Final Results
AURORA INVESTMENT TRUST PLC
LEI: 2138007OUWIZFMAGO575
ANNUAL RESULTS ANNOUNCEMENT
FOR THE YEAR ENDED 31 DECEMBER 2021
FINANCIAL AND PERFORMANCE HIGHLIGHTS
OBJECTIVE
To provide Shareholders with long-term returns through capital and income growth by investing predominantly in a portfolio of UK listed companies.
POLICY
Phoenix Asset Management Partners Limited (Phoenix) was appointed Investment Manager on 28 January 2016. Phoenix currently seeks to achieve the Objective by investing, primarily, in a portfolio of UK listed equities.
The portfolio will remain relatively concentrated. The exact number of individual holdings will vary over time but typically the portfolio will consist of 15 to 20 holdings.
The Investment Policy of the Company can be found below.
BENCHMARK
Performance is benchmarked against the FTSE All-Share Index (total return), representing the overall UK market.
DIVIDEND
The Board proposes to pay a final dividend of 1.84p per Ordinary Share (2020: 0.55p) to be paid on 1 July 2022 to Shareholders who appear on the register as at 10 June 2022, with an ex-dividend date of 9 June 2022.
CHAIRMAN'S STATEMENT
PERFORMANCE REVIEW
The Company's daily published unaudited Net Asset Value ('NAV') for the year ended December 2021 rose by 19.1% and the share price rose by 13.5% on a total return basis, versus the benchmark, FTSE All-Share Index (total return) which increased by 18.3%. This was the third year in succession of outperformance versus the market.
• The year was again dominated by COVID-19, and the stop-start nature of the transition back to normality post the pandemic. There are significant elements of the portfolio such as the low-cost airlines, which will benefit from a full return to normality, which Phoenix expects to be a source of positive performance in the fullness of time.
• As announced on 3 September 2021 and as we have previously discussed, Castelnau Group Limited ("Castelnau") was listed on the Specialist Fund segment of the London Stock Exchange in October 2021. As part of the transaction, the Company acquired shares in Castelnau in exchange for a proportion of the Company's holding in Dignity PLC, Hornby PLC and Phoenix SG. Since listing Castelnau has performed well. Further details of Castelnau's performance can be found in Castelnau's fourth quarterly report of 2021 which can be found on their website at: www.castelnaugroup.com/application/files/1416/4382/9198/Castelnau_Group_Ltd_Q4_2021.pdf.
• The major contributor to performance in 2021 was a hedge against rising inflation using options on the short sterling future contract. In early 2021, Phoenix became concerned at the potential impact of rapidly rising interest rates on intrinsic value of the portfolio holdings. The hedge was implemented in the summer, and in the fourth quarter of 2021, as concerns over inflation increased significantly, strong performance was generated from the hedge.
• The outperformance in 2021 ensured that the Company has again added to previous NAV returns in excess of its benchmark. Since Phoenix took over the management of the Company in January 2016, the Company's NAV and share price have grown by 75.9% and 66.1% respectively to 31 December 2021, versus a benchmark rise of 59.2%.
• One of the unique features of the Investment Management Agreement with Phoenix, and one that creates significant shareholder alignment, is that Phoenix earns no management fee other than an annual performance fee, equal to one-third of NAV per share total return in excess of the FTSE All-Share Index (total return).
• In 2021 a performance fee was earned by Phoenix. This fee was received in shares in the Company, which Phoenix cannot sell for three years, and there is a clawback mechanism in place through which, if the outperformance which earned the shares were to disappear on the third anniversary of their award, the shares would either be cancelled or, in limited circumstances and following consultation with Phoenix, the Company would have the discretion to either (i) reduce the number of shares that are clawed back or (ii) extend the lock-in period for up to a further two years.
• The Company's share price rose by 13.5% over the year ended 31 December 2021. In the first half of 2021, NAV and share price traded around parity with share issuance occurring in June, but in the second half of the year the Company's share price fell to a discount to NAV. During the year ended 31 December 2021, the Company's shares traded between a premium of 4.3% and discount of 11.4% to NAV, with an average discount of 3.2%. As at 31 December 2021, the discount to NAV was 7.6%. The Board, along with its advisors and the investment manager, monitor any discount closely. As at the end of March 2022 the Company's shares were trading at a slight premium of 0.15%. The Board will consider buying back shares in the Company if a discount becomes persistent. Phoenix took the opportunity to purchase £5 million of shares in the Company when the NAV traded at a discount and continues to promote the Company proactively together with Liberum, the Company's broker and with Frostrow Capital, its distribution advisor.
THE INVESTMENT MANAGER
2021 was the sixth year of Phoenix's management of the Company's portfolio, which began with their appointment as Investment Manager in January 2016, and it is positive that 2021 brought continued outperformance versus the FTSE All-Share index (total return).
Phoenix again employed a focused, patient investment approach during another year of significant market stress. The implementation of the hedge against inflation was effective in preserving value in the underlying equity portfolio.
GROWTH OF THE COMPANY
Growing the Company remains a key objective of the Board. Market capitalisation rose from £162 million in January 2021, to finish the year at £179 million. This rise, however, came almost solely from share price appreciation and not from new share issuance.
The Board, along with Phoenix, is committed to broadening the profile of the Company and has agreed a programme of activity with Frostrow Capital and Liberum, the Company's distributor adviser and broker, which will include an increased number of investor meetings, conference presentations and engagement with platform providers.
It remains an objective of both the Board and the Investment Manager to increase the size of Aurora to £250 million over the course of the next two to three years.
ANNUAL GENERAL MEETING ("AGM")
The AGM of the Company will be held at Chartered Accountants Hall, One Moorgate Place, London EC2R 6EA on 28 June 2022 at 2.00 pm. If you are unable to attend in person you have the option of attending via webinar, where you will have the opportunity to hear a presentation from the Investment Manager and ask questions. Instructions on how to attend the webinar can be found on the Company's website at https://www.aurorainvestmenttrust.com/news/regulatory/56/ and in the Notes to the Notice of AGM.
CONTINUATION VOTE
In accordance with the articles, the Company will hold a continuation vote at the next AGM on 28 June 2022. This provides an opportunity for the Company's shareholders to vote, once every three years, on whether the Company should continue to operate, or otherwise be wound-up and cash returned to shareholders. Taking account of the Company's track record over the past three years the Board strongly recommends that shareholders vote in favour of the Company's continuation.
THE BOARD
After 10 years serving together on the Board of Aurora, James Nelson and I will be retiring at the forthcoming AGM. It has been a great pleasure for me to have served the Company and played a part in its development over these years. On behalf of the Board, I thank James Nelson for his particular support and contribution over these years.
At the AGM, Lucy Walker will be taking over from me as Chair of Aurora. I know the Board will be in capable hands and I wish Lucy every success for the future. I trust she will enjoy the role as much as I have done.
The Board continues its search for additional Board members and will update the market in due course.
AGGREGATE DIRECTORS' FEES
At the forthcoming AGM an ordinary resolution will be put to shareholder vote to increase the maximum aggregate Directors' fees from £200,000 to £250,000. This will allow greater flexibility to retain and attract Board members with suitable skills and experience by offering competitive remuneration.
DIVIDEND
The Board proposes to pay a final dividend of 1.84p (2020: 0.55p) per Ordinary Share, to be paid on 1 July 2022 to Shareholders who appear on the register as at 10 June 2022. The ex-dividend date is 9 June 2022. This dividend will be proposed at the forthcoming AGM to be held on 28 June 2022. The Company's dividend policy, which is to distribute substantially all net revenue proceeds, remains unchanged and can be found above.
OUTLOOK AND REFLECTION
Since the year end the world has been shocked by Russia's invasion of Ukraine. This has further exacerbated inflation as utility bills look set to rise even higher than initially expected and concern increases that the conflict will continue. This has impacted stock markets around the world. However, since the year end, the Company's performance has been strong, due to the significant gains achieved from its hedge against rising interest rates discussed above. This hedge has now been fully realised. We continue to believe that the Company will maintain its relative outperformance over the longer term.
As this is the last time I shall be writing to you, I bid you farewell. It has been a privilege to serve as Chairman. In the years that James and I have served the Board we have seen many changes, one of the most significant has been the appointment of Phoenix Asset Management as the Company's Investment Manager in 2016. Since then, the Company has performed well and we both feel we will be leaving the Company in capable hands with Lucy at the helm and Phoenix Asset Management making impressive returns on behalf of the Company's shareholders.
Lord Flight
Chairman
29 April 2022
INVESTMENT POLICY AND RESULTS
At a General Meeting held on 28 September 2021 the following new investment policy was approved:
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 nis 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.
DIVIDEND POLICY
The investment policy does not include any fixed dividend policy. But the Board will distribute substantially all of the net revenue arising from the investment portfolio. Accordingly, the Company is expected to continue to pay an annual dividend, but this could be lower than the level of recent dividends and may vary each year.
BORROWING POLICY
The Company is not prohibited from incurring borrowings for working capital purposes, however the Board has no current intention to utilise borrowings. Whilst the use of borrowings should enhance the total return on the Ordinary Shares where the return on the Company's underlying assets is rising and exceeds the cost of borrowing, it will have the opposite effect where the underlying return is falling, further reducing the total return on the Ordinary Shares. As a result, the use of borrowings by the Company may increase the volatility of the NAV per Ordinary Share.
