Annual Financial Report

RNS Number : 7004P

Aurora Investment Trust PLC

09 June 2015

 



ANNUAL FINANCIAL REPORT ANNOUNCEMENT

AURORA INVESTMENT TRUST PLC

YEAR ENDED 28 FEBRUARY 2015

STRATEGIC REPORT

OBJECTIVE

Capital appreciation through investments listed mainly on the London Stock Exchange.

POLICY

To invest primarily in equities, but with some exposure also to Fixed Interest. The portfolio comprises a mix of large, mid and smaller capitalised stocks. A distinctive feature is an emphasis on investments in companies with exposure to economies growing at a faster rate than the UK.

BENCHMARK

Performance is benchmarked against that of the overall London market

	Year ended	Five years ended	Since launch
	28 February 2015	28 February 2015	(13/3/1997)
	%	%	%
Net Asset Value per share (NAV)^	-10.64	-10.52	+75.26
Benchmark^	+2.12	+36.81	+73.66

^    capital-only return

*   by reference to a starting value of 97.78p (net of launch expenses)

DIVIDEND

The Directors recommend an increased dividend of 3.85p per share (2014: 3.80p) (18th consecutive annual increase).

CHAIRMAN'S STATEMENT

Once again events have transpired to nip in the bud what appeared to be the turning point in the Company's fortunes. Slight under-performance in the first half of the year was undermined by the performance in the second half when the dramatic slump in the price of oil and other forms of energy adversely affected holdings that make up an important part of the Company's portfolio.

The result for the year as a whole was an underperformance of 12% relative to the Benchmark FTSE All-Share index. Unfortunately, the good performance by the stocks in the portfolio with large capitalisations was severely outweighed by that of the more exciting smaller capitalisations, many of which have endured harsh bear market conditions. It is to be hoped that their time is about to arrive. It is encouraging that in the last three months the NAV per share has recovered by an increase of 8.5% which compares very favourably with the 0.95% rise in the FTSE All-Share Index.

Performance

	Aurora (NAV per Share)	Benchmark
	%	%
Since Launch 13/03/97	+75.26	+73.66
5 Years	-10.52	+36.81
3 Years	-20.23	+23.01
1 Year	-10.64	+2.12

In recent months the focus of attention has been on the timetable and extent of US interest rate increases and the effects of the rise of the US Dollar. These factors have continued to favour developed at the expense of emerging markets. China, however, is performing as a developed market in this context, being a beneficiary of falling commodity prices. The conditions likely to lead to strong relative performance for the Company's investments have also been deferred, despite their superior long-term prospects.

The worldwide background for equities, although intermittently threatened by regional political tensions (Syria, Ukraine etc.) has been supported by strong cash flows and attractive yields in comparison with those available from bonds. Further support has been forthcoming from low rates of inflation and interest rates at a time of a reasonably robust economic recovery in both the US and UK. The Conservative victory in the General Election is construed to be good for business. The Conservative victory also gives the Government the opportunity for much needed economic and political reforms.

Within the Eurozone, with the exception of Germany, there has been little economic recovery. The consequence has been that youth unemployment remains at unacceptably high levels and there are growing worries over disinflation in the peripheral economies. Recently, the ECB has belatedly embraced a programme of Quantitative Easing in an attempt to address these issues, although this is likely to be of little help to the real economies other than via a weaker Euro.

Meanwhile China has continued to prove a conundrum for investors. The attractions of its seemingly high but slowing economic growth have been undermined by worries about the inherent risks attached to the shadow banking system, possible excess capital investment in certain areas and the overwhelming prevalence of corporate governance issues. Nevertheless, led by the large market capitalisations, the Chinese stock-market has been the best performing of all the major stock-markets over the preceding twelve month period. This wave of optimism did not, however, reach the smaller capitalisations during the year under review.

Outlook

The anticipated eventual increase in US Dollar interest rates, following a record period of exceptionally low rates, has to date been greeted with equanimity in developed markets because the rise is deferred and is expected to be very gradual; indeed, a number of markets have recently reached new all-time peaks. Several emerging markets, particularly those which link their currencies to the US dollar, have suffered and performed poorly, despite their superior economic performance. China, as already mentioned, has proved the exception.

In view of the scale of the output gap which exists in most economies, interest rates look set to remain relatively low for an extended period. This is particularly relevant to the Eurozone where there is the threat of deflation becoming entrenched. Moreover the whole concept of the Eurozone is being threatened by Greece's potential debt default and the likely shockwaves of such an event.

At current levels of valuation most major stock markets are anticipating a prolonged period of better economic and trading conditions, which looks to be achievable. The UK recovery needs to broaden out to demonstrate that it is not based solely on service industries, government financed property price inflation and excessive consumer borrowing, as in the past.

Currently the optimism permeating the Chinese stock-market is starting to filter through to medium and smaller capitalisations in the domestic market. The Chinese stocks quoted on the AIM market remain at absurdly low levels, some of which are even trading at a fraction of their holdings of net cash, as the result of prevailing worries over perceived corporate governance issues. Hopefully, many of these worries will abate and prove unfounded.

The Board believes that against this background there is considerable scope for the performance of Aurora's current portfolio to improve and reverse the disappointment of recent periods which was exacerbated by the Company's 20% gearing.

Continuation

At last year's AGM shareholders approved the Company's continuation for a further three years. The Board undertook to find a resolution for the Company's future thereafter. I have since met with ten interested parties. Most of the possible new arrangements would appear to meet the objectives of the Board to provide an attractive continuing vehicle and a cash alternative. We will start to evaluate these next year.

Dividend

The Board has decided to propose a further (18th consecutive) increase in the dividend from last year's level of 3.8p to 3.85p, paid from the Company's revenue profit of £415,841.

AGM

I look forward to welcoming shareholders at the Company's AGM which will be held at 12.00 noon on Friday 16 July 2015 at the offices of Cavendish Administration Limited, 145-157 St John Street, London EC1V 4RU.

Lord Flight

Chairman

9 June 2015

INVESTMENT MANAGER'S REVIEW AND OUTLOOK

Early one cold morning, a year ago, I engaged in conversation with the BBC's attractive and capable, then current, economics correspondent and asked her for her predictions for the coming year. In a word 'Normalisation' was her quick reply. In one respect she has been proved correct - China has, last year, re-emerged once again (it lost its status in about 1820) as the world's most powerful economy measured in parity of purchasing power terms.

In many other respects, the year has been marked by seismic and unpredicted change. Not only has Hampshire and East Midlands suffered from more powerful earthquakes than any caused by the energy companies engaged in 'fracking' activities in the UK, but the Swiss Franc and the price of oil, iron ore and copper have all endured dramatic movements.

Two thirds of all European bonds now have negative yields, and there is not a single issue in the UK gilt list priced below par value (I think the phrase 'conservative recklessness' by institutional managers is a highly appropriate criticism and, as has been quipped a few times, these investments are no longer a risk-free return, more a return-free risk). At the same time the Nestle Company is now being paid to issue bonds - is this the first case in history of successful alchemy? When will they pay me to eat their chocolates I wonder? Moreover, an event unimaginable during the lifetimes of a previous generation has occurred - War Loan has been redeemed. Sadly the manager has not! At times I found the market's trajectory as mysterious as that of the missing Malaysian flight MH370.

The portfolio has suffered from a further severe underperformance during the year on account of its high exposure to Asia, materials and smaller companies. Would that I had benefited from the same intuition in selecting stocks as Ms Philippa Langley, who located the grave of King Richard III in a car park on her very first visit to Leicester.

