the Company's relationships with its key
stakeholders through its stakeholder management activities.
As part of the Board and stakeholder evaluation processes that are undertaken
annually, the Board reviews its engagement mechanisms to ensure they remain
effective.
In fulfilling their duties, the Directors carefully consider the likely
consequences, for stakeholders and otherwise, of their actions over the long
term.
During the Board's quarterly meetings the Directors consider and are mindful
of:
i. the Company's investment objective and policy;
ii. the main trends and factors likely to affect the future development,
performance and financial position of the Company;
iii. the Company's key performance indicators;
iv. the Company's peers;
v. the Company's overall strategy; and
vi. the Company's core values, which are integrity, accountability,
transparency and commitment.
The service provider most fundamental to the Company's long-term success is
the Investment Manager, and the Board provides oversight and challenge to the
Investment Manager at all Board meetings to ensure that the portfolio is
managed in line with the Company's published investment policy.
A description of key service providers' roles together with the terms of their
engagement can be found on pages 39 and 40. The Management Engagement
Committee, on behalf of the Board, reviews the performance and terms of
engagement of each of the Company's key service providers annually to ensure
each remains competitive and to consider the quality of the services they
provide.
Environmental, Social and Governance ('ESG') Matters
The Board expects good standards of business sustainability to be maintained,
especially with respect to ESG, at the companies in which the Company invests
and satisfies itself that the Investment Manager consistently and proactively
engages with them on this basis.
All shareholdings are voted at listed company meetings worldwide where
practicable in accordance with the Investment Manager's own corporate
governance policies.
Further details of the Investment Manager's approach to ESG within its
investment framework can be found on its website at
www.phoenixassetmanagement.com (http://www.phoenixassetmanagement.com/) .
(http://www.phoenixassetmanagement.com/)
Monitoring of Key Decisions and the outcome of those decisions
The Board meets at least quarterly and at such other times as deemed
appropriate. During these meetings, the Board considers reports from the
Investment Manager on the Company's portfolio, investment activity and sector
diversification. In addition, the Investment Manager provides an overview of
engagement with the investee companies and with potential investee companies.
The Board discusses the Company's portfolio and notable acquisitions or
disposals at each of its meetings and challenges stock selection where deemed
appropriate.
The Board receives reports from Frostrow, in its capacities as Company
Secretary, Administrator and Investor Relations & Marketing Adviser,
respectively on the latest governance, legal and investment trust sector
issues, the Company's management accounts and, together with Liberum, the
Company's corporate stockbroker, on the Company's shareholder base, including
changes thereto. The Depositary also provides oversight reports and Liberum
also reports on performance relative to the Company's peers and the market
liquidity of the Company's shares. Contact with shareholders by the Investment
Manager, Frostrow and Liberum is also relayed to the Board who consider these
discussions at their quarterly meetings.
The retail focus group initiative embarked upon last year, aimed at further
understanding retail shareholders, was completed and informed the Board with
respect to its considerations of marketing and communications focus. During
the year, in addition to regular interactions, the Management Engagement
Committee on behalf of the Board reviewed the performance and terms of
engagement of each of its key service providers, which included a review of
their control reports and policies, such as whistleblowing, anti-bribery,
anti-money laundering and corruption, cyber security, data protection policies
and each entity's business continuity arrangements to ensure they were in
place and were adequate. Additionally, service providers participated in a 360
degree review whereby they provided comments on their interactions with the
Board and each other. As a result of these reviews it was concluded that the
new service providers appointed in 2022 had bedded into their roles
satisfactorily and the transition risk previously recognised was downgraded.
In relation to engagement with shareholders, the Board decided in 2023 to
decouple the Investment Manager's presentation from the AGM and hold a
separate Manager presentation event in October, where Directors were also
available to interact. This event was well attended and seemed to be a
successful formula for increasing engagement, so it is being repeated in 2024
as mentioned above.
Other decisions included recommending the payment of a final dividend in
respect of the year ended 31 December 2022, which was paid on 4 July 2023, in
accordance with the Company's dividend policy to distribute substantially all
the Company's revenue to shareholders by way of a dividend. It was also paid
to satisfy the investment trust status requirement that no less than 15% of
the Company's qualifying revenue must be retained each year.
Boardroom Diversity
The Board supports the principle of Boardroom diversity, and the Board
currently comprises four non-executive Directors of which three are female and
one male. One Director is from a minority ethnic background. The Board
considers its composition, including the balance of skills, knowledge,
diversity (including gender and ethnicity) and experience, amongst other
factors on an annual basis and when appointing new Directors. The Board has
considered the requirements under the FCA's Listing Rule 9.8.6R (10) in
relation to target reporting, and has provided full details in the Corporate
Governance Statement section on pages 44 and 45. Summary biographical details
of the Directors are set out on pages 33 and 34.
Stewardship code
The Board and the Investment Manager support and have a strong commitment to
the FRC's UK Stewardship Code, the latest version of which was effective from
1 January 2020. It is endorsed by the AIC and sets out principles of effective
stewardship by institutional investors. Whilst the Investment Manager is not a
formal signatory to the Stewardship Code, it has chosen to adhere to the 12
principles as closely as possible. Further details of the Investment Manager's
approach to the Stewardship code can be found on the Investment Manager's
website at www.phoenixassetmanagement.com
(http://www.phoenixassetmanagement.com/) .
(http://www.phoenixassetmanagement.com/)
Modern slavery disclosure
Due to the nature of the Company's business, being a company that does not
have employees and does not offer goods or services to consumers, the Board
considers that the Company falls outside of the scope of the Modern Slavery
Act 2015 and is not required to issue a slavery and human trafficking
statement. The Board considers the Company's supply chains, dealing
predominately with professional advisers and service providers in the
financial service industry, to be low risk in this matter.
Anti-bribery and corruption
It is the Company's policy to conduct all of its business in an honest and
ethical manner. The Company takes a zero-tolerance approach to bribery and
corruption and is committed to acting professionally, fairly and with
integrity in all its business dealings and relationships wherever it operates.
The Company's policy and the procedures that implement it are designed to
support that commitment. The Board has made enquiries of its third-party
service providers to ensure they have procedures and policies in place.
Criminal Finances Act 2017
The Company maintains a zero-tolerance policy towards the provision of illegal
services, including the facilitation of tax evasion. The Company has received
assurances from the Company's main service providers that they maintain a
zero-tolerance policy towards the provision of illegal services, including the
facilitation of tax evasion.
Other Strategic Report Information
Principal Risks and Risk Management
The Board is responsible for the identification, evaluation and management of
the risks facing the Company. Risk is a key element of all the Board's
deliberations. Additionally, the Board has delegated to the Audit Committee
the formal regular review of these risks, together with their mitigation and
the discerning of emerging risks, on its behalf. This process accords with the
UK Corporate Governance Code and the FRC's Guidance on Risk Management,
Internal Control and Related Financial and Business Reporting.
The Audit Committee and the Board has carried out a robust assessment of the
emerging and principal risks facing the Company, including those that would
threaten its business model, future performance, solvency and liquidity.
The Board's policy on risk management has not materially changed during the
course of the reporting period and up to the date of this report. In
particular, the Board undertakes a review of the performance of the Company
and scrutinises and challenges notable transactions at each quarterly Board
meeting.