The Company has a policy not to invest more than 10% of its gross assets in other UK listed investment companies. As a consequence of its investments, the Company may therefore itself be indirectly exposed to gearing through the borrowings from time to time of these other investment companies.
OBJECTIVES AND KEY PERFORMANCE INDICATORS (KPIS)
The Company's principal investment objective is to achieve capital and income growth. The Board measures the Company's success in attaining its objectives by reference to KPIs as follows:
a. To make an absolute total return for Shareholders on a long-term basis.
b. The Company's Benchmark is the FTSE All-Share Index (total return), against which the NAV total return is compared. After achieving the goal of making absolute returns for Shareholders, the next aim is to provide a better return from the portfolio than from the market as measured by the Benchmark.
c. The Company seeks to ensure that the operating expenses of running the Company as a proportion of NAV (the Ongoing Charges Ratio) are kept to the minimum possible.
d. The discount/premium to NAV at which the Company's Shares trade is also closely monitored in order to maintain Shareholder value.
The Chairman's Statement above incorporates a review of the highlights during the year.
The Investment Manager's Report below gives details on investments made during the year and how performance has been achieved.
PERFORMANCE
The Investment Manager, Phoenix Asset Management Partners Limited ('Phoenix'), which is regulated by the FCA. The Chief Investment Officer of Phoenix is Gary Channon. Phoenix reports in detail upon the Company's activities in the Investment Management Report and Outlook which can be found below
Under the Investment Management Agreement, no regular management fees are payable. A performance fee is payable to the Investment Manager only if the benchmark is outperformed.
The benchmark is the FTSE All-Share Index (total return). The Company's performance since Phoenix was appointed is shown below:
|
|
Cumulative |
|
|
|
|
since |
Year to |
Year to |
|
|
28 January 2016 |
31 December |
31 December |
|
|
to 31 December 2021 |
2021 |
2020 |
|
|
% |
% |
% |
|
NAV per Ordinary Share (total return)1 |
+75.9 |
+19.1 |
-5.3 |
|
Ordinary Share price (total return)1 |
+66.1 |
+13.5 |
-10.0 |
|
Benchmark (total return) |
+59.2 |
+18.3 |
-9.8 |
The Ongoing Charge Ratio was as follows:
|
|
Year to |
Year to |
|
|
31 December |
31 December |
|
|
2021 |
2020 |
|
|
% |
% |
|
Ongoing Charge Ratio1 |
0.49 |
0.45 |
1 These are Alternative Performance Measures ("APMs").
REVENUE RESULT AND DIVIDEND
The Company's revenue profit after tax for the year amounted to £1,413,000 (2020: £599,000). The Board is today proposing the payment of a final dividend of 1.84p per Ordinary Share (2020: 0.55p per Ordinary Share). This dividend will be paid on 1 July 2022 to Shareholders on the register as at 10 June 2022; the Ordinary Shares will be marked ex-dividend on 9 June 2022. In accordance with International Financial Reporting Standards this dividend is not reflected in the financial statements for the year ended 31 December 2021.
DISCOUNT TO NAV
The discount of the Ordinary Share price to NAV per Ordinary Share is closely monitored by the Board. The Ordinary Share price closed at a 7.6% discount to the NAV per Ordinary Share as at 31 December 2021 (2020: 4.6%discount). During the year ended 31 December 2021, the Company's shares traded at between a premium of 4.3% and discount of 11.4% to NAV, with an average discount of 3.2%.
CONTROL OF THE LEVEL OF ONGOING CHARGES
The Board monitors the Company's operating costs carefully. Based on the Company's average net assets for the year ended 31 December 2021, the Company's ongoing charges figure calculated in accordance with the Association of Investment Companies (AIC) methodology was 0.49% (2020: 0.45%). As the size of the Company grows, the Board will manage expenses with the intention of keeping costs down and reducing the ongoing charge ratio accordingly.
FIVE YEAR SUMMARY
The following data are all expressed as pence per Ordinary Share. NAV figures are all calculated at bid prices.
|
|
Published Net |
Dividend per |
|
|
|
Asset Value per |
Ordinary Share in |
Ordinary Share |
|
|
Ordinary Share |
respective year |
price (mid-market) |
|
Year |
(pence)1 |
(pence) |
(pence) |
|
Year ended 31 December 2017 |
205.72 |
2.75 |
208.00 |
|
Year ended 31 December 2018 |
182.24 |
4.00 |
183.00 |
|
Year ended 31 December 2019 |
232.07 |
4.50 |
237.00 |
|
Year ended 31 December 2020 |
213.39 |
0.55 |
207.00 |
|
Year ended 31 December 2021 |
253.49 |
1.84 |
234.50 |
1 This is an APM, calculation can be found below.
TOP HOLDINGS AS AT 31 DECEMBER 2021
|
|
|
|
|
|
Date |
Average |
|
|
|
|
|
Holding |
|
Percentage |
of first |
cost per |
Share |
Market |
|
Company |
Sector |
in Company |
Valuation |
of net assets |
purchase |
share* |
price |
capitalisation |
|
|
|
|
£'000 |
% |
|
£ |
|
|
|
Frasers Group plc |
Retail |
5,114,011 |
39,429 |
20.3 |
Jan-16 |
3.07 |
£7.71 |
3.9bn |
|
Castelnau Group Limited |
Financial# |
24,563,184 |
25,300 |
13.0 |
Oct-21 |
1.00 |
£1.03 |
194m |
|
Barratt Developments plc |
Construction |
3,242,412 |
24,253 |
12.5 |
Nov-18 |
5.03 |
£7.48 |
7.6bn |
|
easyJet Plc |
Leisure |
3,565,368 |
19,823 |
10.2 |
Sep-16 |
6.90 |
£5.56 |
4.2bn |
|
Options - ICE 3Mth SONIA OPTSep22 |
Financial |
47,000 |
19,388 |
10.0 |
Jul-21 |
0.03 |
£0.33 |
n/a |
|
Ryanair Holdings plc |
Leisure |
928,600 |
11,911 |
6.1 |
May-19 |
8.34 |
€15.25 |
€17.3bn |
|
Lloyds Banking Group plc |
Financial |
19,618,000 |
9,377 |
4.8 |
Jan-16 |
0.62 |
£0.48 |
34.0bn |
|
Randall & Quilter Investment |
|
|
|
|
|
|
|
|
|
Holdings Limited |
Insurance |
5,211,225 |
8,963 |
4.6 |
Jan-16 |
1.08 |
£1.72 |
473m |
|
Bellway plc |
Construction |
232,440 |
7,754 |
4.0 |
Jan-16 |
20.39 |
£33.36 |
4.1bn |
|
RHI Magnesita N.V. |
Materials |
225,320 |
7,449 |
3.8 |
Jan-20 |
34.65 |
£33.06 |
1.6bn |
|
Other holdings (less than 3%) |
n/a |
n/a |
12,990 |
6.8 |
n/a |
n/a |
|
|
|
|
|
|
======== |
======== |
|
|
|
|
|
|
|
|
186,637 |
96.1 |
|
|
|
|
|
Total holdings |
|
|
======== |
======== |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets and liabilities |
|
|
7,556 |
3.9 |
|
|
|
|
|
|
|
|
======== |
======== |
|
|
|
|
|
Net assets |
|
|
194,193 |
100.0 |
|
|
|
|
|
|
|
|
======== |
======== |
|
|
|
|
* Average net cost including sales.
# Castelnau is a multi-sector financial holding company.
The Company held over 3% of the issued share capital of the following:
|
|
|
|
Percentage |
|
|
|
|
|
of share |
|
|
|
|
Holding in |
capital of |
|
|
Company |
Sector |
Company |
Company (%) |
|
|
Castelnau Group Limited |
Financial |
24,563,184 |
13.4 |
Castelnau Group Limited is also managed by Phoenix Asset |
|
|
|
|
|
Management. The value of Castelnau Group Limited is excluded |
|
|
|
|
|
from the Company's net assets when calculating performance |
|
|
|
|
|
fees earned by Phoenix Asset Management to avoid double |
|
|
|
|
|
charging. |
PORTFOLIO ANALYSIS AS AT 31 DECEMBER 2021
|
|
Percentage of net |
|
Sector |
Assets |
|
|
% |
|
Financial |
29.7 |
|
Retail |
20.3 |
|
Leisure |
17.9 |
|
Construction |
17.6 |
|
Insurance |
4.6 |
|
Materials |
3.8 |
|
Food & Beverage |
1.0 |
|
Industrials |
0.7 |
|
Pharmaceuticals |
0.5 |
|
Other current assets and liabilities |
3.9 |
|
|
-------------- |
|
Total |
100.0 |
|
|
======== |
STATEMENT FROM THE CHIEF INVESTMENT OFFICER OF THE INVESTMENT MANAGER
Dear Shareholder,
Last year was one of gratification postponed for us, as the pandemic carried on and lockdown restrictions further damaged a number of the businesses in the portfolio, which itself remains well positioned for the end of restrictions and a resumption of normal economic life. This was particularly acute for our airline holdings.
