REG - Aurora UK Alpha PLC - Annual Financial Report
08/04/2025 07:00
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RNS Number : 9971D Aurora UK Alpha PLC 08 April 2025
Aurora UK Alpha plc
LEI: 2138007OUWIZFMAGO575
Annual Report for the year ended 31 December 2024
.
Strategic Report
Financial and Performance Highlights
Objective
To provide shareholders with long-term total returns 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
include core holdings in 15 to 20 companies.
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 declared an interim dividend of 3.0p per share, which was paid on
6 December 2024. No interim dividend was paid in 2023 and the Board does not
propose to recommend payment of a final dividend for 2024 (2023: final
dividend 3.45p).
Annual General Meeting ("AGM")
The AGM of the Company will be held at 25 Southampton Buildings, London
WC2A 1AL on 11 June 2025 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 15 October 2025 at the
Chartered Accountants Hall, 1 Moorgate Place, London EC2R 6EA.
.
Chair's Statement
I am pleased to present the Aurora UK Alpha plc annual report for the year
ended 31 December 2024, and extend a welcome to shareholders that joined the
Company from Artemis Alpha Trust plc.
Performance
After a strong year in 2023, performance for the year to 31 December 2024 was
disappointing, with a Net Asset Value ("NAV") per share total return* of -4.3%
(2023: +36.3%). With a concentrated portfolio and a focus on identifying out
of favour names, performance can go through difficult times, and unfortunately
that has been the case recently. The share price total return* was -5.5%
(2023: +28.5%) compared to the Company's benchmark FTSE All-Share Index total
return of +9.5% (2023: +7.9%).
Top positive contributors in the year were Castelnau Group, Netflix and
Lloyds Banking Group. Frasers Group and Barratt Redrow were the most
significant detractors.
For further details on the portfolio and performance, see the Investment
Manager's Report on pages 14 to 17.
*Alternative Performance Measure (see page 93)
Combination
The Company's most notable event in the year was the successful combination
with Artemis Alpha Trust plc ("ATS"). The project was concluded on 29 November
2024, when the Company acquired approximately £101 million of net assets
from ATS in consideration for the issue to ATS shareholders of 38,369,114 new
shares in the Company. The enlarged Company continues to be managed by Phoenix
Asset Management Partners Limited ("Phoenix") using the same deeply
researched, concentrated, value-based approach as before. The scale of the
enlarged Company is expected to improve secondary market liquidity of the
shares and reduce the ongoing charges, since fixed costs are spread over a
larger asset base. The Board is grateful to our shareholders and advisers, in
particular Phoenix, for supporting the project. The Company, newly renamed
Aurora UK Alpha plc, has a clearly differentiated proposition and this
transaction leaves the Company in a strong position to further build its
shareholder base and scale.
Investment Policy and Portfolio Management
During the year the Company's investment objective and policy were amended on
two occasions. Neither were deemed material, and consequently FCA and
shareholder approval were not sought. However, for good order we are seeking
shareholder approval of the updated investment objective and policy at this
year's AGM.
The first change, announced in June, saw the Board update the investment
objective, replacing "long-term returns through capital and income growth"
with "long-term total returns". Whilst largely synonymous, the Board
considered the new wording more accurate given the Company has no income
target. The Board will continue to distribute substantially all of the net
revenue arising from the investment portfolio each year.
The second change related to the number of portfolio holdings. During the
year, a new portfolio manager joined the team, Kartik Kumar, who previously
managed Artemis Alpha Trust plc. Kartik, along with two analysts at Phoenix
were each allocated a small amount of capital to manage. These sub-portfolios,
while managed separately, will follow Phoenix's investment approach, and
within a close-knit team. The investment policy previously referenced holdings
in 15 to 20 companies, so this was updated to "core holdings" to reflect that
the aggregate number of holdings may exceed this. The portfolio will remain
concentrated, and as at 31 December 2024 the top 5 stocks amounted to 61% and
the top 20 stocks amounted to 89% by value of gross assets.
The Investment Manager and Performance Fees
Phoenix has managed the Company's portfolio since January 2016, making 2024
the ninth year, and throughout that time the team has employed a focused and
patient investment approach.
Phoenix earns no ongoing annual management fee, and instead is paid 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. This means issued
shares will be returned by the Investment Manager in the event that
outperformance versus the index reverses on the third-year anniversary. If
outperformance fully reverses, the Investment Manager receives nothing.
The clawback period in relation to the performance fee for the year to 31
December 2021 ended on 31 December 2024 and this resulted in an entitlement
for the Company to claw back 89,096 shares from Phoenix. These shares were
duly delivered to the Company and cancelled in January.
Continuation
The Company's articles provide that shareholders shall have the opportunity to
vote on the Company's continuation every three years. The last such
opportunity was at the AGM in 2022 and, accordingly, the next occasion will be
at the AGM on 11 June 2025. Consequently, a resolution for continuation of the
Company as an investment trust is included in the notice of the meeting. The
Board strongly recommends that shareholders vote in favour of the Company's
continuation.
Share Price Discount
The Board closely monitors the discount at which the Company's shares trade to
NAV. During 2024 the discount widened from 10.0% at the end of 2023 to 11.4%
at the end of 2024.
While discounts across the investment trust sector remained wide, averaging
14.7% over the period, closing the discount remains a key objective of the
Board.
Marketing activities are a key part of achieving this, and Phoenix along with
the Company's new broker, Deutsche Numis, and Frostrow Capital as investor
relations and marketing adviser continue to promote the Company proactively.
Since the year end, the Board announced the Company may buy back some shares,
demonstrating the value in the underlying portfolio and the Company's shares.
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.
Annual General Meeting ("AGM") and separate Investment Manager presentation
event
Following on from the last two years, this year's AGM will not include an
Investment Manager presentation. The AGM will be held at the Company's
registered office, 25 Southampton Buildings, London WC2A 1AL, on 11 June 2025
at 1 p.m. to consider the business set out in the Notice of Meeting on pages
98 and 99.
A separate investor event will be held at 3.30 p.m. on 15 October 2025 at the
Chartered Accountants Hall, 1 Moorgate Place, London EC2R 6EA. This event has
been well attended in previous years and is intended to be of interest to both
existing and prospective Aurora shareholders. It will include multiple
speakers from the Investment Manager and is intended 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
https://uk.investorcentre.mpms.mufg.com/login
(https://uk.investorcentre.mpms.mufg.com/login) 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 declared an interim dividend of 3.0p per share in advance of the ATS
combination, which was paid on 6 December 2024. An interim dividend was not
paid in 2023 and the Board does not propose to recommend payment of a final
dividend for 2024 (2023: final dividend 3.45p). The Board's previously
published intention to distribute substantially all of the Company's net
revenue proceeds remains unchanged.
