Aurora Investment - Half-year Report
21/09/2023 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230921:nRSU1238Na&default-theme=true
RNS Number : 1238N Aurora Investment Trust PLC 21 September 2023
Aurora Investment Trust plc
Half Yearly Report
for the six months ended 30 June 2023
.
FINANCIAL AND PERFORMANCE HIGHLIGHTS
Performance
At At
30 June 2023
31 December 2022
(unaudited)
(audited)
Net asset Value ("NAV") per Ordinary Share(1) 225.6p 203.5p
Ordinary Share price 200.0p 194.5p
Share price discount to NAV per share(1) (11.3)% (4.4)%
Annualised ongoing charges(1) 0.44% 0.45%
Gearing (net) - -
The total returns in sterling for the period/year were as follows:
Six months to Year to
30 June 2023
31 December 2022
(unaudited)
(audited)
% %
NAV total return per Ordinary Share(1,2) 12.4 (19.1)
Ordinary Share price total return(1,2) 4.3 (16.3)
FTSE All-Share Index total return ("Benchmark") 2.5 0.3
1 Definitions of these Alternative Performance Measures ("APMs")
together with how these have been calculated can be found on pages 28 and 29.
2 Including dividend reinvested.
.
CHAIR'S STATEMENT
This report covers your Company's activities over the six months to 30 June
2023 and its financial position at that date.
Performance
I am pleased to report performance over the period was very encouraging. Over
the six months the Company's net asset value ("NAV") per share increased from
203.5p at 31 December 2022 to 225.6p at 30 June 2023, giving a total return
for the period of +12.4% (2022: -17.3%). The price at which the Company's
shares traded rose from 194.5p per share at 31 December 2022 to 200.0p at 30
June 2023, giving a share price total return of +4.3% (2022: -17.7%). These
compare with the total return over the six months for the FTSE All-Share
Index, the Company's benchmark, of +2.5% (2022: -4.6%). At the end of June
the share price stood at an 11.3% discount to the NAV per share.
Top contributors were easyJet, Ryanair, Netflix, Wayfair, Castelnau, AO World
and Barratt Developments. Notable detractors included Hotel Chocolat and
Hornby. The Investment Manager's Review, starting on page 5, provides further
details on activity and outlook.
Investment Manager Presentation Event
Shareholders are invited to Aurora's inaugural Investment Manager Presentation
Event, being held at 4 p.m. on 10 October 2023 at the Queen Elizabeth II
Centre, Broad Sanctuary, Westminster, London SW1P 3EE. Both existing and
prospective Aurora shareholders are welcome and the event will include
multiple speakers from the Investment Manager. We plan to record the event and
publish it on the Company's website. If you would like to attend the event,
please contact phoenix@pamp.co.uk to register.
Share Price Discount
The discount to NAV per share widened over the period from 4.4% at the end of
2022 to 11.3% as at 30 June. This is particularly frustrating in light of
strong performance over the period. Investment trusts as a whole have seen
discounts widen significantly, however the Board is fully aware this provides
little solace for shareholders.
Closing the discount is one of the Board's key objectives for 2023, and
marketing is a key part of the strategy. To raise the Company's profile,
marketing materials including the website will be refreshed, and more regular
opportunities for existing and prospective shareholders to meet with the
Manager have been introduced, including the presentation referenced above.
Phoenix, Liberum, and Frostrow Capital continue to promote the Company
proactively.
Outlook
After a difficult 2022, performance so far in 2023 has been promising. We
believe there is significant untapped value in UK shares and, with the
Manager's strategy to invest in great businesses at attractive prices, the
Company's shares offer an excellent opportunity to access this.
Lucy Walker
Chair
20 September 2023
.
OBJECTIVE AND INVESTMENT POLICY
Investment Objective
Aurora Investment Trust plc's (the "Company") objective is to provide
Shareholders with long-term returns through capital and income growth.
Investment Policy
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.
• 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.
• 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.
.
INVESTMENT MANAGER'S REVIEW
Performance
On a total return (dividends inclusive) basis, the NAV per share rose by 12.4%
over the half year with the share price rising 4.4%. At the end of June, the
shares were trading at an 11.3% discount to NAV. The FTSE All Share Index
total return over the same period was 2.5%.
At the end of August performance continued to be strong, with the daily
published NAV(1) total return up 15.0% year to date, versus a 2.7% increase in
the FTSE All Share Index total return.
