TIDMARR
RNS Number : 0403A
Aurora Investment Trust PLC
21 September 2022
AURORA INVESTMENT TRUST PLC
LEI: 2138007OUWIZFMAGO575
HALF YEARLY FINANCIAL REPORT
For the six months ended 30 June 2022
FINANCIAL AND PERFORMANCE HIGHLIGHTS
PERFORMANCE
At At At
30 June 2022 30 June 2021 31 December 2021
(unaudited) (unaudited) (audited)
Net Asset Value ('NAV') per Ordinary Share(1) 209.86p 230.90p 253.78p
Ordinary Share price 193.00p 232.00p 234.50p
(Discount)/Premium(1) (8.03)% 0.48% (7.60)%
FTSE All-Share Index ('Benchmark') 7,981.32 7,852.35 8,363.85
Gearing (net) Nil Nil Nil
======== ======== ========
THE TOTAL RETURNS IN STERLING FOR THE PERIOD/YEAR WERE AS
FOLLOWS:
Six months to Six months to Year to
30 June 2022 30 June 2021 31 December 2021
(unaudited) (unaudited) (audited)
% % %
NAV total return per Ordinary Share(1 ,2) -17.31 +6.69 +19.10
Ordinary Share price total return(1, 2) -17.70 +12.30 +13.54
FTSE All-Share Index ('Benchmark') -4.60 +11.07 +18.32
======== ======== ========
1 Definitions of these Alternative Performance Measures ("APMs")
together with how these have been calculated can be found
below.
2 Including dividend reinvested.
OBJECTIVE AND INVESTMENT POLICY
INVESTMENT OBJECTIVE
Aurora Investment Trust plc's (the "Company") objective is to
provide Shareholders with long-term returns through capital and
income growth.
INVESTMENT POLICY
The Company seeks to achieve its investment objective by
investing predominantly in a portfolio of UK listed companies. The
Company may from time to time also invest in companies listed
outside the UK and unlisted securities. The investment policy is
subject to the following restrictions, all of which are at the time
of investment:
-- The maximum permitted investment in companies listed outside
the UK at cost price is 20% of the Company's gross assets.
-- The maximum permitted investment in unlisted securities at
cost price is 10% of the Company's gross assets.
-- There are no pre-defined maximum or minimum sector exposure
levels but these sector exposures are reported to and monitored by
the Board in order to ensure that adequate diversification is
achieved.
-- The Company's policy is not to invest more than 15% of its
gross assets in any one underlying issuer (measured at the time of
investment) including in respect of any indirect exposure through
Castelnau Group Limited.
-- The Company may from time to time invest in other UK listed
investment companies, but the Company will not invest more than 10%
in aggregate of the gross assets of the Company in other listed
closed-ended investment funds.
-- Save for Castelnau Group Limited, the Company will not invest
in any other fund managed by the Investment Manager.
While there is a comparable index for the purposes of measuring
performance over material periods, no attention is paid to the
composition of this index when constructing the portfolio and the
composition of the portfolio is likely to vary substantially from
that of the index. The portfolio will be relatively
concentrated.
The exact number of individual holdings will vary over time but
typically the portfolio will consist of holdings in 15 to 20
companies. The Company may use derivatives and similar instruments
for the purposes of capital preservation.
The Company does not currently intend to use gearing. However,
if the Board did decide to utilise gearing the aggregate borrowings
of the company would be restricted to 30% of the aggregate of the
paid-up nominal capital plus the capital and revenue reserves.
Any material change to the investment policy of the Company will
only be made with the approval of Shareholders at a general
meeting. In the event of a breach of the Company's investment
policy, the Directors will announce through a Regulatory
Information Service the actions which will be taken to rectify the
breach.
INVESTMENT MANAGER'S REVIEW
PERFORMANCE
The NAV per share fell 17.3% during the half year with the share
price down 17.7%. At the end of June, the shares were trading at an
8.0% discount to NAV. The FTSE All Share Index fell 4.6% over the
same period.
As at the time of writing in late July, performance has
recovered to some extent, with the NAV now down 10.4% on the year,
versus the FTSE All Share which has fallen 1.7%. The main driver
behind the recovery has been the performance of Frasers Group
following the announcement of annual results in early July.
The fall in NAV during the half year was a reflection of a
number of events, which to varying degrees were headwinds for the
portfolio. Concerns over inflation and the war in Ukraine were
macro factors negatively impacting sentiment. Our low-cost airline
holdings suffered from ongoing travel restrictions in the early
part of the year and operational difficulties in the second quarter
as travel re-opened. Our housebuilders were impacted by
inflationary concerns and by ongoing uncertainty over government
policy in relation to historic "cladding" issues.
Every holding in the portfolio suffered a price fall and
particular fallers of note in the half year were Barratt
Developments, Bellway, easyJet and RHI Magnesita, whose share
prices fell by more than 30%. Whilst the negative performance has
been difficult, we believe the portfolio is well positioned, and in
the Outlook section of this report we outline the very attractive
value which exists today.
From a contribution perspective, the most significant
contribution came from the inflation hedge we instigated last year.
This was fully unwound early in the half year, and it contributed a
further 7% to NAV on top of the 10% contribution in 2021. The
largest negative contribution came from Barratt Developments, which
contributed 5.3% of the 16.6% fall in NAV.