I feel highly frustrated because I have in the past correctly forecast several macro-economic themes, namely the onset of disinflation as early as the mid 1990's and the stupidity of the construction of the Eurozone and how this would lead to areas of high unemployment and little or slow growth leading to its eventual breakup. My logical conclusion was that, at a time when organic growth would become the scarcest of all commodities, the dynamism of Asia would be re-rated by investors. How wrong I have been proved. I under-estimated the lack of investor appetite for risk in conjunction with the power of the regulator to cause fear in the minds of the investment community and seek safety in preference to 'growth potential' acting with lemming style behaviour. I also under estimated the propensity for Chinese companies to become involved in scandals and the market's ability to tar both the good and the bad with the same brush.

If the smaller capitalisations within the portfolio have fared badly, the same is not true for the larger stocks. For most of the year BTG was the largest holding in the portfolio. Its share price continued to rise strongly for the first eleven months, spurred on by a string of exciting announcements about its innovative new medical products and treatments; this strength provided the opportunity to take considerable profits.

In an era of increasing competitiveness, with margins under pressure even in obvious renaissance industries such as UK motor manufacturing, I found it difficult to find enthusiasm for new holdings on account of the absence of the key ingredient of strong relative pricing power. Once again I resorted to my old favourite, the housebuilding sector, to which the government has introduced a variety of new initiatives to stimulate the economy and help the young onto the housing ladder. As a result, the figure for newly constructed homes rose to 125,000. Although this represents an uplift relative to the previous year, when viewed in comparison with the figure for net immigration of 290,000 it is derisory; no wonder the housing shortage persists and house prices look set to continue to rise for many years to come.

Not only was an addition made to the existing holding of Persimmon, but new holdings were taken in Berkeley Group and one initiated in Barratt Developments. Both the prolific dividends received from these holdings and also the share price performances have exceeded my highest expectations.

The holding in Ashtead, the UK quoted but US based (currently with the second largest market share in the USA) plant hire company continues to thrive. Its profits growth, which arises from a combination of infill acquisition, superior purchasing power and structural change in the construction industry, has been propelled upwards. Importantly, the prospect of a continuation of these favourable conditions look set for several more years in view of the high probability of an extended cycle. Eventually, however, when the inevitable slowdown occurs, it has the ability to generate huge amounts of surplus cash. In common with BTG, this stock is predominantly a US $ earner, and thus a beneficiary of any sterling weakness/dollar strength.

Aberdeen Asset Management's share price has suffered from an extended period of fund outflows, such is the lack of appetite for investing in Asia currently, with the sole exception of Prudential whose share price prospered. Hopefully these flows will soon reverse when investors see new highs in the Chinese, Hong Kong and Indian markets appearing; so far this calendar year they have at long last outperformed Developed markets by a considerable margin.

Gresham Computing Plc, which is involved in the provision of real-time financial transaction control software packages, unfortunately had to issue a profits warning in the autumn, which seriously knocked the share price; this was necessary due to the length of time new customers took to adopt the systems and for a revenue stream to start to flow. The company, however, is brimming with confidence. Already this calendar year it has been able to announce a series of newly won customers from a variety of sectors, but also has been able to expand the size of existing contracts, on account of the quality of its service. The immediate future potential is enormous at a time of ever increasing regulation.

Igas Energy, a company which is producing one million barrels of oil per year from conventional wells onshore within the UK, has seen its share price collapse on the back of the dramatic fall in the oil price, which few predicted. During the past year it has increased its acreage of licences through the purchase of Dart Energy and in all probability in the most recent licensing round, where awards are still to be announced. Moreover it has drilled several test bores in the exciting Bowland shale region in the North West. The initial results have been indicated to be extremely positive, although they are still undergoing further analysis. Recently the company has done a significant "farm-out" deal with Ineos (in addition to those done previously with Total) to help fund a major drilling programme. Overall, it has $285 million of funding available for this purpose. The recent win by the Conservative Party should greatly facilitate this programme as well as foster improved sentiment towards the company. As reported by the British Geological Society, the reserve potential is enormous.

The mining stocks in the portfolio have all performed badly during the year on account of falling commodity prices. I had wrongly assumed that these would have remained firmer as the rapidly growing nations continue to devour huge quantities of commodities to facilitate their continuing growth, even if the more modest demand from Europe has stagnated. It is now evident that the new sources of supply had been under estimated and at the same time a degree of destocking by China has occurred; iron ore is the obvious example.

Medusa Mining's share price suffered badly last year not only from a lacklustre gold price but also from operational difficulties during the installation of a new and larger crushing mill; in addition there were other management failures. New management, however, has since been appointed. In consequence, the outlook is greatly improved as production now appears to be on course to double and costs reduce as the problems are gradually being surmounted. Importantly, there is a long visible future life for this low cost mine as well as the high probability of a second mine being commenced at a later date. Confidence in the shares should therefore return soon, provided that the production continues to expand as planned.

BSD Crown (formerly Emblaze) had mixed results from its court case against Apple Inc. for unpaid royalties. The jury in Apple's home town confirmed that there was a valid patent in place but, rather curiously decided that Apple had not infringed this patent, and so awarded no royalties. This news obviously was most disappointing for loyal shareholders.

The company is now waiting to hear whether or not it can appeal to a higher court. At a later date, it intends to bring a similar case against Microsoft (which the company considers to be a softer target).

Asian Citrus suffered from a third year of horrendous weather. Severe frosts and a typhoon severely damaged one orange grove, where many of the trees are now suffering from disease; the high winds also destroyed all the newly planted banana trees. Not only will the production be at a lower level for the next two years but also the cost of replanting, combined with additional manure, sprays and labour costs, will be heavy. Accordingly, it is highly probable that the group may, during this difficult period, incur a loss. Not surprisingly many investors have dumped their holdings after such a string of bad news from this unlucky company, leaving the share price at a miserably low fraction of the value of the holding of net cash alone, thus making the company vulnerable to any takeover attempt, possibly by a foreign (Brazilian) buyer. I, however, remain resolutely confident that the plantations are being well managed in exceptionally difficult circumstances.

Overall, in the longer term, the orange groves have the potential to more than triple production as the trees mature, moreover the fruit juice division, which has nearly doubled in size to 100,000 tonnes p.a., should soon be operating at full capacity. Hopefully, it will not take too long before the company once more is spinning off prodigious amounts of cash and thereafter returns to favour amongst investors - the company is after all well positioned to benefit from the inevitable consumer boom, which the Chinese government is planning to engineer as it re-orientates the economy away from being investment led.

The share price of West China Cement has performed strongly in recent months as a result of reductions in interest rates and having been awarded a steady stream of contracts (high speed rail and other infrastructure projects). The company is, however, still suffering in the more competitive (lowland) half of its operating area from excess capacity problems and depressed cement prices. It is to be hoped that there are further stimulatory measures taken by the government, which ameliorate the situation in terms of both volume and pricing.

Unfortunately Naibu, a Chinese manufacturer and retailer of sports shoes and clothing in tier 3 cities, which appeared attractive on account of its high dividend yield, strong balance sheet and attractive valuation, has encountered a governance problem when the chief executive ceased to communicate with the non-executive directors. The latter have wisely and appropriately suspended the shares and an investigation is in progress. The Company's holding has been valued at zero until there is an announcement.

Sirius Minerals, which is proposing to exploit a massive deposit in North Yorkshire of polyhalite (type of potash), is a small, new entrant to the portfolio. The investment was made, supposedly on a very short term basis, on the grounds that planning permission to commence mining operations was projected to be granted at the turn of the year; whereas it has now been postponed until the summer. In addition to the considerable benefit to the nation's balance of payments that full development of the project will bring, the economic impact on this area of high unemployment is important. Since the transport arrangements have been revised to minimise the environmental impact, there is increased confidence that the members on the North York Moors committee will look favourably on this scheme of significant national importance.