Your Board
David Stevenson, having reached nine years of tenure, plans to retire from the
Board in December 2025. The Board will instigate a recruitment process for
another Director shortly.
Outlook
At the time of writing, the US market, long seen as the default outperformer,
is under pressure, and many global uncertainties remain. But uncertainty can
be fertile ground for long-term investors. What we can be certain of is the
consistency of our Investment Manager's approach, to seek out exceptional
companies at the moments when others won't. It's a discipline that can test
patience, and 2024 was no exception - a year when many of those out-of-favour
companies remained that way. We don't welcome volatility, but we do recognise
its role as it often precedes outsized future returns. History tells us that
the most compelling long-term performance is built in precisely these periods.
The Investment Manager's commentary on pages 13 to 17 sets out in more detail
reasons for confidence, not just in the resilience of the companies in the
portfolio, but in their potential to thrive from here.
Lucy Walker
Chair
7 April 2025
.
Investment policy and results
The Company seeks to achieve its investment objective (see page 3) 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 include core 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 total returns by investing predominantly
in a portfolio of UK listed companies. The Board measures the Company's
success in attaining its objective by reference to KPI's 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"). Whereas the Financial
Statements (on pages 69 to 92) set out the required statutory reporting
measures of the Company's financial performance, 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 93 and 94.
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 17 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 2024
2024
2023
%
%
%
NAV per share (total return) 86.5 (4.3) 36.3
Share price (total return) 68.9 (5.5) 28.5
Benchmark (total return) 88.7 9.5 7.9
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
disappointed in 2024, but the Company's strategy is to invest for the long
term and short-term volatility is not indicative of the underlying intrinsic
value of the portfolio.
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 2024, the
Company's ongoing charges figure calculated in accordance with the
Association of Investment Companies ("AIC") methodology was 0.45% (2023:
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 discount of 11.4% to the NAV per share as at
31 December 2024 (2023: 10.0% 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 56), the Company's shares traded at a discount of
between 3.6% and 15.5%, with an average discount of 9.4% (2023: the Company's
shares traded at a discount of between 5.0% and 14.1% to NAV per share, with
an average discount of 10.4%). Discount is further discussed on pages 5 and
34.
Revenue Result and Dividend
The Company's revenue after tax for the year ended 31 December 2024 was
£2,556,000 (2023: £2,661,000). The Board declared an interim dividend of
3.0p per share, which was paid on 6 December 2024 to shareholders on the
register on 1 November 2024, before the combination with Artemis Alpha Trust
plc (no interim dividend was paid in 2023). The Board does not propose to
recommend payment of a final dividend for 2024 (2023: final dividend 3.45p).
Our registrar, MUFG Corporate Markets ("MUFG"), administers a Dividend
Re-Investment Plan ("DRIP") on behalf of the Company whereby direct
shareholders resident in the United Kingdom can choose for MUFG to apply their
cash dividend to buy further shares in the market. Details about the DRIP,
including the terms and conditions and how to join or exit the DRIP are
available at https://uk.investorcentre.mpms.mufg.com/login or by calling MUFG
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 9.00 a.m. and
5.30 p.m., 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 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
Year ended 31 December 2024 256.17 3.00 227.00
Net Asset Value per Share (NAV per share)
The Company recognises performance fees and clawbacks on fees paid in prior
performance periods under IFRS 2 - Share Based Payment in its annual and half
year financial statements. However, for the purposes of the Company's
unaudited NAVs that are announced daily to the London stock exchange and other
regulatory information services the current performance fee, and any clawback
on fees paid in prior performance periods, are recognised on a liability
basis, which diverges from the Company's accounting policy.
The table below is a reconciliation between the NAV per share as at 31
December 2024 announced on the London Stock Exchange on 2 January 2025 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 2024 published on 2 January 2025
treated the performance fees as earned on 31 December 2024, in accordance with
the investment management agreement. The remaining reconciling balances relate
to adjustment of the unquoted investment valuations and expenses, due to
timing lag.
NAV per
share
NAV
p
£'000
NAV as published on 2 January 2025 294,626 257.15
Deduct performance fees accrued under non-IFRS 2 approach (561) (0.49)
Adjustments on final valuation of unquoted investments and expenses (564) (0.49)
NAV as disclosed in these financial statements 293,501 256.17
NAVs and performance quoted on the Company's website, other than within the
Interim and Annual Reports, are based on the unaudited daily NAVs.
.
Top Holdings
as at 31 December 2024
Company Sector Holding Valuation Percentage Date Average Share Market
in Company
£'000
of net assets
of first
cost per
price
capitalisation
%
purchase
share*
Million
Castelnau Group Limited# Financial 51,134,587 47,045 16.0 Oct-21 £0.92 £0.92 £303
Frasers Group Plc Retail 7,118,886 43,354 14.8 Jun-07 £4.25 £6.09 £2,670
Barratt Redrow Plc Construction 9,786,312 43,070 14.7 Nov-18 £4.64 £4.40 £4,289
Lloyds Banking Group Plc Financial 47,069,000 25,784 8.8 Sep-08 £0.54 £0.55 £33,645
Ryanair Holdings Plc Leisure 1,297,000 20,418 7.0 May-19 €12.08 €19.04 €20,574
Bellway Plc Construction 466,940 11,636 4.0 Oct-12 £22.60 £24.92 £2,961
Other holdings (less than 3%) 85,615 29.1
Total holdings 276,922 94.4
Other current assets and liabilities 16,579 5.6
Net assets 293,501 100.0
* 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.
As a consequence of the combination of Artemis Alpha Trust plc with the
Company, 14,713,166 additional Castelnau shares transferred into the portfolio
on 29 November 2024. At the value ascribed to these shares for the purposes of
the combination, this resulted in a combined holding in Castelnau at the time
equivalent to 15.4% of gross assets. Whilst this exceeds the 15% single
investment restriction set out in the Company's investment policy on page 7,
it is not considered to constitute a breach of the investment policy since it
was not due to an active investment decision and there is no current intention
to reduce the holding.
.
Portfolio Analysis
as at 31 December 2024
Sector Percentage of Net
Assets
%
Financial* 29.8
Retail 22.6
Construction 19.2
Leisure 13.8
Technology & Entertainment 3.0
Materials 2.9
Industrials 2.4
Food & Beverage 0.7
Other current assets and liabilities 5.6
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
It is an uncomfortable aspect of value investing that there is a disconnect
between the work we do and the results we deliver. When it comes to
communicating with investors it means that there is often a peculiar conundrum
in that what we are able to talk authoritatively about, i.e. the fundamental
performance of the portfolio and the value of our changes to it, bears little
resemblance to the performance numbers that accompany our words. The numbers
are real, they tell you how your investment has done, but over time periods
like one year they won't reflect the work we have done on your behalf. You
end up with seemingly incongruous statements like I am about to write about
2024. It was a year of good fundamental progress in the portfolio, our actions
added to the intrinsic value but the NAV declined by 4.3%, and the share price
was down by 5.5%. At the same time the FTSE All-Share rose by 9.5%.