The pandemic has proved to be another pullback from which our portfolio recovered its value and set out a new high (NAV wise); this one took 476 calendar days. In the 24 years that Phoenix has been managing money we have experienced 6 significant pullbacks of 24% and more. In all prior occasions, the reversal from old peak to new peak has always been within a year, but this is the first to go over that timescale, albeit by a small number of months. We believe starting out with a portfolio of very undervalued businesses and using the fall in prices to act rationally, combined with an absence of leverage is why this happens.
Apart from the preservation of capital, what matters is the amount of future value we add by acting rationally in those dips to acquire investments whose valuations have overreacted to the negative short term news.
In the market drop of 2020 we did add considerable value to intrinsic value but that had to be set against the loss in intrinsic value suffered by a number of our businesses from the forced closures and restrictions on economic activity. Considerable value was lost in airlines and hospitality. Putting it together we emerged with more value than we entered with but not with as significant a boost as we would have liked and have achieved in most other major pullbacks.
At the beginning of 2021 we outlined our plan to buy an inexpensive hedge against the risk that the pandemic response would unleash inflation. The hedge was purchased in July/August once conditions permitted. That inflation risk did subsequently manifest itself and the hedge significantly increased in value. This added considerably to the Company performance and value during 2021. We spent 1% of the Company net assets on the hedge and ultimately sold it for around 17 times that. Those proceeds now sit in the Company as cash and UK Treasury Bills, which we will deploy into opportunities that meet our criteria, which is with a minimum of 100% of upside to their intrinsic values. If we do that, we will have turned 1% into at least 34% which should more than compensate for any damage to the overall value of our businesses from the higher rates that inflation brings.
We don't hedge often (twice in 24 years). We only hedge when the following conditions apply; there is a risk that we believe is improbable but could damage the intrinsic value of our portfolio materially and there is insurance available in some form that is very cheap so that we can spend a very modest amount of the portfolio (1% or less) to hedge against it. We don't hedge to smooth out expected swings in the market - that's not our definition of risk. We will never take open ended liability, and the most that could have been lost on this investment was 1%. We will never imperil your capital.
As we write the world is entering another period of bad news politically and economically with the tragedy unfolding in Ukraine. This creates even more complications for central banks trying to work out what to do with interest rates. Inflation is being pushed higher by the impact on energy prices but this is the sort of inflation that ends up in recession as spending is diverted away from other things to cover higher energy prices. Based upon what we can see at this point there is less fundamental damage to the intrinsic value of the portfolio than that caused by the pandemic lockdowns. Furthermore, we enter into this turbulent period with 19% of the Company's total assets in cash and cash equivalents and, as always, a roster of businesses we would like to own should they become available at attractive prices.
An analysis of our past record shows the majority of the value we add through portfolio changes, occur in those infrequent windows where markets are overwhelmed with pessimism. Although as an investor it is never comfortable watching an investment fall in value, please take some comfort that it is in those times we plant the seeds of future growth in your capital.
In 2021 we were able to create and float the Castelnau Group Limited ("Castelnau") which contains the direct business activity we do at Phoenix. You can read more about that on the Castelnau website, but during the year the Company exchanged holdings it had in the businesses we are directly involved in, i.e. Dignity, Hornby and Stanley Gibbons, for shares in Castelnau when it floated. This holding in Castelnau was capped at 15% at cost. Our goal at Castelnau, as it is in the rest of the portfolio, is to put your capital to work in businesses that generate high returns on it. For a clearer understanding of the philosophy and objectives of Castelnau I would recommend a read of the Castelnau Group fourth quarterly report of 2021 which can be found on their website at www.castelnaugroup.com/application/files/1416/4382/9198/Castelnau_Group_Ltd_Q4_2021.pdf.
Changes we make to the portfolio are the minority and so the main engine of value creation is the returns our underlying businesses make on their capital. We invest in businesses which make at least 15% on capital and so the capital they retain each year is building the long term earnings and therefore value. If we get those assessments right, that return will ultimately be the return we achieve overall at the portfolio level.
We continue to believe our approach will deliver long term results well in excess of market averages, without risking permanent losses of capital.
GARY CHANNON
CIO PHOENIX ASSET MANAGEMENT PARTNERS
29 April 2022
INVESTMENT MANAGEMENT REVIEW AND OUTLOOK
During the year to 31 December 2021, the NAV per share increased by 19.1%1 and the share price by 13.5%. The FTSE All-Share Index (total return) rose by 18.3% over the same period. Net assets at year-end were £194m (2020 £163m). This compares well with the Company's prior year performance, when the NAV per share declined by 5.3%, the share price declined by 10.0% and the FTSE All-Share Index (total return) declined by 9.8%.Since Phoenix began managing the Company on 28 January 2016 to 31 December 2021, the NAV has risen 75.9% versus 59.2% for the FTSE All-Share Index (total return).
The outperformance in 2021 has again resulted in a performance fee being earned, 80% of which was paid to us by way of shares in the Company in February 2022, the remaining 20% will become due once the audit has been finalised. In accordance with the Investment Management Agreement we are required to hold those shares for 3 years. If the outperformance versus the index disappears on the third-year anniversary, these shares will be cancelled, and we will receive nothing. This, we believe, is one of the most aligned fee structures in the industry.
2022 started positively as the impact of COVID restrictions related to the Omicron variant were reversed. The inflation hedge also continued to perform strongly, however as we write in April, the portfolio and market have been impacted by the war in Ukraine. Since year end up to 28 February 2022, the NAV has fallen slightly, with the FTSE All-Share Index (total return) falling 0.5% for the same period.
PERFORMANCE REVIEW
From a performance perspective, 2021 continued to be dominated by COVID but was also impacted by noise around Brexit. Additionally, some of the portfolio's holdings flagged during the year, the risk that persistent inflation would manifest itself became more pertinent. Inflationary pressures were seen in the second half of the year and Central Banks began to react by signalling the likelihood of interest rate rises.
The first half of the year saw a broad market rally which the portfolio participated in. On 30 June 2021, the NAV was up 8.5% versus 11.1% for the Index.
In Q3 the portfolio fell slightly with the market up over 2%. During this period, performance was impacted by, what we considered was an unnecessarily large and deeply discounted rights issue from easyJet on which we comment more fully later.
In the fourth quarter the Company posted a good performance. The NAV rose 10% versus 1.8% for the Index, as fears over the impact of rising interest rates resulted in the inflation hedge performing strongly.
From a share price perspective, holdings with the highest price rises were the inflation hedge and Frasers Group. The inflation hedge was implemented to protect the portfolio against the impact of inflation, through the purchase of September 2022 put options on the short sterling future contract, the security identifier is LU2P99. The options were purchased at £0.03 and were priced at £0.33 on 31 December 2021. They subsequently rallied to over £1 and were sold in stages during the first two months of 2022. The Frasers Group share price increased by 71% during the year, as the company demonstrated a strong recovery from the pandemic and highlighted the potential of its elevation strategy in its Flannels luxury retail business.
Other share price risers of note were Lloyds, which rose 35% during the year, and the housebuilders, Bellway and Barratt Development, which rose 17% and 16% respectively.
Fallers of note included our low-cost airlines due to the continued impact of the pandemic. easyJet fell by 20% with Ryanair falling 12%. Prior to the emergence of the Omicron variant both holdings had benefited from travel restrictions being lifted but this was reversed when the scale of disruption around Omicron became clear.
ACTIVITY REVIEW
The only activity of note in the first half of the year was the sale of our holding in Redrow in February and March. We expected continued changes in environmental and building regulations and the company is in transition following the retirement of its founder. We preferred the way in which Barratt and Bellway utilised their landbanks (the practice of holding land for future development) which were generally held for short periods and turned around more quickly.
Also, in the first half of the year, we called for a general meeting in Dignity to put ourselves forward to replace the executive management after we came to the view that the company was not collaborating as it had originally promised to do. We cannot separately report on Dignity Plc given our inside position. We appreciate your patience as we implement a new management framework, but we can say that everything that has happened since we were appointed leads us to believe it was the right thing to do.
In September, as mentioned earlier, easyJet instigated a capital raise. We reported in the Aurora September monthly report that we had anticipated and modelled for a raise, but the size and structure of this one diluted value more than we expected and our interactions with management revealed their shortcomings as capital allocators. After rejecting a merger approach from Wizz Air at a premium to the £8 share price, arguing that it undervalued the company, they issued £1.2bn of new equity at £4 per share.
At the time of the issue, easyJet had access to £2.9bn of unrestricted liquidity versus an operating cash burn of £40m per week. 40% of their planes are owned outright and unencumbered. In our opinion, per share shareholder value would have been better served through a smaller raise and a more gradual balance sheet repair from retained earnings as travel returns.
Despite strong reservations around the rights issue, we did participate as it was the economically right thing to do and we remain confident in easyJet's ability to benefit from the resumption of travel post the pandemic.
We were also pleased to report in the September factsheet that shareholders had approved the inclusion of the Castelnau Group in the Company's portfolio. We have previously written of the rationale behind the new vehicle and for a full progress report please see the Castelnau year end report on its website: https://www.castelnaugroup.com/application/files/1416/4382/9198/Castelnau_Group_Ltd_Q4_2021.pdf
We reported we are making progress in all the businesses within Castelnau. We see significant potential in them, and we believe we know what is required to realise that potential. We are in the process of adding to our resourcing for Castelnau to give us capabilities that we will deploy in Group companies.
