TIDMARR
RNS Number : 6250A
Aurora Investment Trust PLC
02 June 2021
AURORA INVESTMENT TRUST PLC
LEI: 2138007OUWIZFMAGO575
ANNUAL RESULTS ANNOUNCEMENT
FOR THE YEARED 31 DECEMBER 2020
FINANCIAL AND PERFORMANCE HIGHLIGHTS
OBJECTIVE
To provide Shareholders with long-term returns through capital
and income growth by investing predominantly in a portfolio of UK
listed companies.
POLICY
Phoenix Asset Management Partners Limited (Phoenix) was
appointed Investment Manager on 28 January 2016. Phoenix currently
seeks to achieve the Objective by investing, primarily, in a
portfolio of UK listed equities.
The portfolio will remain relatively concentrated. The exact
number of individual holdings will vary over time but typically the
portfolio will consist of 15 to 20 holdings.
The Investment Policy of the Company can be found below.
BENCHMARK
Performance is benchmarked against the FTSE All-Share Index
(total return), representing the overall London market.
DIVID
The Board proposes to pay a final dividend of 0.55p per Ordinary
Share (2019: 4.5p) to be paid on 2 July 2021 to Shareholders who
appear on the register as at 11 June 2021, with an ex-dividend date
of 10 June 2021. During the year the Company's revenue reduced by
69%. This was due to the cuts in the dividends of the Company's
underlying investments brought about by circumstances surrounding
the Covid-19 pandemic.
CHAIRMAN'S STATEMENT
PERFORMANCE REVIEW
-- The NAV total return for the year ended 31 December 2020,
fell by 5.3% against the benchmark FTSE All-Share Index (total
return) which fell by 9.8% - a 4.5% outperformance. The year was
dominated by the impact of the COVID-19 pandemic and after a
significant fall in the NAV in the first half of the year, it was
very pleasing to see the portfolio recover strongly in the final
quarter.
-- This year's outperformance has added to the previous year's,
so that during the five years since Phoenix took over management of
the Company in 2016, the NAV has risen by 47.7% versus a 34.5% rise
in the benchmark.
-- One of the unique features of the Investment Management
Agreement with Phoenix, and one that creates significant
Shareholder alignment, is that the Investment Manager earns no
management fees other than the performance fee if it qualifies for
this.
-- In 2020, a performance fee was earned by Phoenix. They
received this fee in shares in Aurora which they cannot sell for
three years. There is also a clawback mechanism, so the shares will
be cancelled if the outperformance does not remain after three
years.
-- Whilst the NAV traded at a premium during the first half of
2020, at times it fell to a discount during the second half. The
Board, along with its Advisers, and the Investment Manager, monitor
the premium or discount on an ongoing basis. It was pleasing to see
the discount narrow towards the end of the year. The Investment
Manager continues to promote the Company proactively with the help
of Liberum Capital, our Stockbroker and Frostrow Capital, our
distribution adviser.
THE ALTERNATIVE INVESTMENT FUND MANAGER ("AIFM") AND INVESTMENT
MANAGER
2020 was the fifth year of Phoenix's management, which began in
January 2016. It is positive that 2020 brought continued
outperformance of the NAV versus the FTSE All-Share Index (total
return).
Phoenix again employed a focused, patient, investment approach
during another year of significant market stress. This was
highlighted by its work during the early stages of the pandemic as
it sought to assess the likelihood of the companies to survive.
Once comfortable that the investee companies had the financial
resources to withstand the likely impact of the pandemic, the
Investment Manager was able to identify opportunities to add to
holdings in which it had deep knowledge at attractive prices. This
was one factor supporting the strong performance at the end of the
year.
GROWTH OF THE COMPANY
Growing the Company remains a key objective of the Board. A
total of 8.06 million new Ordinary Shares were issued in 2020 which
raised gross proceeds of GBP12.4 million (excluding 530,311 issued
to the Investment Manager to settle the performance fee with a
value of GBP1.2 million). The market capitalisation of the Company
rose from GBP157.6 million on 1 January 2020, to GBP186.6 million
as at 28 May 2021.
Phoenix, along with Frostrow Capital, has continued to undertake
investor meetings throughout the country with the aim of increasing
the size of the Company, by raising the profile of Aurora.
It is pleasing to note the continued broadening of the Company's
Shareholder register. In January 2016 when Phoenix was appointed,
the top ten Shareholders owned 77% of the Company. As at 30 April
2021 the top 10 Shareholders account for 55% of the Company. It has
also been pleasing to see the ever-increasing representation of
platforms on the register. 2020 saw index funds buying the Company
after it was included in the FTSE All-Share Index in June 2020.
It remains an objective of the Board and the Investment Manager
to increase the value of Aurora to GBP250 million over the course
of the next two to three years. I am pleased to see that investor
demand for new shares puts the Company on a pathway to achieving
this objective.
In the near future it is our intention to approach Shareholders
with more information on the Castelnau Group, the new investment
vehicle created by Phoenix to which we made reference last year.
The Board is presently in dialogue with the Investment Manager
regarding the potential inclusion of Castelnau, which can only be
undertaken following a Shareholder vote as it is an entity also
managed by Phoenix. We look forward to sharing more details with
you soon.
BOARD AND COMMITTEES
As part of its regular review of its operations, the Board
appointed an external adviser, Board Alpha Limited, to undertake an
evaluation of the Board, its Committee structure and its overall
effectiveness. Consequent to this evaluation, the Board is
developing a succession plan and will communicate the outcomes of
this to Shareholders at the half year. In addition, the Board is
considering its Committee structure for the current year, to
improve the effectiveness of its operations.
ANNUAL GENERAL MEETING ('AGM')
The Company's AGM will be held at 2.00 pm on 30 June at the
Riverside Building, County Hall, Belvedere Road, London SE1 7PB.
Under normal circumstances the Board would encourage Shareholders
to attend the Company's Annual General Meeting, but, in view of the
continuing COVID-19 pandemic, the Company recommends that
Shareholders carefully consider whether it is appropriate to attend
the meeting in person. If necessary, in line with Government
guidelines, attendance of Shareholders may be restricted or
prohibited.
Shareholders should monitor the Company's website and London
Stock Exchange announcements for any updates regarding the AGM.
Alternatively, Shareholders can contact the Registrar, Link
Group, for updated information (please see Notes to the Notice of
AGM for the Registrar's contact details).
The Board recognises that Shareholders would value the
opportunity to meet the Directors and Investment Manager, so we
shall also be holding the AGM via videoconference where
Shareholders will be able to attend the meeting virtually for a
questions and answers session. If you wish to attend the AGM via
videoconference please use the following link to register:
https://groovygecko.eckoenterprise.net/aurora/agm2021 . Should a
Shareholder have a question that they would like to raise at the
AGM, the Board would ask that they either ask the question in
advance of the AGM by sending it by email to
auroracosec@praxisifm.com or attend virtually and ask the question
at the meeting at the appropriate time. All questions raised,
together with the relevant answer, will be placed on the Company's
website at https://www.aurorainvestmenttrust.com/.
CHANGE IN NET ASSET VALUE
You may have noticed there is a marginal difference in the Net
Asset Value as at the year end that was released on 4 January 2021
and the Net Asset Value disclosed in these accounts. This is due to
the performance fee adjustment under IFRS2. You can find further
detail on IFRS2 in note 13 below.
DIVID:
The Board proposes to pay a final dividend of 0.55p (2019: 4.5p)
per Ordinary Share, to be paid on 2 July 2021 to Shareholders who
appear on the register as at 11 June 2021. The ex-dividend date is
10 June 2021. This dividend will be proposed at the forthcoming AGM
to be held on 30 June 2021. The Company's dividend policy, which is
to distribute substantially all net revenue proceeds, remains
unchanged.
LORD FLIGHT
Chairman
2 June 2021
INVESTMENT POLICY AND RESULTS
INVESTMENT POLICY
The Company's objective is to provide Shareholders with
long-term returns through capital and income growth.
The Company seeks to achieve its investment objective by
investing predominantly in a portfolio of UK listed companies. The
Company may from time to time also invest in companies listed
outside the UK and unlisted securities. The investment policy is
subject to the following restrictions, all of which are at the time
of investment:
-- The maximum permitted investment in companies listed outside
the UK at cost price is 20% of the Company's gross assets.
-- The maximum permitted investment in unlisted securities at
cost price is 10% of the Company's gross assets.
-- There are no pre-defined maximum or minimum sector exposure
levels, but these sector exposures are reported to and monitored
by, the Board in order to ensure that adequate diversification is
achieved.
-- The Company's policy is not to invest more than 15% of its
gross assets in any one underlying issuer.
-- 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.
-- 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 relevant performance periods, no attention is paid
to the composition of this index when constructing the portfolio
and the composition of the portfolio is likely to vary
substantially from that of the index. The portfolio will be
relatively concentrated. The exact number of individual holdings
will vary over time but typically the portfolio will consist of
holdings in 15 to 20 companies. The Company may use derivatives and
similar instruments for the purpose 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.
DIVID POLICY
The investment policy does not include any fixed dividend
policy. But the Board will distribute substantially all of the net
revenue arising from the investment portfolio. Accordingly, the
Company is expected to continue to pay an annual dividend, but this
could be lower than the level of recent dividends and 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 Ordinary
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 other investment companies.
OBJECTIVES AND KEY PERFORMANCE INDICATORS (KPIS)
The Company's principal investment objective is to achieve
capital and income growth. The Board measures the Company's success
in attaining its objectives by reference to KPIs as follows:
a. To make an absolute total return for Shareholders on a long-term basis.
b. The Company's Benchmark is the FTSE All-Share Index (total
return), against which the NAV total return is compared. After
achieving the goal of making absolute returns for Shareholders, the
next aim is to provide a better return from the portfolio than from
the market as measured by the Benchmark.
c. The Company seeks to ensure that the operating expenses of
running the Company as a proportion of NAV (the Ongoing Charges
Ratio) are kept to the minimum possible.
d. The Company's performance and its ongoing charges ratio are
compared to that of its peers to ensure Shareholder value is
maintained and to ensure the Company's performance is supported in
any given market condition.
e. The discount/premium to NAV at which the Company's Shares
trade is also closely monitored in order to maintain Shareholder
value.
The Chairman's Statement above incorporates a review of the
highlights during the year.
The Investment Manager's Report below gives details on
investments made during the year and how performance has been
achieved.
PERFORMANCE
The Investment Manager, Phoenix Asset Management Partners
Limited ('Phoenix'), which is regulated by the FCA. The Chief
Investment Officer of Phoenix is Gary Channon. Phoenix reports in
detail upon the Company's activities in the Investment Management
Report and Outlook.
Under the Investment Management Agreement, no regular management
fees are payable. A performance fee is payable to the Investment
Manager only if the benchmark is outperformed.