ACTIVITY
Activity of note included a reduction in the easyJet holding in
the early part of the half year. We participated in their rights
issue in September 2021 to avoid dilution but indicated the size of
our holding was not appropriate for the long term. We took
advantage of the subsequent price recovery to sell the proportion
of the holding added through the rights issue.
Two new holdings, AO World and Netflix, have been added in the
period as we took advantage of price weakness. The rationale was
published in our monthly factsheets in March and June respectively
and is outlined below.
The other major changes in the portfolio were a 4% increase in
the Barratt Developments holding, as we took advantage of share
price weakness in a company and sector which we know very well and
which we believe offers exceptional value. We also added to our
holding in Randall & Quilter in their recent fundraise.
Share price weakness of late has produced a number of buying
opportunities, which Gary Channon refers to as "Christmas in
Valueland" in the Outlook section below. We have taken advantage of
this and purchased a small number of additional new holdings which
remain under a 3% weight and are therefore not disclosed at this
time.
Finally, in our June factsheet we reported: "Glaxo has been
below a 3% weight for some time and therefore has not appeared in
the detailed breakdown of holdings, but we can now report it has
been sold. It was sold for relative value reasons, but it is worth
noting that when we first invested, we thought a combination of a
drug discovery business and a consumer healthcare operation that
could turn those discoveries into consumer products and brands was
a combination well suited to the world of the self-informed and
self-medicating consumer. Glaxo, responding admittedly to pressures
from some shareholders, is now breaking up that structure."
NEW HOLDINGS
AO World
John Roberts who grew up in Bolton, Lancashire, wasn't good at
school, and in his sixth form said he didn't want to go to
university; instead, he wanted to be a double-glazing salesman. The
teacher was dismayed and told him he wouldn't succeed if he didn't
go. John then managed to fail all his A-Levels and was unable to
get hired into double glazing and ended up in a warehouse, and
warehouses by and large have been the essence of what made him one
of the country's richest men.
At the height of the dot.com bubble in 1999 he had a pub
discussion with a friend about businesses that would succeed
online, which ended up with John winning a GBP1 bet that he
wouldn't leave his job and set up on his own. He did, setting up
Appliances Online (DRL Limited initially and ultimately AO World).
Just as the internet bubble burst and whilst the world was just
getting used to books being delivered online, John chose the
inauspicious field of large domestic appliances.
The concept from the beginning has been an online only customer
focused supplier without retail premises. That customer focus
permeates everything they do, combined with a continuous
improvement ethos.
Over the next 14 years, John and his team built a business that
they floated on the LSE at a valuation of GBP1.2bn. John retained a
29% stake and pocketed GBP86m. By that time, AO had become the
biggest online retailer in the UK for domestic appliances; sales
had grown to GBP275m, which was 25% of the online market and 11% of
the overall market. AO were growing strongly on the back of high
customer satisfaction, reputation and reviews.
By 2019, before the pandemic, UK sales had reached GBP750m,
serving 6.5 million customers, then COVID hit and sales reached
GBP900m in 2020, and over GBP1.4bn in 2021 as consumers were forced
to stay at home and physical retailers were closed.
Throughout all that explosive growth, AO managed to retain very
high levels of customer satisfaction, whether measured by NPS (Net
Promoter Score) or Trust Pilot reviews. They executed to a very
high standard, which drew our attention to their underlying culture
and operational excellence.
John stepped away from the business in early 2017 and then
returned in 2019 as CEO. Like a number of great entrepreneurs that
we have observed over the years, stepping away after realising
enormous wealth only to return when money is clearly not a
motivator, is a sign of someone realising where their true love
lies and is often followed by a golden era of business
performance.
John had been drawn back by problems too. AO had gone into
Europe, especially Germany, in 2015, and in 2018 they bought a
mobile phone business; these businesses were losing and using
money. AO has always operated leanly and at low margins, putting
gains in productivity and purchasing power back into improving the
price and overall customer proposition, continually building what
Warren Buffett calls the moat, the competitive advantage.
An example of AO's combination of customer service obsession and
continual process improvement is when they realised that lots of
customers were still calling them on the day of delivery to check
times even though they emailed and texted them beforehand with the
times. AO invested a few million pounds in a system that recognises
the phone number calling, checks to see whether there is a high
probability it is about a delivery, checks also where the current
location of the delivery vehicle is, and then gives an automated
message to the customer telling them in detail about their delivery
and when it is happening. It also says to stay on the line if you
want to talk about something else. Most customers are wowed,
delighted and hang up, thereby saving time in the call centre.
AO has a mantra to treat every customer like your gran, and that
you conduct yourself every day so that you can have dinner with
your parents that night, tell them what you've been doing and have
them be proud of you. These are emblematic of a strong culture that
we think is AO's biggest competitive advantage and the primary
reason why from a standing start they have built the no.1 business
in 20 years. Even more so than their outstanding logistics
expertise and unrivalled service levels. AO also has a unique
commitment to recycling and operates its own recycling operation.
They have recycled 5 million fridges in the past 5 years and found
innovative new uses for the recycled materials. Increasingly, this
matters to customers.