OUTLOOK
At the time of writing there is great uncertainty due to the Russian invasion of Ukraine. In the December factsheet, prior to significant concerns over Russian activity in Ukraine, we wrote the following about the uncertainty created by rising inflation and interest rates:
For decades now investing has been done in an environment of low inflation and low interest rates. That era may be drawing to a close. It probably will at some point anyway because the nature of human progress is cyclical oscillations around a trend.
We believe our approach to stock selection is well positioned to cope with a change in those conditions because of these three key attributes of a successful investment in times of inflation and rising rates:
Pricing Power: This is the ability of a company to have some control over its profitability by passing on changes in its costs to its customers. Persistently low returns on capital aren't the choice of managements; they are imposed upon them by the competitive landscape. Our process seeks out businesses that have some control over their returns and this characteristic is highly valuable in times of inflation.
Absence of Leverage : Businesses with highly leveraged balance sheets run the risk of a transfer of value away from equity holders in times of stress and higher rates. We avoid leverage where there is a risk of ruin but there are many balance sheets we see that will struggle with higher rates. Increasing leverage has turbo charged equity returns over the past few decades and this has been something of a comparative headwind for our approach. The benefits of it though will be seen when those forces reverse.
Margin of Safety: Probably Ben Graham's most valuable contribution is the use of a margin of safety between when you pay and what you expect value to be. Approach this conservatively again and again and it builds into a cumulative edge that delivers returns in excess of the average. We never pay more than half our estimate of the present value of all its future cash generation. That margin of safety has meant that despite all the errors in those estimations and the unexpected negative events, the Phoenix UK Fund has returned around 6.7% more per year than the market and that builds into a significant difference when compounded through time since our inception in 1998. (1,336.1% versus 232.5%). The Aurora portfolio remains a very close replica of the Phoenix UK Fund.
The present uncertainty over Ukraine is significant, but we have a track record in previous crises of adding long-term value. As an organisation we strive to keep learning and improving. The investment horizon looks fraught with danger or opportunity depending on how you look at it; from our perspective it's both. Thorough analysis, patience and a long-term perspective have been and will be the winning ingredients behind our ability to achieve superior returns over time.
STEVE TATTERS
DIRECTOR
PHOENIX ASSET MANAGEMENT PARTNERS
29 April 2022
1 This is an Alternative Performance Measure ('APM') the calculation of which can be found below
PHOENIX UK FUND TRACK RECORD
|
|
Investment |
|
|
NAV |
|
|
Return |
NAV Return |
FTSE All-Share |
Per Share |
|
Year |
(Gross) |
(Net) |
Index |
(A Class) |
|
|
% |
% |
% |
% |
|
1998 (8 mths) |
17.6 |
14.4 |
-3.3 |
1,143.71 |
|
1999 |
-1.3 |
-4.6 |
24.3 |
1,090.75 |
|
2000 |
24.7 |
23.0 |
-5.8 |
1,341.46 |
|
2001 |
31.7 |
26.0 |
-13.1 |
1,690.09 |
|
2002 |
-17.8 |
-20.1 |
-22.6 |
1,349.64 |
|
2003 |
51.5 |
49.8 |
20.9 |
2,021.24 |
|
2004 |
14.1 |
11.2 |
12.8 |
2,247.26 |
|
2005 |
1.4 |
0.3 |
22.0 |
2,254.99 |
|
2006 |
9.5 |
8.3 |
16.8 |
2,442.90 |
|
2007 |
3.4 |
2.3 |
5.3 |
2,498.40 |
|
2008 |
-39.5 |
-40.2 |
-29.9 |
1,494.31 |
|
2009 |
62.8 |
59.7 |
30.2 |
2,386.48 |
|
2010 |
1.1 |
0.0 |
14.7 |
2,386.37 |
|
2011 |
3.0 |
1.9 |
-3.2 |
2,430.75 |
|
2012 |
48.3 |
42.2 |
12.5 |
3,456.27 |
|
2013 |
40.5 |
31.3 |
20.9 |
4,539.47 |
|
2014 |
1.9 |
0.1 |
1.2 |
4,544.25 |
|
2015 |
20.1 |
14.7 |
0.9 |
5,211.13 |
|
2016 |
9.1 |
7.6 |
16.8 |
5,605.58 |
|
2017 |
21.5 |
16.3 |
13.1 |
6,518.69 |
|
2018 |
-13.6 |
-14.7 |
-9.5 |
5,558.97 |
|
2019 |
30.3 |
27.7 |
19.1 |
7,098.36 |
|
2020 |
-3.9 |
-4.9 |
-9.7 |
6,748.66 |
|
2021 |
23.4 |
18.7 |
18.3 |
8,011.17 |
|
|
-------------- |
-------------- |
-------------- |
-------------- |
|
Cumulative |
1,336.6 |
701.1 |
232.5 |
n/a |
|
|
-------------- |
-------------- |
-------------- |
-------------- |
|
Annualised Returns |
11.9 |
9.2 |
5.2 |
n/a |
|
|
-------------- |
-------------- |
-------------- |
-------------- |
OTHER STRATEGIC REPORT INFORMATION
PRINCIPAL RISKS, EMERGING RISKS AND UNCERTAINTIES
Procedure for Identifying Emerging Risks
The procedures in place to identify emerging or principal risks are described below. The Audit Committee regularly reviews the Company's risk matrix, focusing on ensuring that the appropriate controls are in place to mitigate each risk. A system has been established to identify emerging risks as they occur as detailed below. The experience and knowledge of the Audit Committee and Board is invaluable to these discussions, as is advice received from the Board's service providers, specifically the Investment Manager who is responsible for all portfolio management services.
The following is a description of the role each service provider plays in the identification of emerging risks.
1. Investment Manager: the Investment Manager advises the Board at each quarterly meeting on world markets, stock market trends, information on stock specific matters as well as regulatory, political and economic changes likely to impact the Company's portfolio;
2. Distributor and Broker: provide advice at each meeting specific to the Board on the Company's share register, sector, competitors and the investment company market;
3. Company Secretary and Accounting Advisor: briefs the Board on forthcoming legislation or regulatory changes that might impact the Company;
4. AIC: The Company is a member of the AIC, which provides regular technical updates as well as drawing members' attention to forthcoming industry and regulatory issues.
Procedure for oversight of risks
Audit Committee: The risk matrix is reviewed at least twice a year. This includes a review of the risk procedures and controls in place at the key service providers to ensure that emerging (as well as known) risks are adequately identified and - so far as practicable - mitigated. Experienced Non-Executive Directors on the Committee, each bringing external knowledge of the investment trust (and financial services generally) marketplace, trends, threats etc. as well as macro/strategic insight. The principal risks faced by the Company, together with the approach taken by the Board towards them, have been summarised below.
PRINCIPAL RISKS, AND UNCERTAINTIES CONSIDERED DURING THE YEAR
Portfolio Risk
Changes in general economic and market conditions including, for example, interest rates, cost increase, rates of inflation, industry conditions, competition, political events and trends, tax laws, national and international conflicts and other factors, particularly noting the ongoing threat posed by COVID-19, the war in Ukraine and the persistent threat of inflation and rising interest rates as discussed below and the impact to the economy, could substantially and adversely affect the Company's prospects. Other portfolio risks are outlined as follows.
• Poor stock selection, resulting in underperformance against the Company's benchmark;
• Poor use of gearing, creating a drag on performance during times of market declines;
• Illiquid stock creating a drag on performance;
• Concentrated portfolio; and
• Reputational damage caused by any of the above risks.
COVID-19
The market and operational risks and financial impact as a result of the COVID-19 pandemic, and measures introduced to combat its spread, were considered by the Board. Each of the Company's key service providers was able to demonstrate operational resilience. In addition, the Investment Manager undertook a thorough review of the impact on the Company's portfolio of investments and was able to provide the Board with assurance that the Company's portfolio of investments had strong businesses with robust balance sheets that could withstand major interruptions to their operations. The Directors and the Investment Manager continue to monitor the situation closely.
Inflation
The Board has noted the sharp rise in inflation, the expectation that inflation would continue to rise and the increasing threat this may pose to the Company. In response to this the Board has agreed, following guidance from the Investment Manager, to take out a put option with the intention of safeguarding the Company's portfolio against the impact of inflation. The Board and Investment Manager continue to monitor the situation. The position was closed post year end, making substantial gains for the Company which is discussed further in the Investment Manager's Report.
Conflict in Ukraine
The Board and Investment Manager are monitoring the war that has erupted in Ukraine and have considered the impact on the Company's portfolio and operations. The Company has a large cash position following the closure of the Company's hedge position which the Investment Manager intends to use strategically when an appropriate opportunity arises.
Continuation Vote
In accordance with the articles, the Company will hold a continuation vote at the next AGM on 28 June 2022. Having consulted with key shareholders and taking account of the Company's track record over the past three years, and the successful broadening of the shareholder base, the Board believes the continuation vote will pass.
MANAGEMENT OF RISKS
The Board undertakes a review of the performance of the Company and scrutinises and challenges notable transactions at each quarterly Board meeting. At least on an annual basis the Management Engagement Committee reviews the engagement of the Investment Manager, including the Investment Manager's achievements with regard to the Company's performance.