The positive performance for the year is pleasing but it should be taken in
the context of the fall suffered in 2022. We expressed our confidence at the
end of 2022 in the portfolio and in the UK market and that confidence still
exists today. Even given the rise seen in this half year, valuations are
cheap, and we remain positive in relation to the long-term prospects for the
portfolio. It is composed of strong businesses whose competitive positions
have become relatively stronger in the difficult times we have faced in the
last eighteen months. The benefits of that have begun to become apparent in
this half year.
From an individual stock perspective there were a number of significant price
moves in the half year. AO World and Netflix posted rises of 52% and 49%
respectively. Our low-cost airline holdings, easyJet and Ryanair, benefitted
from the ongoing recovery in travel and rose 49% and 41% respectively.
Finally, RHI Magnesita rose 24% after a partial tender offer for 20% of its
shares.
A noticeable price faller was Hotel Chocolat, which fell 23% during the half
year.
From a contribution perspective, the most significant contributions came from
the low-cost airlines, which accounted for circa 5% of the NAV rise, with
Netflix being another notable contributor. The largest negative contribution
came from Hotel Chocolat, which reduced the return by circa 1%.
(1) The Company recognises performance fees and clawbacks on fees paid in
prior performance periods under IFRS 2 Share Based Payments in its Interim and
Annual Reports. In the Company's unaudited daily published NAV, current
performance fee and clawback(s) on fees paid in prior performance periods are
recognised on a liability/asset basis, which diverges from the Company's
accounting policy.
Activity
Given our confidence in the portfolio at year end, activity in this half year
has been limited. The only transactions of note were very modest reductions in
Frasers Group and easyJet. Both were in response to price rises.
Only holdings above 3% are introduced in detail and during the half year Hotel
Chocolat rose above a 3% weight. It was introduced in the March factsheet and
that introduction is reproduced below.
New Holdings
Hotel Chocolat
Many of you will be familiar with our newest investment, Hotel Chocolat. You
may have sent their boxed chocolates as gifts, or perhaps you have developed a
taste for Velvetised hot chocolate. Hotel Chocolat manufactures premium
chocolate and cocoa-related products and sells these directly to its
customers. The company sells its products online and through its network of
stores, primarily in the UK. Hotel Chocolat also owns a cacao plantation and
luxury hotel, restaurant and spa in St Lucia, called the Rabot Estate.
In 1988, Angus Thirlwell and Peter Harris left the tech company for which they
had been working to set up the Mint Marketing Company, selling branded mints
as corporate gifts. By 1993, the Mint Marketing Company had evolved to sell
boxes of chocolates delivered by post, known as 'chocograms', and the business
was rebranded to ChocExpress. In 1998, ChocExpress launched the Chocolate
Tasting Club, a subscription service that saw members receive unique
selections of chocolate each month. This not only enabled the business to
develop new ideas and recipes, but also to build a relationship with their
customers and to get an insight into what the British public liked in their
chocolate.
In 2003, ChocExpress rebranded as Hotel Chocolat, after customers kept
commenting that the chocolates were 'surprisingly' good. Hotel Chocolat better
conveyed the idea of escapism through chocolate, juxtaposing the English word
'Hotel' with the more onomatopoeic and luxury-evoking French 'Chocolat'.
The first physical Hotel Chocolat shop opened in Watford in 2004. Today, there
are 122 Hotel Chocolat locations across the UK.
Hotel Chocolat listed on the London Stock Exchange in 2016, with both founders
retaining a significant stake in the business. As of 31 December 2022, they
each owned 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 over-reacted, 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%.
Outlook
In early July, Gary Channon published some thoughts to investors, which were
outlined in the June factsheet.
They covered his thoughts on UK housebuilding, as it comprises a substantial
part of the portfolio, along with an update on our offer for Dignity PLC. The
Company has a significant "look through" exposure to Dignity via its holding
in Castelnau Group Limited. Gary also outlined some thoughts on AI and on the
outlook for the UK in general.
That piece is reproduced below.
Housebuilding
Concern about interest rates is driving opinions and price moves in
housebuilder shares, which always act as a proxy for the market's views on
house prices. This is because lower selling prices immediately reduce
housebuilders' accounting profits as the cost of land and building have
already been set. Analysts forecast earnings, and when house prices decline,
so do earnings. However, as we have pointed out many times before, in cash
terms the drop in house prices is largely recovered in the replacement cost of
land, and as housebuilders slow their growth, they need less land replacement.
The net effect is that they generate cash. Bellway's trading statement on 13
June is a great illustration where they expect slightly lower output, lower
selling prices and therefore lower profits, but an increase in cash even
though they are buying back their shares.
Cash is value and accounting earnings are not, and eventually the market ends
up recognising its mistake, but for now, it makes for very depressed
valuations and wonderful investments.