The Audit Committee maintains a framework of the key risks and the policies
and processes in place to monitor, manage and mitigate them where possible.
This risk map is reviewed regularly by the Audit Committee, as set out in the
Audit Committee Report starting on page 58.
The Audit Committee and the Board consider that the risks summarised below are
the principal risks currently facing the Company. It is not an exhaustive list
of all risks faced by the Company.
Principal Risks and Uncertainties
Geopolitical and economic risks
The Company and its portfolio are at risk from economic and market conditions
such as from rising interest rates; inflation; recession; local and global
politics; and disruptive local and global events. These can disrupt trade and
supply chains and cause increased market volatility, which could substantially
and adversely affect the Company's prospects and the market prices of its
investments. Increased interest rates, inflation and the threat of recession
are all contemporary areas of concern, together with the conflicts in Ukraine
and the Middle East.
The opportunity for the Board to mitigate such macro risks is somewhat
limited. The Board and the Investment Manager monitor and discuss the
macroeconomic environment at each Board meeting, along with potential impacts.
The Investment Manager also provides a detailed update on the investments at
each meeting, including, inter alia, developments in relation to the macro
environment and trends. Mitigating factors include the experience and
expertise of the Investment Manager, that the Company's portfolio, although
concentrated, is diversified across a range of sectors, and that the Company
has no leverage and a net cash balance. Sanctions imposed in relation to the
Ukraine conflict have not had any direct impact on the Company, but the Board
continues to monitor developments.
Investment objective and strategy
The Company's investment objective is to provide shareholders with long-term
returns through capital and income growth by investing predominantly in a
portfolio of UK listed companies. It is not assured that the objective will be
met or that it will continue to meet investors' needs. Poor performance or the
investment objective losing its attractiveness to shareholders could result in
reputational damage and a widening discount.
The Board reviews performance at every Board meeting and challenges the
Investment Manager on stock selection and diversification.
The Board also seeks to understand shareholder sentiment with respect to the
investment objective and the strategy being followed with the help of the
Company's Investment Manager, corporate broker and investor relations &
marketing adviser.
Shareholders are provided with an opportunity to vote on the Company's
continuation every three years. The continuation vote provides a gauge of the
attractiveness of the Company to its shareholders. The most recent
continuation vote took place at the Company's AGM on 28 June 2022 and was
successfully passed with overwhelming support from shareholders (100% voted in
favour).
Risks related to the Investment Manager
The Company's success is closely dependent on the performance of the
Investment Manager. In addition to the performance of the portfolio, the
Company is also exposed to any potential loss of key personnel from, and the
reputation of, the Investment Manager.
The Investment Manager has a well-defined investment strategy, a proven
process and an extensive track record. The performance and the terms of
engagement of the Investment Manager are reviewed annually by the Management
Engagement Committee on behalf of the Board, in addition to the Board's
ongoing communications, monitoring and challenge. The Investment Manager also
reports regularly to the Board on personnel changes and other developments.
Discount risk
The Board specifically recognises the risk that the price of the Company's
shares may not reflect their underlying net asset value, which could
compromise shareholders' returns.
The Board, along with its advisers and the Investment Manager, monitors any
discount closely and seeks to enhance share price performance through
effective marketing. The Board also seeks authority from shareholders each
year to buy back shares and will consider doing so if a discount becomes
excessive and persistent.
Operational Risks
Operational Risks incorporate, amongst other things, the potential for errors
or irregularities in published information, cyber risks, business continuity
risks, and regulatory risks.
The Audit Committee has received internal controls reports from the relevant
service providers, where available, and has satisfied itself that adequate
controls and procedures are in place to limit any impact on the Company's
operations, particularly with regard to a financial loss. It has also
satisfied itself that they have appropriate business continuity plans in
place. The performance of service providers is reviewed annually by the
Management Engagement Committee. Each service provider's contract defines
their duties and responsibilities and has safeguards in place including
provisions for termination in the event of a breach or under certain
circumstances.
ESG
The Board recognises the risks posed by environmental, social and governance
("ESG") factors, particularly with respect to portfolio risks and potential
reputational risk should the Company not meet investor expectations in
relation to ESG. Investment companies are currently exempt from reporting
under the Task Force on Climate-Related Financial Disclosures ("TCFD") and the
Company has not voluntarily adopted the requirements, but considers ESG
factors that might affect portfolio companies to be an emerging risk area for
the Company. The Board and Investment Manager also recognise the potential
opportunity afforded by attention to the wider climate change agenda. ESG risk
assessment is embedded in the Investment Manager's due diligence and
decision-making process when investing in new companies and monitored
thereafter.
Financial Risks
The Company is exposed to liquidity risk and credit risk arising from the use
of counterparties. If a counterparty were to fail it could adversely affect
the Company through either delay in settlement or loss of assets. The most
significant counterparty to which the Company is exposed is the Depositary,
which is responsible for the safekeeping of the Company's custodial assets.
Further details on the Company's financial risks are included in Note 12 to
the financial statements starting on page 90.
The Board reviews the services provided by the Depositary and the internal
controls report of the Custodian to ensure that the security of the Company's
custodial assets is maintained. The Investment Manager is responsible for
undertaking reviews of the credit worthiness of the counterparties that it
uses.
Viability Statement
In accordance with the UK Corporate Governance Code, the Directors have
carefully assessed the Company's position and prospects as well as the
principal risks and have formed a reasonable expectation that the Company will
be able to continue in operation and meet its liabilities as they fall due
over the next five financial years to 31 December 2028.
The Board has chosen a five-year horizon in view of the long-term nature and
outlook adopted by the Investment Manager when making investment decisions.
After making enquiries, the Directors have a reasonable expectation that the
Company has adequate resources to continue in operational existence and meet
its liabilities as they fall due for at least five years to 31 December 2028.
A continuation vote, as required by the Company's Articles, was held on 28
June 2022 and passed with overwhelming support from shareholders. The next
vote is expected to take place at the Company's AGM in 2025. The Board and the
Company's advisers will continue to work closely with shareholders and are
confident that the next vote will successfully pass.
In reaching this conclusion, the Directors have considered each of the
principal risks and uncertainties set out above as well as the following
assumptions in assessing the Company's viability:
• there will continue to be demand for investment trusts;
• the Board and Investment Manager will continue to adopt a
long-term view when making investments;
• the Company invests principally in the securities of UK listed
companies to which investors will wish to continue to have exposure; and
• regulation will not increase to a level that makes running the
Company uneconomical.
Factors including higher interest rates, inflation, and the conflicts in
Ukraine and the Middle East were also incorporated into the key assumptions.
As part of this process the Board considered the impact of severe but
plausible scenarios, including the impact of significant market movements, on
the Company's liquidity and solvency, its income and expenses profile and that
(although not utilised) gearing is an instrument permitted by the Company's
investment policy. A significant proportion of the Company's investments
comprise readily realisable securities which could, if necessary, be sold to
meet the Company's cash requirements. The financial considerations were based
on the going concern assessment, discussed on pages 41 and 42, and extended to
cover the five year period from the approval of this annual report.