To call it a year of good progress might sound delusional. Even if you give us
a fairer and longer comparative period of 5 years there still isn't
outperformance, there isn't even absolute performance, which is ultimately
what we judge ourselves by. In the 5 years from December 2019 to December 2024
the share price has moved from 237p to 227p. In that same period though the
intrinsic value of the portfolio, based upon our estimates of the individual
intrinsic values of the portfolio holdings, has risen from 420p per share to
650p, and this I believe is a better measure of our efforts and the
performance of our businesses.
The amount of upside to that level has increased from 60% to 171% and that is
what we often refer to as the stretched elastic between price and value.
Intrinsic value is our North Star for a reason, it anchors us on fundamentals
and allows us to avoid or take advantage of the noise. Our decision making is
rational and based upon values. Our history tells us that ultimately it ends
up being the best predictor of what is to come.
In summary, I am incredibly optimistic about what the value in the fund means
for future returns but back to that problem with value investing, I have no
idea when it will show up in price but a high degree of confidence that it
will.
Gary Channon
Chief Investment Officer
Phoenix Asset Management Partners
7 April 2025
.
Investment Manager's Report
Introduction and Performance Summary
Over the year to 31 December 2024, the NAV per share total return was -4.3%,
while the share price total return was -5.5%. For comparison, the FTSE
All-Share Index delivered a positive return of 9.5% over the same period.
Since Phoenix assumed management responsibilities on 28 January 2016, on a
total return basis the NAV has risen 86.5%, slightly lagging the 88.7% return
of the FTSE All- Share Index. Over this same timeframe, the share price total
return was 68.9%.
Net assets concluded the year at £293 million, a notable increase from £208
million at the end of 2023. This growth was largely attributable to the
combination with Artemis Alpha Trust plc ("ATS"), which successfully completed
at the end of November, adding £101 million to the combined vehicle's assets.
At the same time as the combination completed, we welcomed Kartik Kumar, the
ATS manager, to the Phoenix investment team.
Given the underperformance relative to the benchmark in 2024, no performance
fee was earned. We remind investors that our performance fee structure is
designed for long-term alignment. Fees, if earned, are paid entirely in the
Company's ordinary shares and are subject to a fixed three-year clawback.
Should the initial outperformance versus the index reverse by the third-year
anniversary, some or all the shares are returned. If outperformance fully
reverses, Phoenix ultimately receives nothing for that period. In accordance
with this, the clawback test conducted on 31 December 2024, for the fee
awarded at the end of 2021 resulted in the return of all 89,096 shares,
reflecting the underperformance over the subsequent three years.
Whilst 2025 has been eventful, performance is largely unchanged. As of 31
March, the NAV had fallen 0.8% year-to-date, compared to a 4.5% rise for the
FTSE All-Share index.
While performance in 2024 was disappointing, our confidence in the portfolio
is undiminished. That confidence is underpinned by the depth of work we have
done on the holdings and the expertise we have built in their business models
and competitive landscapes. We believe the value in those businesses will
appear in the fullness of time as earning progression translates into
investment return.
The Phoenix Approach
For the benefit of all shareholders, both new and longstanding, we believe it
is useful to restate the philosophy and approach underpinning our management
of your capital.
Our primary objective at Phoenix is the protection and compounding of the
capital entrusted to us over the very long term. We aim for rates superior -
meaning significantly higher and at lower risk - than passive strategies.
We pursue this goal by investing in businesses that we assess as earning high
and enduring returns on their capital. While the price paid for an investment
is crucial, the underlying economics of the business hold even greater
importance for us, as we seek very long, potentially indefinite, holding
periods.
Our conviction stems from the belief that markets occasionally misprice
businesses, often driven by an overemphasis on short-term factors affecting
what are fundamentally long-term securities.
Such mispricings can create highly attractive investment opportunities,
offering substantial risk-adjusted returns. However, these can only be
capitalised upon by the prepared mind. We concentrate our efforts on
developing deep expertise within a specific niche of businesses, believing
this gives us an edge in comprehending their long-term value.
We employ a distinct philosophical and analytical framework to minimise
biases, integrating deep analysis, real-world monitoring, and clear thinking.
This allows confident assessment of certain businesses and managements to
support investment decisions at predetermined prices.
Phoenix operates as a learning organisation; this principle permeates our
culture. We consistently apply our methodology, incorporating a feedback loop
for continuous improvement.
Risk management is paramount. We invest only where we can actively assess
competitive dynamics through rigorous monitoring programmes, deepening our
understanding and reducing error risk. We avoid ruinous capital structures or
business models and never invest above the low end of our intrinsic value
range, aiming to prevent permanent capital loss.
This discipline enables a concentrated portfolio where risk is mitigated via
the depth of our knowledge and monitoring. We diversify only sufficiently to
protect against mistakes; otherwise, positions are focused and weighted
according to our risk-adjusted assessment of the upside considering the range
of potential outcomes and our level of confidence.
Understanding a company's 'economic moat' takes time and dedicated work. We
research businesses as future opportunities, building knowledge for when a
valuation opportunity arises. Management is another important factor. We back
management teams with integrity and pay attention to alignment and competence.
We seek out great managers who have built winning cultures.
Finally, we embrace patience - a willingness to do nothing, letting internal
returns compound and waiting for the appropriate opportunity. This may mean
periods of inactivity and holding cash, which we believe provides an edge over
perpetually invested strategies.
Our approach necessitates a partnership with investors who understand and
embrace this long-term perspective, accepting the volatility inherent in
concentration and the often superficially unattractive nature of our
investments at the time of purchase.
To follow the unfolding developments within our key holdings and gain timely
perspective from us as managers about our thinking and activity, we encourage
investors to read the quarter end factsheets published on the Company's
website (www.auroraukalpha.com).
Performance & Activity Review 2024
2024 unfolded as a tale of two halves, significantly influenced by the UK
political landscape and attendant market sentiment. The period leading up to
the July General Election saw improving conditions, with NAV performance
positive up to 31 July (+10.8%). However, the narrative shifted in the final
five months as initial post-election optimism faded, giving way to market
caution around the new government's first budget. This resulted in the NAV
declining from its July peak to finish the year with a total return down
4.3%.