An Anatomy of a UK House Price Crash
There are peculiarities of the UK housing market that cause it to correct in a
certain way. As it is not possible to walk away from a mortgage in the UK even
if the house is worth less than the loan, and as banks are very reluctant to
repossess properties and in fact are under all sorts of regulatory and
political pressure not to do so, it means that there are very few forced
sellers in the market.
Price adjustments happen slowly because when told that they need to reduce the
price of their house substantially to sell it, most decide not to sell and
even not to move. Volumes decline.
Price does adjust down gradually though. There is an imprecision about house
values but, if we were to think of them like shares, then the bid to ask price
is around 10%. In a strong market where buyers outnumber sellers, houses
transact on average at the offer side. In a weak market, buyers expect a
discount and place lower bids and, within reason, sellers accept those bids.
Houses that were transacting for £300k decline to £270k, but only very
slowly.
The biggest modern-day crash in UK house prices occurred from 1989 to 1995 and
was in total 23%. However, only 9% of that came through price; the rest was
from inflation. It was an absolute -9% but in real terms, -23%. The fall in
2008 was even less because inflation was lower.
So far in this adjustment prices have barely budged off their highs; they've
stopped rising at a time of high inflation and so in real terms they have
fallen c.6% from their peak. Given all the prevailing conditions that are
likely to persist, this will cause housebuilders' profits to fall and their
cash generation to rise.
Higher rates are painful for those seeking a mortgage, but a tightly supplied
housing market means that there are always occupiers for houses built and we
can see that rents are rising rapidly. Housebuilders are now selling more of
their product to landlords.
Dignity
We are now in a much less restricted position to talk to you about Dignity. We
have nearly 99% of the equity, have delisted it and are in the process of
mandatorily purchasing the remainder.
A new governance structure is in place and new appointments have been made to
the executive leadership. For the first time in 3 years, Dignity has a
permanent CFO. The new leadership team is moving quickly to accelerate the
transformation of Dignity and capture the benefits of being delisted. Sir
Peter Wood's team is now fully engaged. New boards have been formed and
regular meetings with the shareholders, SPWOne and Castelnau, are held.
We can now talk more openly about valuations. There are many ways in which to
tackle this, but we can start with one that is familiar to you, that is a
Phoenix Intrinsic Value and on that basis, we value Dignity at a little over
£30 per share, versus the £5.50 acquisition price. This is not to underplay
the huge amount of work to be done in order to deliver the performance that
earns that valuation.
Another important valuation consideration is downside, and for Dignity the
base downside can be calculated using a breakup or liquidation value. Selling
the portfolio of crematoria and repaying the debt, we think, would generate
more net proceeds than the acquisition price of the whole business (£286m).
There are many valuable funeral businesses in the Dignity portfolio but even
setting that aside and assuming you wind it all down without any disposal
proceeds, it still leaves c.400 commercial freeholds mainly in residential
areas with planning gain potential, as well as over 200 residential freeholds.
These are valued at c.£150m on an existing use basis and it's too early to
give an accurate number for planning gain potential but it's very material. As
for the funeral plan trusts, they have a surplus above the regulatory
requirement of c.£200m.
Taking that all together, assuming successful execution and even allowing for
tax, gives a value over twice the acquisition price. Unlike the bottom of the
range worst case scenarios that we calculate as arm's length fund managers,
this is one that we have the authority to deliver if warranted. Having control
doesn't just unleash the upside, it more importantly protects the downside.
The value creation at Dignity comes from that Lollapalooza effect we talked
about in 2020 when we publicly sought a strategy change. Seize the opportunity
provided by the regulation of funeral plans to grow the market and lead it,
thereby building up an investment float that can be prudently compounded until
needed to provide funerals. More plans mean more funerals and more funerals
will increase the volume of cremations we handle at our crematoria.
It is a merit-based strategy. We aim to be the best provider in all three
areas and to cultivate a culture that delivers excellent service, a great
place to work and outstanding economics.
As we discussed during the acquisition, it is our intention in the medium term
to seek a way of crystallising the value being created in Dignity, so that
those holding stakes that wish to realise some of that value are able to do
so. Before that, Castelnau will produce a monthly valuation of the business
that will be independently verified; for a period following the acquisition
the acquisition price is considered the value because there is a recent public
transaction at that level. We plan to report to you as transparently as is
commercially sensible, and being a private company will make that a lot
easier than when it was a public company.