The shares are depressed this year as the unwind of COVID means
there is a return to some retail shopping, the boom in work from
home is receding and so, on a comparative basis, AO's performance
is declining. This is in our opinion irrelevant for a proper
assessment of the long term. Their business in the UK is 50% bigger
than before COVID and millions of new customers have experienced AO
for the first time. Domestic appliances are not frequent purchases,
and so that goodwill does not show up immediately, but past
experience suggests it will do. In the meantime, AO have pushed
into smaller electrical items including phones and are looking to
find a model that would make them the go-to supplier for all
electrical items.
We have a long-term demographic view that spending on electrical
appliances in the household will grow faster than GDP as internet
technology finds its way into domestic appliances and robotics
starts to have an impact. AO is the best positioned business to
serve that need and the best led.
We value the business in our central case at GBP1.5 billion and
we were able to purchase our stake at a GBP446m valuation.
NETFLIX
Rather than cover the story of Netflix, which you probably know
and has been covered well elsewhere, including in founder Reed
Hasting's book collaboration with Erin Meyer called No Rules Rule,
which is written up in the Phoenix Reading Room, we thought we
should explain why we have invested in it.
Long-term holders will remember that we have owned media
production broadcast businesses before, initially Carlton
Communications and then, following its merger with Granada, ITV. At
the time of that merger in 2003 the competition and media
regulators decided that ITV would have too much power, and so
restricted their ability to change their business and capped their
prices and advertiser contracts at 2003 levels. This hobbled them
in a changing world. They tried something called ITV Digital, which
was a failure, but even in 2008 when this was reviewed by Ofcom,
they were still thought to need restrictions. In that report,
streaming, though mentioned, was not expected to be significant.
What they called Broadband TV, or internet TV, was held back
because only two thirds of households had access to the internet at
the time. The internet itself was underestimated because they said
it didn't allow the same ability to target audiences the way
broadcast TV did.
We sold our ITV and our WPP viewing that the world was changing
fast in a way that undermined both those businesses. All this time
later, ITV trades 40% below where we sold it and whenever we have
reconsidered it as an investment, for example in 2018 when Carolyn
McCall moved there from easyJet, the fear of Netflix has undermined
its attractiveness. A show like The Crown would have been a natural
for ITV before the emergence of Netflix.
Now, 43% of UK households subscribe to Netflix, streaming
services are in 59% of households and Netflix dominates the Top 10
list of most enjoyed titles watched according to Kantar. ITV
finally got together with the BBC, and in 2017 created something
called BritBox to compete. Currently Netflix has 100 times more
subscribers.
What has been playing out in the UK has been going on everywhere
at different paces and in different ways. Streaming is a superior
way of receiving media content. To young people who have grown up
with it, the idea of scheduled linear timed broadcasting is quaint,
anachronistic, and not the way they tend to consume media unless
it's a live broadcast. Around 300 million households around the
world now utilise a streaming service and we think over the next 10
years that could grow to a range of numbers averaging about 1
billion. Netflix, as the first and biggest, we expect to lose share
as others get up and running, but they will have a smaller share of
a much bigger market. Their growth trajectory will be different to
newcomers because they have reached points of deep penetration in
many markets. The pandemic has distorted numbers and made trends
harder to discern, but it seems reasonable to assume that lockdown
had a positive impact upon them and so the end of lockdown should
be negative. They entered the lockdown with 167m subscribers and
have emerged with 220m. Netflix is not just the UK's no.1; it is
the world's. Whilst many focus on Netflix versus Disney, we think
the real pain points will be with the likes of ITV and their ilk
around the world.
Netflix has built this business whilst charging for it. ITV is
free. ITV doesn't have churn numbers because it is free, and
advertisers pay for it. This dynamic gives Netflix a great
opportunity to vary its business model to reduce subscription price
as a point of friction. Netflix is already the streaming service
that consumers say is their favourite and would be the last one
they cancel. As Netflix experiments with the advertiser funded
model that has served Google, YouTube, Facebook and most of the
world's commercial broadcasters well, we believe it will increase
its competitive advantage.
Netflix has a founder led culture that is always adapting and
evolving, using trial and error combined with a good understanding
of data to develop. We see this in many successful businesses and
so when we consider the management team and culture at Netflix, we
think it will outcompete its rivals.
There are many scenarios you can model at Netflix. Our base one
gives a value of well over $500, and our downside stress test comes
out around $200. We have now invested 3% of the portfolio at an
average price of $211.49 and, given that it represents a new area
for us, we will restrict ourselves there until we believe we have
developed our expertise further. In the past, that cap has taken
years, not months, to lift.
For those who wonder whether we are constrained to UK listed
equities, our mandate does allow us to have up to 20% of the
portfolio in non-UK holdings, and so the only thing constraining us
is our circle of competence and aversion to loss. Ryanair, for
example, is another member of the portfolio not from the UK. When
we stray outside of the UK it is to multinational businesses where
we think we bring some initial knowledge and insight. Unilever is
listed in the UK and P&G in the US, but the expertise required
to understand one is highly applicable to the other.
OUTLOOK
Christmas in Valueland
Valueland is a strange and wonderful place full of seemingly
counterintuitive and unconventional thinking that its inhabitants
think of as common sense. It's not for everyone, but it is for us.
It's a place where people are happy when prices go down because
lower prices mean more value. It is also a place where bad news is
good news and bad times in the real world make for good times in
Valueland.