Diversification
The Company mainly invests in organisations listed and traded on the London Stock Exchange, and by spreading its investments across a range of such securities. At 31 December 2021, the Company held 21 (2020: 19) stocks, spread across 9 (2020: 8) main sectors. The diversification of the Company's portfolio is considered at each of the quarterly board meetings.
Gearing
The Company has the power under its Articles to borrow money, however does not currently intend to use gearing. If the Board did decide to utilise gearing the aggregate borrowings of the Company would be restricted to 30% of the aggregate of the paid-up nominal capital plus the capital and revenue reserves. The Board will keep under review whether any provision should be made for the use of short-term borrowing for the sole purpose of meeting working capital requirements from time-to-time. Further details concerning currency risks, liquidity risks and interest rate risks are given in Note 17.
Liquidity
The Board undertakes a review of the liquidity of the investments at each quarterly Board meeting and takes appropriate action, where deemed necessary.
Operational Risk
The Company is exposed to the operational and cyber risks of its third-party service providers. The Investment Manager, Registrar, Depositary, Administrator and Company Secretary each have comprehensive business continuity plans which facilitate continued operation of the business in the event of a service disruption or major disruption. The Audit Committee received the internal controls reports of the relevant service providers, where available and was able to satisfy itself that adequate controls and procedures were in place to limit the impact to the Company's operations, particularly with regard to a financial loss.
The performance of service providers is reviewed annually via its Management Engagement Committee. Each service provider's contract defines the duties and responsibilities of each and has safeguards in place including provisions for the termination of each agreement in the event of a breach or under certain circumstances. Each agreement also allows for the Board to terminate subject to a stated notice period. During the year under review the Board undertook a thorough review of each service provider and agreed that their continued appointment remained appropriate and, in the Company's long-term interest.
Regulatory risk
Poor governance, compliance or administration, including particularly the risk of loss of investment trust status and the impact this may have on the Company was considered by the Board. Having been provided with assurance from each of the key service providers, the Board was satisfied that no such breach had occurred.
VIABILITY STATEMENT
In accordance with the articles, the Company will hold a continuation vote at the next AGM on 28 June 2022. Having consulted with the Company's key shareholders, who expressed support for the continuation of the Company, and taking account of the Company's track record over the past three years and the successful broadening of the shareholder base, the Board are confident the continuation vote will pass. The continuation vote will be put to shareholders at every third AGM.
The Directors have considered the viability of the Company over a five-year period to 31 December 2026, which they believe is an appropriate period over which to assess the Company, given the Company's long-term investment strategy and the principal and emerging risks and uncertainties outlined above.
After making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence and meet its liabilities as they fall due for at least five years to 31 December 2026. Furthermore, having made enquiries of the Company's largest shareholders, the Board are satisfied that the continuation vote has sufficient support to successfully pass.
In reaching this conclusion, the Directors have considered each of the principal risks and uncertainties set out above, including the ongoing impact of COVID-19 on the Company, inflation and the conflict in Ukraine. As part of this process the Board considered several severe but plausible scenarios, including the impact of significant market movements. The Board has considered the liquidity and solvency of the Company, the level of discount at which its Ordinary Shares trade at the time of assessment, its income and expenditure profile including the absence of monthly management fees and the non-utilisation of gearing as an instrument of normal investment policy. Most of the Company's investments comprise readily realisable securities which could, if necessary, be sold to meet the Company's funding requirements. The Company's plan to expand by the issue of new share capital is kept under close, ongoing review by the Board. Portfolio changes and market developments are also discussed at quarterly Board meetings. The internal control framework of the Company is subject to formal review on at least an annual basis.
The Board has noted the sharp rise in inflation, the expectation that inflation would continue to rise and the increasing threat this may pose to the Company. In response to this the Board has agreed, following guidance from the Investment Manager, to take out a hedge position against inflation. The Board and Investment Manager continue to monitor the situation and have since year end closed the position, making substantial gains on behalf of the Company.
The Board has considered the conflict in Ukraine and in particular the impact this may have on the Company, particularly a severe market downturn. The Board noted that the Company has a large cash and near cash position, due to the disposal of the hedge. These resources will enable the Company to continue in operational existence and for the Investment Manager to take advantage of depressed stock prices in order to benefit the Company.
The Company's income from investments and cash realisable from the sale of investments provide substantial cover to the Company's operating expenses and any other costs likely to be faced by the Company.
OUTLOOK
The outlook for the Company is discussed in the Chairman's Statement and the Investment Manager's Review which can be found above.
FOR AND ON BEHALF OF THE BOARD
LORD FLIGHT
Chairman
29 April 2022
STATEMENT OF DIRECTORS' RESPONSIBILITIES FOR THE ANNUAL REPORT
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the financial statements in accordance with UK-adopted International Accounting Standards and in accordance with those parts of the Companies Act 2006 that apply to those companies reporting under UK-adopted International Accounting Standards.
Under company law, Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• state whether applicable UK-adopted International Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;
• make judgements and accounting estimates that are reasonable and prudent; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors 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.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, a Directors' Report, a Corporate Governance Statement and a Directors' Remuneration Report which comply with that law and those regulations.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors have delegated responsibility to the Investment Manager for the maintenance and integrity of the Company's page of the Investment Manager's website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Directors' confirmations
The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company's position and performance, business model and strategy. Each of the Directors, whose names and functions are listed in the Corporate Governance section confirm that, to the best of their knowledge:
• the Company's financial statements, which have been prepared in accordance with UK-adopted international accounting standards and in accordance with those parts of the Companies Act 2006 that apply to those companies reporting under UK international accounting standards and give a true and fair view of the assets, liabilities, financial position and loss of the Company; and
• the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.
FOR AND ON BEHALF OF THE BOARD
LORD FLIGHT
Chairman
29 April 2022
FINANCIALS
STATEMENT OF COMPREHENSIVE INCOME
|
|
Year ended |
Year ended |
|||||
|
|
31 December 2021 |
31 December 2020 |
|||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
Notes |
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
2 |
Gains/(losses) on |
- |
30,038 |
30,038 |
- |
(2,123) |
(2,123) |
|
|
investments |
|
|
|
|
|
|
|
|
Losses on currency |
- |
(3) |
(3) |
- |
(20) |
(20) |
|
3 |
Income |
2,305 |
- |
2,305 |
1,207 |
- |
1,207 |
|
|
Total income |
2,305 |
30,035 |
32,340 |
1,207 |
(2,143) |
(936) |
|
4 |
Investment |
- |
(720) |
(720) |
- |
(665) |
(665) |
|
|
management fees |
|
|
|
|
|
|
|
4 |
Other expenses |
(862) |
- |
(862) |
(597) |
- |
(597) |
|
|
Profit/(loss) before |
1,443 |
29,315 |
30,758 |
610 |
(2,808) |
(2,198) |
|
|
tax |
|
|
|
|
|
|
|
7 |
Tax |
(30) |
- |
(30) |
(11) |
- |
(11) |
|
|
Profit/(loss) and |
1,413 |
29,315 |
30,728 |
599 |
(2,808) |
(2,209) |
|
|
total comprehensive |
|
|
|
|
|
|
|
|
income for the |
|
|
|
|
|
|
|
|
year |
|
|
|
|
|
|
|
9 |
Earnings per share - |
|
|
|
|
|
|
|
|
Basic and diluted |
1.85p |
38.44p |
40.29p |
0.83p |
(3.87p) |
(3.04p) |
|
|
|
======== |
======== |
======== |
======== |
======== |
======== |
The total column represents the statement of comprehensive income of the Company.
The revenue and capital columns, including the revenue and capital earnings per Ordinary Share data, are supplementary information prepared under guidance published by the AIC.
All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. All revenue is attributable to the equity holders of the Company.
The Company does not have any other comprehensive income. Therefore, no separate Statement of Comprehensive Income has been presented.
The below notes form part of these accounts.
STATEMENT OF FINANCIAL POSITION
|
|
|
31 December |
31 December |
|
|
|
2021 |
2020 |
|
Notes |
|
£'000 |
£'000 |
|
|
NON-CURRENT ASSETS |
|
|
|
2 |
Investments held at fair value through profit or loss |
186,637 |
157,894 |
|
|
CURRENT ASSETS |
|
|
|
|
Trade and other receivables |
222 |
258 |
|
|
Cash and cash equivalents |
7,664 |
5,055 |
|
|
|
7,886 |
5,313 |
|
|
|
-------------- |
-------------- |
|
|
TOTAL ASSETS |
194,523 |
163,207 |
|
|
|
======== |
======== |
|
|
CURRENT LIABILITIES: |
|
|
|
|
Investment management fees payable |
(174) |
(171) |
|
|
Other operating expenses payable |
(156) |
(115) |
|
|
|
(330) |
(286) |
|
|
|
-------------- |
-------------- |
|
|
NET ASSETS |
194,193 |
162,921 |
|
|
|
======== |
======== |
|
|
EQUITY |
|
|
|
10 |
Called up share capital |
19,130 |
18,776 |
|
|
Capital redemption reserve |
179 |
179 |
|
|
Share premium account |
110,984 |
108,438 |
|
|
Other reserve |
(1,271) |
665 |
|
12 |
Investment holding gains |
48,641 |
20,621 |
|
12 |
Other capital reserve |
14,514 |
13,219 |
|
|
Revenue reserve |
2,016 |
1,023 |
|
|
|
-------------- |
-------------- |
|
|
TOTAL EQUITY |
194,193 |
162,921 |
|
|
|
======== |
======== |
|
10 |
Number of Ordinary Shares in issue |
76,519,675 |
75,103,743 |
|
13 |
NAV per Ordinary Share |
253.78 |
216.93p |
|
|
|
======== |
======== |
The below notes form part of these accounts.