The most significant positive event influencing performance occurred
mid-year. Positive news regarding the balance sheet restructuring at Dignity,
the largest investment within Castelnau Group, led to a 35% uplift in
Castelnau's NAV in early July. This single event propelled the Company's NAV
by 9.1% in July alone, and made Castelnau Group the largest positive
contributor for the full year, adding 1.9% to performance despite the later
market downturn.
Other positive contributions came from Netflix and Lloyds Banking Group.
Netflix continued its strong growth, particularly in the first half, driven
by successful paid sharing initiatives and subscriber numbers significantly
exceeding expectations (adding 9.3 million in Q1). Management continued to
highlight the long-term market opportunity, while also experimenting with
entry into new verticals. Its strong share price performance contributed 1.9%
to the Company's NAV. Lloyds also performed well, adding 1.2% to NAV.
Hargreaves Lansdown, a position initiated late in 2023, was exited during the
third quarter following a bid approach, realising value sooner than
anticipated and contributing positively during its holding period. We
expressed frustration at the time that we had only been able to build a 2%
weighting before the price moved away and a bid was announced.
Frasers Group was the largest detractor to performance, negatively impacting
NAV by 5.8% following a 33% decline in its share price during the year. The
other material negative influence was Barratt Redrow, detracting 2.4% from
NAV after a 19% share price fall.
The broader housebuilding sector navigated challenging conditions due to
higher interest rates and affordability pressures. Barratt completed its
merger with Redrow during the period. Within the portfolio, Bellway
demonstrated resilience despite lower year-on-year completions, noting that
moderating mortgage rates eased affordability pressures in the second half,
supporting an increase in reservations towards year-end and into early 2025.
It targets higher completions for the year ahead.
Lastly, whilst having a modest impact due to its size, we note the failure of
Randall & Quilter, which provided a significant learning experience,
reinforcing lessons about management alignment and trust.
The year was again one of modest portfolio activity, which reflected our
confidence in the portfolio. There was a certain amount of rebalancing of the
holdings that were transferred as part of the ATS transaction. We report on
holdings above a 3% weight and at year end no holdings inherited as part of
the ATS transaction were above a 3% weight. As at the end of March, Nintendo
had become a 3.2% weight due to positive price performance in the early months
of 2025.
In the first half of 2024, notable activity included the Lloyds Banking Group
holding being increased by 1% and Ryanair being reduced by the same amount due
to ongoing concerns over Boeing's ability to deliver their 737 MAX aircraft.
We rebuilt the weighting in July following a fall in price.
We made one new investment in the year, taking a position in Burberry in
September at an attractive price equivalent to circa £2 billion market
capitalisation (£5.72 per share). This is our first investment in the luxury
goods sector, despite over a decade studying it and therefore we limited the
initial position size. Unfortunately the price moved out of our range before
we got to a 2% weight, which was below our initial target allocation.
Our thesis rests on the enduring nature of luxury demand, the excellent
economics of established brands (where value is often not captured by balance
sheet assets), and their resilience to mismanagement. Burberry, with its deep
heritage rooted in innovation like gabardine and iconic products like the
trench coat, exemplifies these qualities.
The opportunity arose from multiple compounding negative factors: a cyclical
luxury market retreat (especially in China), specific company missteps around
pricing, and the general undervaluation of its London listing, capped by its
FTSE 100 demotion.
This created a purchase price offering a significant margin of safety,
allowing for potential setbacks in the turnaround under new leadership, while
retaining considerable upside potential towards our intrinsic value estimate.
We have a mid-case intrinsic value of £4.8 billion.
Outlook
Attempting short-term market forecasts is not our practice; our gaze remains
fixed on the long-term intrinsic value of the businesses we own. The market's
cautious stance towards the end of 2024 underscores the prevailing sensitivity
to economic policy shifts.
When businesses are valued very cheaply, their fundamental success tends to
translate more directly into investment returns, either through dividends or
reinvestment driving per-share value growth, even without market re-rating.
The Company's portfolio currently trades at what we believe is a significant
discount to intrinsic value, offering a substantial margin of safety.
This, combined with the quality of the underlying businesses, underpins our
confidence in the potential for attractive long-term returns. The present
discount at which the Company's shares trade adds an additional element to the
valuation opportunity.
When we look back five years from now though, we think the most significant
factor impacting business value and economic development will have been
Artificial Intelligence. It's a freight train heading down the tracks and
we've just scratched the surface on its potential impact.
Our early estimation is that enormous productivity gains are coming, initially
potentially at the cost of employment. We are not sure if the future is
dystopian or utopian yet, but it's certainly risk and opportunity for
businesses.
We remain committed to our disciplined, patient, long-term investment approach
Steve Tatters Director
Phoenix Asset Management Partners
7 April 2025
.
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
2024 1.5 0.7 9.4 8,851.34
Cumulative 1,532.2 785.1 272.3 n/a
Annualised Returns 11.1 8.5 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. The
Company's corporate broker, now Deutsche Numis, previously Panmure Liberum,
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 has been the case for the last two years, the AGM this year will not
include a presentation from the Investment Manager. Instead, a separate
Investment Manager presentation and Q&A event, which the Directors will
also attend, will be held at 3.30 p.m. on 15 October 2025 at the Chartered
Accountants Hall, 1 Moorgate Place, London EC2R 6EA. 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 98 and 99 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 104. 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 37.
Although the combination with Artemis Alpha Trust plc ("ATS") during the year
did not originate from shareholder interactions, the support for the
transaction from shareholders is indicative of the alignment of the Board with
shareholders' wishes.
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 34 to 36. 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 companies in which the Company invests to have good
governance standards 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 capacity 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 the Company's
corporate stockbroker, on the Company's shareholder base, including changes
thereto. The Depositary also provides oversight reports and the Company's
corporate stockbroker 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 the Company's corporate
stockbroker is also relayed to the Board who consider these discussions at
their quarterly meetings.
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, for the second consecutive year service
providers were asked to participate in a 360 degree review whereby they
provided comments on their interactions with the Board and each other. It was
partly as a result of these reviews that the Board decided to conduct a review
of the Company's appointed corporate stockbroker. The Board is grateful for
the support of Panmure Liberum over many years, but following this review and
receiving alternative pitches decided to appoint Deutsche Numis as the
Company's appointed corporate stockbroker going forward.
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 was repeated in 2024 and seems to be a successful
formula for increasing engagement, with good attendances in both years, and
will be continued in 2025 as mentioned above.
The most significant decision in the year was to instigate the combination
with ATS, which followed from a Board strategy meeting at the start of the
year. This received overwhelming support (99.97% in favour) from the Company's
shareholders, enhances the scale and profile of the Company, enhances
liquidity of the shares and should improve the ongoing charges ratio as a
result of fixed costs being spread over a larger asset base. The transaction
completed on 29 November 2024.