Artificial Intelligence ("AI")
When we started in 1998, the market was getting distorted by the arrival of
the internet. A bubble was building in technology and telecoms company
valuations in anticipation of the huge potential rewards that would accrue to
the winners. Other businesses were left behind and became extremely
undervalued in what turned out to be one of the greatest value investing
windows we have seen.
The internet has had a huge effect, both creative and destructive; great
fortunes have been made and others wiped out. There has been no single bigger
factor impacting businesses since. We generally adopted a more cautionary and
wary attitude trying to avoid those businesses that were likely to be hurt and
investing where we thought it would have either no effect or a positive one.
25 years later, markets are once again undergoing a technology led distortion
and this time it is Artificial Intelligence doing it. It looks like it will
have as profound an impact on business and society as the internet has. No
investment can be considered without thinking through the implications of AI,
but just as it was in 1998, it's too early to know what will happen and what
the ramifications will be. We need to be vigilant.
In Castelnau we started a data science company of our own two years ago with
Gerry Buggy to find ways of applying AI to our businesses, because at the
time we couldn't find an equivalent business to work with. That company, Ocula
Technologies, has now taken the products developed with the help of Castelnau
Group companies and is signing up external companies. We are learning a lot in
watching that happen. If you have a business that might benefit from the
actionable AI technology in Ocula, let us connect you with the co-founders,
Tom McKenna (ThomasM@ocula.tech) and Greg Fletcher (Gregoryf@ocula.tech).
In one of our Castelnau companies we are trying to practically apply AI to
improve productivity and from early indications the results will be
significant. These learnings help us with our assessment of portfolio
companies and potential investments. Our analysts are now augmenting their
work with the help of ChatGPT and others.
There is a storm coming; like with the internet the market will over think it,
overreact and thereby create opportunities for the prepared mind. We are doing
all we can to equip ourselves for it.
There has been a deluge of publications on the topic, most not that useful, in
fact ChatGPT4 is probably the best teacher right now. The book we found the
most useful in thinking through the likely implications and creating a way to
put those in an economic context is Prediction Machines, Updated and Expanded:
The Simple Economics of Artificial Intelligence (the 2022 version) by Agrawal,
Gans and Goldfarb. This comes out of the University of Toronto, which has been
the originator of much of the latest breakthroughs in AI.
UK
The UK is, in so many ways, mired in its own gloom. Anyone visiting even with
a neutral perspective will soon find themselves infected by the negativity
that pervades life in the UK. Although there are plenty of negative things
occurring, and some of them have been big, like the implications of Brexit,
when one thinks about it in the context of what the future holds for the
world, there is reason to be particularly optimistic.
Take technology; Charles Babbage is considered to have built the first
computer, Ada Lovelace to have written the first computer programme, Alan
Turing is the founding father of modern computing and Artificial Intelligence,
Tim Berners-Lee is the person who started what became the internet we know
today, Geoffrey Hinton who recently stepped down from Google and is considered
the father of AI and Demis Hassibis the new head of AI at Google is the
co-founder of Deep Mind that has made great breakthroughs in AI. These people
are all from the UK and were actually all born in London. This is not
coincidence, the British, although they rarely acknowledge it themselves, have
a culture that produces creative and inventive people, and we are in an era
when that will be highly valued.
The best-selling writer of all time is Shakespeare, but in the modern era it
is JK Rowling. In fact, 3 of the 5 best-selling books of all time were
written in the UK. The same goes for music where 4 of the top 8 selling
artists of all time are from the UK. We could go on, but the picture is the
same, the UK is unusually creative in a way that has global appeal.
Machines reduced the manpower needed in food production and robots and AI are
doing the same in manufacturing, logistics and administration. As people work
less, they put more time and money into leisure and entertainment. That is
having a big impact in games and sports and once again, the UK is uniquely
placed.
Football is the world's most watched sport with the English Premier League the
most watched and most valued in the world. Next it is cricket. The most
valuable sport according to Forbes is Formula One, which also originated in
the UK and 70% of the teams are based here. As we write another game
originated in the UK, Tennis, the most watched single person match sport in
the world, is having its annual tournament in Wimbledon, SW London.
This creative and playful inventiveness is not just an intrinsic cultural
characteristic, it is also the product of an education system that encourages
individuality. Again, the UK has four universities ranked in the Top 10 in the
world, the same number as the US, a country with 5 times the population.
Brexit may impact where companies decide to locate their factories, but there
is a reason why Apple and Google have recently opened such big HQs in London.
Conclusion
The past 25-year period has been a miserable one for investors in the UK stock
market when compared to their global peers. Some of this has been justified
but a lot has been due to the devaluing of businesses listed here. As we
write, the value of Apple now exceeds the whole of the FTSE 100.