The Company's aspiration to expand by the issue of new share capital is kept
under close and ongoing review by the Board. Portfolio changes and market
developments are also discussed at quarterly Board meetings.
The internal control framework of the Company is subject to formal review on
at least an annual basis. The Audit Committee considered the operational
resilience of the Company's service providers, and thereby the operational
viability of the Company. The Committee is reassured that all key service
providers have demonstrated they were able to operate effectively and to their
normal high service standards during the period of COVID-19 disruption and the
general continuation since then of less structured working arrangements than
in the past.
Outlook
The outlook for the Company is discussed in the Chair's Statement on page 6,
and the Investment Manager's Review on pages 16 to 21.
This Strategic Report was approved by the Board on 26 March 2024.
Lucy Walker
Chair of the Board of Directors
.
Statement of Directors' Responsibilities for the Annual Report
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have prepared the financial
statements in accordance with UK-adopted International Accounting Standards
and in accordance with those parts of the Companies Act 2006 that apply to
those companies reporting under UK-adopted International Accounting Standards.
Under company law, 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 of the Company for that
period. In preparing the financial statements, the Directors are required to:
• select suitable accounting policies and then apply them
consistently;
• state whether applicable UK-adopted International Accounting
Standards have been followed, subject to any material departures disclosed and
explained in the financial statements;
• make judgements and accounting estimates that are reasonable and
prudent; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will continue in
business.
Under applicable law and regulations, the Directors are responsible for
preparing a Strategic Report, a Directors' Report, a Corporate Governance
Statement and a Directors' Remuneration Report which comply with that law and
those regulations.
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 and the Remuneration
Report 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 have delegated responsibility to the Investment Manager for the
maintenance and integrity of the Company's website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
Directors' confirmations
The Directors consider that the Annual Report and financial statements, taken
as a whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's position and performance,
business model and strategy. Each of the Directors, whose names and functions
are listed on pages 33 and 34 confirm that, to the best of their knowledge:
• the Company's financial statements, which have been prepared
in accordance with UK-adopted international accounting standards and in
accordance with those parts of the Companies Act 2006 that apply to those
companies reporting under UK-adopted international accounting standards, give
a true and fair view of the assets, liabilities, financial position and loss
of the Company; and
• the Strategic Report includes a fair review 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 it faces.
For and on behalf of the Board
Lucy Walker
Chair of the Board of Directors
26 March 2024
.
Financial Statements
.
Income Statement
Year ended Year ended
31 December 2023
31 December 2022
Notes Revenue Capital Total Revenue Capital Total
£'000
£'000
£'000
£'000
£'000
£'000
2 Gains/(losses) on investments - 53,535 53,535 - (40,410) (40,410)
Losses on currency - - - - (17) (17)
3 Income 3,459 - 3,459 3,117 - 3,117
Total income/(loss) 3,459 53,535 56,994 3,117 (40,427) (37,310)
4 Investment management performance fee (charge)/clawback - (2,824) (2,824) - 2,746 2,746
4 Other expenses (749) - (749) (777) - (777)
Profit/(loss) before tax 2,710 50,711 53,421 2,340 (37,681) (35,341)
5 Tax (49) - (49) (77) - (77)
Profit/(loss) for the year 2,661 50,711 53,372 2,263 (37,681) (35,418)
7 Earnings/(losses) per share - basic and diluted 3.50p 66.66p 70.16p 2.95p (49.20)p (46.25)p
The total column represents the Income Statement of the Company, prepared in
accordance with International Financial Reporting Standards ("IFRSs") as
adopted by the United Kingdom.
The revenue and capital columns, including the revenue and capital earnings
per ordinary share data, are supplementary information prepared under guidance
published by the AIC.
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued during the period.
The Company does not have any other comprehensive income. Therefore, no
separate Statement of Comprehensive Income has been presented.
The notes on pages 76 to 94 form part of these accounts.
.
Statement of Financial Position
Notes 31 December 31 December
2023
2022
£'000
£'000
NON-CURRENT ASSETS
2 Investments held at fair value through profit or loss 202,209 149,227
CURRENT ASSETS
Trade and other receivables 372 310
Cash 6,248 5,348
6,620 5,658
TOTAL ASSETS 208,829 154,885
CURRENT LIABILITIES
Other payable (115) (107)
(115) (107)
NET ASSETS 208,714 154,778
EQUITY
8 Called up share capital 19,019 19,152
Share premium account 111,166 111,166
Capital redemption reserve 312 179
Treasury shares - (133)
8 Other reserve (219) (2,877)
8 Share-based payment reserve 166 -
8 Capital reserve 74,999 24,421
Revenue reserve 3,271 2,870
TOTAL EQUITY 208,714 154,778
8 Number of voting shares in issue 76,078,460 76,078,460
9 NAV per share 274.34p 203.45p
Approved by the Board of Directors on 26 March 2024 and signed on its behalf
by:
Lucy Walker
Chair of the Board
Company no. 03300814
The notes on pages 76 to 94 form part of these accounts.
.
Statement of Changes in Equity
Year to 31 December 2023
Notes Called up share capital Share premium account Capital redemption reserve Treasury shares Other reserve Share-based payment reserve £,000 Capital reserve Revenue Total
£'000
£'000
£'000
£'000
£'000
£'000
reserve
£'000
£'000
Opening equity 19,152 111,166 179 (133) (2,877) - 24,421 2,870 154,778
Profit for the year - - - - - - 53,369 2,661 56,030
8 Shares cancelled in relation to 2019 performance fee clawback (crystallised) (133) - 133 133 - - (133) - -
4 Performance fee in relation to performance year 2020 (crystallised) - - - - 2,658 (2,658) - -
4 Performance fee charge in relation to performance year 2021 - - - - - 166 - - 166
6 Dividends paid - - - - - - - (2,260) (2,260)
Closing equity 19,019 111,166 312 - (219) 166 74,999 3,271 208,714
The notes on pages 76 to 94 form part of these accounts.
Statement of Changes in Equity
Year to 31 December 2022
Notes Called up share capital Share premium account Capital redemption reserve Treasury shares Other reserve Capital reserve Revenue Total
£'000
£'000
£'000
£'000
£'000
£'000
reserve
£'000
£'000
Opening equity 19,130 110,984 179 - (1,271) 63,155 2,016 194,193
(Loss)/income for the year - - - - - (37,681) 2,263 (35,418)
4 Performance fee clawback in relation to performance year 2019 (crystallised) - - - (133) - (1,053) - (1,186)
4 Performance fee clawback in relation to performance year 2020 and 2021 - - - - (1,385) - - (1,385)
6 Dividends paid - - - - - - (1,409) (1,409)
8 Issue of new ordinary shares 22 199 - - (221) - - -
Share issue costs -- (17) - - - - - (17)
Closing equity 19,152 111,166 179 (133) (2,877) 24,421 2,870 154,778
The notes on pages 76 to 94 form part of these accounts.
.