Related decisions were to change the name of the Company and to pay an interim
dividend before the transaction completed. The latter was for multiple
purposes: to comply with the Board's published intention to distribute
substantially all the Company's revenue to shareholders by way of dividends;
to satisfy the investment trust status requirement that no less than 15% of
the Company's qualifying revenue must be retained each year; and so as not to
dilute the dividend for existing shareholders if the previous practice of
recommending a final dividend for approval at the AGM was followed.
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 UKLR 6.6.6R (10) in
relation to target reporting, and has provided full details in the Corporate
Governance Statement section on pages 40 and 41. Summary biographical details
of the Directors are set out on pages 29 and 30.
Stewardship code
The Board and the Investment Manager support and have a strong commitment to
the FRC's 2020 UK Stewardship Code, which 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, since it deals
predominately with professional advisers and service providers in the UK
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 54.
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. In addition to these featured risks, during
the year the Board also recognised risks associated with the project to
combine the assets of ATS with the Company, including transaction execution
risk and risks around portfolio realignment. The former was recognised as the
most significant emerging risk until the transaction was completed on 29
November 2024. The assessment of the other risks outlined below did not change
significantly over the course of the year.
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
continue to be 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 to date.
Investment objective and strategy risks
The Company's investment objective is to provide shareholders with long-term
total returns 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 next opportunity to
vote on the Company's continuation will be at the AGM in 2025. The Board
recommends that shareholders vote in favour of continuation and, given the
level of support for the Company signalled in connection with the recent
combination with ATS, is optimistic they will do. The previous 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 the
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 has recently announced that it will consider doing
so if the 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. However, the Company does not have explicit sustainability
investment objectives or policies and accordingly has not adopted a
sustainability label under the FCA's UK Sustainability Disclosure Requirements
and investment labels regime ("SDR").
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 13 to
the financial statements starting on page 88.
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 creditworthiness 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 2029.
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 2029.
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 will take place at the Company's AGM in 2025. Given the level of support
for the Company signalled in connection with the recent combination with ATS,
the Board is optimistic 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 37 and 38, and
extended to cover the five-year period from the approval of this annual
report.
The Board aspires for the Company to continue to grow and keeps its potential
for doing so under review. 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 and this includes consideration of the operational
resilience of the Company's service providers.
Outlook
The outlook for the Company is discussed in the Chair's Statement on page 6,
and by the Investment Manager on pages 13 and 17.
This Strategic Report was approved by the Board on 7 April 2025.
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
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 29 and 30 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 net
return 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
7 April 2025
.
Financial Statements
.
Income Statement
Year ended Year ended
31 December 2024
31 December 2023
Notes Revenue Capital Total Revenue Capital Total
£'000
£'000
£'000
£'000
£'000
£'000
2 (Losses)/gains on investments - (13,648) (13,648) - 53,535 53,535
Gains on currency - 202 202 - - -
3 Income 3,568 - 3,568 3,459 - 3,459
Gross return 3,568 (13,446) (9,878) 3,459 53,535 56,994
4 Investment performance fee clawback/(charge) - 166 166 - (2,824) (2,824)
4 Other expenses (966) 14 (952) (749) - (749)
Net return before tax 2,602 (13,266) (10,710) 2,710 50,711 53,421
5 Tax (46) - (46) (49) - (49)
Net return for the year 2,556 (13,016) (10,460) 2,661 50,711 53,372
8 Return per share - basic and diluted 3.21p (16.66)p (13.45)p 3.50p 66.66p 70.16p
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 74 to 92 form part of these accounts.
.
Statement of Financial Position
Notes 31 December 31 December
2024
2023
£'000
£'000
NON-CURRENT ASSETS
2 Investments held at fair value through profit or loss 276,922 202,209
CURRENT ASSETS
Trade and other receivables 1,109 372
Cash and cash equivalents 17,076 6,248
18,185 6,620
TOTAL ASSETS 295,107 208,829
CURRENT LIABILITIES
Other payable (1,606) (115)
(1,606) (115)
NET ASSETS 293,501 208,714
EQUITY
9 Called up share capital 28,665 19,019
Share premium account 202,665 111,166
Capital redemption reserve 312 312
Treasury shares (22) -
9 Other reserve (559) (219)
9 Share-based payment reserve - 166
9 Capital reserve 61,534 74,999
Revenue reserve 906 3,271
TOTAL EQUITY 293,501 208,714
9 Number of voting shares in issue 114,572,742 76,078,460
10 NAV per share 256.17p 274.34p
Approved by the Board of Directors on 7 April 2025 and signed on its behalf
by:
Lucy Walker
Chair of the Board
Company no. 03300814
The notes on pages 74 to 92 form part of these accounts.
.
Statement of Changes in Equity
Year to 31 December 2024
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 19,019 111,166 312 - (219) 166 74,999 3,271 208,714
Net return for the year - - - - - - (13,432) 2,556 (10,876)
9 Share-based payment credit - - - - - (166) 166 - -
4 Performance fee clawback in relation to performance year 2021 - - - (22) 221 - (199) - -
4 Share issuance in relation to 2023 performance fee 54 507 - - (561) - - - -
7 Dividends paid - - - - - - - (4,921) (4,921)
Issue of new Ordinary Shares on the combination with Artemis Alpha Trust plc 9,592 90,992 - - - - - - 100,584
Closing equity 28,665 202,665 312 (22) (559) - 61,534 906 293,501
The notes on pages 74 to 92 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
Net return 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 74 to 92 form part of these accounts.
.
Cash Flow Statement
Note Year to Year to
31 December
31 December
2024
2023
£'000
£'000
Net cash inflow from operating activities 11 3,324 2,607
Investing activities
Payments to acquire non-current asset investments 2 (29,265) (11,503)
Receipts on disposal of non-current asset investments 2 41,488 12,056
Net cash inflow from investing activities 12,223 553
Financing activities
Dividends paid 7 (4,921) (2,260)
Net cash outflow from financing activities (4,921) (2,260)
Increase in cash and cash equivalents 10,626 900
Cash and cash equivalents at beginning of year 6,248 5,348
Gains on currency 202 -
Cash and cash equivalents at the end of the year 17,076 6,248
The notes pages 74 to 92 form part of these accounts.
.
Notes to the Financial Statements
1. Reporting entity
The Company 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 29 to 31.
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, then this will be noted and explained.
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
position and forecast of income and expenses.