These are the moments when value investors retire, get fired or alternatively
double down, maximise their upside value and wait. Buffett says that when it
is raining gold put out a bucket not a thimble. We think we've been doing
that, and this is no more clearly illustrated than by our seizing the
opportunity (within Castelnau) to buy all of Dignity. In 1999, in our first
full year, we lagged the market by 25%, and value investing felt like a lonely
place to be as everyone was enjoying bumper returns in the market. What we
learned then and have again and again, is that in the end value wins, it can
be a long wait, but ultimately value shines through.
Steve Tatters
Director
Phoenix Asset Management Partners Ltd
20 September 2023
.
Top holdings
As at 30 June 2023
Company Sector Holding in Fair value Percentage
Company
£'000
of net assets
%
Frasers Group plc Retail 4,968,886 34,857 20.31
Castelnau Group Limited(#) Financial 36,421,421 26,952 15.70
Barratt Developments plc Construction 5,866,312 24,257 14.13
Ryanair Holdings Plc Leisure 928,600 13,718 7.99
Netflix Inc Technology & Entertainment 33,500 11,602 6.76
easyJet Plc Leisure 2,304,768 11,123 6.48
Lloyds Banking Group plc Financial 19,618,000 8,551 4.98
RHI Magnesita N.V. Materials 260,970 6,921 4.03
Bellway Plc Construction 306,940 6,102 3.56
Other holdings (less than 3%) 27,120 15.80
Total holdings 171,203 99.75
Other current assets and liabilities 426 0.25
Net assets 171,629 100.00
# 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.
.
Sector Breakdown
As at 30 June 2023
SECTOR Percentage of
net assets
%
Financial* 25.11
Retail 22.84
Construction 18.53
Leisure 15.23
Technology & Entertainment 6.76
Materials 4.03
Food & Beverage 3.13
Industrials 2.96
Insurance 1.17
Other current assets 0.25
Total 100.00
* includes holding in Castelnau Group Ltd
.
INTERIM MANAGEMENT REPORT
The Directors are required to provide an Interim Management Report in
accordance with the Financial Conduct Authority's ("FCA") Disclosure Guidance
and Transparency Rules ("DTR"). The Directors consider that the Chair's
Statement on pages 2 and 3 and the Investment Manager's Review on pages 5 to
12 of this Half Yearly Financial Report provide details of the important
events in the period and their impact on the financial statements. The
following statement on the Principal Risks and Uncertainties, the Related
Party Transactions, the Statement of Directors' Responsibilities, and the
Investment Manager's Review together constitute the Interim Management Report
of the Company for the six months ended 30 June 2023. The outlook for the
Company for the remaining six months of the year ending 31 December 2023 is
discussed in the Investment Manager's Review.
Details of the investments held at the period end and the structure of the
portfolio at the period end are provided on pages 13 and 14.
Principal Risks and Uncertainties
The principal risks and uncertainties faced by the Company are set out on
pages 30 to 32 of the Company's most recent Annual Report, for the year ended
31 December 2022, which can be found on the Company's website at
www.aurorainvestmenttrust.com. The Board believes that the Company's principal
risks and uncertainties have not changed materially since the date of the
Annual Report and are not expected to change materially for the remaining six
months of the Company's financial year.
In summary, the principal risks and uncertainties facing the Company comprise:
• Geopolitical and economic risks: including from rising
interest rates, high inflation, the threat of recession, the war in Ukraine
and related sanctions;
• Investment objective and strategy: the investment policy may
not achieve the published investment objective;
• Risks related to the Investment Manager: the Company's
success is closely dependent on the performance of the Investment Manager;
• Service Provider Transition Risk; and Operational Risks: the
Company has no employees, so is reliant upon the performance of third party
service providers, several of which changed in 2022;
• Discount risk; ESG; and Financial Risks.
Related Party Transactions
The Company's Investment Manager is Phoenix Asset Management Partners Limited,
("Phoenix" or the "Investment Manager"). Phoenix is considered a related party
in accordance with the Listing Rules. Phoenix does not earn an ongoing annual
management fee. It will be paid an annual performance fee equal to one third
of the outperformance of the Company's net asset value 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.
Details of the investment management arrangements are shown in Note 5 on pages
25 and 26 of these accounts.
The Directors are also considered to be related parties. Details of the
Board's remuneration and shareholdings can be found on pages 53 to 57 of the
Company's Annual Report.
Castelnau Group Limited, one of the Company's holdings, is also managed by
Phoenix and is considered a related party.