STATEMENT OF CHANGES IN EQUITY YEAR TO 31 DECEMBER 2021
|
|
|
Called up |
Capital |
Share |
Other |
Investment |
Other |
Revenue |
Total |
|
|
|
share |
redemption |
premium |
reserve |
holding |
capital |
reserve |
|
|
|
|
capital |
reserve |
account |
|
gains |
reserve |
|
|
|
Notes |
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'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 for the year |
- |
- |
- |
720 |
- |
- |
- |
720 |
|
8 |
Dividends paid |
- |
- |
- |
- |
- |
- |
(420) |
(420) |
|
|
|
|
|
|
|
|
|
|
|
|
10 |
Issue of new Ordinary 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 below notes form part of these accounts.
STATEMENT OF CHANGES IN EQUITY YEAR TO 31 DECEMBER 2020
|
|
|
Called up |
Capital |
Share |
Other |
Investment |
Other |
Revenue |
Total |
|
|
|
share |
redemption |
premium |
reserve |
holding |
capital |
reserve |
|
|
|
|
capital |
reserve |
account |
|
gains |
reserve |
|
|
|
Notes |
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
Opening equity |
16,628 |
179 |
97,186 |
- |
23,231 |
13,417 |
3,719 |
154,360 |
|
|
(Loss)/profit for the year |
- |
- |
- |
- |
(2,610) |
(198) |
599 |
(2,209) |
|
5 |
Performance fee charge for the year |
- |
- |
- |
665 |
- |
- |
- |
665 |
|
|
|
|
|
|
|
|
|
|
|
|
8 |
Dividends paid |
- |
- |
- |
- |
- |
- |
(3,295) |
(3,295) |
|
|
|
|
|
|
|
|
|
|
|
|
10 |
Issue of new Ordinary Shares |
2,148 |
- |
11,408 |
- |
- |
- |
- |
13,556 |
|
|
Ordinary Share issue costs |
- |
- |
(156) |
- |
- |
- |
- |
(156) |
|
|
|
------------- |
------------- |
------------- |
-------------- |
-------------- |
------------- |
-------------- |
-------------- |
|
|
Closing equity |
18,776 |
179 |
108,438 |
665 |
20,621 |
13,219 |
1,023 |
162,921 |
|
|
|
======== |
======== |
======== |
======== |
======== |
======== |
======== |
======== |
The below notes form part of these accounts.
CASH FLOW STATEMENT
|
|
Year to |
Year to |
|
|
31 December |
31 December |
|
|
2021 |
2020 |
|
|
£'000 |
£'000 |
|
NET OPERATING ACTIVITIES CASH FLOW |
|
|
|
Cash inflow from investment income and interest |
2,318 |
1,358 |
|
Cash outflow for expenses |
(825) |
(597) |
|
Payments to acquire non-current asset investments* |
(45,092) |
(33,756) |
|
Receipts on disposal of non-current asset investments* |
46,458 |
12,316 |
|
Transaction costs on Investments |
(71) |
- |
|
Capital distributions received |
- |
236 |
|
|
--------------- |
--------------- |
|
NET OPERATING ACTIVITIES CASH FLOW |
2,788 |
(20,443) |
|
|
========= |
========= |
|
FINANCING ACTIVITIES CASH FLOW |
|
|
|
Proceeds from issues of new Ordinary Shares |
297 |
12,367 |
|
Ordinary Share issue costs |
(53) |
(156) |
|
Dividends paid |
(420) |
(3,295) |
|
NET FINANCING ACTIVITIES CASH FLOW |
(176) |
8,916 |
|
|
--------------- |
--------------- |
|
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS |
2,612 |
(11,547) |
|
|
========= |
========= |
|
Cash and cash equivalents at beginning of year |
5,055 |
16,602 |
|
Losses on currency |
(3) |
(20) |
|
Increase/(decrease) in cash and cash equivalents |
2,612 |
(11,547) |
|
CASH AND CASH EQUIVALENTS AT END OF YEAR |
7,664 |
5,055 |
|
|
========= |
========= |
* Payments to acquire investments and receipts from the disposal of investments have been classified as components of cash flow from operating activities because they form part of the Company's operating activities.
The below notes form part of these accounts.
NOTES TO THE FINANCIAL STATEMENTS
1. REPORTING ENTITY
Aurora Investment Trust plc is a closed-ended investment company, registered in England and Wales on 10 January 1997 with Company number 03300814. The Company's registered office is 1st Floor, Senator House, 85 Queen Victoria Street, London, EC4V 4AB. Business operations commenced on 13 March 1997 when the Company's Ordinary Shares were admitted to trading on the London Stock Exchange.
The Company invests predominantly in a portfolio of UK listed companies and may from time to time also invest in companies listed outside the UK and unlisted securities, with the objective of providing Shareholders with long-term returns through capital and income growth. The Investment Policy limits the Company's exposure to unlisted investments at cost price to 10% of the Company's gross assets.
Details of the Directors, Investment Manager and Advisers can be found in the Annual Accounts.
The financial statements of the Company are presented for the year ended 31 December 2021 and were authorised for issue by the Board on •.
BASIS OF ACCOUNTING
The financial statements have been prepared in accordance with UK-adopted international accounting standards and the applicable legal requirements of the Companies Act 2006. On 31 December 2020, International Financial Reporting Standards ("IFRS") as adopted by the European Union at that date were brought into UK law and became UK-adopted international accounting standards, with future changes being subject to endorsement by the UK Endorsement Board. The Company transitioned to UK-adopted international accounting standards in its financial statements on 1 January 2021. There was no impact or change in accounting policies from the transition.
Under UK-adopted IFRS, the AIC Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" ("SORP") issued in April 2021 has no formal status, but the Company adheres to the guidance of the SORP.
GOING CONCERN
The financial statements have been prepared on a going concern basis. In forming this opinion, the directors have considered the continuation vote and any potential impact of the war in Ukraine on the going concern and viability of the Company. In making their assessment, the Directors have reviewed income and expense projections and the liquidity of the investment portfolio, and considered the mitigation measures which key service providers, including the Manager, have in place to maintain operational resilience.
The Directors have a reasonable expectation that the Company has adequate operational resources to continue in operational existence for at least twelve months from the date of approval of these financial statements. Further information on the Company's going concern can be found above.
SIGNIFICANT ACCOUNTING POLICIES
The accounting policies adopted are described below:
a. Accounting Convention
The accounts are prepared under the historical cost basis, except for the measurement of fair value of investments and measurement of performance fee award.
b. Adoption of new IFRS standards
New standards, interpretations and amendments adopted from 1 January 2022
A number of new standards, amendments to standards are effective for the annual periods beginning after 1 January 2022. None of these are expected to have a significant effect on the measurement of the amounts recognised in the financial statements of the Company.
New standards and amendments issued but not yet effective
The relevant new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company's financial statements are disclosed below. These standards are not expected to have a material impact on the entity in future reporting periods and on foreseeable future transactions.
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to specify the requirements for classifying liabilities as current or non-current. The amendments are effective for annual reporting periods beginning on or after 1 January 2023.
Reference to the Conceptual Framework - Amendments to IFRS 3
In May 2020, the IASB issued Amendments to IFRS 3 Business Combinations - Reference to the Conceptual Framework. The amendments are effective for annual reporting periods beginning on or after 1 January 2022.
Definition of Accounting Estimates - Amendments to IAS 8
In February 2021, the IASB issued amendments to IAS 8, in which it introduces a definition of 'accounting estimates'. The amendments are effective for annual reporting periods beginning on or after 1 January 2023.
Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice Statement 2
In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality Judgements. The amendments to IAS 1 are applicable for annual periods beginning on or after 1 January 2023.
c. Investments
Investments held at fair value through profit or loss are initially recognised at fair value, being the consideration given and excluding transaction or other dealing costs associated with the investment. After initial recognition, investments are measured at fair value through profit or loss. Gains or losses on investments measured at fair value through profit or loss are included in Statement of Comprehensive Income as a capital item and transaction costs on acquisition or disposal of investments are also included in the capital column of the Statement of Comprehensive Income. For investments that are actively traded in organised financial markets, fair value is determined by reference to stock exchange quoted market bid prices at the close of business on the year ‑ end date. All purchases and sales of investments are recognised on the trade date, i.e. the date that the Company commits to purchase or sell an asset. Investments held at fair value through profit or loss are initially recognised at fair value, being the consideration given and excluding transaction or other dealing costs associated with the investment.
Unquoted investments are measured at fair value, which is determined by the Directors in accordance with the International Private Equity and Venture Capital valuation guidelines and IFRS 9. The fair value of the Company's investments in Phoenix SG is based on the reported NAV as at the reporting date. Valuation reports provided by the Investment Manager of the unquoted investments are used to calculate the fair value where there is evidence that the valuation is derived using fair value principles that are consistent with the Company's accounting policies and valuation methods. Such valuation reports may be adjusted to take account of changes or events to the reporting date, or other facts and circumstances which might impact the underlying value.