As at 31 December 2024, the Company held £17,076,000 (2023: £6,248,000) in
cash and cash equivalents, £272,105,000 (2023: £200,733,000) in quoted
investments and £4,817,000 (2023: £1,476,000) in unquoted investments. The
total ongoing operating expenses for the year ended 31 December 2024 were
£966,000 (2023: £817,000). It is estimated that 39.0% 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. 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 have any
impact on the Company's going concern status.
The Board notes that at the date of approval of this Annual Report, the
aggregate of the Company's cash and cash equivalents balance and investments
held is well in excess of the estimated level of liabilities, and the Company
has substantial operating expenses cover.
The next continuation vote will take place at the Company's AGM on 11 June
2025. Given the positive support for the Company in the recent corporate
transaction, the Board expects the resolution to be passed and not impact the
Company's going concern status.
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. Issue of Shares Pursuant to the Combination of Artemis Alpha Trust plc ("ATS") with the Company
On 29 November 2024, the Company issued new ordinary shares to shareholders of
ATS in consideration for the receipt by the Company of assets pursuant to the
combination with ATS (see page 4 for more information). The cost to acquire
the assets and liabilities of ATS has been allocated between the acquired
identifiable assets and liabilities based on their relative fair values on
the acquisition date without attributing any amount to goodwill or to deferred
taxes. Investments, cash and other assets were transferred from ATS. All
assets were acquired at their fair value. The value of the assets received, in
exchange for shares issued by the Company, have been recognised in share
capital and share premium, as shown in the Statement of Changes in Equity.
Listing costs in respect of the shares issued have been recognised in share
premium, whereas other costs in relation to the combination have been
recognised through capital in the Income Statement.
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
13. Further details on the valuation of unquoted investments may be found in
Notes 1(g) and 13.
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 within a lock-in period. This reserve is not
distributable.
The 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
£56,397,000 as at 31 December 2024 (2023: £43,101,000). The Company may use
this reserve for share buybacks, but otherwise 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 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 £560,903 in 2023 and this
was settled by the issuance of 214,264 shares. As at 31 December 2024, 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.
No performance fee was earned during 2024 and the fee assessment period has
been extended to 2025.
The performance fee earned during 2021 crystallised on 31 December 2024. Due
to the Company underperformance versus the benchmark over the three-year
clawback period, 100% of the 89,096 shares issued to the Investment Manager
were clawed back as at 31 December and have subsequently been cancelled.
Valuation of Unquoted Investments
The Company has six unquoted investments, two of which are nil valued. These
are classified as Level 3 investments under the fair value hierarchy, please
refer to Note 13 for definitions of fair value hierarchy. Their fair value as
at 31 December 2024 is £4,817,000 or 1.6% of NAV (2023: three unquoted
investments, two of which were nil valued, representing £1,476,000 or 0.7% of
NAV).
The investments are valued in accordance with the Company's accounting policy
set out in 1c. For each unlisted investment, one or more of the following
valuation techniques is used:
Market Approach: Based on recent investment price, market multiples, or
industry benchmarks.
Net Assets Approach: Based on the value of the investment's underlying assets.
Price of Recent Investment: If a recent transaction has occurred, its price
may indicate fair value, though this is not automatic. Fair value is
reassessed at each reporting date for changes since the transaction.
Multiple Methodology: A revenue, EBITDA, or earnings multiple is applied to
the investee's maintainable earnings or revenue.
Net Assets: Fair value is based on the proportionate share of the reported net
asset value, using valuation reports from the manager or general partner,
adjusted for any changes or new information up to the reporting date.
Observable market data is preferred when assessing the appropriate
methodology.
In making the judgment that the valuation method is appropriate, the Board
considers additional information, including an independent valuation review
report produced by Kroll Advisory Ltd where available, and published
financial statements.
A 10% reduction of the unquoted valuations would have a negative impact of
£481,700 (2023: £147,600) on the Company's NAV as at 31 December 2024 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
2024
2023
£'000
£'000
Listed securities 272,105 200,733
Unquoted securities 4,817 1,476
Total non-current investments held at fair value through profit or loss 276,922 202,209
Movements during the year:
Opening balance of investments, at cost 170,145 170,415
Additions, at cost 129,849 11,503
Disposals - proceeds received or receivable* (41,488) (12,056)
- realised profits 13,445 283
- at cost (28,043) (11,773)
Cost of investments held at fair value through profit or loss at 31 December 271,951 170,145
Revaluation of investments to market value:
Opening balance 32,064 (21,188)
Unrealised (losses)/gains (27,093) 53,252
Balance at 31 December 4,971 32,064
Market value of non-current investments held at fair value through profit or 276,922 202,209
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
2024
2023
£'000
£'000
Realised gains on disposal of investments 13,445 283
Movement in unrealised (losses)/gains on investments held (27,093) 53,252
Total (losses)/gains on investments (13,648) 53,535
Transaction costs on investment purchases and sales for the year ended 31
December 2024 are disclosed in the following table.
Transaction costs Year to Year to
31 December
31 December
2024
2023
£'000
£'000
Transaction costs on purchases of investments 127 16
Transaction costs on disposals of investments 21 9
Total transaction costs included in gains or losses on investments at fair 148 25
value through profit or loss
3. Income
Year to Year to
31 December
31 December
2024
2023
£'000
£'000
Income from investments:
UK dividends 2,396 3,017
Overseas dividends 695 370
Other income:
Deposit interest 477 72
Total income 3,568 3,459
4. Investment Management Performance Fees and Other Expenses
Year ended 31 December 2024 Year ended 31 December 2023
Revenue* Capital Total Revenue* Capital Total
£'000
£'000
£'000
£'000
£'000
£'000
Investment management performance fee (clawback)/charge - (166) (166) - 2,824 2,824
Administration fees 350 - 350 279 - 279
Depositary and Custody fees 74 - 74 64 - 64
Registrar's fees 43 - 43 36 - 36
Directors' fees 140 - 140 139 - 139
Audit fees** 84 - 84 68 - 68
Printing 16 - 16 19 - 19
Broker's fees 48 - 48 48 - 48
Professional fees 90 - 90 34 - 34
Consultancy fees 13 - 13 14 - 14
Miscellaneous expenses*** 108 - 108 48 - 48
Combination related expenses**** - (14) (14) - - -
Total other expenses 966 (180) 786 749 2,824 3,573
* All expenses include any relevant irrecoverable VAT.
** The amounts excluding VAT paid or accrued for the audit of the Company are
£70,000 (2023: £57,000).
*** The 2023 miscellaneous expenses figure included £68,000 of credits in
respect of historic periods received by the Company during the year. No
historic credits are included for 2024.