The benchmark is the FTSE All-Share Index (total return). The
Company's performance since Phoenix was appointed is shown
below:
Cumulative Year to Year to
since 31 December 31 December
January 2016 2020 2019
% % %
NAV per Ordinary Share (total return) (1) +47.7 -5.3 +29.9
Ordinary Share price (total return) (1) +46.3 -10.0 +32.0
Benchmark (total return) +34.5 -9.8 +19.1
======== ======== ========
The Ongoing Charge Ratio was as follows:
Year to Year to
31 December 31 December
2020 2019
% %
Ongoing Charge Ratio (1) 0.45 0.45
======== ========
1 These are Alternative Performance Measures ("APMs")
ALTERNATIVE PERFORMANCE MEASURES ("APMS")
The disclosures of Performance above are considered to represent
the Company's APMs. An APM is a financial measure of historical or
future financial performance, financial position, or cash flows,
other than a financial measure defined or specified in the
applicable financial reporting framework. Definitions of these APMs
together with how these measures have been calculated can be found
below. --.
REVENUE RESULT AND DIVID
The Company's revenue profit after tax for the year amounted to
GBP599,000 (2019: GBP3,289,000)
The Board is today proposing the payment of a final dividend of
0.55p per Ordinary Share (2019: 4.5p per Ordinary Share). This
dividend will be paid on 2 July 2021 to Shareholders on the
register as at 11 June 2021 the Ordinary Shares will be marked
ex-dividend on 10 June 2021. In accordance with International
Financial Reporting Standards this dividend is not reflected in the
financial statements for the year ended 31 December 2020.
(DISCOUNT)/PREMIUM TO NAV
The discount of the Ordinary Share price to NAV per Ordinary
Share is closely monitored by the Board. The Ordinary Share price
closed at a 4.6% discount to the NAV per Ordinary Share as at 31
December 2020 (2019: 2.1% premium).
CONTROL OF THE LEVEL OF ONGOING CHARGES
The Board monitors the Company's operating costs carefully.
Based on the Company's average net assets for the year ended 31
December 2020, the Company's ongoing charges figure calculated in
accordance with the Association of Investment Companies (AIC)
methodology was 0.45% (2019: 0.45%). As the size of the Company
grows, the Board will manage expenses with the intention of keeping
costs down and reducing the ongoing charge ratio accordingly.
FIVE YEAR SUMMARY
The following data are all expressed as pence per Ordinary
Share. NAV figures are all calculated at bid prices.
Published Net Dividend per
Asset Value per Ordinary Share in Ordinary Share
Ordinary Share respective year price (mid-market)
Year/Period (pence) (pence) (pence)
Period from 1 March 2016 to 31 December 2016 172.66 2.00 173.50
Year ended 31 December 2017 205.72 2.75 208.00
Year ended 31 December 2018 182.24 4.00 183.00
Year ended 31 December 2019 232.07 4.50 237.00
Year ended 31 December 2020 213.39 (1) 0.55 207.00
======== ======== ========
1 This is an APM.
TOP HOLDINGS AT 31 DECEMBER 2020
Average Net
Percentage Date cost per Share Market Cash/
Holding Valuation of first price capitalisation debt
Company Sector in Company of net share* GBP GBPbillion
GBP'000 assets purchase GBP GBPbillion
%
Frasers Group
(formerly Sports
Direct
International) Retail 5,114,011 23,085 14.2 Dec-15 3.11 4.51 2.30 (0.25)
Barratt
Developments Construction 2,474,612 16,575 10.2 Jan-16 4.50 6.70 6.80 0.31
easyJet Leisure 1,928,363 16,002 9.8 Dec-15 8.83 8.30 3.80 (1.10)
Hornby Leisure 23,624,991 14,647 9.0 Jul-16 0.31 0.62 0.11 (0.39)
Ryanair Holdings Leisure 928,600 13,663 8.4 Feb-16 8.34 EUR14.71 EUR18.55 (1.10)
Dignity Retail 1,980,558 12,576 7.7 Dec-15 7.45 6.35 0.32 (0.47)
Randall & Quilter
Investment
Holdings Insurance 6,220,225 10,699 6.6 Jan-18 1.28 1.72 0.40 0.14
Bellway Construction 336,040 9,930 6.1 Dec-15 27.64 29.55 3.65 0.10
Phoenix SG* Financial 3,277 8,066 5.0 Jun-18 2,312.44 2,487.52 n/a n/a
Lloyds Banking
Group Financial 19,618,000 7,149 4.4 Dec-15 0.61 0.36 25.81 (9.40)
Vesuvius Industrials 1,236,834 6,636 4.1 Dec-15 4.35 5.37 1.46 (0.22)
Redrow Construction 1,115,186 6,373 3.9 Dec-15 5.56 5.72 2.00 0.13
GlaxoSmithKline Pharmaceuticals 419,227 5,626 3.5 Oct-16 14.63 13.42 67.30 (23.40)
Other holdings
(less than 3%) n/a n/a 6,867 4.1 n/a n/a
======== ========
Total holdings 157,894 97.0
======== ========
Other current assets and liabilities 5,027 3.0
======== ========
Net assets 162,921 100.0
======== ========
* Comprises the assets which make up the investment in Stanley
Gibbons plc. No income was derived from this holding during the
year.
The Company held over 3% of the issued share capital of the
following:
Hornby 14.15%
CPP Group 5.18%
Dignity Plc 3.96%
PORTFOLIO ANALYSIS AT 31 DECEMBER 2020
Percentage of net
assets
Sector %
Leisure 27.2
Retail 21.9
Construction 21.6
Financial 11.2
Insurance 6.6
Industrials 4.1
Pharmaceuticals 3.6
Food & Beverage 0.8
Other current assets and liabilities 3.0
--------------
Total 100.0
========
ANALYSIS BY TYPE, MARKET AND CURRENCY
All investments except Phoenix SG, are of listed ordinary
shares, denominated in sterling or converted to sterling using the
prevailing exchange rate at the time of valuation. All holdings
carried at a value are in listed companies with the exception of
Hornby, CPP Group and Randall & Quilter, which are quoted on
AIM, and Phoenix SG which is unquoted (although part of its assets
relate to AIM quoted shares in Stanley Gibbons plc).
The Company also has holdings in China Chaintek and Naibu Global
International, which have been written down to a valuation of
GBPnil (2019: GBPnil) as the respective listings have been
suspended.
All active holdings in the Company's portfolio are UK companies,
with the exception of Ryanair (Irish) and Phoenix SG, a Cayman
Islands company.
STATEMENT FROM THE CIO OF THE INVESTMENT MANAGER
Warren Buffett says the first rule of investing is: Don't Lose
Money. We tackled the COVID-19 challenge in that way whilst
retaining our focus on upside value. We put considerable effort
into ensuring we owned businesses that would survive a bad lockdown
and emerge better positioned competitively, or at least no worse.
We believe that worked, our intrinsic values never fell to the
levels of share prices before the pandemic started, not in one
holding.
Buffett's second rule is: Don't Forget Rule No.1. and so, as we
sought out opportunities in 2020, it was with a heavy focus on the
downside risk and the probability of our making a mistake in our
evaluation. This second factor weighed heavily. There were plenty
of cheap looking stocks around in Q2 of 2020 but it takes a
detailed level of knowledge and expertise to be able to model what
will happen to a business if the pandemic drags on and vaccines
don't work. We were able to deploy our excess cash in businesses we
already knew well and where we set a minimum upside of 200%. We
looked at hundreds of opportunities and capital raises and passed
on everything bar one small addition, which moved before we could
get a proper holding.
The result is that we emerge from the pandemic with an
undervalued portfolio positioned to thrive in the resumption of
activity and with fewer competitors.
Our focus on risk monitoring and making the most of the downturn
meant that we postponed the launch of the vehicle we mentioned last
year. It is now formed and we plan to launch it this year. It is
called the Castelnau Group and, as outlined in the Chairman's
Statement, we are presently in dialogue with the Board for its
inclusion in the Company's portfolio. Apart from containing the
businesses we are seeking to grow the value of through our
engagement, it also contains the companies we are using to do that
in the fields of data science, software development and digital
marketing. The skills they learn in the group they will be applying
to external companies thereby creating additional value for our
investors. We are now looking to apply that capability to new
candidates. We will write with more details soon.
As the world recovers from the pandemic and support programmes
end, there is the potential for opportunities in those businesses
impaired by what just happened. We are always looking for
opportunities and will look wherever we think we might find them.
In the meantime, we expect great things of the portfolio.
GARY CHANNON
CIO PHOENIX ASSET MANAGEMENT PARTNERS
2 June 2021
INVESTMENT MANAGEMENT REVIEW AND OUTLOOK
During the year, the NAV per share reduced by 5.3% and the share
price by 10.0%. The FTSE All-Share Index fell by 9.8% over the same
period. Since Phoenix began managing the Company on 27 January 2016
its NAV has risen 47.7% versus 34.5% for the FTSE All-Share
Index.
The outperformance in 2020 has resulted in a performance fee
being earned by Phoenix. In accordance with our Investment
Management Agreement, the performance fee was settled by the
issuance to Phoenix of Ordinary Shares in the Company, which
Phoenix must hold for 3 years. If the outperformance versus the
index disappears on the third-year anniversary, these Ordinary
Shares will be forfeited, and Phoenix will receive nothing. This,
we believe, is one of the most aligned fee structures in the
industry.
Over the course of 2020, the Company's Ordinary Shares traded at
a premium to NAV which enabled Aurora to issue a total of 8.6
million new Ordinary Shares worth GBP13.6 million (including
530,311 issued to the Investment Manager to settle the performance
fee with a value of GBP1.2 million). Net assets at year-end, as
disclosed in the financial statements were GBP162.9 million (2019:
GBP154.4 million). As we write in late May, the portfolio and the
overall market have enjoyed a positive performance as confidence
increases with the impact of vaccinations facilitating a return to
normality. As of 30 April, the NAV has risen 8.6% for the year with
the FTSE All-Share Index rising 9.8%.
PERFORMANCE REVIEW
From a performance perspective, it is stating the obvious to say
that the year was defined by the impact of the COVID-19 pandemic.
In Q1 2020 the NAV fell well over 40% by late March, before a small
rally saw it down 38.6% at quarter end. The All-Share index was
down 25% over the same period.
Q2 2020 saw a modest recovery with the Company rising 16.6%
during the quarter to end the half year down 28% versus the index
which was down 17.4% at the same point.
Q3 2020 was flat with significant uncertainty as the emergence
from the first national lockdown was offset by the reimposition of
travel bans in the late summer. At the end of the third quarter the
Company was unchanged from 30 June, down 28.1% on the year with the
index down 20%.
In Q4 2020 the Company and the overall market experienced a
strong rally which was driven by news of the high vaccine efficacy
and the likelihood of their availability by year end. The Company
rose 31.5% during the quarter to end the year down 5.5% with the
index ending the year down 9.7%.
From a share price perspective, there were many holdings which
experienced price falls well in excess of the market in the first
quarter. These included our housebuilders: Barratt Developments,
Bellway and Redrow, and other holdings: easyJet and Frasers Group.