Upon the sale of Phoenix SG in part or wholly, the fair value would be the expected sale price where this is known or can be reliably estimated.
d. Income from Investments
Investment income from the Company's investment portfolio is accounted for on the basis of ex-dividend dates. Income from fixed interest shares and securities is accounted for on an 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 receivable is accounted for on an accrual basis using the effective yield.
e. Capital Reserves
The Company is not precluded by its Articles from making any distribution of capital profits by way of dividend, but the Directors have no current plans to do so. Profits and losses on disposals of investments are taken to the other capital (gains on disposal) reserve. Revaluation movements are taken to the investment holding reserve via the capital column of the Statement of Comprehensive Income.
f. Investment Management Fees and Other expenses
The performance fee, which is equity settled, has been recognised and measured in accordance with IFRS 2. The performance fee is recognised as an expense in the capital column of profit and loss with a corresponding entry to equity over the period which the Investment Manager is required to perform services to the Company in order to be entitled to receive unrestricted Ordinary Shares in the Company.
The amount recognised as an expense is adjusted to reflect the number of Ordinary Shares for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised is based on the number of Ordinary Shares retained that meet the related service and non-market performance conditions at the vesting date at the end of the four year service period.
Restricted Ordinary Shares are issued to the Investment Manager at the end of the first year of service.
Further details on the judgements that the Board has made on the recognition and measurement of the performance fee can be found in Note 1(k) below, and further details on the performance fees can be found in Note 4 below.
g. Taxation
Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting period, that are unpaid at the year end date.
Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. In addition, tax losses available to be carried forward as well as other income tax credits are assessed for recognition as deferred tax assets. Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply at their respective period of realisation, provided they are enacted or substantively enacted at the year end date. Deferred tax liabilities are always provided for in full. Deferred tax assets are recognised to the extent that it is probable that they will be able to be offset against future taxable income.
Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the Statement of Comprehensive Income, except where they relate to items that are charged or credited directly to equity.
h. Foreign currency
The currency of the primary economic environment in which the Company operates (the functional currency) is pounds sterling ("sterling"), which is also the presentational currency of the Company. Transactions involving currencies other than sterling are recorded at the exchange rate ruling on the transaction date. At each year end date, monetary items and non-monetary assets and liabilities, which are fair valued, and which are denominated in foreign currencies, are retranslated at the closing rates of exchange. Such exchange differences are included in the Statement of Comprehensive Income and allocated to capital if of a capital nature or to revenue if of a revenue nature. Exchange differences allocated to capital are taken to gains on disposal or investment holding losses, as appropriate.
i. Cash and cash equivalents
Cash and Cash Equivalents in the Cash Flow Statement comprise cash held at bank.
j. Dividends payable to equity Shareholders
Dividends payable to equity Shareholders are recognised in the Statement of Changes in Equity when they are paid or have been approved by Shareholders in the case of a final dividend. Interim dividends payable are recognised in the period in which they are paid.
k. Judgements, estimations or assumptions
The Directors have reviewed matters requiring judgements, estimations or assumptions. The preparation of the financial statements requires management to make judgements, estimations or assumptions that affect the amounts reported for assets and liabilities as at the year end date and the amounts reported for revenue and expenses during the year. However, the nature of the estimation means that actual outcomes could differ from those estimates.
Performance fees
The performance fee earned by the Investment Manager is calculated on Company's NAV outperformance against its benchmark. In the current financial year, this resulted in the issue of 1,290,932 (2020: 530,311) Ordinary Shares during the year. Since the year end the Company issued 69,638 Ordinary Shares on 7 February 2022. These issued Ordinary Shares are subject to a fixed three-year clawback period. If the outperformance versus the index reverses on the third-year anniversary, subject to the Board's discretion, the shares will be returned, and the Investment Manager will receive nothing.
The Board has considered that the settlement of the performance fee in the Ordinary Shares of the Company is in the scope of IFRS 2 'Share-based Payment'. Further, due to the nature of the service being provided, the Board considers that measuring the performance fee indirectly with reference to the fair value of the Ordinary Shares is more appropriate as it is not possible to reliably measure the fair value of the services received.
In measuring the performance fee, the Board has made further judgements in relation to the service period, which it considers to be four years (being the current year of service plus the further three year period which is the clawback period). The Board has made the judgement that the performance fee contains a non-market based performance condition as the hurdle is based on the outperformance of the Company's NAV against its benchmark.
However, as the performance fee calculates a fixed fee which is settled in a variable number of shares, the cumulative charge over the four year period will equate to either the amount calculated at the end of the first year where the performance of the Investment Manager remains on target, or lower where it is considered that the clawback will take effect. This is as a result of the performance fee charge being adjusted during the service period, which is a requirement of IFRS 2 where there is a non-market based performance condition.
The performance fee is recognised on a straight line basis in the statement of comprehensive income and is based on the outcome of the performance fee calculation as stated in the Investment Management Agreement. This amount excludes the projection of whether the clawback may occur at the end of the performance period, and only takes account of the clawback when, and if, it occurs. Management have verified that the amount recognised is materially accurate by analysing what the performance fee may be using a Monte Carlo model which projects possible movements in the share price of the Company and the return of the benchmark index. The difference between the straight line basis and the Monte Carlo valuation method is not considered material to the financial statements.
The Board has considered it necessary to make certain judgements in relation to the recognition and measurement of the performance fee, which it considers are reasonable and supportable, because of the lack of specific guidance in IFRS 2 in this area. However, it is acknowledged that if alternative judgements were made, for accounting purposes, the measurement of the performance fee charge to the income statement may be significantly different, in timing within the four-year service period.
Investment valuation
The critical judgement, estimate or assumption that may have a significant risk of causing a material adjustment to the Company's NAV relates to the valuation of the Company's unquoted (Level 3) investment in Phoenix SG, which is approximately 1.8% (2020: 5.0%) of the Company's NAV.
The Level 3 holding is valued in line with accounting policy as disclosed in Note 1(c). Under the accounting policy, the reported NAV methodology has been adopted in valuing the Level 3 investment. As the Company has judged that it is appropriate to use the reported NAV in valuing the unquoted investment, the Company does not have any other key assumptions concerning the future, or other key sources of estimation uncertainty in the reporting period, which may have a significant risk of causing a material adjustment to the Company's NAV within the next financial year.
Whilst the Board considers the methodologies and assumptions adopted in the valuation of unquoted investments are reasonable and robust, because of the inherent uncertainty of the valuation, the values used may differ significantly from the values that would have been used had a ready market for the investment existed and the differences could be significant. These values may need to be revised as circumstances change and material adjustments may still arise as a result of revaluation of the unquoted investments fair value within the next year.
If the fair value of the Level 3 investment changed by 10% the impact on the Company's NAV would be £340,000 (2020: £806,600), representing 0.2% (2020: 0.5%) of NAV.
l. Derivatives
Derivatives comprise the Companies holding in options, which are measured at fair value and valued by reference to the underlying market value of the security. Options are held for investment purposes. Gains or losses on these derivative transactions are recognised in the Statement of Comprehensive Income. They are recognised as capital and are shown in the capital column of the Statement of Comprehensive Income if they are of a capital nature and are recognised as revenue and shown in the revenue column of the Statement of Comprehensive Income if they are of a revenue nature. To the extent that any gains or losses are of a mixed revenue and capital nature, they are apportioned between revenue and capital accordingly.
2. INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS
|
|
Year to |
Year to |
|
|
31 December |
31 December |
|
|
2021 |
2020 |
|
|
£'000 |
£'000 |
|
UK listed securities |
158,918 |
133,858 |
|
Other listed securities |
19,388 |
- |
|
Securities traded on AIM |
4,931 |
15,970 |
|
Unquoted securities |
3,400 |
8,066 |
|
|
--------------- |
--------------- |
|
Total non-current investments held at fair value |
|
|
|
through profit or loss |
186,637 |
157,894 |
|
|
========= |
========= |
|
Movements during the year: |
|
|
|
Opening balance of investments, at cost |
137,273 |
115,582 |
|
Additions, at cost |
45,092 |
33,756 |
|
Disposals - proceeds received or receivable* |
(46,458) |
(12,316) |
|
Disposals - realised profits |
2,089 |
251 |
|
Disposals - at cost |
(44,369) |
(12,066) |
|
|
--------------- |
--------------- |
|
Cost of investments held at fair value through profit |
|
|
|
or loss at 31 December |
137,996 |
137,273 |
|
|
========= |
========= |
|
Revaluation of investments to market value: |
|
|
|
Opening balance |
20,621 |
23,231 |
|
Increase/(decrease) in unrealised appreciation |
|
|
|
Credited/(debited) to investment holding gains |
28,020 |
(2,610) |
|
|
--------------- |
--------------- |
|
Balance at 31 December |
48,641 |
20,621 |
|
|
========= |
========= |
|
Market value of non-current investments held at fair |
|
|
|
value through profit or loss at 31 December |
186,637 |
157,894 |
|
|
========= |
========= |
* These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments.