**** As part of the combination between the Company and Artemis Alpha Trust
plc that took place on 29 November 2024, the Company incurred £735,000 of
costs which have been charged to capital. Within the terms of the combination,
Phoenix will contribute £750,000 towards the offsetting of the direct costs
related to the transaction. The contribution will be made by way of a
reduction in the performance fee payable to Phoenix by the Company in respect
of the financial years ending 31 December 2024, 31 December 2025 and 31
December 2026. The fee reduction will constitute a waiver of the performance
fee of £750,000. As no performance fee was earnt in relation to this year
end, a £750,000 receivable is recognised as at 31 December 2024.
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 clawback of £166,000 has been recognised in the
Company's Income Statement for the year ended 31 December 2024.
Performance Fees Shares Vesting Vesting status Year to Year to
year
earned
issued
period
31 December 2024
31 December 2023
(£)
(Number of)
(Years)
Income
Income
Statement
Statement
charge/(credit)
charge/(credit)
(£)
(£)
2021 22,195 89,096 4 Fully clawed back on (165,896) 165,896
31 December 2024
2022* - - n/a n/a n/a n/a
2023 560,903 172,373 5 Vesting period ends on - -
31 December 2026
2024** - - n/a n/a n/a n/a
* No performance fee was earned during 2022 and the fee assessment period was
extended to 2023.
** No performance fee was earned during 2024 and the fee assessment period has
been extended to 2025.
Share-based Payment Sensitivity Analysis
Performance fee period to 31 December
2022 and 2023
End date for clawback period 31 December
2026
As at 31 December 2024 %
Company cumulative NAV returns a (3.9)
Cumulative index returns b 4.6
Underperformance (1+a)/(1+b)-1 (8.2)
Impact on the Company's profit after tax for the year ended 31 December 2024,
if the Company's underperformance changes by:
In relation to performance fee period 31 December
2022 and 20231
Percentage £'000
-10% -
-5% -
-1% -
+1% -
+5% -
+10% (281)
5. Taxation
Year ended 31 December 2024 Year ended 31 December 2023
Revenue Capital Total Revenue Capital Total
£'000
£'000
£'000
£'000
£'000
£'000
Corporation tax - - - - - -
Overseas withholding tax 46 - 46 49 - 49
Tax charge in respect of the current year 46 - 46 49 - 49
Current taxation
The taxation charge for the year is different from the standard rate of
corporation tax in the UK of 25% (2023: 23.5%). The differences are explained
below:
Year to Year to
31 December
31 December
2024
2023
£'000
£'000
Net return before tax (10,664) 53,421
Theoretical tax at UK corporation tax rate of 25.0% (2023: 23.5%) (2,666) 12,554
Effects of:
Capital losses/(gains) that are not taxable 3,412 (12,581)
UK dividends which are not taxable (599) (709)
Overseas withholding tax 46 49
Overseas dividends that are not taxable (174) (87)
Excess management expenses 27 823
Tax charge in respect of the current year 46 49
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 £14,681,000 (2023: £14,524,000) in respect of excess
unutilised management expenses, equivalent to a potential tax saving of
£4,000,000 (2023: £3,631,000) at the prospective tax rate of 25% (2023: 25%)
and £1,491,000 (2023: £1,491,000) in respect of loan interest, equivalent to
a potential tax saving of £373,000 (2023: £373,000) at the prospective tax
rate of 25% (2023: 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. Trade and other receivables
At At
31 December
31 December
2024
2023
Phoenix contribution receivable 750 -
Other receivables 359 372
Total trade and other receivables 1,109 372
The £750,000 contribution receivable (2023: £nil) from Phoenix Asset
Management Partners Limited ("Phoenix"), relates to the Manager's contribution
towards offsetting the costs directly related to the ATS combination during
the period. Please refer to Note 4 for further detail.
7. Ordinary Dividends
Year to Year to
31 December
31 December
2024
2023
£'000
£'000
Dividends reflected in the financial statements:
Final dividend paid for the year ended 31 December 2023 at 3.45p per share 2,632 2,260
(2022: 2.97p)
Interim dividend paid for the year ended 31 December 2024 at 3.00p per share 2,289 -
(2023: nil)
Dividends not reflected in the financial statements:
No final dividend for the year ended 31 December 2024 (2023: 3.45p per share) - 2,632
8. Earnings Per Share
Earnings per share are based on the loss of £10,710,000 (2023: profit of
£53,372,000) attributable to the weighted average of 79,629,980 (2023:
76,078,460) ordinary shares of 25p in issue during the year.
Supplementary information is provided as follows: revenue earnings per share
are based on the revenue profit of £2,556,000 (2023: profit of £2,661,000);
capital earnings per share are based on the net capital loss of £13,266,000
(2023: profit of £50,711,000), attributable to the weighted average of
79,629,980 (2023: 76,078,460) 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.
9. Share Capital and Reserves
At At
31 December
31 December
2024
2023
Allotted, called up and fully paid
Ordinary shares in issue at 1 January (Number) 76,078,460 76,608,771
Shares issued 38,583,378 -
Shares cancelled - (530,311)-
Ordinary shares in issue at 31 December (Number) 114,661,838 76,078,460
Ordinary Shares of 25p at 31 December (£'000) 28,665 19,019
Ordinary shares clawed back and held in treasury (89,096) -
Shares with voting rights at 31 December (Number) 114,572,742 76,078,460
At 31 December 2024, the Company had 114,661,838 ordinary shares in issue, of
which 89,096 shares were held in Treasury (2023: 76,078,460 shares in issue
with no shares held in Treasury). The number of voting shares at 31 December
2024 was 114,572,742 (2023: 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
On 17 January 2024 the Company issued to the Investment Manager 172,373
ordinary shares, at a price of 260.32 pence per share, and on 29 April 2024
issued a further 41,891 ordinary shares, at a price of 267.79 pence per share,
to settle performance fees earned in the year to 31 December 2023.
In connection with the ATS corporate transaction the Company issued on 29
November 2024 38,369,114 ordinary shares to ATS shareholders at a deemed price
of 262.58 pence per share, in consideration for the transfer to the Company of
approximately £101 million of net assets from ATS.
On 31 December 2024, the clawback period on restricted shares issued to the
Investment Manager in relation to the performance period ended 31 December
2021 ended. All of the 89,096 shares originally issued to the Investment
Manager were clawed back by the Company. These were held in Treasury as at 31
December 2024 and subsequently cancelled on 15 January 2025.
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 2021 ended on 31 December 2024. The Company's cumulative NAV total
return underperformed that of the benchmark index over the vesting period. As
a result, the 89,096 restricted shares originally issued in settlement of the
£221,219 performance fee earned were clawed back as at 31 December 2024.