That's because when the fundamental news is bad, the investment
news is often good because you can buy the future for less. This is
the essence of Valueland, the ability to buy the future for less
and it follows that the less you pay for it the higher the returns
you will earn from it. You can't change the future, but you do get
to decide what you are willing to pay for it.
The best investments in Valueland are the ones that keep going
down. Few make a full and final investment, going "all-in" as they
say in poker, at the first go and so the very best thing that could
happen to most investments is that they go down, and the further
the better, so subsequent investments are cheaper and better.
One of the nicest gifts in Valueland is the GBP1 that you get to
buy for 50p that then falls to 25p.
Right now, it's Christmas in Valueland, these gifts abound. No
one knows how long it is going to last, nor how many gifts it will
give. It's a strange kind of Christmas because it usually makes
those involved look foolish while it lasts.
Packing List for a trip to Valueland
Some essential things we think you need to make the most of the
place:
1. A prepared mind. In other words, you need to have worked out
your methods, your processes and your criterion
2. An ability to contextualise information, especially being
able to put current news and data into a long-term context and
weight it accordingly
3. A disregard for short-term performance
4. A readiness for bad news, genuinely bad news and value loss
5. The right investors. Ones who know where you are taking them
and what to expect. It helps if they have been here before because
no amount of words can truly prepare one for the bumpy horror of a
real ValueFest
6. Humility. An acceptance that you will make mistakes because
it's a dangerous place for those with too much confidence
THE DARKSIDE
Like all utopias it has its darker side.
There are traps lurking that look like traditional value gifts
but end up being empty boxes. Special care and attention are needed
to avoid these. They do have some defining characteristics that can
help their identification, but some still get through.
The longer that Christmas goes on in Valueland, the fewer
partygoers make it through. The longer the gifting season, the more
participants there are who "disappear". It is a strange irony that
many great careers in the field of value investing end during one
of these prolonged "Christmas" periods.
RECESSIONS
It looks like we are most likely already in the beginnings of a
recession in the UK, and perhaps the US and Europe too. It is not
hard to see why. Even without other cyclical forces the spike in
prices of some goods is enough. When comparing macroeconomic
information and company financial information, there is an
important distinction between volume and value.
To illustrate the point and to show why we are probably in a
recession already, consider a household that has GBP600 a week of
disposal income (the UK median) and say spends it on 10
products/services costing GBP60 each. If one of the items doubles
in price to GBP120 then the household could either drop one of the
other items, thereby consuming 9 items not 10, or trade down on the
other 9 to a cheaper alternative and still consume 10. (It could
also draw from its savings).
When the volume drops from 10 to 9 that is recessionary. If the
volume stays at 10 then it isn't, although it clearly causes pain
for those businesses that suffer from the trading down.
The latest (May 2022 from the ONS) set of retail sales for the
UK illustrate the point. They were announced as having fallen,
which they did by volume (-5.7% year on year) but they rose by
value (up 5.0% year on year). This is the effect of inflationary
rises above the growth in household incomes. If prices go up by 10%
and there is only 5% more money, then volumes go down by 5%. GDP
measures volumes of output and there are signs everywhere that
these are falling. Companies, though, report values and rarely
volumes.
The energy price spike caused by the Russian invasion of Ukraine
would have had a recessionary impact on its own, but it is
magnified by the rising interest rate cycle in response to the
inflation caused by the excessive money supply increase around the
Covid pandemic. The need for rate rises has probably already passed
economically but they are still needed to restore the credibility
of central banks. Raising the cost of borrowing as well as energy
just takes even more money out of the median disposable income and
leads to a reduction in consumption.
A recession in consumption demand and a rise in unemployment
will start to reverse the forces that caused the recession and
thereby sow the seeds for the next recovery. Recessions have a bad
name, like storms, but they are a necessary and unsurprising
component of economic progress. Plus ça change, plus ça meme
chose.
Every cycle is different and the consequences on financial
markets are usually related to where the greatest excesses have
built. We have seen the unwinding of the froth in the world of
cryptocurrencies and technology stocks, but the worst excesses look
to be in the bond market and that adjustment is still underway and
could be much more consequential.
Like storms, they can cause damage for the unprepared and
unprotected, but when they pass the sun shines. Understandably they
are not popular with businesspeople and politicians, but investors
should welcome them because they present great opportunities to
invest. As we mentioned earlier, the future costs less when bad
news is around. In the past, stock markets have done worst in the 6
months before recession and in the early stages but turn well
before the economy. If you wait for good news, you won't get good
prices.
TIMING
The futility of timing is best illustrated by the action of the
double pendulum which is a pendulum hanging from another pendulum.
Think of these as two cyclical paths bound to each other. In
physics it has been shown that although the path of each pendulum
is individually predictable, the path of the double pendulum, i.e.,
the path of the end of the second limb, is unpredictable: it
follows a chaotic path, does not repeat and is not forecastable.
Now, that's just two simple cyclical forces, let alone the mass of
cycles and trends that are at play in an economy and stock market.
Avoid economic forecasters!
However, if you look at a plot of the path of that pendulum,
although it's a mass of lines you can see that they are distributed
across both sides of the page and you are able to say something
like, "sometimes it's on the left and sometimes it's on the right",
even if you can't predict the path that connects them. Likewise, we
think you can say about stock market values that sometimes they are
cheap and sometimes they are expensive without being able to
predict when and how they will reverse.