Cash Flow Statement
Note Year to Year to
31 December
31 December
2023
2022
£'000
£'000
Net cash inflow from operating activities 10 2,607 2,126
Investing activities
Payments to acquire non-current asset investments 2 (11,503) (47,454)
Receipts on disposal of non-current asset investments 2 12,056 44,455
Net cash inflow/(outflow) from investing activities 553 (2,999)
Financing activities
Ordinary Share issue costs - (17)
Dividends paid 6 (2,260) (1,409)
Net cash outflow from financing activities (2,260) (1,426)
Increase/(decrease) in cash (2,299) (2,299)
Cash at beginning of year 5,348 7,664
Losses on currency - (17)
CASH AT END OF YEAR 6,248 5,348
The notes on pages 76 to 94 form part of these accounts.
.
Notes to the Financial Statements
1. Reporting entity
Aurora Investment Trust plc is a closed-ended investment company, registered
in England and Wales on 10 January 1997 with Company number 03300814. The
Company's registered office is 25 Southampton Buildings, London WC2A 1AL.
Details of the Directors, Investment Manager and Advisers can be found on
pages 33 to 35.
Basis of Accounting
The financial statements of the Company have been prepared in accordance with
UK-adopted International Accounting Standards ("IFRS") and the applicable
legal requirements of the Companies Act 2006.
The annual financial statements have also been prepared in accordance with the
Association of Investment Companies ("AIC") Statement of Recommended Practice
("SORP") for the financial statements of investment trust companies and
venture capital trusts, except to any extent where it is not consistent with
the requirements of IFRS.
In order to better reflect the activities of an investment trust company and
in accordance with guidance issued by the AIC, supplementary information which
analyses the Income Statement between items of a revenue and capital nature
has been prepared alongside the Income Statement.
The functional currency of the Company is Sterling because this is the
currency of the primary economic environment in which the Company operates.
The financial statements are presented in Sterling rounded to the nearest
thousand, except where otherwise indicated.
Going concern
The financial statements have been prepared on the going concern basis. The
Directors have a reasonable expectation, after making enquiries, that the
Company has adequate resources to continue in existence for at least 12 months
from the date of approval of this Annual Report.
In reaching this conclusion, the Directors have considered the liquidity of
the Company's portfolio of investments as well as its latest financial
positions and forecast on income and expenses.
As at 31 December 2023, the Company held £6,248,000 (2022: £5,348,000) in
cash, £200,733,000 (2022: £146,356,000) in quoted investments and
£1,476,000 (2022: £2,871,000) in an unquoted investment. The total ongoing
operating expenses for the year ended 31 December 2023 were £817,000 (2022:
£777,000). It is estimated that 31.2% of the Company's latest portfolio could
be liquidated in a non-market impacting way within 7 days, using 25% of
historic three-month average daily volume. This approach is considered
conservative as it does not include the Company's ability to access liquidity
through block trades.
The management has assessed the Company's going concern status under stress
scenarios, which incorporated key assumptions such as significant falls in the
Company's investment portfolio and investment income. These scenario tests
encompassed possible impacts from factors such as the existing and potential
further risks arising from the conflicts in the Middle East and Ukraine, and
any tail risks from Brexit. A prolonged and deep market decline could lead to
falling investment values or interruptions to cash flow, however the Company
currently has more than sufficient liquidity to meet any liabilities when they
fall due in the foreseeable future. The Board is keeping the development of
external risk factors under close scrutiny and does not believe that these
will any impact on the Company's going concern status.
At the date of approval of this Annual Report, based on the aggregate of
investments and cash held, the Board notes that the Company's cash balance and
investments held are well in excess of the estimated level of liabilities, and
the Company has substantial operating expenses cover.
Segmental reporting
The Directors are of the opinion that the Company is engaged in a single
segment being an investment business in accordance with its Investment
Objective and Policy
Material accounting policies
The accounting policies adopted are described below:
a. Accounting Convention
The accounts are prepared under the historical cost basis, except for the
measurement at fair value of investments and measurement of performance fees
awarded.
b. Adoption of new IFRS standards
In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice
Statement 2 Making Materiality Judgements, applicable for annual periods
beginning on or after 1 January 2023. The latest amendments require reporting
entities to disclose material, instead of significant, accounting policies
from the effective accounting period onwards. In light of the amendments, the
Company has performed a full review of the existing disclosure of accounting
policies in its annual report and removed the following policies:
• Share-based Payment
• Taxation
• Cash
• Dividends Payable
There have been no changes to the removed accounting policies and the full
policy details are available in the Company's annual report and financial
statements for the year ended 31 December 2022.
The Company has also adopted, with no material impact, the amendments to IAS 8
definition of accounting estimates estimates and amendments to IAS 12 Deferred
Tax related to Assets and Liabilities arising from a Single Transaction, which
became effective from 1 January 2023.
c. Investments
Investments are measured at fair value through profit or loss. Gains or losses
on investments and transaction costs on acquisition or disposal of investments
are included in the Income Statement as a capital item.
For investments that are actively traded in organised financial markets, fair
value is determined by reference to stock exchange quoted market bid prices at
the close of business on the year-end date. All purchases and sales of
investments are recognised on the trade date, i.e. the date that the Company
commits to purchase or sell an asset.
Unquoted investments are measured at fair value in accordance with the
International Private Equity and Venture Capital valuation guidelines and IFRS
9. Valuation is provided by the underlying investment manager and may be
adjusted to take account of changes or events to the reporting date, or other
facts and circumstances which might impact the underlying value.
d. Income from Investments
Special Dividends are assessed on their individual merits and are credited to
the capital column of the Income Statement if the substance of the payment is
a return of capital. All other investment income is taken to the revenue
column of the Income Statement.
e. Share Capital and Reserves
The share capital represents the nominal value of equity shares.
The share premium account represents the accumulated premium paid for shares
issued above their nominal value less issue expenses. This reserve is not
distributable.
The capital redemption reserve arises when shares are bought back by the
Company or returned by the Investment Manager under the performance fee
clawback arrangement, and subsequently cancelled, at which point an amount
equal to the par value of the shares is transferred from share capital to this
reserve. This reserve is not distributable.
Other reserve represents the restricted shares issued in settlement of
performance fees that are still a the lock-in period. This reserve is not
distributable.
Share-based payment reserve represents the cumulative share-based payment
expenses in relation to performance fees earned. Upon vesting, the relevant
share-based payment reserve balance will be transferred to the realised
capital reserve. This reserve is not distributable.
The capital reserve represents realised and unrealised capital and exchange
gains and losses on the disposal and revaluation of investments and of foreign
currency items. In addition, performance fee costs are allocated to the
capital reserve. The amount within the capital reserve less unrealised gains
(those on investments not readily convertible to cash) is available for
distribution. The realised gains within the capital reserve amounted to
£43,101,000 as at 31 December 2023 (2022: £42,863,000). The Company has no
intention to make distributions out of its capital reserve.