Outlook

Led by the US economy the world-wide economic recovery continues. Whilst the rate of US unemployment continues to fall from month to month the level of wages has not yet started to rise. Moreover manufacturing industry continues to fluctuate. In that light, the Federal Reserve Board views the economy to be in possession of plenty of spare capacity and remaining fragile. Although commentators opine frequently about the date of an impending rate rise, somehow that date keeps being delayed.

A major boost to the US economy is emanating from the huge fall in the price of shale gas, resulting from the success of the fracking industry; this provides the US with a major advantage over the Far East competition where the price is three times higher. On-shoring of the chemicals industry is accordingly occurring. A further notable feature is the construction of seaboard export terminals for LNG with the intention of flooding Europe with cheap gas, thus making this continent less dependent on exports from Russia.

In the Eurozone the outlook is much less healthy having been adversely affected, inter alia, by sanctions against Russia. Only Germany is prospering as a direct result of the weakness of the euro which has aided its export trade. France and Italy are faring less well. Greece is tottering on the brink of defaulting on its debts while other peripheral countries are stagnating and suffering from actual deflation. Signor Draghi has finally resorted, albeit far too late, to the implementation of Q.E, which is starting to have some effect on the markets. My suggestion is that he immediately gives a consultancy to Robert Mugabe to help combat the serious threat of deflation before it takes hold too strongly!

In Asia the various economies continue to expand, albeit not at the rip-roaring pace prevalent prior to the financial crash. The Japanese stock-market, aided by stimulatory measures, is achieving new (but not all-time) highs accompanied by Hong Kong, India and other markets.

During the last six months the Chinese government has not only relaxed the reserve ratio requirements to boost the economy, but has reduced the official rate of interest no less than three times. It is therefore not surprising that the Chinese stock-market should perform so well (indeed at a time of falling property prices) against such a background, in fact more strongly than any other major stock-market. Individuals are opening new accounts with stockbrokers in record numbers having found an alternative outlet to residential property for their savings. Hopefully, this enthusiasm will feed through into the smaller capitalisations, to which the portfolio is exposed and where the valuations are derisory.

Rarely in history has the outlook for the British economy changed so dramatically in the space of one minute, as it did at 22.01pm on 7th May on publication of the exit poll following the general election. Prior to that moment a government hostile to business had been universally predicted to take office. In consequence of Mr Cameron having gained an overall, if slim, majority there is now no longer the necessity for weeks of horse-trading between the parties, in order to form a government, which would have introduced much uncertainty.

There will also occur less state intervention and less regulation and a lower degree of fear of rising taxation than if the opposition had been victorious. The UK economy should therefore regain momentum in the coming months, as investment programmes are reinstated and consumer confidence continues to rise against a background of record numbers employed, and falling unemployment, despite wages not rising.

Furthermore, as appetite for risk-taking slowly and inevitably increases, investor sentiment is likely to improve, which should benefit at long last the holdings in the portfolio with the most exciting prospects. Needless to say they are the smaller companies, which hitherto have been deemed too illiquid, under-analysed and too risky for the average investor, who has ignored them.

I very much hope and indeed expect much of this potential to be realised over the coming twelve months after such a long delay.

James Barstow

Mars Asset Management Limited

9 June 2015

INVESTMENT POLICY AND PERFORMANCE

This report deals with the results of Aurora Investment Trust plc and its subsidiary ("the Group").

Investment Policy

The Company's objectives are pursued through investments in securities, the majority of which are listed on the London Stock Exchange, predominantly comprising equities but allowing exposure to fixed interest and equity related securities. The portfolio comprises a mix of large, mid and smaller capitalised stocks. A distinctive feature is an emphasis on investments in companies with exposure to economies growing at a faster rate than the UK.

In pursuing this policy, the Investment Manager takes into account the following considerations:

Distribution of the portfolio relative to the benchmark

An element of risk is inherent in investment undertaken on a selective basis. The Company seeks to mitigate the degree of risk by investing in securities in substantial organisations, normally listed and traded on the London Stock Exchange, and by spreading its investments across a range of such securities.

The benchmark is the FTSE All-Share Index, which is an index of over 700 of the largest capitalised stocks quoted on the London market. This Index is not only representative of the UK economy but also includes a significant degree of international exposure, because the London Stock Exchange has become the stock market of choice for many of the emerging world's largest companies and, furthermore, many of the largest stocks are multinational companies with the majority of their revenues derived outside the UK. Therefore, the Investment Manager can achieve the aim of exposure to fast-growing economies while investing selectively in stocks quoted on the London market. However, the Investment Manager makes no attempt to replicate the benchmark and the weightings of the portfolio to particular sectors may differ significantly from those of the benchmark.

A performance fee is payable to the Investment Manager only if the benchmark is beaten and a NAV is achieved that is greater than the NAV at the time when the previous performance fee was paid.

Risk diversification

At 28 February 2015 the Company and its subsidiary held 43 stocks, spread across 9 main sectors.

The Board does not believe that it should normally or continuously impose prescriptive limits on the Investment Manager regarding the geographic breakdown or distribution by sector of the portfolio. However, these matters are a subject of repeated discussion between the Board and the Investment Manager and from time to time particular informal limits are agreed between them.

Gearing Policy

Borrowings are limited by the articles to a maximum of 30% of NAV and by the Company's bank covenant to 25% of NAV. The Board has adopted a policy whereby under normal circumstances borrowings are to be kept to within approximately 20% of the Company's NAV, but with the flexibility to rise for limited periods. This flexibility is considered desirable to avoid the possibility of forced sales in adverse market conditions.

The Board keeps the level of gearing and the extent, if any, of borrowing in foreign currencies under close review.

Hedging

The Company does not use derivatives to hedge market or currency exposure.

Objectives and key performance indicators (KPIs)

The Company's principal investment objective is to achieve capital growth. The Company's ability to attain its objectives is measured by reference to KPIs as follows:

(a)   The Company seeks to achieve a positive total return over the long-term. To measure its success, the Board compares shareholders' returns from owning the shares (share price appreciation and dividends) over one and five years and since launch to the return on an appropriate gilt-edged security (without reinvestment of dividends or interest). The Board considers long-term performance to be of greater importance than short-term and that the five-year comparison is the Company's Primary KPI.

(b)   The Company's Benchmark is the FTSE All-Share Index, against which the Net Asset Value (NAV) return (capital only) 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 also seeks to outperform other companies that it considers to be its Peer Group. The Company's one and five year returns are therefore compared with those of the AIC UK Growth Sector Weighted Average.

(d)   The Company seeks to ensure that the operating expenses of the Company as a proportion of NAV (the ongoing Charges Ratio) are reasonable.

The Board has also sought to achieve a dividend rising in line with inflation, although this is not defined as a KPI.

Performance

The Investment Manager is Mars Asset Management Limited (Mars), which is regulated by the FCA. The main fund manager is James Barstow (managing director of Mars). Mr Barstow reports in detail upon the Company's activities in his Report.

The Company's performance relative to the KPIs described above was as follows:

(a) Performance of share price vs. gilt edged security

	Year	Five years
	ended	ended	Since
	28 February	28 February	launch
	2015	2015	(1997)
Share price and dividends	(8.85%)	+3.79%	+101.48%
Treasury 8% stock
2015 and interest	+0.65%	+15.12%	+138.79%

The Company has not achieved this KPI in any of the periods.

(b) Performance of NAV vs. Benchmark

	Year	Five years
	ended	ended	Since
	28 February	28 February	launch
	2015	2015	(1997)
Net Asset Value per share	(10.64%)	(10.52%)	+75.26%*
Benchmark	+2.12%	+36.81%	+73.66%

All NAV figures are for capital-only performance

*by reference to a starting value of 97.78p (net of launch expenses).