We started pointing out the absurdities of negative interest
rates 7 years ago and it's taken a long time and pandemic-induced
inflation to bring about its reversal.
SURVIVE & THRIVE
Our strategy in these conditions is what we call "survive and
then thrive". To "Survive" we focus on risks, downsides, mistakes
and communicating clearly with our investors. To "Thrive" we focus
on making the most of the opportunity set that we are presented
with to increase the future value of the portfolio, staying
rational, minimising bias and emotion, maintaining a long-term
perspective, being ready to act quickly, being willing to sell
cheap, to buy cheaper and avoiding trying to time.
PORTFOLIO & INTRINSIC VALUE
Although we can talk about the individual businesses within the
portfolio, the best way to think about the expected long-term
returns for the Fund is to look at the relationship between current
prices and our estimate of intrinsic value. Where we are right now
is unusually cheap. In the Phoenix UK Fund, which has the same
portfolio as Aurora, whenever we have seen valuations at these
levels previously, it has given an average 3-year return of 62% and
on the 24 previous occasions (quarter ends) when that happened
there were none that yielded a negative return in the subsequent 3
years.
We entered Christmas in Valueland with cash and we have been
deploying it, the best sign of which is the rise in upside to
intrinsic value to 150% above NAV. When combined with the ongoing
fall in prices it creates one of those rare and highly attractive
windows for investment. We expect great things from current levels
over the long term.
STEVE TATTERS
PHOENIX ASSET MANAGEMENT PARTNERS LTD
20 September 2022
TOP HOLDINGS AS AT 30 JUNE 2022
Percentage
Holding in Amount of net assets
Company Sector Company GBP'000 %
Frasers Group Plc Retail 5,114,011 34,034 21.17
Barratt Developments Plc Construction 5,012,312 22,916 14.25
Castelnau Group Ltd Financial 24,563,184 20,879 12.99
EasyJet Plc Leisure 2,975,768 10,909 6.79
Ryanair Holdings Plc Leisure 928,600 9,009 5.60
Lloyds Banking Group Financial 19,618,000 8,299 5.16
Bellway Plc Construction 306,940 6,587 4.10
Randall & Quilter Investment Insurance 6,110,840 6,508 4.05
RHI Magnesita NV Materials 260,970 5,196 3.23
UKTB 0 07/18/22 Corp Financial 5,100,000 5,099 3.17
Netflix Inc Communication Services 33,500 4,812 2.99
Other holdings (less than 3%) 20,762 12.92
------------ ------------
Total holdings 155,011 96.42
Other current assets and liabilities 5,759 3.58
======= =======
Net assets 160,770 100.00
======= =======
SECTOR BREAKDOWN AS AT 30 JUNE 2022
Percentage of
net assets
SECTOR %
Retail 25.80
Financial* 25.11
Construction 18.35
Leisure 13.76
Insurance 4.56
Materials 3.23
Communication Services 2.99
Industrials 1.65
Food & Beverage 0.84
Services 0.13
Other current assets and liabilities 3.58
----------
Total 100.00
======
* includes holding in Castelnau Group Ltd
INTERIM MANAGEMENT REPORT
The Directors are required to provide an Interim Management
Report in accordance with the Financial Conduct Authority's ("FCA")
Disclosure Guidance and Transparency Rules ("DTR"). The Directors
consider that the Investment Manager's Review below of this Half
Yearly Financial Report provide details of the important events
which have occurred during the period and their impact on the
financial statements. The following statement on the Principal
Risks and Uncertainties, the Related Party Transactions, the
Statement of Directors' Responsibilities, and the Investment
Manager's Review together constitute the Interim Management Report
of the Company for the six months ended 30 June 2022. The outlook
for the Company for the remaining six months of the year ending 31
December 2022 is discussed in the Investment Manager's Review.
Details of the investments held at the period end and the
structure of the portfolio at the period end are provided
below.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties of the Company are
detailed on pages 26 to 28 of the Company's most recent Annual
Report for the year ended 31 December 2021 which can be found on
the Company's website at www.aurorainvestmenttrust.com. The
principal risks and uncertainties facing the Company remain largely
unchanged from those disclosed in the Annual Report for the year
ended 31 December 2021, although many are now at an elevated state,
particularly inflation and the prospect of a recession. The Board
are of the opinion that they will continue to remain unchanged for
the forthcoming six-month period.
The principal risks and uncertainties facing the Company are as
follows:
-- Portfolio Risk: including poor stock selection, poor use of
gearing, illiquid stock and a concentrated portfolio;
-- Geopolitical Risks: particularly the war in Ukraine;
-- Economic Risks: including, but not limited to, rates of
inflation, interest and foreign exchange;
-- Operational Risks: including cyber-security; and
-- Corporate governance and regulatory risks.
RELATED PARTY TRANSACTIONS
The Company's Investment Manager is Phoenix Asset Management
Partners Limited, ('Phoenix' or the 'Investment Manager'). Phoenix
is considered a related party in accordance with the Listing Rules.
Phoenix does not earn an ongoing annual management fee. It will be
paid an annual performance fee equal to one third of the
outperformance of the Company's net asset value total return
(including dividends and adjusted for the impact of share buybacks
and the issue of new shares) over the FTSE All-Share Index total
return for each financial year. Details of the investment
management arrangements are shown in Note 5 of these accounts.