The revenue reserve represents the surplus of accumulated revenue profits
being the excess of income derived from holding investments less the costs
associated with running the Company. This reserve may be distributed by way of
dividends, to the extent realised.
f. Expenses
All expenses are charged through the revenue column of the Income Statement
except the following:
• expenses that are incidental to the acquisition or disposal of an
investment are charged to the capital column of the Income Statement; and
• expenses are charged to the capital column of the Income Statement
where a connection with the maintenance or enhancement of the value of the
investments can be demonstrated. In this respect the performance fees have
been charged to the Income Statement in line with the Board's expected
long-term returns, in the form of capital gains, from the Company's portfolio.
g. Critical Judgements, Estimations or Assumptions
The Directors have reviewed matters requiring judgements, estimations or
assumptions. The preparation of the financial statements requires management
to make judgements, estimations or assumptions that affect the amounts
reported for assets and liabilities as at the year end date and the amounts
reported for revenue and expenses during the year. However, the nature of the
estimation means that actual outcomes could differ from those estimates.
Performance fees
The performance fee is calculated on the Company's NAV outperformance against
its benchmark. Performance fees, if earned, are settled by the issue of shares
in the Company, which are subject to a fixed three-year clawback period. If
the outperformance versus the index reverses on the third-year anniversary the
Company is entitled to recover and cancel the shares.
In measuring the performance fee, the Board has made judgements in relation to
the service period, which it considers to be the current year of service plus
the further three year period clawback period. The Board has made the
judgement that the performance fee contains a non-market based performance
condition since the hurdle is based on the outperformance of the Company's NAV
against its benchmark.
However, as the performance fee is calculated as a fixed amount which is
settled by a variable number of shares, the cumulative charge over the vesting
period will equate to either the amount calculated at the end of the first
year where the performance of the Investment Manager remains on target, or a
lower amount where it is considered that the clawback will take effect. This
is as a result of the performance fee charge being adjusted during the service
period, which is a requirement of IFRS 2 where there is a non-market based
performance condition.
The performance fee is recognised on a straight line basis in the Income
Statement and is based on the outcome of the performance fee calculation as
stated in the Investment Management Agreement. This amount excludes the
projection of whether a clawback may occur at the end of the performance
period. Clawbacks are adjusted based on the management's expectation in terms
of the number of restricted shares that will ultimately vest at each reporting
date, and if applicable, credited back to the Income Statement.
The Board has considered it necessary to make certain judgements in relation
to the recognition and measurement of the performance fee, which it considers
are reasonable and supportable. However, it is acknowledged that if
alternative judgements were made, for accounting purposes, the measurement of
the performance fee charge to the income statement may be significantly
different in timing within the service period.
The Investment Manager earned a performance fee of £221,195 in 2021 and this
was settled by an issuance of 89,096 shares. As at 31 December 2023, the
Company estimates that all shares issued in relation to 2021 will vest on 31
December 2024 when the clawback period ends. An IFRS 2 expense of £166,000,
based on a service period of four years, has been charged and is shown in the
capital column of the Income Statement.
No performance fee was earned during 2022 and the fee assessment period was
extended to 2023. Over the combined period, the Investment Manager earned
performance fees of £560,903, 80% of which was settled on 17 January 2024 by
an issuance of 172,373 new ordinary shares at 260.32p per share, and the
remaining 20% will be settled upon approval of this annual report. The service
period for fees earned during 2022 and 2023 is considered to be five years. As
at 31 December 2023, based on estimates produced by the Company's in-house
assessment model, it is expected that no shares issued in relation to 2023
will ultimately vest at the end of the clawback period on 31 December 2026,
and therefore no IFRS 2 expenses have been charged in the Income Statement.
Valuation of Unquoted Investments
The Company has an investment in Phoenix SG Limited ("Phoenix SG"), which is
unquoted and classified as a Level 3 investment under the fair value
hierarchy. Its fair value as at 31 December 2023 is £1,476,000 or 0.7% of NAV
(2022: £2,871,000 or 1.9% of NAV).
Phoenix SG is valued in accordance with the Company's accounting policy set
out in 1c, using the reported NAV provided by the investment's underlying fund
manager. In making the judgment that this valuation method is appropriate, the
Board has considered additional information, including an independent
valuation review report produced by Kroll Advisory Ltd, and published
financial statements. Whilst the Board considers the methodologies and
assumptions adopted in the valuation of unquoted investments to be
supportable, reasonable and robust, because of the inherent uncertainty of
valuation, the values used may differ significantly from the values that would
have been used had a ready market for the investment existed.
A 10% reduction of the unquoted valuation would have a negative impact of
£147,600 (2022: £287,000) on the Company's NAV as at 31 December 2023 and a
10% increase of the unquoted valuation would have the exact opposite impact.
2. Investments held at Fair Value Through Profit or Loss
Year to Year to
31 December
31 December
2023
2022
£'000
£'000
Listed securities 200,733 146,356
Unquoted securities 1,476 2,871
Total non-current investments held at fair value through profit or loss 202,209 149,227
Movements during the year:
Opening balance of investments, at cost 170,415 137,996
Additions, at cost 11,503 47,454
Disposals - proceeds received or receivable* (12,056) (44,454)
- realised profits 283 29,419
- at cost (11,773) (15,035)
Cost of investments held at fair value through profit or loss at 31 December 170,145 170,415
Revaluation of investments to market value:
Opening balance (21,188) 48,641
Unrealised gain/(losses) 53,252 (69,829)
Balance at 31 December 32,064 (21,188)
Market value of non-current investments held at fair value through profit or 202,209 149,227
loss at 31 December
* These investments have been revalued over time and until they were sold any
unrealised gains/losses were included in the fair value of the investments.
Gains/(losses) on investments Year to Year to
31 December
31 December
2023
2022
£'000
£'000
Realised gains on disposal of investments 283 29,419
Movement in unrealised gains/(losses) on investments held 53,252 (69,829)
Total gains/(losses) on investments 53,535 (40,410)
Realised gains in the year to 31 December 2022 include gains of £31,433,000
from the sale of put options on a short sterling future contract as a hedge
against inflation in February 2022.
Transaction costs on investment purchases and sales for the year ended 31
December 2023 are disclosed in the following table.
Transaction costs Year to Year to
31 December
31 December
2023
2022
£'000
£'000
Transaction costs on purchases of investments 16 145
Transaction costs on sales of investments 9 38
Total transaction costs included in gains or losses on investments at fair 25 183
value through profit or loss
3. Income
Year to Year to
31 December
31 December
2023
2022
£'000
£'000
Income from investments:
UK dividends 3,017 2,762
Overseas dividends 370 332
Other income:
Deposit interest 72 23
Total income 3,459 3,117
4. Investment Management Performance Fees and Other Expenses
Year ended 31 December 2023 Year ended 31 December 2022
Revenue* Capital Total Revenue Capital Total
£'000
£'000
£'000
£'000
£'000
£'000
Investment management performance fee charge/(clawback) - 2,824 2,824 - (2,746) (2,746)
Administration fees** 279 - 279 187 - 187
Depositary and Custody fees 64 - 64 60 - 60
Registrar's fees 36 - 36 43 - 43
Directors' fees 139 - 139 136 - 136
Audit fees*** 68 - 68 64 - 64
Printing 19 - 19 18 - 18
Broker's fees 48 - 48 48 - 48
Professional fees 34 - 34 47 - 47
Public relation fees** - - - 71 - 71
Consultancy fees 14 - 14 32 - 32
Miscellaneous expenses 48 - 48 71 - 71
Total other expenses 749 2,824 3,573 777 (2,746) (1,969)
* All expenses include any relevant irrecoverable VAT.