Hornby, Randall & Quilter and GlaxoSmithKline counterbalanced
these falls as they fell by only single digits during the first
quarter.
Hornby's resilient performance continued throughout the year and
after good results in Q4, in which it outlined its return to
profitability, it ended the year up 68%. Over the full year
Ryanair, Dignity, Randall & Quilter and Vesuvius had positive
share price performance with Frasers Group close behind, only
losing 2%. Dignity's share price benefited after the Competition
and Markets Authority (CMA) produced its provisional decision
report into the funeral industry in August, which did not include
remedies that could be detrimental to the industry.
From a negative perspective, Lloyds, easyJet and JD Wetherspoon
were among the holdings whose share prices suffered significant
price falls over the whole year.
In the first quarter of 2021 we sold our entire holding in
Redrow because of an accumulation of factors. It is a company again
in transition following the retirement of its founder, has made
some missteps of late and has a landbank with some sites that take
a very long time to develop. We expect continued changes in
environmental and building regulations in the coming years which
will increase the cost of building. Ultimately, that cost will fall
on future land sellers but for an existing landbank, it falls on
the housebuilder. We prefer the shorter and faster turning
landbanks of Barratt and Bellway, which are less exposed to those
risks.
ACTIVITY REVIEW
In the early months of 2020, as the extent of the pandemic
became clear, our focus was on an assessment of all businesses in
the portfolio to determine their ability to survive the likely
slowdown. Having made an assessment that all our businesses would
survive, our focus moved to identifying opportunities.
In March, we deployed cash at circa 1/3rd of intrinsic value,
with 200% upside. We bought Barratt Developments, Ryanair, easyJet
and Lloyds. The most significant activity was a 5.5% increase in
Barratt Developments in cost price weight terms, as we bought stock
at GBP4 when our estimate of intrinsic value was GBP12. We could
not come up with a realistic scenario where GBP4 was the right
price. It represented an enormous margin of safety.
In the 2nd and 3rd quarters activity, when measured in portfolio
turnover, was extremely light. However, our work was ongoing, in a
continual effort to ensure that our assessment that all our
companies had the financial resource to withstand the major
disruption brought about by COVID-19, was sound.
At the end of June, we wrote the following in the Aurora monthly
report and the sentiments still holds true:
We went into the downturn with a view that we had strong
businesses with robust balance sheets that could withstand major
interruptions to their operations. So far, everything that has
happened has supported those assessments. Some of them have raised
capital, R&Q for opportunistic reasons, JD Wetherspoons out of
caution and easyJet to repair a balance sheet for the losses to
equity from the lockdown. None of them had to and so none were done
at distressed levels and we didn't participate in any. Stronger
balance sheets protect us from worst case scenarios at the cost of
diluting some of the upside.
We also believe we have a portfolio of companies with
competitive advantages and so as they emerge from lockdown, we see
many opportunities to grow share. The above effects in retail mean
that Frasers Group returns from lockdown to less competition, lower
rents and eventually lower rates. The downturn has also given them
opportunities to buy businesses at attractive prices. easyJet and
Ryanair are poised to benefit from changes in air travel. Our
polling during the downturn shows no loss of appetite for leisure
travel, but there does seem likely to be less business travel, at
least initially because of the alternative of video meetings and
the economic recession. Significant amounts of capacity have been
taken out of the commercial airline space in Europe, a number of
marginal players have failed and those major players who have taken
government support look hamstrung by the terms of that support.
easyJet and Ryanair, already the no.1 and no.2 airlines in Europe
and profitable lowest cost producers look set to gain share, fill
the void, and satisfy the pent-up demand to travel that COVID-19
has not permanently damaged.
As well as our work on existing holdings, we looked at many new
investments during the year, but we placed great store in the
knowledge we had built up in businesses and industries in which we
were very familiar. For us to invest outside that area in a time of
great uncertainty would have required a very high degree of
confidence and significant return expectations. We determined that
the probability of error in our assessments was high, therefore we
passed. We did have one potential new investment which we missed as
it traded just above our entry price, and we did begin to purchase
a new holding, but the price moved away before we could build a
meaningful position.
As reported earlier, Q4 saw markets and our portfolio recover
strongly with news of the high vaccine efficacy.
In late 2020 and into the New Year we became concerned about the
potential for higher inflation and the possibility of unexpected
interest rate rises if higher inflation was not managed carefully
by central banks. It is our belief that an unexpected series of
interest rate rises could have a significant negative effect on
equity values. Due to the ongoing pandemic, equity index protection
remains expensive, therefore, we have investigated the use of
options on short sterling futures as a means of effectively hedging
at a reasonable cost. At the time of writing the hedge is not yet
in place as the price moved during the time it took to determine
the regulatory leverage treatment, but it is our intention to
spend, at an appropriate price, no more than 1% of NAV, which would
pay out circa. one-third of the value of the portfolio if interest
rates were 2% in September 2022. We would be buying protection,
therefore the value at risk would be the money spent on the option
and no more. Regulatory leverage calculations require us to report
on the underlying nominal value when calculating leverage which can
be much higher, but it bears no relationship to the actual risk of
loss.
In early January 2021, Gary Channon wrote to Aurora Shareholders
in the December factsheet with his thoughts on the portfolio going
into the New Year. Those sentiments hold true today:
We enter 2021 with a portfolio of undervalued businesses that we
believe are well positioned to capitalise on a competitive
landscape that has been radically altered in some areas by failure
and trend accelerations. Our upside to intrinsic value at circa.
100% does not properly reflect that potential because it is hard to
estimate how it will play out, but the important thing is that its
additive to value.
For example, Ryanair and easyJet will be serving a demand for
personal travel that looks undiminished and even enhanced by
pandemic lockdowns and they will be doing it with fewer competitors
and reduced capacity than those that are left.
Wetherspoons will be serving a demand that, if anything, seems
to have been increased by having it rationed and denied. It did not
take much government encouragement in the summer to fill pubs and
restaurants with casual diners, even with social distancing.
Retailing has been ravaged not just by the business interruption
that has impacted travel and hospitality but because the pandemic
has accelerated the trend already underway to a different way of
retailing. Whilst many companies in the sector have failed, Mike
Ashley and his Frasers Group have been busy seizing the
opportunities thrown up and have traded profitably throughout. They
look well positioned to benefit from their omnichannel offering
across sports and luxury as they relentlessly experiment and adapt
to the changing consumer demand.
Our cyclical domestic holdings in housebuilders and Lloyds Bank
have hurt the portfolio this year. They have actually been less
impacted by the downturn than might have been expected and we think
are very well placed for 2021. Again, the pandemic seems to have
increased the demand for homes; more specifically there is a
growing demand for more space and a move away from city centres of
which our businesses are a beneficiary.
The final grouping within the portfolio is those businesses
where we are trying to increase their value through our
involvement, our control and influence holdings. Hornby benefited
from the lockdown whereas the others Dignity and Stanley Gibbons
were negatively impacted to varying degrees. Dignity benefited from
more funerals but as they were smaller affairs the average revenue
and profitability declined. Overall, this group significantly
lifted the portfolio return and Hornby was the main driver of that.
A year ago, we told you of our plans to put all these holdings into
a single company which would be separately listed. We paused that
project during the pandemic because we didn't think it was the best
use of our time. However, the work is all done and so we have
recently resumed that process and will be bringing the new company
to market, called The Castelnau Group, in the next few months.
As a reminder of what we are trying to achieve, these are
businesses that we believe can create considerably more value if
they adopt different approaches. We have pulled together the wisdom
and techniques we have learned from studying and closely monitoring
some great businesses and businesspeople and we are beginning to
apply those to these businesses. It is still early days, but our
view of the potential has only grown the more we have done this and
that is despite the fact that most of the time things don't seem to
go to plan, are harder to implement than we expected and we are
constantly hit by setbacks. It seems that our rate of progress is
accelerating at the rate at which things don't go right and we
learn from that.
Separating those businesses where we are trying to add value
through involvement will make the effects of that work much easier
to measure and evaluate. The Castelnau Group won't just contain the
businesses we control and influence but also those businesses we
are using to create that value. One is a digital marketing and
software development company that Phoenix acquired last year, and
the other is a data science company that we are just in the process
of setting up. These companies will be able to take the techniques
and capabilities they have learned with our businesses and apply
them to external companies to create further value for the group.
The companies referred to above are part of the Castelnau
Group.
STEVE TATTERS
DIRECTOR
PHOENIX ASSET MANAGEMENT PARTNERS
2 June 2021
PHOENIX UK FUND TRACK RECORD
Investment NAV
Return NAV Return FTSE All-Share Per Share
(Gross) (Net) Index (A Class)
Year % % % GBP
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
-------------- -------------- -------------- --------------
Cumulative 1064.6 574.9 181.1 n/a
======== ======== ======== ========
Annualised Returns 11.4 8.8 4.7 n/a
======== ======== ======== ========
OTHER STRATEGIC REPORT INFORMATION
PRINCIPAL RISKS, EMERGING RISKS AND UNCERTAINTIES
Procedure for Identifying Emerging Risks
The procedures in place to identify emerging or principal risks
are described below.
The Audit Committee regularly reviews the Company's risk matrix,
focusing on ensuring that the appropriate controls are in place to
mitigate each risk. A system has been established to identify
emerging risks as they occur as detailed below. The experience and
knowledge of the Audit Committee and Board is invaluable to these
discussions, as is advice received from the Board's service
providers, specifically the Investment Manager who is responsible
for all portfolio management services.
The market and operational risks and financial impact as a
result of the COVID-19 pandemic, and measures introduced to combat
its spread, were discussed by the Board, with updates on
operational resilience received from the Investment Manager,
Administrator and other key service providers.
The following is a description of the role each service provider
plays in the identification of emerging risks.
1. Investment Manager: the Investment Manager advises the Board
at each meeting on world markets, stock market trends, information
on stock specific matters as well as regulatory, political and
economic changes likely to impact the Company's portfolio;
2. Distributor and Broker: provides advice periodically specific
to the Board on the Company's share register, sector, competitors
and the investment company market;
3. Company Secretary and Accounting Advisor: briefs the Board on
forthcoming legislation or regulatory changes that might impact the
Company;
4. AIC: The Company is a member of the AIC, which provides
regular technical updates as well as drawing members' attention to
forthcoming industry and regulatory issues.
Procedure for oversight of risks
Audit Committee: The risk matrix is reviewed at least twice a
year. This includes a review of the risk procedures and controls in
place at the key service providers to ensure that emerging (as well
as known) risks are adequately identified and - so far as
practicable - mitigated.
Experienced Non-Executive Directors on the Committee, each
bringing external knowledge of the investment trust (and financial
services generally) marketplace, trends, threats etc. as well as
macro/strategic insight.
The principal risks faced by the Company, together with the
approach taken by the Board towards them, have been summarised
below.
PRINCIPAL RISKS, EMERGING RISKS AND UNCERTAINTIES CONSIDERED
DURING THE YEAR
Brexit
The uncertainty arising from the UK leaving the EU at the end of
the transition period on 31 December 2020 was considered by the
Board during the year. Having carefully considered the impact, the
Board formed the opinion that Brexit would not present a risk to
the Company's viability or going concern status.