The Company has achieved this KPI since launch, but not over one or five years.

(c) Performance vs. Peer Group

	Year ended	Five years ended
	28 February 2015	28 February 2015
Net Asset Value per share	(10.64%)	(10.52%)
AIC UK Growth Sector Weighted
Average	(3.9%)	+102.7%

The Company has not achieved this KPI over one or five years.

(d) Ongoing Charges Ratio

	Year ended	Year ended
	28 February 2015	28 February 2014
Ongoing Charges Ratio	2.25%	2.18%

The ratio is calculated excluding finance costs but including operating expenses charged to capital and applied to the average NAV of the year. Expenses of a type not expected to recur under normal circumstances are excluded from the calculation.

Increase in dividend

The Company has succeeded in achieving a steady increase in the level of dividend paid over the past 17 years. Another modest increase is proposed in respect of the year ended 28 February 2015. The directors are recommending a dividend of 3.85p per share (2014: 3.80p per share).

Revenue result and dividend

The Group's revenue profit after tax for the period amounted to £78,553 (2014: profit £1,208,986). The Company made a revenue profit after tax of £415,841 (2014: £374,209).

At the Annual General Meeting on 16 July 2015, a resolution will be proposed to approve a final dividend of 3.85p (2014: 3.80p) per ordinary share, absorbing £400,287 (2014: £395,088). The final dividend will be paid on 27 July 2015 to shareholders on the register at 19 June 2015; the ordinary shares will go ex-dividend on 18 June 2015. In accordance with International Financial Reporting Standards this dividend is not reflected in the financial statements for the year ended 28 February 2015.

Risk analysis

The Board considers that the principal risks faced by the shareholders of the Company fall into two categories:

External Risks

Poor performance in the UK and/or world economies; poor corporate profits and dividends.

Poor stock market performance caused by market-specific factors, such as rising interest rates, the unwinding of "bubbles" or disinvestment by institutions, superimposed on general economic factors, or caused by shocks, wars, disease etc. The Board does not consider, however, that short-term volatility represents a risk that the Company seeks to avoid, since it regards long-term performance to be of primary importance.

Internal Risks

Poor asset management, which may include poor stock selection, excessive concentration of the portfolio, mistakes regarding currency movements, speculation in shares of companies without sound or established businesses and speculation in derivatives.

Poor control of borrowing, including borrowing at excessive rates of interest relative to likely returns and borrowing excessive amounts leading to the breach of covenants and possible enforced sales of assets at disadvantageous prices.

Poor governance, compliance or administration, including particularly the risk of loss of investment trust status.

All these and other risks can result in shareholders not making acceptable returns from their investment in the Company.

Risk controls

External risks

Information on the mitigation of risk by diversification and by control of gearing and hedging is given in the Investment Policy section.

Further details concerning currency risks, liquidity risks and interest rate risks are given in note 19.

Internal risks

The control of risks related to governance, compliance and administration is dealt with in the report on Corporate Governance.

Social, ethical, human rights and environmental matters

Being an investment company, with no staff, premises, manufacturing or other operations of its own, the Company does not have any direct influence on social, ethical, human rights and environmental matters. The Company has no greenhouse gas emissions to report from its operations, nor any responsibility for emission producing sources. However, the Investment Manager bears in mind such matters when choosing investments and aims to avoid investment into companies that are found to perform badly in those areas.

Boardroom diversity

The Company has no employees other than the Directors. At 28 February 2015 the Company had four directors, all of whom were male. The Company's policy is that the Board should have a broad range of skills; while keeping this in mind, consideration is given to the recommendations of the AIC Code and other guidance on boardroom diversity.

Five year summary

The following data are all expressed as pence per share. They are shown both as previously published and as adjusted by adding back the final dividend for each year.

	NAV	Dividend in	Share price
Year	per share	respect of year	(mid market)
2011	269.24	3.50	246.00
2012	214.84	3.55	175.75
2013	186.13	3.75	152.75
2014	191.78	3.80	166.00
2015	171.37	3.85	147.50
(At 18 May 2015 the NAV per share was 185.99p.)

Outlook

The outlook for Aurora is discussed in the Chairman's Statement and the Manager's Review and Outlook.

TOP TEN HOLDINGS - CONSOLIDATED

At 28 February 2015

All holdings are of ordinary shares, unless otherwise stated

	By valuation	Percentage of
	£'000	Portfolio
Persimmon	2,469,600	11.41
BTG	2,199,650	10.17
Ashtead Group	1,783,500	8.25
Berkeley Group	1,438,800	6.65
Aberdeen Asset Management	1,405,800	6.50
Royal Dutch Petroleum	1,323,300	6.12
Lloyds Bank 11.75% PIBS	990,000	4.58
West China Cement	960,238	4.44
Gresham Computing	858,000	3.97
Prudential	814,500	3.77
	14,243,388	65.86
Other holdings	7,385,085	34.14
Total investments - consolidated	21,628,473	100.00

PORTFOLIO ANALYSIS

At 28 February 2015

	Percentage of
	Portfolio
Information Technology Services	6.47
Resources	15.48
General Industries	35.15
Consumer Goods	15.94
Cyclical Services	1.45
Pharmaceuticals	3.21
Financial Services	15.08
Fixed Interest	6.90
Transport	0.32
	100.00

ANALYSIS OF INVESTMENTS BY SECTOR - CONSOLIDATED BY MARKET VALUE

At 28 FEBRUARY 2015

All holdings are of ordinary shares, unless otherwise indicated

		Company	Subsidiary	Total	Percentage
		Investments	Investments	Value	of
	Company	£'000	£'000	£'000	Portfolio
Fixed income
	Amlin 6.5% Bond	502	-	502	2.32
	Lloyds Bank 11.75% PIBS	990	-	990	4.58
		1,492	-	1,492	6.90
Banks, Retail
	HSBC Holdings	409	-	409	1.89
Financial Services
	Charlemagne Capital	171	-	171	0.79
	Aberdeen Asset Management	1,406	-	1,406	6.50
	Hargreaves Lansdown	23	-	23	0.10
	Jupiter Fund	41	-	41	0.19
		1,641		1,641	7.58
Information Technology
	Gresham Computing	858	-	858	3.97
Services
	B.S.D. Crown Limited	470	70	540	2.50
		1,328	70	1,398	6.47
Insurance
	Amlin	397	-	397	1.83
	Prudential	814	-	814	3.77
		1,211		1,211	5.60
Mining
	Anglo Pacific	138	-	138	0.64
	Antofagasta	345	-	345	1.60
	Coal of Africa	-	15	15	0.07
	GCM Resources	198	10	208	0.97
	Sirius Minerals	40	276	316	1.46
	Medusa Mining Ltd	121	-	121	0.56
	Rio Tinto	479	-	479	2.21
	Glencore Xstrata	241	-	241	1.11
		1,562	301	1,863	8.62
Non-Cyclical
	Asian Citrus	439	-	439	2.03
Consumer Goods
	BTG	2,200	-	2,200	10.17
	Purecircle Ltd	810	-	810	3.74
	Naibu Global	0	-	0	0.00
		3,449		3,449	15.94
Pharmaceutical
	Glaxosmithkline	693	-	693	3.21
Oil Exploration &
	Petro Matad	28	-	28	0.13
Production
	Premier Oil	135	-	135	0.62
	Royal Dutch Petroleum 'B'	1,323	-	1,323	6.12
	IGAS Energy	189	14	203	0.94
		1,675	14	1,689	7.81
General Industrials
	Aggreko	597	-	597	2.76
Transport
	China Chaintek	70	-	70	0.33
Oil, Integrated
	BG Group	48	-	48	0.22
Cyclical Services
	Ceres Power Holdings	258	-	258	1.19
	China New Energy	12	-	12	0.06
	Atlantis Resources	42		42	0.19
		312	-	312	1.44
Basic Industries
	West China Cement	960	-	960	4.44
Construction &
Engineering	Persimmon	2,470	-	2,470	11.41
	Barratt Development	103	-	103	0.48
	Berkeley Group	1,439	-	1,439	6.65
		4,012	-	4,012	18.54
Support Services
	Ashtead Group	1,784	-	1,784	8.25
	Total Portfolio	21,243	385	21,628	100.00

ANALYSIS BY TYPE, MARKET & CURRENCY - BY MARKET VALUE

	£'000
Ordinary shares	20,136
Fixed interest securities	1,492
	21,628
UK listed securities	18,436
Hong Kong listed security	960
AIM securities	2,232
	21,628
Denominated in sterling	20,668
Denominated in Hong Kong $	960
	21,628

This Strategic Report was approved by the Board on 9 June 2015.