** Frostrow Capital LLP was appointed on 28 September 2022 to provide the
Company with administration and Company Secretary services, as well as serve
as the Company's investor relations and marketing adviser. Public relation
fees disclosed separately in the prior year are now included as part of the
administration fees. Refer to page 40 for further details of the fee
arrangement.
*** The amounts excluding VAT paid or accrued for the audit of the Company are
£57,000 (2022: £53,000).
Investment Management Performance Fees
The Company's Investment Manager does not earn an ongoing annual management
fee, but will be paid a performance fee equal to one third of any
outperformance of the Company's NAV per share total return (including
dividends and adjusted for the impact of share buybacks and the issue of new
shares) over the FTSE All-Share Index (total return) for each financial year
or, if applicable, extended performance period.
The total annual performance fee is capped at 4% per annum of the NAV of the
Company at the end of the relevant financial year, in the event that the NAV
per Ordinary Share has increased in absolute terms over the period, and 2% in
the event that the NAV per Ordinary Share has decreased in absolute terms over
the period. Any outperformance that exceeds these caps will be carried forward
and only paid if the Company outperforms, and the annual cap is not exceeded,
in subsequent years.
The performance fee is subject to a high-water mark so that no fee will be
payable in any following year until all underperformance of the Company's NAV
since the last performance fee was paid has been made up.
Performance fees are settled by issuance of new shares. Such shares are issued
at the NAV per share prevailing at the date of issue, so that the then current
value of the shares equates in terms of NAV to the performance fees calculated
at the end of the relevant financial period.
Any part of the performance fee that relates to the performance of Phoenix SG
will be accrued but will not be paid until such time as the Company's
investment in Phoenix SG has been realised or is capable of realisation. The
position will be reviewed at that time by reference to the realised proceeds
of sale or the fully realisable value of Phoenix SG as compared to the
original cost of acquisition.
Performance fees are calculated annually and, if earned, settled by way of
share issuance by the Company, 80% is settled shortly after the year end date
and the remaining 20% is settled upon approval of the Company's Annual Report.
Shares issued to the Investment Manager are subject to a 3-year clawback
period, during which the Investment Manager is not entitled to sell, pledge or
transfer the shares, but is entitled to dividends and voting rights. If the
Company's NAV underperforms its benchmark index on a total return basis over
the clawback period, shares issued to the Investment Manager will be
proportionally or entirely clawed back and cancelled by the Company.
Share-based Payment
The performance fee arrangement is recognised as an equity settled share-based
payment under IFRS 2, and the related expenses are charged or credited in the
Income Statement on a straight-line basis over a vesting period of the
performance fee calculation period followed by 3 years of clawback period.
At the end of each reporting period, the Company reviews cumulative total
returns between the Company's NAV and its benchmark index in relation to each
performance year in which a performance fee was earned and adjusts the
cumulative charges of share-based payment expenses accordingly.
A total share-based payment charge of £2,824,000 has been recognised in the
Company's Income Statement for the year ended 31 December 2023.
Performance Fees Shares Vesting Vesting status Income Statement
year
earned
issued
period
change
(£)
(Number of)
(Years)
(£)
2020 2,658,275 1,290,932 4 Fully vested on 31 December 2023 2,658,275
2021 22,195 89,096 4 Vesting period ends on 31 December 2024 165,896
2022* - - n/a n/a n/a
2023 560,903 172,373** 5 Vesting period ends on 31 December 2026 -
* No performance fee was earned during 2022 and the fee assessment period was
extended to 2023.
** 80% of the fees earned was settled on 17 January 2024 by an issuance of
172,373 new shares at 260.32p per share, and the remaining 20% will be settled
following publication of this annual report.
Share-based Payment Sensitivity Analysis
Performance fee period to 31 December 31 December
2021
2022 and 2023
End date for clawback period 31 December 31 December
2024
2026
As at 31 December 2023 % %
Company cumulative NAV returns a 30.0 9.5
Cumulative index returns b 28.1 8.3
Overperformance (1+a)/(1+b)-1 1.5 1.1
Impact on the Company's profit after tax for the year ended 31 December 2023,
if the Company's overperformance changes by:
In relation to performance fee period 31 December 31 December
2021
2022 and 20231
Percentage £'000 £'000
-10% 166 -
-5% 166 -
-1% - (18)
+1% - 224
+5% - 224
+10% - 224
5. Taxation
Year ended 31 December 2023 Year ended 31 December 2022
Revenue Capital Total Revenue Capital Total
£'000
£'000
£'000
£'000
£'000
£'000
Corporation tax - - - - - -
Overseas withholding tax 49 - 49 77 - 77
Tax charge in respect of the current year 49 - 49 77 - 77
Current taxation
The taxation charge for the year is different from the standard rate of
corporation tax in the UK of 23.5% (2022:19.0%). The differences are explained
below:
Year to Year to
31 December
31 December
2023
2022
£'000
£'000
Total profit/(loss) before tax 53,421 (35,341)
Theoretical tax at UK corporation tax rate of 23.5% (2022: 19.0%) 12,554 (6,715)
Effects of:
Capital (gains)/losses that are not taxable (12,581) 7,678
UK dividends which are not taxable (709) (525)
Overseas withholding tax 49 77
Overseas dividends that are not taxable (87) (63)
Excess management expenses 823 (375)
Tax charge in respect of the current year 49 77
Due to the Company's status as an investment trust and its intention to
continue meeting the conditions required to maintain its status in the
foreseeable future, the Company has not provided deferred tax on any capital
gains and losses arising on the revaluation or disposal of investments.
Deferred Tax
The Company has £14,367,000 (2022: £12,385,000) in respect of excess
unutilised management expenses, equivalent to a potential tax saving of
£3,592,000 (2022: £3,096,000) at the prospective tax rate of 25% (2022: 25%)
and £1,491,000 (2022: £1,491,000) in respect of loan interest, equivalent to
a potential tax saving of £373,000 (2022: £373,000) at the prospective tax
rate of 25% (2022: 25%).
These amounts could be utilised to the extent that the Company has sufficient
future taxable revenue. A deferred tax asset has not been recognised in
respect of these expenses.
6. Ordinary Dividends
Year to Year to
31 December
31 December
2023
2022
£'000
£'000
Dividends reflected in the financial statements:
Final dividend paid for the year ended 31 December 2022 at 2.97p per share 2,260 1,409
(2021: 1.84p)
Dividends not reflected in the financial statements:
Final dividend recommended by the Board for the year ended 31 December 2023 at 2,632* 2,263
3.45p per share (2022: 2.97p)
* Based on the 76,078,460 shares in issuance as at 31 December 2023, 172,373
shares issued on 17 January 2024 in settlement of 80% of the performance fees
earned, and an estimated issuance of 42,000 shares to be issued in settlement
of the remaining 20% performance fees earned.
7. Earnings Per Share
Earnings per share are based on the profit of £53,372,000 (2022: loss of
£35,418,000) attributable to the weighted average of 76,078,460 (2022:
76,592,940) ordinary shares of 25p in issue during the year.