Portfolio Risk
Changes in general economic and market conditions including, for
example, interest rates, cost increase, rates of inflation,
industry conditions, competition, political events and trends, tax
laws, national and international conflicts and other factors,
particularly noting the recent outbreak of COVID-19 as discussed
below and the impact to the economy, could substantially and
adversely affect the Company's prospects. Other portfolio risks are
outlined as follows.
-- Poor stock selection, resulting in underperformance against the Company's benchmark;
-- Poor use of gearing, creating a drag on performance during times of market declines;
-- Illiquid stock creating a drag on performance; and
-- Concentrated portfolio.
Emerging risk
COVID-19 was identified as an emerging risk. The long-term
effects of the COVID-19 pandemic remain unknown, however, the
market and operational risks and financial impact as a result of
the COVID-19 pandemic, and measures introduced to combat its
spread, were considered by the Board. Each of the Company's key
service providers was able to demonstrate operational resilience.
In addition, the Investment Manager undertook a thorough review of
the impact on the Company's portfolio of investments and was able
to provide the Board with assurance that the Company's portfolio of
investments had strong businesses with robust balance sheets that
could withstand major interruptions to their operations. This is
discussed further in the Investment Manager's report above. The
Directors and the Investment Manager continue to monitor the
situation closely.
MANAGEMENT OF RISKS
The Board undertakes a review of the performance of the Company
and scrutinises and challenges notable transactions at each
quarterly Board meeting. At least on an annual basis the
Remuneration and Management Engagement Committee reviews the
engagement of the Investment Manager, including the Investment
Manager's achievements with regard to the Company's
performance.
Risk diversification
The Company invests in organisations normally listed and traded
on the London Stock Exchange, and by spreading its investments
across a range of such securities. At 31 December 2020, the Company
held 19 (2019: 17) stocks, spread across 8 (2019: 7) main sectors.
The diversification of the Company's portfolio is considered at
each of the quarterly board meetings.
Gearing
The Company has the power under its Articles to borrow money.
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.
The Board will keep under review whether any provision should be
made for the use of short-term borrowing for the sole purpose of
meeting working capital requirements from time-to-time. Further
details concerning currency risks, liquidity risks and interest
rate risks are given in note 17.
Liquidity
The Board undertakes a review of the liquidity of the
investments at each quarterly Board meeting and takes appropriate
action, where deemed necessary.
Operational Risk
The Company is exposed to the operational and cyber risks of its
third-party service providers and considered the risk and
consequences in the event that these systems failed during the
year. The Investment Manager, Registrar, Depositary, Administrator
and Company Secretary each have comprehensive business continuity
plans which facilitate continued operation of the business in the
event of a service disruption or major disruption. The Audit
Committee received the internal controls reports of the relevant
service providers, where available and was able to satisfy itself
that adequate controls and procedures were in place to limit the
impact to the Company's operations, particularly with regard to a
financial loss.
The performance of service providers is reviewed annually via
its Remuneration and Management Engagement Committee. Each service
provider's contract defines the duties and responsibilities of each
and has safeguards in place including provisions for the
termination of each agreement in the event of a breach or under
certain circumstances. Each agreement also allows for the Board to
terminate subject to a stated notice period. During the year under
review the Board undertook a thorough review of each service
provider and agreed that their continued appointment remained
appropriate and in the Company's long term interest.
Regulatory risk
Poor governance, compliance or administration, including
particularly the risk of loss of investment trust status and the
impact this may have on the Company was considered by the Board.
Having been provided with assurance from each of the key service
providers, the Board was satisfied that no such breach had
occurred.
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 twelve months from the date of approval of
this document. In reaching this conclusion, the Directors have
considered the liquidity of the Company's portfolio of investments
as well as its cash position, income and expenditure. As at 31
December 2020, the Company held GBP5,055,000 (2019: GBP16,602,000)
in cash, GBP149,828,000 (2019: GBP130,326,000) in quoted
investments and GBP8,066,000 (2019: GBP8,487 ,000) in an unquoted
investment. This is a conservative approach which does not include
the ability to access liquidity through block trades. The total
operating expenses for the year ended 31 December 2020 were GBP597
,000 (2019: GBP551,000).
It is estimated that 60% of the portfolio could be liquidated in
a non-market impacting way within 7 days using 15% of average daily
volume. Given the level of market volatility experienced during
2020, due to the impact of the COVID-19 pandemic, the Investment
Manager has performed stress tests on the Company's portfolio of
investments under current conditions and the Board remains
comfortable with the liquidity of the Company's portfolio.
At the date of approval of this document, based on the aggregate
of investments and cash held, the Company has substantial operating
expenses cover and cash flows are at the discretion of the Board.
In light of the COVID-19 pandemic, the Board has considered the
Company's liabilities and noted cash and investments held are well
in excess of the level of liabilities. A prolonged and deep market
decline could lead to falling values to investments or
interruptions to cash flow, however the Company currently has more
than sufficient liquidity available to meet any future
obligations.
The financial markets have experienced considerable turmoil as a
result of the outbreak of COVID-19 in many countries, including the
United Kingdom. The Board is keeping the development of these
situations under close scrutiny. The Board does not believe that
these will affect the Company's going concern status.
VIABILITY STATEMENT
A resolution was unanimously approved for the continuation of
the Company as an investment trust at the 2019 AGM. The
continuation vote will be put to Shareholders at every third AGM.
The next continuation vote will be put to Shareholders at the 2022
AGM. Investors have given no indication that they would oppose the
continuation of the Company when the continuation vote is next
presented to Shareholders.
The Directors have considered the viability of the Company over
a five-year period to 31 December 2025, which they believe is an
appropriate period over which to assess the Company, given the
Company's long-term investment strategy and the principal and
emerging risks and uncertainties outlined above.
After making inquiries, 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 from the date of approval of this report.
In reaching this conclusion, the Directors have considered each
of the principal risks and uncertainties set out above, including
the impact of COVID-19 on the Company. As part of this process the
Board considered several severe but plausible scenarios, including
the impact of significant market movements. The Board has
considered the liquidity and solvency of the Company, the level of
discount at which its Ordinary Shares trade at the time of
assessment, its income and expenditure profile including the
absence of monthly management fees and the non-utilisation of
gearing as an instrument of normal investment policy. Most of the
Company's investments comprise readily realisable securities which
could, if necessary, be sold to meet the Company's funding
requirements. The Company's plan to expand by the issue of new
share capital is kept under close, ongoing review by the Board.
Portfolio changes and market developments are also discussed at
quarterly Board meetings.
The internal control framework of the Company is subject to
formal review on at least an annual basis.
The Company's income from investments and cash realisable from
the sale of investments provide substantial cover to the Company's
operating expenses and any other costs likely to be faced by the
Company during the period under review.
OUTLOOK
The outlook for the Company is discussed in the Chairman's
Statement and the Investment Manager's Review which can be found
above.
THIS STRATEGIC REPORT WAS APPROVED BY THE BOARD ON 2
JUNE2021.
FOR AND ON BEHALF OF THE BOARD
LORD FLIGHT
Chairman
2 June 2021
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 in the United Kingdom requires the Directors to
prepare financial statements for each financial year. Under that
law the Directors have elected to prepare the financial statements
in accordance with International Financial Reporting Standards
(IFRSs) in conformity with the requirements of the Companies Act
2006. Additionally, the Financial Conduct Authority's Disclosure
Guidance and Transparency Rules require the Directors to prepare
the financial statements in accordance with IFRSs adopted pursuant
to Regulation (EC) No 1606/2002 as it applies in the European
Union.
Under company law, the Directors must not approve the accounts
unless they are satisfied that they give a true and fair view of
the state of affairs and profit or loss of the Company for that
period. In preparing these financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates which are reasonable and prudent;
-- state whether international accounting standards in
conformity with the requirements of the Companies Act 2006 and
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union
have been followed, subject to any material departures disclosed
and explained in the financial statements;
-- prepare the financial statements on the going concern basis,
unless it is inappropriate to presume that the Company will
continue in business.
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 page of
the Investment Manager'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 Accounts,
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 in
the Corporate Governance section confirm that, to the best of their
knowledge:
-- the Company's financial statements, which have been prepared
in accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006, give a true and
fair view of the assets, liabilities, financial position and loss
of the Company; and
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
Company, together with a description of the principal risks and
uncertainties that it faces.
In the case of each Director in office at the date the
Directors' report is approved:
-- so far as the Director is aware, there is no relevant audit
information of which the Company's auditors are unaware; and
-- they have taken all the steps that they ought to have taken
as a Director in order to make themselves aware of any relevant
audit information and to establish that the Company's auditors are
aware of that information.
FOR AND ON BEHALF OF THE BOARD
LORD FLIGHT
Chairman
2 June 2021
FINANCIALS
STATEMENT OF COMPREHENSIVE INCOME
Year ended Year ended
31 December 2020 31 December 2019
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2 (Losses)/gains on investments - (2,123) (2,123) - 31,654 31,654
Losses on currency - (20) (20) - - -
3 Income 1,207 - 1,207 3,840 - 3,840
Total income 1,207 (2,143) (936) 3,840 31,654 35,494
4 Investment management fees - (665) (665) - (1,361) (1,361)
4 Other expenses (597) - (597) (551) - (551)
Profit/(loss) before tax 610 (2,808) (2,198) 3,289 30,293 33,582
7 Tax (11) - (11) - - -
Profit/(loss) and total comprehensive
income for the period 599 (2,808) (2,209) 3,289 30,293 33,582
9 Earnings per share - Basic and diluted 0.83p (3.87p) (3.04p) 5.41p 49.80p 55.21p
======== ======== ======== ======== ======== ========
The total column represents the statement of comprehensive
income of the Company.
The revenue and capital columns, including the revenue and
capital earnings per Ordinary Share data, are supplementary
information prepared under guidance published by the AIC.
All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued
during the period. All revenue is attributable to the equity
holders of the Company.
The notes below form part of these accounts.
STATEMENT OF FINANCIAL POSITION
Approved by the Board of Directors on 2 June 2021 and signed on
its behalf by:
Lord Flight
Company no. 03300814
31 December 31 December
2020 2019
Notes GBP'000 GBP'000
NON-CURRENT ASSETS
2 Investments held at fair value through profit or loss 157,894 138,813
CURRENT ASSETS
Trade and other receivables 258 422
Cash and cash equivalents 5,055 16,602
-------------- --------------
5,313 17,024
======== ========
TOTAL ASSETS 163,207 155,837
======== ========
CURRENT LIABILITIES:
4 Investment management fees payable (171) (1,361)
Other operating expenses payable (115) (116)
-------------- --------------
(286) (1,477)
======== ========
NET ASSETS 162,921 154,360
======== ========
EQUITY
10 Called up share capital 18,776 16,628
Capital redemption reserve 179 179
Share premium account 108,438 97,186
Other reserve 665 -
12 Investment holding gains 20,621 23,231
12 Other capital reserve 13,219 13,417
Revenue reserve 1,023 3,719
-------------- --------------
TOTAL EQUITY 162,921 154,360
======== ========
10 Number of Ordinary Shares in issue 75,103,743 66,513,561
13 NAV per Ordinary Share 216.93p 232.07p
======== ========
The notes below form part of these accounts.