Share-based Payment Reserve
The share-based payment reserve represents the cumulative share-based payment
expenses in relation to performance fees earned. A total share-based payment
clawback of £166,000 has been recognised in relation to the 2021 performance
fee which crystallised on 31 December 2024, resulting in a nil balance as at
year end. No expenses have been charged for the combined performance period of
2023 and 2024 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.
10. Net Assets Per Ordinary Share
The figure for Net Assets per Ordinary Share is based on Net Assets of
£293,501,000 (2023: £208,714,000) divided by 114,572,742 voting ordinary
shares in issue at 31 December 2024 (2023:76,078,460).
11. Reconciliation of Net Cash Flow from Operating
Activities
Year to Year to
31 December
31 December
2024
2023
£'000
£'000
Net return after tax (10,710) 53,372
Losses/(gains) on investments 13,446 (53,535)
Increase in trade and other receivables (737) (62)
Increase in other payables 1,491 8
Investment performance fee (clawback)/charge (166) 2,824
Net cash inflow from operating activities 3,324 2,607
12. 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 as disclosed in the
Directors' Remuneration Report on pages 47 to 51 and in Note 4 on page 81. No
fees payable to the Directors were outstanding as at 31 December 2024.
Phoenix Asset Management Partners Limited ("Phoenix"), the Company's AIFM and
Investment Manager, and Castelnau Group Limited ("Castelnau") are considered
to be related parties under the Listing Rules. Details of transactions with
Phoenix can be found in Note 4 beginning on page 81.
Castelnau is a related party as the Company is a substantial shareholder under
the UK Listing Rules. The Company's holding of Castelnau shares increased
during the year as a consequence of the Artemis Alpha Trust plc combination,
since that company also held Castelnau shares. As at 31 December 2024, the
Company held 15.8% (2023: 11.4%) of the issued share capital in Castelnau.
There were no transactions with Castelnau itself during the year and there
were no balances outstanding with Castelnau as at 31 December 2024.
As part of the terms of the combination between the Company and Artemis Alpha
Trust plc that took place on 29 November 2024, Phoenix will contribute
£750,000 towards the offsetting of the direct costs related to the
transaction. The contribution will be made by way of a reduction in the
performance fee payable to Phoenix by the Company in respect of the financial
years ending 31 December 2024, 31 December 2025 and 31 December 2026. The fee
reduction will constitute a waiver of the performance fee of £750,000. A
£750,000 receivable from Phoenix has been recognised as at 31 December 2024.
13. 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 and cash equivalents
balances. The currency and cash-flow profile of those financial assets was:
2024 2023
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 - 228,871 228,871 - 169,963 169,963
€ euro denominated security holdings - 25,492 25,492 - 15,349 15,349
$ usd denominated security holdings - 22,511 22,511 - 16,897 16,897
kr sek denominated security holdings - 48 48 - - -
- 276,922 276,922 - 202,209 202,209
Cash at bank and cash equivalents:
Floating rate - £ sterling 17,156 - 17,156 6,248 - 6,248
Floating rate - € euro (80) - (80) - - -
17,076 - 17,076 6,248 - 6,248
Current assets:
Receivables - 1,109 1,109 - 372 372
17,076 278,031 295,107 6,248 202,581 208,829
The cash and equivalents balance comprises of cash at bank of £9,169,000
(2023: £6,248,000) held by the Company's Depositary, Northern Trust Investor
Services Ltd, and UK Treasury Bills of £7,907,000 (2023: £nil).
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
2024
2023
£'000
£'000
Level 1 272,105 200,733
Level 2 - -
Level 3 4,817 1,476
Total non-current investments held at 'FVTPL' 276,922 202,209
There were no transfers between levels during the year.
As part of the ATS combination, £95,876,000 of assets were acquired in Level
1 holdings and £4,681,000 in Level 3 holdings.
The movement on the Level 3 unquoted investments during the year is shown
below:
Year to Year to
31 December
31 December
2024
2023
£'000
£'000
Opening balance 1,476 2,871
Additions during the year* 4,681 -
Unrealised losses (1,340) (1,395)
Closing balance 4,817 1,476
* Additions to the Level 3 unquoted investments during 2024 related to the ATS
combination. No other unquoted assets were acquired during the year.
The Level 3 unquoted investment balance represents the Company's investment in
six unquoted investments, two of which are valued at nil value. The fair value
estimate of the investment in Phoenix SG 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. Unquoted investment that were acquired during the period as a result of
the ATS combination are valued at the cost ascribed for the purposes of the
transaction, given the close proximity of the transfer to the Company's year
end.
The transaction valuations were prepared in line with the valuation
methodology described in the accounting policy for the Valuation of Unquoted
Investments, as detailed in Note 1g.
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 IFRS 7, 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 2024 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 2024 or 31
December 2023.
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 2024, if sterling had
strengthened/weakened by 10% against Euro, USD and SEK.
2024 2023
£'000
£'000
Euro (2,310)/2,824 (1,395)/1,705
USD (2,046)/2,501 (1,536)/1,877
SEK (4)/5 -
A (ii) Interest Rate Risk
The Company held £7,907,000 of UK Treasury Bills at 31 December 2024 (31
December 2023: none).
With the exception of cash and cash equivalents, no interest rate risks arise
in respect of any current asset. All cash and cash equivalents 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 2024 or 31 December 2023.
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 on page 12, 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 £27,692,000 (2023:
£20,221,000) in the investments held at fair value through profit or loss at
the period end, which is equivalent to 9.4% (2023: 9.7%) 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, 39.0% (2023: 31.2%) 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 2024, cash at bank comprised £9,242,000 (2023:
£6,248,000) held by the Depositary. In addition to cash held with the
Depositary, the Company also held £7,907,000 in UK Treasury Bills as at 31
December 2024 (2023: £nil).
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.
A credit risk also arises due to the £750,000 payable from Phoenix in
relation to the combination expenses costs, as detailed in Note 12. The credit
risk in relation to this receivable is deemed to be low.
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.
14. Post Year End Events
On 31 December 2024, the clawback period on restricted shares issued to the
Investment Manager in relation to the performance period ended 31 December
2021 ended. All of the 89,096 restricted shares originally issued to the
Investment Manager were returned to the Company and held in Treasury. These
shares were subsequently cancelled on 15 January 2025.
.
The figures and financial information for 2023 are extracted from the
published Annual Report for the year ended 31 December 2023 and do not
constitute the statutory accounts for that year. The Annual Report for the
year ended 31 December 2023 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 2024 are extracted from the Annual
Report and financial statements for the year ended 31 December 2024 and do not
constitute the statutory accounts for the year. The Annual Report for the year
ended 31 December 2024 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.auroraukalpha.com (http://www.auroraukalpha.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
7 April 2025
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