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 Interim Report. In reaching this conclusion,
the Directors have taken account of the principal risks and uncertainties the
Company faces and considered the liquidity of the Company's portfolio of
investments, together with its cash position, income and expense flows.
As at 30 June 2023, the Company held £143,000 (30 June 2022: £5,850,000) in
cash, £168,269,000 (30 June 2022: £151,820,000) in quoted investments and
£2,934,000 (30 June 2022: £3,191,000) in an unquoted investment. It is
estimated that 55.6% of the portfolio could be realised in seven days under
normal conditions. The total operating expenses for the six months to 30 June
2023 was £377,000 (30 June 2022: £380,000). The total income during the
half-year period was £1,426,000 (30 June 2022: £1,111,000).
For and on behalf of the Board of Directors
Lucy Walker
Chair
20 September 2023
.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors confirm to the best of their knowledge that:
• The condensed set of financial statements contained within
the Half Yearly Financial Report have been prepared in accordance with
International Accounting Standard 34 "Interim Financial Reporting", gives a
true and fair view of the assets, liabilities, financial position and profit
and loss of the Company; and
• The Interim Management Report includes a fair review of the
information required by 4.2.7R and 4.2.8R of the FCA's DTR Rules.
Approved by the Board on 20 September 2023.
Lucy Walker
Chair
20 September 2023
.
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
Note Six months to 30 June 2023 Six months to 30 June 2022
(unaudited)
(unaudited)
Revenue Capital Total Revenue Capital Total
£'000
£'000
£'000
£'000
£'000
£'000
Gains/(losses) on investments - 18,089 18,089 - (32,707) (32,707)
(Losses)/gains on currency - (2) (2) - 11 11
4 Income 1,426 - 1,426 1,111 - 1,111
Total income/(loss) 1,426 18,087 19,513 1,111 (32,696) (31,585)
5 Investment management performance fees - - - - (220) (220)
Other expenses (377) - (377) (380) - (380)
Profit/(loss) before tax 1,049 18,087 19,136 731 (32,916) (32,185)
Tax (25) - (25) (33) - (33)
Profit/(loss) and total comprehensive income for the period 1,024 18,087 19,111 698 (32,916) (32,218)
8 Earnings/(loss) per share -
Basic and diluted 1.4p 23.8p 25.1p 0.9p (43.0p) (42.1p)
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. All
revenue is attributable to the equity holders of the Company.
The notes on pages 23 to 27 form part of these accounts.
.
CONDENSED STATEMENT OF FINANCIAL POSITION
Note At At
30 June
31 December
2023
2022
(unaudited)
(audited)
£'000
£'000
Non-current assets
Investments held at fair value through profit or loss 171,203 149,227
Current assets
Trade and other receivables 383 310
Cash and cash equivalents 143 5,348
526 5,658
Total assets 171,729 154,885
Current liabilities:
Other payables (100) (107)
(100) (107)
Net assets 171,629 154,778
Equity:
7 Called up share capital 19,019 19,152
Capital redemption reserve 312 179
Share premium account 111,166 111,166
Other reserve (2,877) (2,877)
7 Treasury shares - (133)
Capital reserve 42,375 24,421
Revenue reserve 1,634 2,870
Total equity 171,629 154,778
7 Ordinary Shares in issue 76,078,460 76,078,460
NAV per Ordinary Share 225.6p 203.5p
The notes on pages 23 to 27 form part of these accounts.
.
CONDENSED STATEMENT OF CHANGES IN EQUITY
Note Six months to Called- Capital Share Treasury Other Capital Revenue Total
30 June 2023
up
redemption
premium
shares
reserve
reserve
reserve
£'000
(unaudited)
share
reserve
account
£'000
£'000
£'000
£'000
capital
£'000
£'000
£'000
Opening equity 19,152 179 111,166 (133) (2,877) 24,421 2,870 154,778
Profit for the period - - - - - 18,087 1,024 19,111
6 Dividends paid - - - - - - (2,260) (2,260)
7 Share cancellation in relation to 2019 performance fee clawback (133) 133 - 133 - (133) - -
Closing equity 19,019 312 111,166 - (2,877) 42,375 1,634 171,629
The notes on pages 23 to 27 form part of these accounts.
.