STATEMENT OF CHANGES IN EQUITY YEAR TO 31 DECEMBER 2020
Called up Capital Share Investment Other
share redemption premium Other holding capital Revenue
capital reserve account reserve gains reserve reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening
equity 16,628 179 97,186 - 23,231 13,417 3,719 154,360
(Loss)/profit
for the year - - - - (2,610) (198) 599 (2,209)
Performance
fee charge
5 for the year - - - 665 - - - 665
Dividends
8 paid - - - - - - (3,295) (3,295)
Issue of new
Ordinary
10 Shares 2,148 - 11,408 - - - - 13,556
Ordinary
Share issue
costs - - (156) - - - - (156)
-------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Closing
equity 18,776 179 108,438 665 20,621 13,219 1,023 162,921
======== ======== ======== ======== ======== ======== ======== ========
The notes below form part of these accounts.
STATEMENT OF CHANGES IN EQUITY YEAR TO 31 DECEMBER 2019
Called up Capital Share Investment Other
share redemption premium holding capital Revenue
capital reserve account gains reserve reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening
equity 13,855 179 77,764 (5,218) 11,573 2,843 100,996
Profit
for the
year - - - 28,449 1,844 3,289 33,582
Dividends
8 paid - - - - - (2,413) (2,413)
Issue of
new
Ordinary
10 Shares 2,773 - 19,706 - - - 22,479
Ordinary
Share
issue
costs - - (284) - - - (284)
-------------- -------------- -------------- -------------- -------------- -------------- --------------
Closing
equity 16,628 179 97,186 23,231 13,417 3,719 154,360
======== ======== ======== ======== ======== ======== ========
The notes below form part of these accounts.
CASH FLOW STATEMENT
Year to Year to
31 December 31 December
2020 2019
GBP'000 GBP'000
NET OPERATING ACTIVITIES CASH FLOW
Cash inflow from investment income and interest 1,358 3,877
Cash outflow from management expenses (597) (525)
Losses on currency (20) -
Payments to acquire non-current asset investments* (33,756) (36,950)
Receipts on disposal of non-current asset investments* 12,316 28,410
Capital distributions received 236 -
-------------- --------------
NET OPERATING ACTIVITIES CASH FLOW (20,463) (5,188)
======== ========
FINANCING ACTIVITIES CASH FLOW
Proceeds from issue of new Ordinary Shares 12,367 22,479
Ordinary Share issue costs (156) (284)
Dividends paid (3,295) (2,413)
FINANCING ACTIVITIES CASH FLOW 8,916 19,782
-------------- --------------
(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (11,547) 14,594
======== ========
Cash and cash equivalents at beginning of year 16,602 2,008
(Decrease)/increase in cash and cash equivalents (11,547) 14,594
-------------- --------------
CASH AND CASH EQUIVALENTS AT OF YEAR 5,055 16,602
======== ========
* Payments to acquire investments and receipts from the disposal
of investments have been classified as components of cash flow from
operating activities because they form part of the Company's
operating activities.
The notes below form part of these accounts.
NOTES TO THE FINANCIAL STATEMENTS
1. REPORTING ENTITY
Aurora Investment Trust plc is a closed-ended investment
company, registered in England and Wales on 10 January 1997 with
Company number 03300814. The Company's registered office is 1st
Floor, Senator House, 85 Queen Victoria Street, London, EC4V 4AB.
Business operations commenced on 13 March 1997 when the Company's
Ordinary Shares were admitted to trading on the London Stock
Exchange.
The Company invests predominantly in a portfolio of UK listed
companies and may from time to time also invest in companies listed
outside the UK and unlisted securities, with the objective of
providing Shareholders with long-term returns through capital and
income growth.
Details of the Directors, Investment Manager and Advisers can be
found above and in the Annual Report.
The financial statements of the Company are presented for the
year ended 31 December 2020 and were authorised for issue by the
Board on 2 June 2021.
BASIS OF ACCOUNTING
The financial statements of the Company have been prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and prepared in
accordance with international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union.
Under IFRS, the AIC Statement of Recommended Practice "Financial
Statements of Investment Trust Companies and Venture Capital
Trusts" ("SORP") issued in October 2019 has no formal status, but
the Company adheres to the guidance of the SORP.
GOING CONCERN
The financial statements have been prepared on a going concern
basis. In forming this opinion, the Directors have considered any
potential impact of the COVID-19 pandemic on the going concern and
viability of the Company. In making their assessment, the Directors
have reviewed income and expense projections and the liquidity of
the investment portfolio, and considered the mitigation measures
which key service providers, including the Manager, have in place
to maintain operational resilience particularly in light of
COVID-19.
The Directors have a reasonable expectation that the Company has
adequate operational resources to continue in operational existence
for at least twelve months from the date of approval of these
financial statements. Further information on the Company's going
concern can be found above.
SIGNIFICANT ACCOUNTING POLICIES
The accounting policies adopted are described below, all other
than the performance fee have been consistently applied in the
current and preceding year.
a. Accounting Convention
The accounts are prepared under the historical cost basis,
except for the measurement of fair value of investments.
b. Adoption of new IFRS standards
A number of new standards, amendments to standards and
interpretations are effective for the annual periods beginning
after 1 January 2020. None of these are expected to have a
significant effect on the measurement of the amounts recognised in
the financial statements of the Company.
IAS 1 and IAS 8 Amendments
Definition of Material. The International Accounting Standards
Board has refined its definition of 'material' and issued practical
guidance on applying the concept of materiality. These amendments
have no impact on the financial statements of the Company.
IFRS 9 Financial Instruments - Fees in the '10 per cent' test
for derecognition of financial liabilities
As part of its 2018-2020 Annual Improvements to IFRS standards
process, the IASB issued an amendment to IFRS 9. The amendment
clarifies the fees that an entity includes when assessing whether
the terms of a new or modified financial liability are
substantially different from the terms of the original financial
liability. The amendment is effective for annual reporting periods
beginning on or after 1 January 2022 with earlier adoption
permitted. This amendment is unlikely to have any impact on the
financial statements of the Company as such will not early
adopt.
Amendments to IFRS 7, IFRS 9 and IAS 39 Interest Rate Benchmark
Reform
The amendments to IFRS 7, IFRS 9 and IAS 39 Financial
Instruments: Recognition and Measurement provide a number of
reliefs, which apply to all hedging relationships that are directly
affected by interest rate benchmark reform. These amendments have
no impact on the financial statements of the Company.
New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been
published that are not mandatory for 31 December 2020 reporting
periods and have not been early adopted by the Company. These
standards are not expected to have a material impact on the entity
in the current or future reporting periods and on foreseeable
future transactions.
c. Investments
Investments held at fair value through profit or loss are
initially recognised at fair value, being the consideration given
and excluding transaction or other dealing costs associated with
the investment. After initial recognition, investments are measured
at fair value through profit or loss. Gains or losses on
investments measured at fair value through profit or loss are
included in the Statement of Comprehensive Income as a capital item
and transaction costs on acquisition or disposal of investments are
also included in the capital column of the Statement of
Comprehensive Income. 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. Investments held at fair
value through profit or loss are initially recognised at fair
value, being the consideration given and excluding transaction or
other dealing costs associated with the investment.
Unquoted investments are measured at fair value, which is
determined by the Directors in accordance with the International
Private Equity and Venture Capital valuation guidelines and IFRS 9.
The fair value of the Company's investments in Phoenix SG is based
on the reported NAV as at the reporting date. Valuation reports
provided by the Investment Manager of the unquoted investments are
used to calculate the 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.
Upon the sale of Phoenix SG in part or wholly, the fair value
would be the expected sale price where this is known or can be
reliably estimated.
d. Income from Investments
Investment income from the Company's investment portfolio is
accounted for on the basis of ex-dividend dates. Income from fixed
interest shares and securities is accounted for on an accrual basis
using the effective interest method. Special Dividends are assessed
on their individual merits and are credited to the capital column
of the Statement of Comprehensive Income if the substance of the
payment is a return of capital; with this exception all investment
income is taken to the revenue column of the Statement of
Comprehensive Income. Income from gilts receivable is accounted for
on an accrual basis using the effective yield.
e. Capital Reserves
The Company is not precluded by its Articles from making any
distribution of capital profits by way of dividend, but the
Directors have no current plans to do so. Profits and losses on
disposals of investments are taken to the other capital (gains on
disposal) reserve. Revaluation movements are taken to the
investment holding reserve via the capital column of the Statement
of Comprehensive Income.
f. Investment Management Fees and Other expenses
In the current year, the Company has revised its accounting
policy in respect of the recognition and measurement of Investment
Management Fees. In the prior year, the fee payable to the
Investment Manager was not considered material, therefore the
change in accounting policy has not been applied retrospectively.
Set out below is the policy applied in the current and prior
year.
Current year
The performance fee, which is equity settled, has been
recognised and measured in accordance with IFRS 2. The performance
fee is recognised as an expense in the capital column of profit and
loss with a corresponding entry to equity over the period which the
Investment Manager is required to perform services to the Company
in order to be entitled to receive unrestricted Ordinary Shares in
the Company.
The amount recognised as an expense is adjusted to reflect the
number of Ordinary Shares for which the related service and
non-market performance conditions are expected to be met, such that
the amount ultimately recognised is based on the number of Ordinary
Shares that meet the related service and non-market performance
conditions at the vesting date at the end of the four-year service
period.
Restricted Ordinary Shares are issued to the Investment Manager
at the end of the first year of service.
Further details on the judgements that the Board has made on the
recognition and measurement of the performance fee can be found
below, and further details on the performance fees can be found in
Note 4 below.
Prior year
The performance fee is recognised as an expense in the capital
column of profit and loss with a corresponding provision based on
the cash equivalent of the performance fee due when it becomes
payable. When payment of the performance fee becomes due, the
Company's Ordinary Shares are issued based on the prevailing NAV on
the issue date, which settles the provision created on the
recognition of the expense. Retrospective application of the
current year policy to prior year would have resulted in reduction
in the charge to the profit and loss account of GBP1,020,750, and
the elimination of the performance fee liability of GBP1,361,000,
and the recording of the share-based payment charge to other
reserves of GBP340,250 in relation to the 2019 performance fee
earned.
Prior year amount is immaterial as such comparatives have not
been restated. Other costs are normally charged to revenue, unless
there is a compelling reason to charge to capital. Tax relief in
respect of costs allocated to capital is credited to capital via
the capital column of the Statement of Comprehensive Income on the
marginal basis.
g. Taxation
Current income tax assets and/or liabilities comprise those
obligations to, or claims from, fiscal authorities relating to the
current or prior reporting period, that are unpaid at the year end
date.