Supplementary information is provided as follows: revenue earnings per share
are based on the revenue income of £2,661,000 (2022: income of £2,263,000);
capital earnings per share are based on the net capital profit of £50,711,000
(2022: loss of £37,681,000), attributable to the weighted average of
76,078,460 (2022: 76,592,940) ordinary voting shares of 25p. There is no
difference between the weighted average diluted and undiluted number of
shares. There is no difference between basic and diluted earnings per share as
there are no dilutive instruments.
8. Share Capital and Reserves
At At
31 December
31 December
2023
2022
Allotted, called up and fully paid (Number) 76,078,460 76,608,771
Ordinary Shares of 25p (£'000) 19,019 19,152
At 31 December 2023, the Company had 76,078,460 ordinary shares in issue, with
no shares held in Treasury (2022: 76,608,771 shares in issue, of which 530,311
were held in Treasury). The number of voting shares at 31 December 2023 was
76,078,460 (2022: 76,078,460, being the number of ordinary shares in issue
less the number of shares held in Treasury.
Movement in share capital during the period
The Company did not issue or purchase any of its own shares during the year
ended 31 December 2023.
On 31 December 2022, the clawback period on restricted shares issued to the
Investment Manager in relation to the performance period ended 31 December
2019 ended. All of the 530,311 shares originally issued to the Investment
Manager were clawed back by the Company. These were held in Treasury as at 31
December 2022 and subsequently cancelled on 9 January 2023..
Other Reserve
The other reserve balance represents the restricted shares issued in
settlement of performance fees that are still within a lock-in period.
The clawback period for the performance fee earned during the year ended 31
December 2020 ended on 31 December 2023. The Company's cumulative NAV total
return outperformed that of the benchmark index over the vesting period. As a
result, the 1,290,932 restricted shares originally issued in settlement of the
£2,658,275 performance fee earned have become unrestricted. As at 31 December
2023, the equivalent value was transferred to realised capital reserve and the
remaining balance in other reserve represents shares issued in settlement of
the performance fee for 2021.
Share-based Payment Reserve
The share-based payment reserve represents the cumulative share-based payment
expenses in relation to performance fees earned. The balance as at 31 December
2023 relates to cumulative expenses charged to the capital column of the
Company's Income Statement for the performance fee earned in 2021. No expenses
have been charged for the combined performance period of 2022 and 2023 as no
shares issued in settlement of the fee earned during this period are expected
to ultimately vest based on the estimates produced by the Company's in-house
model. This is subject to review and change at the Company's future reporting
dates. Further details can be found in Note 4 on page 84.
9. Net Assets Per Ordinary Share
The figure for Net Assets per Ordinary Share is based on Net Assets of
£208,714,000 (2022: £154,778,000) divided by 76,078,460 voting ordinary
shares in issue at 31 December 2023 (2022: 76,078,460, being the number of
ordinary shares in issue less the number of shares held in Treasury (Note 8)).
10. Reconciliation of Net Cash Flow from Operating
Activities
Year to Year to
31 December
31 December
2023
2022
£'000
£'000
Profit/(loss) after tax 53,372 (35,418)
(Gains)/losses on investments (53,535) 40,427
Increase in other receivables (62) (88)
Increase/(decrease) in other payables 8 (49)
Investment management fee charge/(clawback) 2,824 (2,746)
Net cash inflow from operating activities 2,607 2,126
11. Transactions with Related Parties and Investment Manager
Details of the management, administration and secretarial contracts can be
found in the Directors' Report.
There were no transactions with Directors other than disclosed in the
Directors' Remuneration Report on pages 51 to 55 and in Note 4 on page 83. No
fees payable to the Directors were outstanding as at 31 December 2023.
Phoenix Asset Management Partners Limited ("Phoenix"), the Company's AIFM and
Investment Manager, and Castelnau Group Limited ("Castelnau") are considered
as related parties under the Listing Rules. Details of transactions with
Phoenix can be found in Note 4 beginning on page 83.
Castelnau is a related party as the Company is a substantial shareholder under
the UK Listing Rules. As at 31 December 2023, the Company held 11.4% (2022:
13.3%) of the issued share capital in Castelnau, there have been no
transactions with Castelnau during the year and there were no other balances
outstanding with Castelnau as at 31 December 2023.
12. Financial Instruments
Investments are carried in the balance sheet at fair value. For other
financial assets and financial liabilities, the balance sheet value is
considered to be a reasonable approximation of fair value.
Financial assets
The Company's financial assets may include equity investments, fixed
interest securities, short-term receivables and cash balances. The currency
and cash-flow profile of those financial assets was:
2023 2022
Interest Non- Total Interest Non- Total
Bearing
interest
£'000
Bearing
interest
£'000
£'000
Bearing
£'000
Bearing
£'000
£'000
Non-current equity investments at fair value through profit or loss:
£ sterling denominated security holdings - 169,963 169,963 - 128,638 128,638
€ euro denominated security holdings - 15,349 15,349 - 10,060 10,060
$ usd denominated security holdings - 16,897 16,897 - 10,529 10,529
- 202,209 202,209 - 149,227 149,227
Cash at bank:
Floating rate - £ sterling 6,248 - 6,248 5,250 - 5,250
Floating rate - € euro - - - 98 - 98
6,248 - 6,248 5,348 - 5,348
Current assets:
Receivables - 372 372 - 310 310
6,248 202,581 208,829 5,348 149,537 154,885
Cash at bank of £6,248,000 (2022: £5,348,000) is held by the Company's
Depositary, Northern Trust Investor Services Ltd.
Financial liabilities
The Company finances its investment activities through its ordinary share
capital and reserves. It has discontinued the use of borrowing for such
purposes. The Company's financial liabilities comprise short-term trade
payables. Foreign currency balances are stated in the accounts in sterling at
the exchange rate as at the Balance Sheet date.
There were no short-term trade payables (other than accrued expenses).
Fair Value Hierarchy
Under IFRS 13 investment companies are required to disclose the fair value
hierarchy that classifies financial instruments measured at fair value at
one of three levels according to the relative reliability of the inputs used
to estimate the fair values.
Classification Input
Level 1 Valued using quoted prices in active markets for identical assets
Level 2 Valued by reference to valuation techniques using observable inputs other than
quoted prices included within Level 1
Level 3 Valued by reference to valuation techniques using inputs that are not based on
observable market data
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant asset.
Classification Year to Year to
31 December
31 December
2023
2022
£'000
£'000
Level 1 200,733 146,356
Level 2 - -
Level 3 1,476 2,871
Total non-current investments held at 'FVTPL' 202,209 149,227
There were no transfers between levels during the year.
The movement on the Level 3 unquoted investments during the year is shown
below:
Year to Year to
31 December
31 December
2023
2022
£'000
£'000
Opening balance 2,871 3,400
Disposals - -
Unrealised losses (1,395) (529)
Closing balance 1,476 2,871
The Level 3 unquoted investment balance represents the Company's investment in
Phoenix SG Limited ("Phoenix SG"). The fair value estimate is based on the
attributable proportion of the reported net asset value of the Level 3
investment derived from the fair value of the underlying investments.