For and on behalf of the Board

Lord Flight

Chairman

9 June 2015

STATEMENT OF DIRECTORS' RESPONSIBILITIES FOR THE ANNUAL REPORT

The Directors are responsible for preparing the Strategic Report, the Directors' Report, the Remuneration Reports and the financial statements in accordance with applicable law and regulations.

Company law in the United Kingdom requires the directors to prepare financial statements for each financial year. Under that law the directors have to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and have elected to prepare the Company financial statements under IFRS as adopted by 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 and Group 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 applicable IFRSs 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 and Article 4 of the IAS Regulation. 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 are responsible for the maintenance and integrity of the corporate and financial information included on the website used by the Company.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Disclosure of information to auditor

The Directors confirm that:

•      so far as each Director is aware, there is no relevant audit information of which the Company's auditor is unaware; and

•      the Directors have taken all the steps that they ought to have taken as directors to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.

Statement under the Disclosure and Transparency Rules 4.1.12

The Directors confirm that to the best of their knowledge and belief;

(a)  This annual report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face;

(b)   the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer and the undertakings included in the consolidation taken as a whole; and

Having taken advice from the Audit Committee, the Directors consider that the annual report and financial statements taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.

For and on behalf of the Board

Lord Flight

Chairman

9 June 2015

FINANCIALS

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 28 February 2015			2015			2014
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Losses on investments designated at fair value
through profit or loss		-	(1,626)	(1,626)	-	(49)	(49)
(Losses)/gains of trading subsidiary at fair value
through profit or loss		(295)	-	(295)	906	-	906
Investment income	2	804	-	804	726	-	726
Total income		509	(1,626)	(1,117)	1,632	(49)	1,583
Investment management fees	3	(85)	(85)	(170)	(85)	(85)	(170)
Other expenses	3	(249)	-	(249)	(243)	-	(243)
Profit/(loss) before finance costs and tax		175	(1,711)	(1,536)	1,304	(134)	1,170
Finance costs	6	(95)	(95)	(190)	(98)	(98)	(196)
Profit/(loss) before tax		80	(1,806)	(1,726)	1,206	(232)	974
Tax	7	(1)	-	(1)	3	-	3
Profit/(loss) and total comprehensive income for the year		79	(1,806)	(1,727)	1,209	(232)	977
Earnings per share	9	0.76p	(17.37p) (16.61p)		11.63p	(2.23p)	9.40p

The revenue and capital columns, including the revenue and capital earnings per share data, are supplementary information prepared under guidance published by the AIC. As permitted by S408 of the Companies Act 2006, the Company has not presented its own Statement of Comprehensive Income. The amount of the Company's loss for the financial year was £1,727,507 (2014: profit £977,076).

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 parent company. There are no minority interests.

The Board recommends a final dividend of 3.85p per share (£400,287) out of the Company's revenue profit for the financial year of £415,841.

CONSOLIDATED BALANCE SHEET

At 28 February 2015		2015	2014
	Notes	£'000	£'000
Non-current assets
Investments designated at fair value through profit or loss	10	21,243	23,892
Current assets
Investments designated at fair value through profit or loss (held by subsidiary)		385	170
Sales for future settlement		-	180
Other receivables		112	84
Cash and cash equivalents		150	140
		647	574
Total assets		21,890	24,466
Current liabilities
Other payables		73	74
Bank loan and overdraft		4,000	4,453
		4,073	4,527
Total assets less current liabilities		17,817	19,939
Equity
Called up share capital	12	3,598	3,598
Capital redemption reserve		179	179
Share premium account		10,997	10,997
Investment holding losses	14	(6,733)	(6,867)
Other capital reserves	14	10,866	12,806
Revenue reserve		(1,090)	(774)
Total equity		17,817	19,939
Net assets per ordinary share		171.37p	191.78p

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 28 February 2015			Capital	Share	Investment	Other
		Share	redemption	premium	holding	capital	Revenue
		capital	reserve	account	losses	reserves	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Opening equity		3,598	179	10,997	(6,867)	12,806	(774)	19,939
Total comprehensive income/(loss) for the year		-	-	-	134	(1,940)	79	(1,727)
Dividends paid	8	-	-	-	-	-	(395)	(395)
Closing equity		3,598	179	10,997	(6,733)	10,866	(1,090)	17,817

For the year ended 28 February 2014			Capital	Share	Investment	Other
		Share	redemption	premium	holding	capital	Revenue
		capital	reserve	account	losses	reserves	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Opening equity		3,598	179	10,997	(7,081)	13,251	(1,592)	19,352
Total comprehensive (loss)/income for the year		-	-	-	214	(445)	1,208	977
Dividends paid	8	-	-	-	-	-	(390)	(390)
Closing equity		3,598	179	10,997	(6,867)	12,806	(774)	19,939

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 28 February 2015				2015		2014
		Notes		£'000		£'000
Net cash flow from operating activities
Cash inflow from investment income and interest				785		757
Cash (outflow)/inflow from held for trading current asset investments				(510)		1,724
Cash (outflow) from management expenses				(432)		(424)
Payments to acquire non-current asset investments				(6,468)		(6,705)
Receipts on disposal of non-current asset investments				7,671		4,947
Tax recovered				-		3
Net cash flow from operating activities		16		1,046		302
Cash flows from financing activities
Dividends paid				(395)		(390)
(Decrease)/increase in bank borrowings				(453)		300
Finance charges and interest paid				(188)		(192)
Net cash flow from financing activities				(1,036)		(282)
Increase in cash				10		20
Cash and cash equivalents at beginning of year				140		120
Increase in cash				10		20
Cash and cash equivalents at end of year				150		140
COMPANY BALANCE SHEET
At 28 February 2015			2015		2014
	Notes		£'000		£'000
Non-current assets
Investments designated at fair value through profit or loss	10		21,243		23,892
Investment in subsidiary	11		194		15
			21,437		23,907
Current assets
Sales for future settlement			-		180
Other receivables			308		239
Cash and cash equivalents			145		140
			453		559
Total assets			21,890		24,466
Current liabilities
Other payables			73		74
Bank loan and overdraft			4,000		4,453
			4,073		4,527
Total assets less current liabilities			17,817		19,939
Equity
Called up share capital	12		3,598		3,598
Capital redemption reserve			179		179
Share premium account			10,997		10,997
Investment holding losses	14		(8,505)		(8,302)
Other capital reserves	14		10,866		12,806
Revenue reserve			682		661
Total equity	15		17,817		19,939