Deferred income taxes are calculated using the liability method
on temporary differences. Deferred tax is generally provided on the
difference between the carrying amounts of assets and liabilities
and their tax bases. In addition, tax losses available to be
carried forward as well as other income tax credits are assessed
for recognition as deferred tax assets. Deferred tax assets and
liabilities are calculated, without discounting, at tax rates that
are expected to apply at their respective period of realisation,
provided they are enacted or substantively enacted at the year end
date. Deferred tax liabilities are always provided for in full.
Deferred tax assets are recognised to the extent that it is
probable that they will be able to be offset against future taxable
income.
Changes in deferred tax assets or liabilities are recognised as
a component of tax expense in the Statement of Comprehensive
Income, except where they relate to items that are charged or
credited directly to equity.
h. Foreign currency
The currency of the primary economic environment in which the
Company operates (the functional currency) is pounds sterling
("sterling"), which is also the presentational currency of the
Company. Transactions involving currencies other than sterling are
recorded at the exchange rate ruling on the transaction date. At
each year end date, monetary items and non-monetary assets and
liabilities, which are fair valued, and which are denominated in
foreign currencies, are retranslated at the closing rates of
exchange. Such exchange differences are included in the Statement
of Comprehensive Income and allocated to capital if of a capital
nature or to revenue if of a revenue nature. Exchange differences
allocated to capital are taken to gains on disposal or investment
holding losses, as appropriate.
i. Cash and cash equivalents
Cash and Cash Equivalents in the Cash Flow Statement comprise
cash held at bank.
j. Dividends payable to equity Shareholders
Dividends payable to equity Shareholders are recognised in the
Statement of Changes in Equity when they are paid or have been
approved by Shareholders in the case of a final dividend. Interim
dividends payable are recognised in the period in which they are
paid.
k. 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 recognition and measurement of the performance fee earned by
Aurora's Investment Manager. The performance fee earned by the
Investment Manager is calculated on the Company's NAV
outperformance against its benchmark. In the current financial
year, this resulted in the issue of 530,311 Ordinary Shares during
the year and a further 1,061,130 Ordinary Shares issued on 3
February 2021. These issued Ordinary Shares are subject to a fixed
three-year clawback period. If the outperformance versus the index
reverses on the third-year anniversary, subject to the Board's
discretion, the shares will be returned, and the Investment Manager
will receive nothing.
The Board has considered that the settlement of the performance
fee in the Ordinary Shares of the Company is in the scope of IFRS 2
'Share-based Payment'. Further, due to the nature of the service
being provided, the Board considers that measuring the performance
fee indirectly with reference to the fair value of the Ordinary
Shares is more appropriate as it is not possible to reliably
measure the fair value of the services received.
In measuring the performance fee, the Board has made further
judgements in relation to the service period, which it considers to
be four years (being the current year of service plus the further
three-year period which is the clawback period). The Board has made
the judgement that the performance fee contains a non-market based
performance condition as the hurdle is based on the outperformance
of the Company's NAV against its benchmark.
However, as the performance fee calculates a fixed fee which is
settled in a variable number of shares, the cumulative charge over
the four-year 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 potentially nil where it is
considered that the clawback will take effect. This is as a result
of the performance fee charge being trued-up 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 statement of comprehensive income 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 the clawback may occur at the end of the performance
period, and only takes account of the clawback when, and if, it
occurs. Management have verified that the amount recognised is
materially accurate by analysing what the performance fee may be
using a Monte Carlo model which projects possible movements in the
share price of the Company and the return of the benchmark index.
The difference between the straight line basis and the Monte Carlo
valuation method is not considered material to the financial
statements.
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, because of
the lack of specific guidance in IFRS 2 in this area. 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, either in
timing within the four-year service period, or in its totality.
Valuation inputs and assumptions
Valuation is based on Monte Carlo simulation techniques to
project changes in the NAV and the Index over a three-year period
from 31 December 2020. Monte Carlo modelling was based on the
inputs and assumptions such as NAV Volatility of 19.8% and FTSE
All-Share Index (total return) volatility of 17.0%.
It is possible for the Company to elect (at its own discretion)
not to claw back any of the performance fee already paid or to
extend the period of the claw back measurement by a further two
years. These events are within the control of management and are
not factored into the Monte Carlo model. As such, the result does
not take into account the probability that the Company would choose
not to claw back any of the performance fee even were it had rights
to do so. On that basis, the adjustment derived from the expected
performance fee could be regarded as the maximum possible
adjustment as at 31 December 2020.
Performance fee Sensitivities
The impact of a 10% movement to the NAV volatility and FTSE All
Share Index (total return) volatility on the amount of expected
performance fee is as below:
Performance fee valuation
NAV and FTSE All Share Index volatility increase by 10% GBP1.6million
NAV volatility increase by 10% and FTSE All Share Index volatility decrease by 10% GBP1.4million
NAV volatility decrease by 10% and FTSE All Share Index volatility increase by 10% GBP2.3million
NAV and FTSE All Share Index volatility decrease by 10% GBP1.8million
========
Sensitivities have not been performed for 2019 as a result of
the change in accounting policy from prior year.
Investment valuation
The critical judgement, estimate or assumption that may have a
significant risk of causing a material adjustment to the Company's
NAV relates to the valuation of the Company's unquoted (Level 3)
investment in Phoenix SG, which is approximately 5.0% of the
Company's NAV.
The Level 3 holding is valued in line with accounting policy as
disclosed in Note 1(c). Under the accounting policy, the reported
NAV methodology has been adopted in valuing the Level 3 investment.
As the Company has judged that it is appropriate to use the
reported NAV in valuing the unquoted investment, the Company does
not have any other key assumptions concerning the future, or other
key sources of estimation uncertainty in the reporting period,
which may have a significant risk of causing a material adjustment
to the Company's NAV within the next financial year.
Whilst the Board considers the methodologies and assumptions
adopted in the valuation of unquoted investments are reasonable and
robust, because of the inherent uncertainty of the valuation, the
values used may differ significantly from the values that would
have been used had a ready market for the investment existed and
the differences could be significant. These values may need to be
revised as circumstances change and material adjustments may still
arise as a result of revaluation of the unquoted investments fair
value within the next year.
If the fair value of the Level 3 investment changed by 10% the
impact on the Company's NAV would be GBP806,600 (2019: GBP848,700),
representing 0.5% (2019: 0.5%) of NAV.
2 INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS
('FVTPL')
Year to Year to
31 December 31 December
2020 2019
GBP'000 GBP'000
UK listed securities 133,858 122,272
Securities traded on AIM 15,970 8,054
Unquoted securities 8,066 8,487
-------------- --------------
Total non-current investments held at fair value through profit or loss 157,894 138,813
======== ========
Movements during the year:
Opening balance of investments, at cost 115,582 103,837
Additions, at cost 33,756 36,950
Disposals - proceeds received or receivable* (12,316) (28,410)
- realised profits 251 3,205
- at cost (12,065) (25,205)
-------------- --------------
Cost of investments held at fair value through profit or loss at 31 December 137,273 115,582
======== ========
Revaluation of investments to market value:
Opening balance 23,231 (5,218)
Decrease)/increase in unrealised appreciation (debited)/credited to investment
holding reserve (2,610) 28,449
-------------- --------------
Balance at 31 December 20,621 23,231
======== ========
Market value of non-current investments held at fair value through profit or loss
at 31 December 157,894 138,813
======== ========
* 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.
(Losses)/gains on Investments
Year to Year to
31 December 31 December
2020 2019
GBP'000 GBP'000
Realised gains on disposal of investments 251 3,205
Movement in unrealised (losses)/gains on investments held (2,610) 28,449
Capital distributions received 236 -
-------------- --------------
Total (losses)/gains on investments (2,123) 31,654
======== ========
Transaction Charges
Year to Year to
31 December 31 December
2020 2019
GBP'000 GBP'000
Transaction costs on purchases of investments 15 14
Transaction costs on sales of investments 1 11
-------------- --------------
Total transaction costs included in gains or losses on investments at fair value
through profit
or loss 16 25
======== ========
Fair Value Hierarchy
Under IFRS13 investment companies are required to disclose the
fair value hierarchy that classifies financial instruments measured
at fair value at one of three levels according to the relative
reliability of the inputs used to estimate the fair values.
Classification Input
Level 1 Valued using quoted prices in active markets for identical assets
Level 2 Valued by reference to valuation techniques using observable inputs other than quoted prices
included within Level 1
Level 3 Valued by reference to valuation techniques using inputs that are not based on observable
market data
Categorisation within the hierarchy has been determined on the
basis of the lowest level input that is significant to the fair
value measurement of the relevant asset.
Year to Year to
31 December 31 December
Classification 2020 2019
Level 1 149,828 130,326
Level 2 - -
Level 3 8,066 8,487
-------------- --------------
Total non-current investments held at 'FVTPL' 157,894 138,813
======== ========
There were no transfers between levels during the year.
The movement on the Level 3 unquoted investments during the year
is shown below:
Year to Year to
31 December 31 December
2020 2019
Opening balance 8,487 7,010
Additions during the year - 2,000
Unrealised losses at year end (421) (523)
-------------- --------------
Closing balance 8,066 8,487
======== ========
The Company's unquoted investment represents investment in
Phoenix SG Ltd (Phoenix SG). The fair value of the investment in
Phoenix SG includes its shares in Stanley Gibbons Group Plc
(Stanley Gibbons) and some other assets related to Stanley
Gibbons.
Phoenix SG direct investments in Stanley Gibbons Group Plc
include the following: Quoted equity shares in Stanley Gibbons,
trading on the Alternative Investment Market branch of the London
Stock Exchange (the "Equity Investment"). Phoenix SG holds 58.1% in
the total equity of Stanley Gibbons.
The total fair value attributable to the Company's investment in
Phoenix SG as of 31 December 2020 is GBP8.07 million (2019: GBP8.48
million). The Company held 30.12% of the share capital of Phoenix
SG.
3. INCOME
Year to Year to
31 December 31 December
2020 2019
GBP'000 GBP'000
Income from investments:
Dividends from listed or quoted investments 1,164 3,829
Unfranked income from overseas dividends 39 -
Other income:
Deposit interest 4 11
-------------- --------------
Total income 1,207 3,840
======== ========
4. Investment Management Fees and Other Expenses
Year ended 31 December 2020 Year ended 31 December 2019
Revenue* Capital Total Revenue* Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment
management
fees - 665 665 - 1,361 1,361
======== ======== ======== ======== ======== ========
Administration
fee 153 - 153 146 - 146
Depository and
custody fees 65 - 65 68 - 68
Registrar's
fees 40 - 40 39 - 39
Directors' fees 150 - 150 113 - 113
Auditors' fees* 49 - 49 53 - 53
Printing 18 - 18 15 - 15
Broker's fees 48 - 48 48 - 48
Professional
fees 27 - 27 38 - 38
Miscellaneous
expenses 47 - 47 31 - 31
-------------- -------------- -------------- -------------- -------------- --------------
Total other
expenses 597 - 597 551 - 551
======== ======== ======== ======== ======== ========
* The amounts excluding VAT paid or accrued for the audit of the
Company are GBP41,200 (2019: GBP44,000).