Valuation reports provided by the fund manager are used to calculate fair
value where there is evidence that the valuation is derived using fair value
principles that are consistent with the Company's accounting policies and
valuation methods. Such valuation reports may be adjusted to take account of
changes or events to the reporting date, or other facts and circumstances
which might impact the underlying value such as any issues being highlighted
or emphasised in Phoenix SG's audited financial statements.
The total fair value attributable to the Company's investment in Phoenix SG as
of 31 December 2023 is £1,476,000 (20221: £2,871,000). The Company held
9.04% (2022: 9.4%) of the share capital of Phoenix SG.
Risk Analysis
The general risk analysis undertaken by the Board and its overall policy
approach to risk management are set out in the Strategic Report. Issues
associated with portfolio distribution and concentration risk are discussed in
the Investment Policy section of the Strategic Report. This note, which is
incorporated in accordance with accounting standard IFRS7, examines in greater
detail the identification, measurement and management of risks potentially
affecting the value of financial instruments and how those risks potentially
affect the performance and financial position of the Company. The risks
concerned are categorised as follows:
a. Potential Market Risks, which are principally:
i. Currency Risk
ii. Interest Rate Risk and
iii. Other Price Risk.
b. Liquidity Risk
c. Credit Risk
Each is considered in turn below:
A (i) Currency Risk
The portfolio as at 31 December 2023 was invested predominantly in sterling
denominated securities and there was limited currency risk arising from the
possibility of a fall in the value of sterling impacting upon the value of
investments or income.
The Company had no foreign currency borrowings at 31 December 2023 or 31
December 2022.
The Company does not hedge its currency exposures currently, but under its
investment policy and restrictions, derivative or similar financial
instruments can be employed if considered necessary for the purpose of capital
preservation.
Currency sensitivity
The table below shows the impact on the Company's profit after taxation for
the year ended and net assets as at 31 December 2023, if sterling had
strengthened/weakened by 10% against Euro and USD.
2023 2022
£'000
£'000
Euro (1,395)/1,705 (923)/1,129
USD (1,536)/1,877 (957)/1,170
A (ii) Interest Rate Risk
The Company did not hold fixed interest securities at 31 December 2023 or 31
December 2022.
With the exception of cash, no interest rate risks arise in respect of any
current asset. All cash held as a current asset is sterling denominated,
earning interest at the bank's or custodian's variable interest rates.
The Company had no borrowings at 31 December 2023 or 31 December 2022.
A (iii) Other Price Risk
The principal price risk for the Company is the price volatility of shares
that are owned by the Company. As described in the Investment Manager's
Review, the Company spreads its investments across different sectors and
geographies, but as shown by the Portfolio Analysis in the Business Review,
the Company may maintain relatively strong concentrations in particular
sectors selected by the Investment Manager.
The Board manages these risks through the use of investment limits and
guidelines as set out in the Company's investment policy and restrictions, and
monitors the risks through regular financial and compliance reports provided
by the Company's key service providers.
The effect on the portfolio of a 10.0% increase or decrease in market prices
would have resulted in an increase or decrease of £20,221,000 (2022:
£14,923,000) in the investments held at fair value through profit or loss at
the period end, which is equivalent to 9.7% (2022: 9.6%) in the net assets
attributable to equity holders. This analysis assumes that all other variables
remain constant.
B Liquidity Risk
Liquidity Risk is considered to be small, because most of the portfolio is
invested in readily realisable securities. As a consequence, cash flow risks
are also considered to be immaterial. The Investment Manager estimates that,
under normal market conditions and without causing excessive disturbance to
the prices of the securities concerned, 31.2% (2022: 46.6%) of the portfolio
could be liquidated in a non-market impacting way within 7 days, based on 25%
of average daily volume. This is conservative as it does not include the
ability to access liquidity through block trades.
C Credit Risk
The Company invests in quoted and unquoted equities in line with its
investment objective and policy. The Company's investments are held by
Northern Trust Investor Services Ltd ("the Depositary"), which is a large and
reputable international banking institution. The Company's normal practice is
to remain fully invested at most times and not to hold large quantities of
cash. At 31 December 2023, cash at bank comprised £6,248,000 (2022:
£5,348,000) held by the Depository. Credit Risk arising on transactions with
brokers relates to transactions awaiting settlement. This risk is considered
to be very low because transactions are almost always undertaken on a delivery
versus payment basis with member firms of the London Stock Exchange.
D Capital management policies and procedures
The Company's capital management objectives are:
• to ensure the Company's ability to continue as a going concern;
and
• to provide an adequate return to shareholders
by pursuing investment policies commensurate with the level of risk.
The Company considers its capital to be issued share capital and reserves, and
monitors capital on the basis of the carrying amount of equity, less cash as
presented on the face of the statement of financial position.
The Company sets the amount of capital in proportion to its overall financing
structure, i.e. equity and financial liabilities. The Company does not
currently intend to use gearing, but as set out in its investment objective
and policy, borrowings of up to 30% of the aggregate of the paid-up nominal
capital plus the capital and revenue reserves are permitted.
The Company manages the capital structure and makes adjustments to it in the
light of changes in economic conditions and the risk characteristics of the
underlying assets. In order to maintain or adjust the capital structure, the
Company may adjust the amount of dividends paid to shareholders (within the
statutory limits applying to investment trusts), return capital to
shareholders, issue new shares, or sell assets.
13. Post Year End Events
On 17 January 2024, the Company issued 172,373 shares to the Investment
Manager in settlement of 80% of the £560,903 performance fee earned by the
Manager for the 2022 and 2023 performance assessment period. The remaining 20%
will be settled via further issuance of shares upon approval of the Annual
Report and Financial Statements for the year ended 31 December 2023. All
shares issued in settlement of performance fees are subject to a lock-in and
clawback period of 3 years. As disclosed under the Investment Management
Agreement section of the Directors' Report on page 39, if the Company's
cumulative returns underperform its benchmark over the clawback period, all
shares issued in relation to a particular performance year will be clawed back
and returned to the Company for cancellation.
.
The figures and financial information for 2022 are extracted from the
published Annual Report for the year ended 31 December 2022 and do not
constitute the statutory accounts for that year. The Annual Report for the
year ended 31 December 2022 has been delivered to the Registrar of Companies
and included an Independent Auditor's Report which was unqualified and did not
contain a statement under either section 498(2) or section 498(3) of the
Companies Act 2006.
The figures and financial information for 2023 are extracted from the Annual
Report and financial statements for the year ended 31 December 2023 and do not
constitute the statutory accounts for the year. The Annual Report for the year
ended 31 December 2023 includes an Independent Auditor's Report which is
unqualified and does not contain a statement under either section 498(2) or
section 498(3) of the Companies Act 2006. The Annual Report and financial
statements have not yet been delivered to the Registrar of Companies.
The Annual Report will be posted to shareholders shortly. Copies may be
obtained by writing to the Company Secretary, Frostrow Capital LLP at 25
Southampton Buildings, London WC2A 1AL, or from the Company's website -
www.aurorainvestmenttrust.com - where up to date information on the Company,
including daily NAVs, share prices and fact sheets, can also be found.
A copy of the Annual Report will be submitted to the National Storage
Mechanism and will shortly be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)
Frostrow Capital LLP
Company Secretary
020 3709 8733
26 March 2024
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