COMPANY STATEMENT OF CHANGES IN EQUITY

For the year ended 28 February 2015			Capital	Share	Investment	Other
		Share	redemption	premium	holding	capital	Revenue
		capital	reserve	account	losses	reserves	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Opening equity		3,598	179	10,997	(8,302)	12,806	661	19,939
Total comprehensive income/(loss) for the year		-	-	-	(203)	(1,940)	416	(1,727)
Dividends paid	8	-	-	-	-	-	(395)	(395)
Closing equity		3,598	179	10,997	(8,505)	10,866	682	17,817

For the year ended 28 February 2014			Capital	Share	Investment	Other
		Share	redemption	premium	holding	capital	Revenue
		capital	reserve	account	losses	reserves	reserve	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Opening equity		3,598	179	10,997	(9,350)	13,251	677	19,352
Total comprehensive income/(loss) for the year		-	-	-	1,048	(445)	374	977
Dividends paid	8	-	-	-	-	-	(390)	(390)
Closing equity		3,598	179	10,997	(8,302)	12,806	661	19,939

COMPANY CASH FLOW STATEMENT

For the year ended 28 February 2015	2015	2014
	£'000	£'000
Net cash inflow from operating activities
Cash inflow from investment income and interest	785	755
Cash (outflow) from management expenses	(432)	(422)
Payments to acquire non-current asset investments	(6,468)	(6,705)
Receipts on disposal of non-current asset investments	7,671	4,947
Tax (paid)/recovered	-	3
Net cash inflow from operating activities	1,556	(1,422)
Cash flows from investing activities
(Increase)/decrease in loans advanced to subsidiary	(515)	1,727
Cash flows from financing activities
Dividends paid	(395)	(390)
(Decrease)/increase in bank borrowings	(453)	300
Finance charges and interest paid	(188)	(192)
Net cash flow from financing activities	(1,036)	(282)
Increase in cash	5	23
Cash and cash equivalents at beginning of year	140	117
Increase in cash	5	23
Cash and cash equivalents at end of year	145	140
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Accounting policies Basis of Accounting The financial statements of the Company and the Group have been prepared in accordance with International Financial Reporting Standards (IFRS), which comprise standards and interpretations approved by the IASB and International Accounting Standards and Standing Interpretations Committee interpretations approved by the IASC that remain in effect, and to the extent that they have been adopted by the European Union. Under IFRS, the AIC Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" issued in January 2009 has no formal status, but the Group adheres to the guidance of the SORP. The accounting policies are unchanged from those used in the last annual financial statements except where otherwise stated. The particular accounting policies adopted are described below: (a)  Accounting Convention The accounts are prepared under the historical cost basis, except for the measurement of fair value of investments. (b) Basis of Consolidation The Group accounts consolidate the accounts of the Company and of its subsidiary AIT Trading Limited ("AIT"), both drawn up to either 28 or 29 February each year. Under IFRS 10, subsidiaries that provide services that relate to the investment company's investment activities are required to be consolidated. The directors' view is that AIT Trading Limited provides services to Aurora and as such it has been consolidated. As permitted by S408 of the Companies Act 2006, the Company has not presented its own Statement of Comprehensive Income. The amount of the Company's loss for the financial year was £1,727,507 (2014: profit £977,076). (c)  Investments As the Company's business is investing in financial assets with a view to profiting from their total return in the form of increases in fair value, investments are designated as fair value through profit or loss on initial recognition in accordance with IAS 39. At this time, fair value is the consideration given, excluding material transaction or other dealing costs associated with the investment. After initial recognition such investments are valued at fair value. For quoted investments this is established by reference to bid, or last, market prices depending on the convention of the exchange on which the investment is quoted. Gains or losses are recognised in the capital column of the Statement of Comprehensive Income. All purchases and sales of investments are accounted for on a trade date basis. The investment of the Company in AIT is stated at cost less impairment. AIT's own investments are managed and performance evaluated on a fair value basis and accordingly are designated by AIT as "at fair value through profit or loss". The AIT investments in quoted securities are valued at all times in accordance with current market values that represent fair value; at the time of acquisition they are valued on the basis of trade date accounting. Securities of companies whose prices are quoted on the London Stock Exchange are valued by reference to the Official List of the London Stock Exchange at their bid market prices at the close of the period. (d) Income from Investments Investment income from ordinary shares is accounted for on the basis of ex-dividend dates. Income from fixed interest shares and securities is accounted for on an accruals 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 and bank interest receivable is accounted for on an accruals 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 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, Finance Costs and Other Costs Finance costs and monthly management fees are allocated between capital and revenue according to the Board's expected long-term split of returns between capital gains and income; one-half of these costs are charged to gains on disposal via the capital column of the Statement of Comprehensive Income. Performance-related fees are charged to gains on disposal via the capital column of the Statement of Comprehensive Income. 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 balance sheet 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 balance sheet 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 income statement, 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 Group companies operate (the functional currency) is pounds sterling ("Sterling"), which is also the presentational currency of the Group. Transactions involving currencies other than Sterling are recorded at the exchange rate ruling on the transaction date. At each balance sheet 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.

2. Income

				2015		2014
				£'000		£'000
Income from investments
Dividends from UK listed or quoted investments				645		488
Income from overseas dividends				58		136
Income from listed fixed interest securities				101		102
				804		726
3. Investment management fees and other expenses
		2015			2014
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investment management fees
- monthly	85	85	170	85	85	170
- performance	-	-	-	-	-	-
	85	85	170	85	85	170
Other expenses
Administration fees	72	-	72	72	-	72
Registrar's fees	16	-	16	13	-	13
Directors' fees	80	-	80	79	-	79
Auditors' fees - audit of the Company
and of the consolidated financial statements	23	-	23	26	-	26
- audit of the subsidiary	2	-	2	2	-	2
- audit-related assurance services	6	-	6	6	-	6
Miscellaneous expenses	50	-	50	45	-	45
Total other expenses	249	-	249	243	-	243

All expenses include any relevant irrecoverable VAT. The amounts excluding VAT paid or accrued for the audit of the Company are £21,000 (2014: £22,000) and for the audit of the subsidiary £1,500 (2014: £1,500).

4. Directors' fees

The fees paid or accrued were £74,750 (2014: £74,750). There were no other emoluments. The gross figures shown for directors' fees in note 3 above include employers' National Insurance charges or VAT, as appropriate. Full details of the fees of each director are given in the Directors' Remuneration Report on page 27.

5. Transaction charges

	2015	2014
Group	£'000	£'000

Transaction costs on purchases of investments				37		41
Transaction costs on sales of investments				15		8
Total transaction costs included in gains or losses on investments at fair value through profit or loss				52		49
6. Finance costs
		2015			2014
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Interest payable	55	55	110	55	55	110
Facility and arrangement fees and other charges	40	40	80	43	43	86
	95	95	190	98	98	196
7. Taxation
		2015			2014
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Overseas tax	1	-	1	(3)	-	(3)
Tax charge in respect of the current year	1	-	1	(3)	-	(3)

Current taxation

The current taxation charge for the year is different from the standard rate of corporation tax in the UK (21.17%). The differences are explained below:

	2015	2014
	£'000	£'000
Total (loss)/profit before tax	(1,726)	974
Theoretical tax at UK corporation tax rate of 21.17% (2014: 23.08%)	(365)	225
Effects of:
Capital losses that are not taxable	382	(53)
UK dividends which are not taxable	(137)	(114)
Overseas dividends that are not taxable	(12)	-
Increase/(decrease) in excess tax losses	168	(16)
Expenses charged to capital account for which a deduction is claimed	(38)	(42)
Overseas tax written off as irrecoverable/(recovered)	1	(3)
Actual current tax	1	(3)
The Company is an investment trust and therefore is not charged to tax on capital gains.