CONDENSED STATEMENT OF CHANGES IN EQUITY continued
Note Six months to Called- Capital Share Other Investment Other Revenue Total
30 June 2022
up
redemption
premium
reserve
holding
capital
reserve
£'000
(unaudited)
share
reserve
account
£'000
gains
reserve
£'000
capital
£'000
£'000
£'000
£'000
£'000
Opening equity 19,130 179 110,984 (1,271) 48,641 14,514 2,016 194,193
Loss for the period - - - - (64,289) 31,373 698 (32,218)
6 Dividends paid - - - - - - (1,409) (1,409)
7 Issue of new Ordinary Shares 22 - 198 - - - - 220
Ordinary Share issue costs - - (16) - - - - (16)
Closing equity 19,152 179 111,166 (1,271) (15,648) 45,887 1,305 160,770
The notes on pages 23 to 27 form part of these accounts.
.
CASH FLOW STATEMENT
Six months to Year to
30 June
31 December
2023
2022
(unaudited)
(audited)
£'000
£'000
Net cash inflow from operating activities 945 2,126
Investing activities
Payments to acquire non-current asset investments (13,440) (47,454)
Receipts on disposal of non-current asset investments 9,552 44,455
Net cash outflow from investing activities (3,888) (2,999)
Financing activities
Ordinary Share issue costs - (17)
Dividends paid (2,260) (1,409)
Net cash outflow from financing activities (2,260) (1,426)
Decrease in cash and cash equivalents (5,203) (2,299)
Cash and cash equivalents at beginning of period/year 5,348 7,664
Losses on currency (2) (17)
Decrease in cash and cash equivalents (5,203) (2,299)
Cash and cash equivalents at end of period/year 143 5,348
The notes on pages 23 to 27 form part of these accounts.
.
NOTES TO THE FINANCIAL STATEMENTS
1. Status of the financial statements
The condensed financial statements contained in this half yearly report do not
constitute statutory accounts as defined in s434 of the Companies Act 2006.
The financial information for the six months to 30 June 2023 and 30 June 2022
has not been audited or reviewed by the Company's external auditor.
The information for the year ended 31 December 2022 has been extracted from
the latest published audited financial statements. Those statutory financial
statements have been filed with the Registrar of Companies and included the
report of the auditor, which was unqualified and did not contain a statement
under Sections 498(2) or (3) of the Companies Act 2006.
No statutory accounts in respect of any period after 31 December 2022 have
been reported on by the Company's auditor or delivered to the Registrar of
Companies.
Earnings for the first six months should not be taken as a guide to the
results for the full year.
2. Accounting policies
The half yearly financial information has been prepared in accordance with
IAS34 Interim Financial Reporting. The accounting policies are unchanged from
those used in the last published annual financial statements except where
otherwise stated.
3. Investments held at Fair Value Through Profit or Loss ("FVTPL")
At At
30 June
31 December
2023
2022
(unaudited)
(audited)
£'000
£'000
Listed securities 168,269 146,356
Unquoted securities 2,934 2,871
Total non-current investments held at FVTPL 171,203 149,227
Under IFRS13 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 At At
30 June
31 December
2023
2022
£'000
£'000
Level 1 168,269 146,356
Level 2 - -
Level 3 2,934 2,871
Total non-current investments held at FVTPL 171,203 149,227
The movement on the Level 3 unquoted investments during the period/year is
shown below:
At At
30 June
31 December
2023
2022
£'000
£'000
Opening balance 2,871 3,400
Unrealised gains/(losses) at period/year end 63 (529)
Closing balance 2,934 2,871
4. Income
Six months to Six months to
30 June 2023
30 June 2022
£'000
£'000
Income from investments:
UK dividends 1,127 882
Overseas dividends 247 222
Other income:
Deposit interest 52 7
Total income 1,426 1,111
5. Investment management fees
The Company's Investment Manager does not earn an ongoing annual management
fee, but is instead paid an annual performance fee equal to one third of any
outperformance of the Company's NAV per Ordinary 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.
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 if the NAV per Ordinary
Share has increased in absolute terms over the period and 2% if 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 year until all underperformance of the Company's net asset
value since the last performance fee was paid has been made up.
Performance fees are settled by issuance of the Company's Ordinary Shares.
Such Ordinary Shares are issued at the NAV per Ordinary Share on the date of
issue, so that the then current value of the Ordinary Shares equates in terms
of NAV to the performance fees liability.
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.
Any performance of Castelnau Group Limited will be excluded from the
calculation of the performance fee payable by the Company to Phoenix.
All other performance fees are subject to a review and claw-back procedure if
the Company underperforms its benchmark over a period of three years following
the end of the financial year in respect of which the relevant fee was paid.
Ordinary Shares received by the Investment Manager under this arrangement must
be retained by the Investment Manager throughout the three-year period to
which the claw-back procedure applies.