The Company has an agreement with its Investment Manager. Under
the terms of this agreement, the Investment Manager does not earn
an ongoing annual management fee, but will be paid an annual
performance fee equal to one third of any outperformance of the
Company's NAV per Ordinary Share total return (including dividends
and adjusted for the impact of share buybacks and the issue of new
shares) over the FTSE All-Share Index (total return) for each
financial year.
The total annual performance fee is capped at 4% per annum of
the NAV of the Company at the end of the relevant financial year,
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 the Company's
Ordinary Shares. Such Ordinary Shares are issued at the NAV per
Ordinary Share on the date of issue, so that the then current value
of the Ordinary Shares equates in terms of NAV to the performance
fees calculated at the end of the first 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.
All other performance fees are subject to a review and claw-back
procedure if the Company has underperformed its benchmark during a
period of three years following the end of the financial year in
respect of which the relevant fee was paid. Ordinary Shares
received by the Investment Manager under this arrangement must be
retained by the Investment Manager throughout the three-year period
to which the claw-back procedure applies.
As a result of the above reviewed procedures all or any part of
the performance fees might become recoverable, the Company reflects
this in the charge recognised in subsequent accounting periods
within the vesting period of the Investment Manager through the
true-up mechanism in IFRS 2.
The proportion of performance fee for the year ended 31 December
2020 was GBP665,000 (2019: GBP1,361,000). During the current year,
based on the outcome of the Investment Manager's performance, the
Company granted, and the Investment Manager became entitled to
GBP2,659,000 worth of restricted Ordinary Shares in the Company. On
3 February 2021, a total of 1,061,130 Ordinary Shares were issued
to the Investment Manager, representing 80% of restricted Ordinary
Shares. The restricted Ordinary Shares were issued at the latest
prevailing NAV as at 28 January 2021 of 200.43 pence per Ordinary
Share. The Share based payment expense in relation to Phoenix SG in
accordance with the clawback period is GBP3,000 will be retained in
the Company's Statement of Financial Position. The remaining
GBP532,000 will be paid by issuing restricted Ordinary Shares once
the Final Results are released.
5. Share-based Payment arrangements
The Company settles its performance fee to its Investment
Manager in Ordinary Shares. Further description of the arrangement
is included in Note 4 above.
Restricted Ordinary Shares are awarded to the Investment Manager
conditional upon the following non-market performance and service
conditions:
-- Outperformance of the Company's NAV per Ordinary Share total
return (including dividends and adjusted for the impact of share
buybacks and the issue of new shares) over the FTSE All-Share Index
(total return) over a one-year service period.
Restricted Ordinary Shares become unrestricted upon completion
of the following non-market performance and service conditions:
-- Outperformance of the Company's NAV per Ordinary Share total
return (including dividends and adjusted for the impact of share
buybacks and the issue of new shares) over the FTSE All-Share Index
(total return) over a service period of four years.
Restricted Ordinary Shares provide the Investment Manager with
rights to dividends and voting rights, however it is not entitled
to sell, pledge, transfer or otherwise dispose of the shares until
they become unrestricted.
During the current year, based on the outcome of the Investment
Manager's performance, the Company granted, and the Investment
Manager became entitled to GBP2,659,000 worth of restricted
Ordinary Shares in the Company. No unrestricted Ordinary Shares
were due to the Investment Manager in the current year as the
outstanding service period of three years still needed to be served
on Ordinary Shares held by the Investment Manager. At 31 December
2020, the Board expects that all restricted Ordinary Shares issued
will ultimately vest in unrestricted Ordinary Shares.
The remaining vesting period at 31 December 2020 is three years
in respect of the 2020 performance fee and the Ordinary Shares will
vest immediately with the Investment Manager at the end of the
vesting period, subject to meeting the performance conditions
attached to the share awards.
The fair value of the equity instruments granted was based on
the outcome of the performance fee calculation (based on the
non-market performance set out above), which determined a fixed
monetary amount expected to be due to the Investment Manager which
is settled in a variable number of Ordinary Shares based on the
prevailing NAV per share at the date on which the restricted
Ordinary Shares vest with the Investment Manager.
The total expense recognised in the current year was GBP665,000
(2019:GBP1,361,000).
6. DIRECTORS' FEES
The fees paid or accrued for the year to 31 December 2020 were
GBP150,000 (2019: GBP113,000). There were no other emoluments. The
gross figures shown for Directors' fees in note 4 above does not
include employers' National Insurance charges. Full details of the
fees of each director are given in the Directors' Remuneration
Report. The Company has paid National Insurance contributions of
GBP11,800 (2019:GBP7,755) in respect of the Directors
remuneration.
7. TAXATION
Year to 31 December 2020 Year to 31 December 2019
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Corporation tax - - - - - -
Overseas
withholding
tax 11 - 11 - - -
-------------- -------------- -------------- -------------- -------------- --------------
Tax charge in
respect of the
current year 11 - 11 - - -
======== ======== ======== ======== ======== ========
Current taxation
The taxation charge for the year is different from the standard
rate of corporation tax in the UK (19%). The differences are
explained below:
Year to Year to
31 December 31 December
2020 2019
GBP'000 GBP'000
Total (loss)/profit before tax (2,198) 33,582
======== ========
Theoretical tax at UK corporation tax rate of 19.0% (2019: 19.0%) (418) 6,381
Effects of:
Capital profits/(losses) that are not taxable 408 (6,015)
UK dividends which are not taxable (221) (728)
Overseas withholding tax 11 -
Overseas dividends that are not taxable (7) -
Movement in unutilised management expenses 238 362
Tax charge in respect of the current year 11 -
======== ========
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 GBP12,795,000 (2019: GBP11,536,000) in respect
of excess unutilised management expenses, equivalent to a potential
tax saving of GBP2,175,000 at the prospective tax rate of 19%
(2019: GBP1,961,000) and GBP1,491,000 (2019: GBP1,491,000) in
respect of loan interest, equivalent to a potential tax saving of
GBP253,000 at the prospective tax rate of 19% (2019:
GBP253,000).
These amounts are available to offset future taxable revenue. A
deferred tax asset has not been recognised in respect of these
expenses and will be recoverable only to the extent that the
Company has sufficient future taxable revenue.
8. ORDINARY DIVIDS
Year to Year to
31 December 31 December
2020 2019
GBP'000 GBP'000
Dividends reflected in the financial statements:
Final dividend for the year ended 31 December 2019 at 4.00p per share (2018: 4.00p) - 2,413
Interim dividend for the year ended 31 December 2019 at 4.50p per share 3,295 -
Dividends not reflected in the financial statements:
Final dividend for the year ended 31 December 2020 at 0.55p per share (2019: 4.50p) 413 3,295
======== ========
9. EARNINGS PER ORDINARY SHARE
Earnings per share are based on the loss of GBP2,209,000 (2019:
profit of GBP33,582,000) attributable to the weighted average of
72,555,357 (2019: 60,830,284) 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 GBP599,000
(2019: profit of GBP3,289,000); capital earnings per share are
based on the net capital loss of GBP2,808,000 (2019: profit of
GBP30,293,000), attributable to the weighted average of 72,555,357
(2019: 60,830,284) ordinary voting shares of 25p. There is no
difference between the weighted average Ordinary diluted and
undiluted number of Shares. There is no difference between basic
and diluted earnings per share as there are no diluted
instruments.
10. SHARE CAPITAL
At At
31 December 31 December
2020 2019
Allotted, called up and fully paid Number 75,103,743 66,513,561
Ordinary Shares of 25p GBP'000 18,776 16,628
======== ========
The Company did not purchase any of its own shares during the
year ended 31 December 2020 or 2019. No shares were cancelled
during either year.
No shares were held in Treasury or sold from Treasury during the
year ended 31 December 2020 or 2019.
Placings
There were no placings during the year ended 31 December
2020.
Block listings
The Company had established on 11 June 2019 a block listing
facility for up to 12,194,444 new shares to meet market demand
arising from time to time. A total of 8,059,871 (excluding 530,311
issued to the Investment Manager to settle the performance fee) new
Ordinary Shares were issued during the year 1 January 2020 to 31
December 2020, raising gross proceeds of GBP12.4 million.
A new block listing facility for up to 14,450,605 new Ordinary
Shares was established on 17 April 2020.
At 31 December 2020, the Company had 75,103,743 (2019:
66,513,561) Ordinary Shares in issue. The number of voting shares
at 31 December 2020 was 75,103,743 (31 December 2019:
66,513,561).
On 3 February 2021, a total of 1,061,130 Ordinary Shares were
issued to the Investment Manager, representing 80% of the total fee
due. The Ordinary Shares were issued at the latest prevailing NAV
as at 28 January 2021 of 200.43 pence per Ordinary Share.
11. TOTAL EQUITY
Total Equity includes, in addition to Share Capital, the
following reserves:
Capital Redemption Reserve. When any shares are redeemed or
cancelled, a transfer of realised profit must be made to this
reserve in order to maintain the level of capital that is not
distributable.
Share Premium Account. When shares are issued at a premium to
their nominal value, the "capital profit" arising on their
allotment must be held in a Share Premium Account, which is not
distributable in the ordinary course and may be utilised only in
certain limited circumstances.
Capital profits arising from the Company's investment
transactions are held as Capital Reserves, subdivided between Gains
on Disposal for profits arising upon sales of investments and
Investment Holding gains/losses for portfolio revaluations. The
movements on this account are analysed in note 12.
The Company's Revenue Reserves are the net profits that have
arisen from the Company's revenue income in the form of dividends
and interest, less operating expenses and dividends paid out to the
Company's Shareholders.
The Company's Other Reserve represents the share-based payment
expense in relation to the performance fee payable to the
Investment Manager combined with the effect of issuing restricted
Ordinary Shares to the Investment Manager.
12. CAPITAL RESERVES
31 December 31 December
2020 2019
GBP'000 GBP'000
Investment holding gains/(losses)
Opening balance 23,231 (5,218)
Revaluation of investments - listed (2,610) 28,449
-------------- --------------
Balance of investment holding gains at 31 December 20,621 23,231
======== ========
Other capital reserves
Opening balance 13,417 11,573
Net gains on realisation of investments 251 2,864
Capital distributions received 236 341
Losses on currency (20) -
Investment management fees to capital (665) (1,361)
-------------- --------------
Balance of other capital reserves at 31 December 13,219 13,417
======== ========
Total capital reserve at 31 December 33,840 36,648
======== ========
13. NET ASSETS PER ORDINARY SHARE
The figure for net assets per Ordinary Share is based on
GBP162,921,000 (2019: GBP154,360,000) divided by 75,103,743 (2019:
66,513,561) voting Ordinary Shares in issue at 31 December
2020.