Factors that may affect future tax charges

The Company has tax losses of £7,923,090 (2014: £7,647,046) in respect of management expenses and of £1,575,043 (2014: £1,384,429) in respect of loan interest. Its subsidiary has trading losses carried forward of £2,054,918 (2014: £1,759,319) and £196,293 (2014: £154,626) in respect of loan interest. These losses are available to offset future taxable revenue. A deferred tax asset has not been recognised in respect of those expenses and will be recoverable only to the extent that the Company has sufficient future taxable revenue.

8. Ordinary dividends

	2015	2014
	£'000	£'000
Dividends reflected in the financial statements:
Final dividend paid for the year 2014 at 3.80p
(2013: 3.75p)	395	390
Dividends not reflected in the financial statements:
Proposed final dividend for the year 2015
at 3.85p (2014: 3.80p)	400	395

9. Earnings per share

Earnings per share are based on the loss of £1,727,507 (2014: profit £977,076) attributable to the weighted average of 10,397,059 (2014: 10,397,059) ordinary shares of 25p in issue during the year, excluding shares held in Treasury.

Supplementary information is provided as follows: revenue earnings per share are based on the consolidated revenue profit of £78,553 (2014: profit £1,208,986); capital earnings per share are based on the net capital loss of £1,806,060 (2014: loss £231,910), attributable to 10,397,059 (2014: 10,397,059) ordinary voting shares of 25p.

10. Investments designated at fair value through profit or loss

	2015	2014
	£'000	£'000
UK listed or quoted securities	20,283	23,121
Hong Kong listed security	960	771
Total non-current investments	21,243	23,892
Movements during the year:
Opening balance of investments, at cost	30,759	29,013
Additions, at cost	6,456	6,705
Disposals - proceeds received or receivable	(7,479)	(4,697)
- add realised losses/less realised profits	(1,760)	(262)
- at cost	(9,239)	(4,959)
Cost of investments at 28 February	27,976	30,759
Revaluation of investments to market value:
Opening balance	(6,867)	(7,081)
Increase in unrealised appreciation
debited to investment holding reserve	134	214
Balance at 28 February	(6,733)	(6,867)
Market value of non-current investments
at 28 February	21,243	23,892

11. Subsidiary

The Company has an investment in AIT Trading Limited (AIT), a wholly owned subsidiary registered in England and Wales, which comprises two ordinary shares of £1 each. AIT undertakes purchases of investments for re-sale in the shorter term, with the objective of achieving a trading profit. The loss before tax of AIT for the year was £337,289 (2013: profit £834,777). The net deficit of AIT at the Balance Sheet date was £1,771,916 (2014: net deficit £1,434,627). No dividend was paid from AIT to the Company (2014: £nil).

During the year the Company provided a short-term loan to AIT to finance its trading operations and charged interest to AIT at the same rate as was charged by Coutts to the Company. At 28 February 2015 the amount outstanding, excluding interest, was £1,966,375 (2014: £1,450,375) together with £196,113 of interest (2014: £154,446).

The Company makes an impairment provision when AIT is in a net deficit position, of an amount equal to the net deficit.

	2014	Movement	2015
	£'000	£'000	£'000
Loan to AIT	1,450	516	1,966
Provision for impairment	(1,435)	(337)	(1,772)
Net investment	15	179	194
12. Share capital
At 28 February		2015	2014
Authorised:
Ordinary shares of 25p	Number	40,000,000	40,000,000
	£'000	10,000	10,000
Allotted, issued and fully paid:
Ordinary shares of 25p	Number	14,391,389	14,391,389
	£'000	3,598	3,598

During the year ended 28 February 2015 the Company did not purchase any of its own shares (2014: Nil). No shares were cancelled during the year (2014: Nil). At 28 February 2015, the Company had 14,391,389 shares in issue, of which 3,994,330 (2014: 3,994,330) are held in Treasury; the number of voting shares in issue is 10,397,059 (2014: 10,397,059).

13. 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 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 14 below.

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.

14. Capital reserves

	2015	2014
	£'000	£'000
Investment holding gains/(losses):
Opening balance	(6,867)	(7,081)
Revaluation of investments - listed	134	214
Balance of investment holding (losses)
account at 28 February	(6,733)	(6,867)
Other capital reserves:
Opening balance	12,806	13,251
Net losses on realisation of investments	(1,759)	(262)
Expenses of capital management: management fees   (85)		(85)
finance costs	(95)	(98)
Net expenses	(180)	(183)
Exchange differences	(1)	-
Balance of other capital reserves at 28 February	10,866	12,806
Total capital reserve at 28 February	4,133	5,939

The capital reserves of the Company are identical to those of the Group, except that a provision is made when necessary against the Company's investment holding account for any amount loaned to AIT Trading Limited that is not covered by the subsidiary's net assets. At 28 February 2015 such a provision was made of £1,771,916 (2014: £1,434,630).

15. Net assets per ordinary share

The figure for net assets per ordinary share is based on £17,816,748

(2014: £19,939,345) divided by 10,397,059(2014: 10,397,059) voting ordinary shares in issue at 28 February 2015, excluding shares held in Treasury.

16. Reconciliation of profit before finance costs and tax to net cash inflow from operating activities

Group	2015	2014
	£'000	£'000
(Loss)/profit before finance costs and tax	(1,536)	1,170
Decrease/(increase) in non-current investments	2,649	(1,960)
(Increase)/decrease in current investments	(215)	818
Decrease in sales for future settlement	180	250
(Increase)/decrease in other receivables	(28)	24
(Decrease) in other payables	(3)	(3)
Taxation (paid)/recovered	(1)	3
Net cash inflow from operating activities	1,046	302
Company	2015	2014
	£'000	£'000
(Loss)/profit before finance costs and tax	(1,536)	1,170
Decrease/(increase) in non-current investments	2,648	(1,960)
Increase/(decrease) in provision for losses of subsidiary  337		(834)
Decrease in sales for future settlement	180	250
(Increase)/decrease in other receivables	(69)	(48)
(Decrease) in other payables	(3)	(3)
Taxation (paid)/recovered	(1)	3
Net cash inflow from operating activities	1,556	(1,422)

17. Related party transactions

Details of transactions with AIT Trading Limited are set out in note 11.

Details of the management, administration and secretarial contracts can be found in the Directors' Report. As disclosed in that Report, Mr Barstow is a director both of the Company and of the Investment Manager. Fees payable to the Investment Manager are detailed in note 3. Other payables include accruals of a monthly management fee of £13,437 (2014: £15,015) and an administration fee of £6,000 (2014: £6,000). No performance fee was accrued (2014: £Nil). All figures include any appropriate VAT.

18. Financial assets/liabilities

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 - Group

The Group's financial assets comprise equity investments, fixed interest securities, short-term receivables and cash balances. The currency and cash-flow profile of those financial assets was:

		2015			2014
	Interest	Non-interest		Interest	Non-interest
	bearing	bearing	Total	bearing	bearing	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investments at fair value through profit or loss:
- £ sterling equities	-	19,176	19,176	-	21,917	21,917
- Hong Kong $ equities	-	960	960	-	771	771
- £ fixed interest	1,492	-	1,492	1,374	-	1,374
	1,492	20,136	21,628	1,374	22,688	24,062
Short-term trade receivables	-	-	-	-	180	180
Cash at bank:
Floating rate - £ sterling	-	150	150	-	140	140
	-	150	150	-	320	320

Cash at bank includes £32,584 (2014: £83,930) held by the Group's custodian, The Northern Trust Company.