As a result of the above all or any part of the performance fees might become
recoverable. The Company reflects this in the charge recognised in subsequent
accounting periods within the vesting period of the Investment Manager through
the true-up mechanism in IFRS 2.
No performance fee has been charged in the Income Statement for the period
ended 30 June 2023 (30 June 2022: £221,000).
6. Dividends
The final dividend of 2.97p per Ordinary Share in respect of the year ended on
31 December 2022 went ex-dividend on 8 June 2023 and had a record date of
9 June 2023. The dividend was paid on 4 July 2023. This dividend was not
reflected in the financial statements for the year ended 31 December 2022, but
is reflected in the financial statements for the period to 30 June 2023.
7. Share capital
At At
30 June
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
The Company did not purchase any of its own shares during the period ended 30
June 2023 or the year ended 31 December 2022. At 30 June 2023, the Company had
76,078,460 (31 December 2022: 76,608,771) Ordinary Shares in issue. The number
of voting shares at 30 June 2023 was 76,078,460 (31 December 2022:
76,078,460).
Shares Issued under the Company's Block Listing Facility
The Company has a Block Listing Facility which was last renewed on 17 April
2020. As at period end, 40,245,062 Ordinary Shares remained unallotted under
the facility. No shares were issued under the Block Listing Facility during
the period under review.
Shares Issued to the Investment Manager
On 7 February 2022, 69,738 new Ordinary shares were issued to the Company's
Investment Manager at a price of 254.37p per share and on 11 May 2022, 19,358
new Ordinary shares were issued at a price of 226.40 pence per share to the
Company's Investment Manager, together representing the performance fee earned
for the year ended 31 December 2021. These new Ordinary Shares are subject to
a 36-month lock-in from the date of their issue and a three year clawback
period.
The clawback period on restricted shares issued to the Investment Manager in
relation to the performance period ended 31 December 2019 finished on 31
December 2022 and 530,311 shares originally issued to the Investment Manager
in respect of that clawback period were returned to the Company. These shares
were cancelled on 9 January 2023.
8. Earnings/(loss) per share
The capital, revenue and total earnings/(loss) per ordinary share are based on
the net profit/(loss) shown in the Income Statement and the weighted average
of 76,078,460 (30 June 2022: 76,580,120) Ordinary Shares in issue during the
period.
9. Related party transactions
The Board and Phoenix Asset Management Partners Limited are considered to be
related parties in accordance with the Listing Rules. Castelnau Group Limited,
one of the Company's holdings, is also managed by Phoenix Asset Management
Partners Limited. Fees payable to the Investment Manager are detailed in the
Statement of Comprehensive Income and note 5.
Fees payable to the Directors in respect of the period to 30 June 2023 were
£80,000 (30 June 2022: £78,000).
ALTERNATIVE PERFORMANCE MEASURES
Annualised ongoing charges
A measure of the regular, recurring annual costs of running an investment
company, expressed as a percentage of average net assets. The measure is
calculated by expressing the regular expenses of the year as a percentage of
the average net assets during the year.
At At
30 June 2023
31 December 2022
(unaudited)
(audited)
Average NAV a 180,059 173,184
Annualised expenses b 754 777
Non-recurring credit c (34) -
Annualised ongoing expenses d=b-c 788 777
Annualised ongoing charges figure d÷a 0.44% 0.45%
Share price discount to NAV per share
The amount, expressed as a percentage, by which the share price is less than
the NAV per share.
At At
30 June 2023
31 December 2022
(unaudited)
(audited)
NAV per Ordinary Share a 225.6p 203.5p
Share price b 200.0p 194,5p
Discount b÷a-1 (11.3)% (4.4)%
Total returns
A measure of performance that includes both income and capital returns. This
takes into account capital gains and reinvestment of dividends paid out by the
Company into its Ordinary Shares on the ex-dividend date.
Six months to Year to 31 December
30 June 2023
2022 (audited)
NAV Share price NAV Share price
Opening balance a 203.5p 194.5p 253.8p 234.5p
Closing balance b 225.6p 200.0p 203.5p 194.5p
Price movement c=b÷a-1 10.9% 2.8% (19.8)% (17.1)%
Impact of dividend reinvestment d 1.5% 1.5% 0.7% 0.8%
Total returns c+d 12.4% 4.3% (19.1)% (16.3)%
NAV Reconciliation
NAV NAV
(£'000)
per share
NAV as published on 3 July 2023 174,509 229.4p
Reversal of performance fee clawback accounted
for under non-IFRS2 approach (2,879) (3.8)p
NAV as disclosed in this half yearly report 174,508 225.6p
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END IR SEAFMSEDSEEU