The table below is a reconciliation between the NAV per Ordinary
share announced on the London Stock Exchange and the NAV per
Ordinary share disclosed in these financial statements. The
difference is as a result of amortising the performance fees over
the vesting period in accordance with IFRS 2 - Share based payment,
in these financial statements, whereas the NAV as 31 December 2020,
published on 4 January 2021 treated the performance fees as earned
on 31 December 2020, in accordance with the IMA.
NAV per
Ordinary
Net assets share
GBP'000 (p)
NAV as published on 4 January 2021 160,262 213.39
Performance fees adjustment 2,659 3.54
-------------- --------------
NAV as disclosed in these financial statements 162,921 216.93
======== ========
14. Reconciliation of Profit After Finance Costs and Tax to Net
Operating Activities Cash flow
Year to Year to
31 December 31 December
2020 2019
GBP'000 GBP'000
(Loss)/profit after finance costs and tax (2,209) 33,582
Increase in investments held at fair value through profit or loss (19,082) (40,194)
Decrease in other receivables 164 37
(Decrease)/increase in other payables (1) 26
Increase in Investment management fee payable 665 1,361
-------------- --------------
Net cash outflow used in operating activities (20,463) (5,188)
======== ========
15. RELATED PARTY TRANSACTIONS
Details of the management, administration and secretarial
contracts can be found in the Directors' Report. There were no
transactions with directors other than disclosed in the Directors'
Remuneration Report. Fees payable to Phoenix are shown in note
4.
A GBP665,000 charge has been made for the proportion of
performance fee related to 31 December 2020 performance period
(2019: GBP1,361,000). Any performance fee would be payable in
Ordinary Shares at the prevailing NAV on the issue date. During the
current year, based on the outcome of the Investment Manager's
performance, the Company granted, and the Investment Manager became
entitled to GBP2,659,000 worth of restricted Ordinary Shares in the
Company. In accordance with the Management Agreement, 1,061,130 of
the Company's New Ordinary Shares were issued, representing 80% of
the GBP2,659,000. Further details on the issuance of the remaining
20% can be found in Note 10 above. Other than the performance
related fees, the Investment Manager does not receive any financial
benefits derived from its relationship with the Company. The
Investment Manager has controls in place to avoid the double
charging of fees and expenses as a result of the Company's holdings
in Phoenix SG, which also have Phoenix as its Investment
Advisor.
Other payables include accruals of administration fees of
GBP13,000 (2019: GBP12,900). All figures include any appropriate
VAT.
16. FINANCIAL ASSETS
Investments are carried in the balance sheet at fair value. For
other financial assets and financial liabilities, the balance sheet
value is considered to be a reasonable approximation of fair
value.
Financial assets
The Company's financial assets may include equity investments,
fixed interest securities, short-term receivables and cash
balances. The currency and cash-flow profile of those financial
assets was:
At 31 December 2020 2019
Non- Non-
Interest interest Interest interest
bearing bearing Total bearing bearing Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Non-current
investments at
fair value
through profit
or loss:
GBP sterling
equities - 157,894 157,894 - 138,813 138,813
-------------- -------------- -------------- -------------- -------------- --------------
- 157,894 157,894 - 138,813 138,813
======== ======== ======== ======== ======== ========
Cash at bank:
Floating rate
- GBP
sterling - 5,055 5,055 - 16,602 16,602
-------------- -------------- -------------- -------------- -------------- --------------
- 5,055 5,055 - 16,602 16,602
======== ======== ======== ======== ======== ========
Current
assets:
Receivables - 258 258 - 422 422
-------------- -------------- -------------- -------------- -------------- --------------
- 163,207 163,207 - 155,837 155,837
======== ======== ======== ======== ======== ========
Cash at bank includes GBP5,055,374 (2019: GBP16,601,860) held by
the Company's Depository, BNP Paribas Securities Services.
Financial liabilities
The Company finances its investment activities through its
ordinary share capital and reserves. 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).
17. FINANCIAL INSTRUMENTS - RISK ANALYSIS
The general risk analysis undertaken by the Board and its
overall policy approach to risk management are set out in the
Strategic Report. Issues associated with portfolio distribution and
concentration risk are discussed in the Investment Policy section
of the Strategic Report. This note, which is incorporated in
accordance with accounting standard IFRS7, examines in greater
detail the identification, measurement and management of risks
potentially affecting the value of financial instruments and how
those risks potentially affect the performance and financial
position of the Company. The risks concerned are categorised as
follows:
a. Potential Market Risks, which are principally:
i. Currency Risk
ii. Interest Rate Risk and
iii. Other Price Risk.
b. Liquidity Risk
c. Credit Risk
Each is considered in turn below:
A (i) Currency Risk
The portfolio as at 31 December 2020 was invested predominantly
in sterling securities, with the exception of Ryanair (Irish) and
there was no significant 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
2020 or 31 December 2019 and no sensitivity analysis is presented
for this risk.
2020 2019
% Change (1) % Change (1)
Euro -5.5 +5.8
======== ========
1 Percentage change of sterling against local currency from 1
January to 31 December of relevant year.
Based on the financial assets and liabilities at 31 December
2020 and all other things being equal, if sterling had strengthened
by 10%, the profit after taxation for the year ended 31 December
2020 and the Company's net assets at 31 December 2020 would have
decreased by the amounts shown in the table below. If sterling had
weakened by 10% this would have had the opposite effect.
2020 2019
GBP'000 GBP'000
Euro 1,369 682
======== ========
A (ii) Interest Rate Risk
The Company did not hold fixed interest securities at 31
December 2020 or 31 December 2019.
With the exception of cash, no interest rate risks arise in
respect of any current asset. All cash held as a current asset is
sterling denominated, earning interest at the bank's or custodian's
variable interest rates.
The Company had no borrowings at 31 December 2020 or 31 December
2019.
A (iii) Other Price Risk
The principal price risk for the Company is the price volatility
of shares that are owned by the Company. As described in the
Investment Manager's Review, the Company spreads its investments
across different sectors and geographies, but, as shown by the
Portfolio Analysis in the Business Review, the Company may maintain
relatively strong concentrations in particular sectors selected by
the Investment Manager.
The effect on the portfolio of a 10.0% increase or decrease in
market prices would have resulted in an increase or decrease of
GBP17,789,000 (2019: GBP13,881,000) in the investments held at fair
value through profit or loss at the period end, which is equivalent
to 9.5% (2019: 8.9%) 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, 60% of the portfolio could be
liquidated in a non-market impacting way within 7 days, based on
15% 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 equities and fixed interest
securities. The Company's investments are held by BNP Paribas
Securities Services ("the Depository"), which is a large
international bank with a high reputation. The Company's normal
practice is to remain fully invested at most times and not to hold
very large quantities of cash. At 31 December 2020, cash at bank
comprised GBP5,055,374 (2019: GBP16,601,860) held by the
Depository.
Credit Risk arising on transactions with brokers relates to
transactions awaiting settlement. This risk is considered to be
very low because transactions are almost always undertaken on a
delivery versus payment basis with member firms of the London Stock
Exchange.
D Capital management policies and procedures
The Company's capital management objectives are:
-- to ensure the Company's ability to continue as a going concern; and
-- to provide an adequate return to Shareholders by pursuing
investment policies commensurately with the level of risk.
The Company monitors capital on the basis of the carrying amount
of equity, less cash and cash equivalents 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 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.
18. POST PERIOD EVENTS
On 3 February 2021, a total of 1,061,130 Ordinary Shares were
issued to the Investment Manager, representing 80% of the total fee
due. The Ordinary Shares were issued at the latest prevailing NAV
as at 28 January 2021 of 200.43 pence per Ordinary Share.
Subsequent to the year end the Company's holding in Redrow was
disposed in its entirety for GBP6.2 million.
ALTERNATIVE PERFORMANCE MEASURES ('APMS')
DISCOUNT
The amount, expressed as a percentage, by which the share price
is less that the NAV per Ordinary Share.
As at
31 December
2020
NAV per Ordinary Share a 216.93
Share price b 207.00
Discount (b÷a)-1 4.58%
======== ========
GEARING
A way to magnify income and capital returns, but which can also
magnify losses. A bank loan is a common method of gearing.
As at
31 December
2020
GBP'000
Total assets a 163,207
Cash and cash equivalents b 5,055
Total assets less cash and cash equivalents c=a-b 158,152
Loan d -
Gearing d÷c Nil
======== ========
NAV PER ORDINARY SHARE
The Company's assets less its liabilities, as adjusted for total
performance fees earned in the corresponding performance period,
divided by the Company's number of Ordinary Shares in issue
(excluding any shares held in treasury).
As at
31 December
2020
GBP'000
Total assets (excluding performance fees) a 163,207
Less liabilities (excluding performance fees) b (286)
Performance fees earned for the year to 31 December 2020 c (2,659)
Net assets (a+b+c) d 160,262
Number of Ordinary Shares in issue e 75,103,743
NAV per Ordinary Share published d÷e 213.39p
======== ========
ONGOING CHARGES
A measure of the regular, recurring annual costs of running an
investment company, expressed as a percentage of average net
assets. The measure is calculated by expressing the regular
expenses of the year as a percentage of the average net assets
during the year.
As at
31 December
2020
GBP'000
Average NAV a 131,925
Annualised expenses b 597
Ongoing charges figure b÷a 0.45%
======== ========
TOTAL RETURN
A measure of performance that includes both income and capital
returns. This takes into account capital gains and reinvestment of
dividends paid out by the Company into its Ordinary Shares on the
ex-dividend date.
NAV per Ordinary
Ordinary Share
Year ended 31 December 2020 Share price
Opening at 1 January 2020 a 232.07 237.00
Closing at 31 December 2020 b 216.93 207.00
Price movement (b÷a)-1 c -6.5% -12.7%
Dividend reinvestment d 13.9% 2.7%
Total return (c+d) 7.4% -10.0%
======== ======== ========
PUBLICATION OF NON STATUTORY ACCOUNTS
The financial information contained in this announcement does
not constitute statutory accounts as defined in the Companies Act
2006. The Annual Report and Financial Statements for the year ended
31 December 2020 will be filed with the Registrar of Companies.
The figures set out above have been reported upon by the
auditor, whose report for the year ended 31 December 2020 contains
no qualification or statement under section 498(2) or (3) of the
Companies Act 2006.
The comparative figures are extracts from the audited financial
statements of the Company for the year ended 31 December 2019,
which have been filed with the Registrar of Companies. The report
of the auditor on those financial statements contained no
qualification or statement under section 498 of the Companies Act
2006.
ANNUAL REPORT AND FINANCIAL STATEMENTS
Copies of the Annual Report and Financial Statements will be
published shortly on the Company's website -
https://www.aurorainvestmenttrust.com and will be available from
the registered office, c/o PraxisIFM Fund Services (UK) Limited -
1st Floor, Senator House, 85 Queen Victoria Street, London, EC4V
4AB. Copies of the Annual Report and Financial Statements will
shortly be submitted to the National Storage Mechanism. These
documents will shortly be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
End
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