Financial assets - Company

The Company's financial assets comprise equity investments, fixed interest securities, short-term receivables and cash balances. The currency and cash-flow profile of those financial assets was:

		2015			2014
	Interest	Non-interest		Interest	Non-interest
	bearing	bearing	Total	bearing	bearing	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investments at fair value through profit or loss:
- £ sterling equities	-	18,791	18,791	-	21,917	21,917
- Hong Kong $ equities	-	960	960	-	771	771
- £ fixed interest	1,492	-	1,492	1,374	-	1,374
	1,492	19,751	21,243	1,374	22,688	24,062
Short-term trade receivables	-	-	-	-	180	180
Cash at bank:
Floating rate - £ sterling	-	145	145	-	140	140
	-	145	145	-	320	320

Cash at bank includes £32,584 (2014: £83,548) held by the Group's custodian, The Northern Trust Company.

Financial liabilities - Company and Group

The Group finances its investment activities through the Company's ordinary share capital, reserves and borrowing. The Group's financial liabilities comprise its overdraft facility and other short-term trade payables. Foreign currency balances are stated in the accounts in sterling at the exchange rate as at the Balance Sheet date.

The Company has borrowing facilities from its banker, Coutts & Co, comprising a revolving credit of up to £5 million (2014: £5 million) plus an overdraft facility of up to £2 million (or the equivalent in euros and/or US dollars in all cases). Interest is charged at 2.25% over LIBOR in the case of the loan and over Coutts' base rate in the case of the overdraft. The facilities are secured upon the shares and securities of the Company. They are repayable upon demand, but normally are reviewed annually by the bank.

The currency and cash-flow profile of the financial liabilities of the Group and of the Company was:

	2015	2014
	£'000	£'000
Interest bearing: Bank overdraft:
Sterling	4,000	4,453
	4,000	4,453
Non-interest bearing:
Short-term trade payables	-	-
	4,000	4,453

19. Financial instruments - risk analysis

Company and Group

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

All the securities detailed in the Business Review are listed on the London Stock Exchange or quoted on AIM, with the exception of West China Cement, which was previously quoted on AIM but is now listed on the Hong Kong Exchange; the Manager is not required to sell this holding, but will not add to it since it ceased to be quoted in London. Where the underlying currency or currency of quotation is not sterling this is noted. The element of currency risk on investments may be indirect and reflected in the effect of underlying currency movements upon the London market price, whether quoted in foreign currency or not.

Based on the portfolio as at 28 February 2015, there were no investments denominated in Euros and consequently there was no currency risk arising from the possibility of a fall in the value of sterling against the Euro, impacting upon the value of investments or income. West China Cement is denominated in Hong Kong Dollars; a 10% rise in sterling against the Hong Kong Dollar would result, all other factors remaining unchanged, in a fall of £96,000 in the value of the portfolio.

The Company had no foreign currency borrowings at 28 February 2015 (2014: Nil) and no sensitivity analysis is presented for this risk.

A (ii) Interest Rate Risk

The weighted average interest rate of the fixed rate financial assets is 9.4% (2014: 9.43%) and the weighted average period for which rates are fixed is indefinite (2014: indefinite). The list of the Company's holdings in the Strategic Report includes details of the split between equities and fixed interest securities.

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.

Interest is charged on the bank borrowing facilities at the bank's variable interest rates as appropriate to the currency concerned in the case of each balance. At 28 February 2015, the Company's total borrowing was £4,000,000 (2014: £4,452,788): all of which was borrowed in sterling, upon which the interest rate at the year end was 2.75% (2014: 2.75%).

A 2% rise in LIBOR, applied to the sterling loan and overdraft balance as at 28 February 2015, would decrease net income by £80,000 on an annual basis.

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 Strategic Report, the Company may maintain relatively strong concentrations in particular sectors selected by the Investment Manager, such as the Resources sector.

B Liquidity Risk

Liquidity Risk is considered to be small, because the portfolio is invested in readily realisable securities. As a consequence, cash flow risks are also considered to be small. The Investment Manager estimates that, under normal market conditions and without causing excessive disturbance to the prices of the securities concerned, the majority of the portfolio could be realised within seven days.

The Company's overdraft facility is repayable upon demand, although normally renewed annually. The Directors believe that the facility will be renewed in 2015. In view of the Company's ability to sell investments, as stated above, the Company is able to reduce or eliminate its borrowing, if necessary.

C Credit Risk

The Company invests in quoted equities and fixed interest securities. The Company's investments are held by The Northern Trust Company ("the Custodian"), which is a large international bank with a high reputation. The Company's normal policy is to remain fully invested at most times and not to hold very large quantities of cash. At 28 February 2015, Group cash at bank comprised £37,716 (2014: £83,930) held by the Custodian and £112,426 held by Coutts & Co (2014: £56,213), also part of a large international bank with a very high credit rating.

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.

Capital management policies and procedures

The Group's capital management objectives are:

-   to ensure the Group'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 Group 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 Group sets the amount of capital in proportion to its overall financing structure, i.e. equity and financial liabilities. The Group 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 Group 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 to reduce debt.

Since an overdraft was taken out in 1997, the Group has consistently honoured its covenant obligations, among which the principal capital ratio is described under Gearing Policy in the Strategic Report.

20. Fair value hierarchy

Under IFRS 13 investment companies are required to disclose the fair value hierarchy that classifies financial instruments measured at fair value at one of three levels according to the relative reliability of the inputs used to estimate the fair values.

Classification	Input
Level 1	Valued using quoted prices in active markets for
	identical assets
Level 2	Valued by reference to valuation techniques using
	observable inputs other than quoted prices included
	within Level 1
Level 3	Valued by reference to valuation techniques using
	inputs that are not based on observable market data

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset.

Assessment of Hierarchy - Group

The valuation techniques used by the Group are explained in the Accounting Policies Note 1(c). As at 28 February 2015, all investments held by the Group, including all current investments held for trading by the Company's subsidiary, are considered to fall within Level 1:

	2015	2014
	£'000	£'000
Level 1	21,628	24,062
Level 2	-	-
Level 3	-	-

Assessment of Hierarchy - Company

The Company's subsidiary is held at cost less impairment and therefore its valuation as an investment in the Company's balance sheet does not fall within the fair value hierarchy:

	2015	2014
	£'000	£'000
Level 1	21,243	23,892
Level 2	-	-
Level 3	-	-

21. Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Group

At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective, and have not been adopted early by the Group.

The Directors anticipate that all of the pronouncements will be adopted in the Group's accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Group's financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Group's financial statements.

IFRS 9 Financial Instruments (effective from 1 January 2018)

This standard is not expected to have a material impact on the Group's financial statements.

22.       Financial information

This announcement does not constitute the Company's statutory accounts. The financial information for 2015 is derived from the statutory accounts for 2015, which will be delivered to the registrar of companies following the Company's Annual General Meeting.  The statutory accounts for 2014 have been delivered to the registrar of companies.  The auditors reported on the 2014 and 2015 accounts; their reports were unqualified and did not include a statement under Section 498(2) or (3) of the Companies Act 2006.

The annual report for the year ended 28 February 2015 was approved on 9 June 2015. It will be posted to shareholders and will be made available on the Investment Manager's website at www.marsassetmanagement.co.uk

This announcement contains regulated information under the Disclosure Rules and Transparency Rules of the FCA.

The annual report will be submitted to the National Storage Mechanism and will shortly be available for inspection at http://www.morningstar.co.uk/NSM   

23.       Annual general meeting

The Annual General Meeting will be held on 16 July 2015 at 12.00 noon at 145-157 St John Street, London EC1V 4RU.

9 June 2015

Secretary and registered office

Cavendish Administration Limited

145-157 St John Street

London

EC1V 4RU

Tel: [phone]

END

 

END

 

 

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