The Board are also considered related parties. Further details
of the Board's remuneration and shareholdings can be found on page
54 of the Company's Annual Report.
Castelnau Group Limited, one of the Company's holdings, is also
managed by Phoenix Asset Management Partners Limited and is
considered a related party.
GOING CONCERN
The financial statements have been prepared on the going concern
basis. The Directors have a reasonable expectation, after making
enquiries, that the Company has adequate resources to continue in
existence for at least 12 months from the date of approval of this
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 expense flows. As at 30
June 2022, the Company held GBP5,850,000 (30 June 2021:
GBP10,605,000) in cash, GBP151,820,000 (30 June 2021:
GBP157,855,000) in quoted investments and GBP3,191,000 (30 June
2021: GBP8,259,000) in an unquoted investment. It is estimated that
the majority of the portfolio could be realised in seven days under
normal conditions. The total operating expenses for the six months
to 30 June 2022 was GBP380,000 (30 June 2021: GBP349,000). The
total income during the half-year period was GBP1.11 million (30
June 2021: GBP982,000). The Company currently has more than
sufficient liquidity available to meet any future obligations.
The Directors have considered the impact of the macroeconomic
backdrop, such as rising inflation, higher interest rates and a
possible recession. The war in Ukraine and the secondary effects of
the COVID-19 pandemic have exacerbated these market-related risks.
However, as explained above, the Company has remained resilient in
the current extreme market conditions and has more than sufficient
liquidity available to meet its expected future obligations.
FOR AND ON BEHALF OF THE BOARD OF DIRECTORS
LUCY WALKER
Chair
20 September 2022
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors confirm to the best of their knowledge that:
-- The condensed set of financial statements contained within
the Half Yearly Financial Report have been prepared in accordance
with International Accounting Standard 34 "Interim Financial
Reporting", gives a true and fair view of the assets, liabilities,
financial position and profit and loss of the Company; and
-- The Interim Management Report includes a fair review of the
information required by 4.2.7R and 4.2.8R of the FCA's DTR
Rules.
The Half Yearly Financial Report was approved by the Board on 20
September 2022 and the above responsibility statement was signed on
its behalf by:
LUCY WALKER
Chair
20 September 2022
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
Six months to 30 June 2022 Six months to 30 June 2021
(unaudited) (unaudited)
Revenue Capital Total Revenue Capital Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(Losses)/gains on
investments - (32,707) (32,707) - 13,314 13,314
Gains/(losses) on
currency - 11 11 - (1) (1)
4 Income 1,111 - 1,111 982 - 982
------------ ------------ ------------ ------------ ------------ ------------
Total (loss)/income 1,111 (32,696) (31,585) 982 13,313 14,295
Investment
5 management fees - (220) (220) - (332) (332)
Other expenses (380) - (380) (349) - (349)
------------ ------------ ------------ ------------ ------------ ------------
(Loss)/profit
before tax 731 (32,916) (32,185) 633 12,981 13,614
Tax (33) - (33) (20) - (20)
------------ ------------ ------------ ------------ ------------ ------------
(Loss)/profit and
total comprehensive
income for the
period 698 (32,916) (32,218) 613 12,981 13,594
------------ ------------ ------------ ------------ ------------ ------------
8 (Loss)/earnings per 0.91p (42.98p) (42.07p) 0.81p 17.08p 17.89p
share - Basic and
diluted
======= ======= ======= ======= ======= =======
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.
CONDENSED STATEMENT OF FINANCIAL POSITION
At At At
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited) (audited)
Note GBP'000 GBP'000 GBP'000
Non-current assets
Investments held at fair value through profit or loss 155,011 166,114 186,637
--------------- --------------- ---------------
Current assets
Trade and other receivables 151 219 222
Cash and cash equivalents 5,850 10,605 7,664
--------------- --------------- ---------------
6,001 10,824 7,886
--------------- --------------- ---------------
Total assets 161,012 176,938 194,523
========= ========= =========
Current liabilities:
Investment management fees payable (175) (174) (174)
Other operating expenses payable (67) (79) (156)
--------------- --------------- ---------------
(242) (253) (330)
========= ========= =========
Net assets 160,770 176,685 194,193
========= ========= =========
Equity:
7 Called up share capital 19,152 19,130 19,130
Capital redemption reserve 179 179 179
Share premium account 111,166 108,342 110,984
Other reserve (1,271) 997 (1,271)
Investment holding (losses)/gains (15,648) 34,043 48,641
Other capital reserve 45,887 12,778 14,514
Revenue reserve 1,305 1,216 2,016
--------------- --------------- ---------------
Total equity 160,770 176,685 194,193
========= ========= =========
7 Ordinary Shares in issue 76,608,771 76,519,675 76,519,675
NAV per Ordinary Share 209.86p 230.90p 253.78
========= ========= =========
The notes below form part of these accounts.
CONDENSED STATEMENT OF CHANGES IN EQUITY
Called-
up Capital Share Investment Other
share redemption premium Other holding capital Revenue
Six months to 30 June 2022 capital reserve account reserve gains reserve reserve Total
Note (unaudited) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening equity 19,130 179 110,984 (1,271) 48,641 14,514 2,016 194,193
Loss for the period - - - - (64,289) 31,373 698 (32,218)
5 Performance fee charge - - - - - - - -
6 Dividends paid - - - - - - (1,409) (1,409)
Issue of new Ordinary
7 Shares 22 - 198 - - - - 220
Ordinary Share issue costs - - (16) - - - - (16)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Closing equity 19,152 179 111,166 (1,271) (15,648) 45,887 1,305 160,770
======= ======= ======= ======= ======= ======= ======= =======
The notes below form part of these accounts.
Called-
up Capital Share Investment Other
share redemption premium Other holding capital Revenue
Six months to 30 June 2021 capital reserve account reserve gains reserve reserve Total
Note (unaudited) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening equity 18,776 179 108,438 665 20,621 13,219 1,023 162,921
Profit for the period - - - - 13,422 (441) 613 13,594
5 Performance fee charge - - (2,659) 332 - - - (2,327)
6 Dividends paid - - - - - - (420) (420)
Issue of new Ordinary
7 Shares 354 - 2,600 - - - - 2,954
Ordinary Share issue costs - - (37) - - - - (37)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Closing equity 19,130 179 108,342 997 34,043 12,778 1,216 176,685
======= ======= ======= ======= ======= ======= ======= =======
The notes on below form part of these accounts.
Called-
up Capital Share Investment Other
share redemption premium Other holding capital Revenue
Year to 31 December 2021 capital reserve account reserve gains reserve reserve Total
Note (audited) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening equity 18,776 179 108,438 665 20,621 13,219 1,023 162,921
Profit for the year - - - - 28,020 1,295 1,413 30,728
5 Performance fee charge - - - 720 - - - 720
6 Dividends paid - - - - - - (420) (420)
Issue of new Ordinary
7 Shares 354 - 2,599 (2,656) - - - 297
Ordinary Share issue
costs - - (53) - - - - (53)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Closing equity 19,130 179 110,984 (1,271) 48,641 14,514 2,016 194,193
======= ======= ======= ======= ======= ======= ======= =======
The notes on below form part of these accounts.
CASH FLOW STATEMENT
Six months to Six months to Year to
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Net operating activities cash flow
Cash inflow from investment income and interest 1,182 843 2,318
Cash outflow for expenses (464) (316) (825)
Payments to acquire non-current asset investments (85,419) (996) (45,092)
Receipts on disposal of non-current asset investments 84,396 6,199 46,458
Transaction costs on Investments (62) - (71)
Cash outflow for withholding tax (33) (20) -
------------ ------------ ------------
Net operating activities cash flow (400) 5,710 2,788
======= ======= =======
Financing activities cash flow
Proceeds from issues of new Ordinary Shares - 298 297
Ordinary Share issue costs (16) (37) (53)
Dividends paid (1,409) (420) (420)
------------ ------------ ------------
Financing activities cash flow (1,425) (159) (176)
------------ ------------ ------------
(Decrease)/increase in cash and cash equivalents (1,825) 5,551 2,612
------------ ------------ ------------
Cash and cash equivalents at beginning of period/year 7,664 5,055 5,055
Gains/(losses) on currency 11 (1) (3)
(Decrease)/increase in cash and cash equivalents (1,825) 5,551 2,612
------------ ------------ ------------
Cash and cash equivalents at end of period/year 5,850 10,605 7,664
======= ======= =======
The notes on below form part of these accounts.
NOTES TO THE FINANCIAL STATEMENTS
1. Status of the financial statements
The financial information contained in this Half Yearly
Financial Report does not constitute statutory accounts as defined
in section 435 of the Companies Act 2006. The financial information
for the six months period ended 30 June 2022 and 30 June 2021 have
not been reviewed or audited by the Company's Auditor. The
unaudited Half Yearly Financial Report will be made available to
the public at the registered office of the Company. The report will
also be available in electronic format on the Company's website,
https://www.aurorainvestmenttrust.com/.
The information for the year ended 31 December 2021 has been
extracted from the last published Annual Report, unless otherwise
stated. The audited financial statement has been delivered to the
Registrar of Companies. The Auditors reported on those accounts and
their report was unqualified, did not draw attention to any matters
by way of emphasis and did not contain a statement under sections
498(2) or 498(3) of the Companies Act 2006.
The Half Yearly Financial Report was approved by the Board of
Directors on 20 September 2022.
The Half Yearly financial report will be submitted to the
National Storage Mechanism and will shortly be available for
inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism .
2. Accounting policies
The half yearly financial information has been prepared in
accordance with IAS34 Interim Financial Reporting. The accounting
policies are unchanged from those used in the last published annual
financial statements except where otherwise stated.
3. Investments held at Fair Value Through Profit or Loss
('FVTPL')
At At At
30 June 30 June 31 December
2022 2021 2021
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
UK listed securities 138,156 144,528 150,063
Other listed securities 8,016 - 19,388
Securities traded on AIM 5,648 13,327 13,786
Unquoted securities 3,191 8,259 3,400
------------ ------------ ------------
Total non-current investments held at 'FVTPL' 155,011 166,114 186,637
======= ======= =======
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
Valued by reference to valuation techniques using observable inputs other than quoted prices
Level 2 included within Level 1
Valued by reference to valuation techniques using inputs that are not based on observable
Level 3 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.
At At At
30 June 30 June 31 December
2022 2021 2021
Classification GBP'000 GBP'000 GBP'000
Level 1 151,820 157,855 183,237
Level 2 - - -
Level 3 3,191 8,259 3,400
------------ ------------ ------------
Total non-current investments held at 'FVTPL' 155,011 166,114 186,637
======= ======= =======
The movement on the Level 3 unquoted investments during the
period/year is shown below:
At At At
30 June 30 June 31 December
2022 2021 2021
GBP'000 GBP'000 GBP'000
Opening balance 3,400 8,066 8,066
Additions during the period/year - - (4,523)
Unrealised (losses)/gains at period/year end (209) 193 (143)
------------ ------------ ------------
Closing balance 3,191 8,259 3,400
======= ======= =======
4. Income
Six months to Six months to
30 June 2022 30 June 2021
GBP'000 GBP'000
Income from investments:
Dividends from listed or quoted investments 882 909
Unfranked income from overseas dividends 222 73
------------ ------------
Other income:
Deposit interest 7 -
------------ ------------
Total income 1,111 982
======= =======
5. Investment management fees
The Company has an agreement with Phoenix. 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 year until all underperformance of the
Company's net asset value since the last performance fee was paid
has been made up.
Performance fees are settled by issuance of the Company's
Ordinary Shares. Such Ordinary Shares are issued at the NAV per
Ordinary Share on the date of issue, so that the then current value
of the Ordinary Shares equates in terms of NAV to the performance
fees liability.
Any part of the performance fee that relates to the performance
of Phoenix SG will be accrued but will not be paid until such time
as the Company's investment in Phoenix SG has been realised or is
capable of realisation. The position will be reviewed at that time
by reference to the realised proceeds of sale or the fully
realisable value of Phoenix SG as compared to the original cost of
acquisition.
Any performance of Castlenau Group Limited will be excluded from
the calculation of the performance fee payable by the Company to
Phoenix.
All other performance fees are subject to a review and claw-back
procedure if the Company 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 period ended 30 June
2022 was GBP221,000 (30 June 2021: GBP332,000).
6. Dividends
In accordance with the stated policy of the Company, the
Directors do not recommend an interim dividend.
The final dividend of 1.84p per Ordinary Share in respect of the
year ended on 31 December 2021 went ex-dividend on 9 June 2022 and
had a record date of 10 June 2022. The dividend was paid on 1 July
2022. This dividend was not reflected in the financial statements
for the year ended 31 December 2021, but is reflected in the
financial statements for the period to 30 June 2022.
7. Share capital
At At At
30 June 30 June 31 December
2022 2021 2021
Allotted, called up and fully paid Number 76,608,771 76,519,675 76,519,675
Ordinary Shares of 25p GBP'000 19,152 19,130 19,130
========= ========= =========
The Company did not purchase any of its own shares during the
period ended 30 June 2022 or the period ended 30 June 2021. The
Company did not purchase any of its own shares during the year
ended 31 December 2021. No shares were cancelled during either year
or period.
Share Issued under the Company's Block Listing Facility
The Company established a Block Listing Facility on 17 April
2020 for up to 14,450,605 new Ordinary Shares. As at period end,
40,244,516 Ordinary Shares remained unallotted under the facility.
No shares were issued from the Block Listing Facility during the
period under review.
Further Shares Issued to the Investment Manager
The Company issued 69,738 new Ordinary Shares at a price of
254.37 pence per share on 7 February 2022 to the Company's
Investment Manager in relation to 80% of the performance fee which
had been earned in respect of the Company's outperformance against
its benchmark in respect of the year to 31 December 2021.
On 5 May 2022, a further 19,358 new Ordinary shares were issued
at a price of 226.40 pence per share to the Company's Investment
Manager representing the 20% balance of the performance fee earned.
These New Ordinary Shares were issued pursuant to the Investment
Management Agreement dated 28 January 2016 and are subject to a
36-month lock-in following the date of issue of the new Ordinary
Shares and will be subject to a fixed three year clawback
period.
Total Voting Rights
At 30 June 2022, the Company had 76,608,771 (30 June 2021:
76,519,675) Ordinary Shares in issue. The number of voting shares
at 30 June 2022 was 76,608,771 (30 June 2021: 76,519,675).
8. Earnings/(loss) per share
Earnings for the period to 30 June 2022 are stated by reference
to the weighted average of 76,580,120 (30 June 2022: 75,995,161)
Ordinary Shares in issue during the period, excluding shares held
in Treasury.
9. Related party transactions
The Board and Phoenix Asset Management Partners Limited are
considered related parties in accordance with the Listing Rules.
Castelnau Group Limited, one of the Company's holdings, is also
managed by Phoenix Asset Management Partners Limited. Fees payable
to the Investment Manager are detailed in the Statement of
Comprehensive Income and note 5.
Fees payable to the Directors in respect of the period to 30
June 2022 were GBP78,000 (including NI Contribution or VAT as
applicable) (30 June 2021: GBP69,000).
10. Post Period End Events
On 8 September 2022, Helen Vaughan was appointed as Audit
Chairman and non-executive director of the Company. On the same
date, Farah Buckley was appointed as non-executive director of the
Company, and Rachael Robathan was appointed as Chairman of the
Remuneration and Nomination Committee as well as the Management
Engagement Committee.
For further information contact:
Secretary and registered office:
Sanne Fund Services (UK) Limited
6th Floor, 125 London Wall, London, EC2Y 5AS
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END
IR SEDEFSEESESU
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