Gains/(losses) on investments
|
|
Year to |
Year to |
|
|
31 December |
31 December |
|
|
2021 |
2020 |
|
|
£'000 |
£'000 |
|
Realised gains on disposal of investments |
2,089 |
251 |
|
Movement in unrealised gains/(losses) on investments held |
28,020 |
(2,610) |
|
Other charges to capital |
(71) |
- |
|
Capital distributions received |
- |
236 |
|
|
--------------- |
--------------- |
|
Total gains/(losses) on investments |
30,038 |
(2,123) |
|
|
========= |
========= |
Transaction costs on investment purchases and sales for the year ended 31 December 2021 are disclosed as shown in the following table. These transaction costs are calculated in accordance with the AIC SORP.
Transaction costs
|
|
Year to |
Year to |
|
|
31 December |
31 December |
|
|
2021 |
2020 |
|
|
£'000 |
£'000 |
|
Transaction costs on purchases of investments |
123 |
15 |
|
Transaction costs on sales of investments |
21 |
1 |
|
|
--------------- |
--------------- |
|
Total transaction costs included in gains or losses on |
|
|
|
investments at fair value through profit or loss |
144 |
16 |
|
|
========= |
========= |
Fair Value Hierarchy
Under IFRS13 investment companies are required to disclose the fair value hierarchy that classifies financial instruments measured at fair value at one of three levels according to the relative reliability of the inputs used to estimate the fair values.
|
Classification |
Input |
|
Level 1 |
Valued using quoted prices in active markets for identical assets |
|
Level 2 |
Valued by reference to valuation techniques using observable inputs |
|
|
other than quoted prices included within Level 1 |
|
Level 3 |
Valued by reference to valuation techniques using inputs that are |
|
|
not based on observable market data |
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset.
|
|
Year to |
Year to |
|
|
31 December |
31 December |
|
Classification |
2021 |
2020 |
|
Level 1 |
183,237 |
149,828 |
|
Level 2 |
- |
- |
|
Level 3 |
3,400 |
8,066 |
|
|
--------------- |
--------------- |
|
Total non-current investments held at 'FVTPL' |
186,637 |
157,894 |
|
|
========= |
========= |
There were no transfers between levels during the year.
The movement on the Level 3 unquoted investments during the year is shown below:
|
|
Year to |
Year to |
|
|
31 December |
31 December |
|
|
2021 |
2020 |
|
Opening balance |
8,066 |
8,487 |
|
Disposals during the year |
(4,523) |
- |
|
Unrealised gains/(losses) at year end |
143 |
(421) |
|
|
--------------- |
--------------- |
|
Closing balance |
3,400 |
8,066 |
|
|
========= |
========= |
The Company's unquoted investment represents investment in Phoenix SG Limited (Phoenix SG). The fair value of the investment in Phoenix SG includes its shares in Stanley Gibbons Group Plc (Stanley Gibbons) and some other assets related to Stanley Gibbons.
Phoenix SG direct investments in Stanley Gibbons Group Plc include the following; Quoted equity shares in Stanley Gibbons, trading on the Alternative Investment Market branch of the London Stock Exchange (the "Equity Investment"). Phoenix SG holds 58% in the total equity of Stanley Gibbons.
During the year, the Company transferred 1,852 Ordinary shares of its holding in Phoenix SG and its holding in Hornby and Dignity to Castelnau in exchange for 24,563,184 Ordinary shares in Castelnau.
The total fair value attributable to the Company's investment in Phoenix SG as of 31 December 2021 is £3.4 million (2020: £8.5 million). The Company held 10.3% of the share capital of Phoenix SG and 13.35% of the share capital of Castelnau.
3. INCOME
|
|
Year to |
Year to |
|
|
31 December |
31 December |
|
|
2021 |
2020 |
|
|
£'000 |
£'000 |
|
Income from investments: |
|
|
|
Dividends from listed or quoted investments |
2,196 |
1,164 |
|
Unfranked income from overseas dividends |
109 |
39 |
|
Other income: |
|
|
|
Deposit interest |
- |
4 |
|
|
--------------- |
--------------- |
|
Total income |
2,305 |
1,207 |
|
|
========= |
========= |
4. Investment Management Fees and Other Expenses
|
|
Year ended 31 December 2021 |
Year ended 31 December 2020 |
||||
|
|
Revenue* |
Capital |
Total |
Revenue* |
Capital |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Performance fees monthly |
- |
- |
- |
- |
- |
- |
|
Investment management fees |
- |
720 |
720 |
- |
665 |
665 |
|
Administration fees |
161 |
- |
161 |
153 |
- |
153 |
|
Depositary and Custody fees |
64 |
- |
64 |
65 |
- |
65 |
|
Registrar's fees |
49 |
- |
49 |
40 |
- |
40 |
|
Directors' fees |
137 |
- |
137 |
150 |
- |
150 |
|
Auditors' fees* |
109 |
- |
109 |
49 |
- |
49 |
|
Printing |
30 |
- |
30 |
18 |
- |
18 |
|
Broker's fees |
48 |
- |
48 |
48 |
- |
48 |
|
Professional fees |
39 |
- |
39 |
27 |
- |
27 |
|
Public relation fees |
90 |
- |
90 |
13 |
- |
13 |
|
Consultancy fees |
82 |
- |
82 |
- |
- |
- |
|
Miscellaneous expenses |
53 |
- |
53 |
34 |
- |
34 |
|
|
-------------- |
-------------- |
-------------- |
-------------- |
-------------- |
-------------- |
|
Total other expenses |
862 |
- |
862 |
597 |
- |
597 |
|
|
======== |
======== |
======== |
======== |
======== |
======== |
* All expenses include any relevant irrecoverable VAT. The amounts excluding VAT paid or accrued for the audit of the Company are £ 65,000 (2020: £41,200). The year ended 31 December 2021 charge includes prior year's overrun costs of £25,000 excluding VAT.
The Company has an agreement with its Investment Manager. Under the terms of this agreement, the Investment Manager does not earn an ongoing annual management fee, but will be paid an annual performance fee equal to one third of any outperformance of the Company's NAV per Ordinary Share total return (including dividends and adjusted for the impact of share buybacks and the issue of new shares) over the FTSE All-Share Index (total return) for each financial year.
The total annual performance fee is capped at 4% per annum of the NAV of the Company at the end of the relevant financial year, in the event that the NAV per Ordinary Share has increased in absolute terms over the period, and 2% in the event that the NAV per Ordinary Share has decreased in absolute terms over the period. Any outperformance that exceeds these caps will be carried forward and only paid if the Company outperforms, and the annual cap is not exceeded, in subsequent years.
The performance fee is subject to a high-water mark so that no fee will be payable in any following year until all underperformance of the Company's NAV since the last performance fee was paid has been made up.
Performance fees are settled by issuance of the Company's Ordinary Shares. Such Ordinary Shares are issued at the NAV per Ordinary Share on the date of issue, so that the then current value of the Ordinary Shares equates in terms of NAV to the performance fees calculated at the end of the first relevant financial period.
Any part of the performance fee that relates to the performance of Phoenix SG will be accrued but will not be paid until such time as the Company's investment in Phoenix SG has been realised or is capable of realisation. The position will be reviewed at that time by reference to the realised proceeds of sale or the fully realisable value of Phoenix SG as compared to the original cost of acquisition.
All other performance fees are subject to a review and claw-back procedure if the Company has underperformed its benchmark during a period of three years following the end of the financial year in respect of which the relevant fee was paid. Ordinary Shares received by the Investment Manager under this arrangement must be retained by the Investment Manager throughout the three-year period to which the claw-back procedure applies.
As a result of the above reviewed procedures all or any part of the performance fees might become recoverable, the Company reflects this in the charge recognised in subsequent accounting periods within the service period of the Investment Manager through the periodic adjustment to accruals mechanism in IFRS 2.
The proportion of performance fee for the year ended 31 December 2021 was £720,000 (2020: £665,000). During the current year, based on the outcome of the Investment Manager's performance, the Company granted, and the Investment Manager became entitled to £222,000 (£2,659,000) worth of restricted Ordinary Shares in the Company. On 7 February 2022, a total of 69,738 Ordinary Shares were issued to the Investment Manager, representing 80% of restricted Ordinary Shares. The restricted Ordinary Shares were issued at the latest prevailing NAV as at 28 January 2022 of 254.37 pence per Ordinary Share. The Share based payment expense in relation to Phoenix SG in accordance with the clawback period is £1,000 (£3,000) will be retained in the Company's Statement of Financial Position. The remaining £44,300 will be paid by issuing restricted Ordinary Shares once the Final Results are released.
5. SHARE-BASED PAYMENT ARRANGEMENTS
The Company settles its performance fee to its Investment Manager in Ordinary Shares. Further description of the arrangement is included in Note 4 above.
Restricted Ordinary Shares are awarded to the Investment Manager conditional upon the following non-market performance and service conditions:
• Outperformance of the Company's NAV per Ordinary Share total return (including dividends and adjusted for the impact of share buybacks and the issue of new shares) over the FTSE All-Share Index (total return) over a one-year service period.
Restricted Ordinary Shares become unrestricted upon completion of the following non-market performance and service conditions:
• Outperformance of the Company's NAV per Ordinary Share total return (including dividends and adjusted for the impact of share buybacks and the issue of new shares) over the FTSE All-Share Index (total return) over a service period of four years.
Restricted Ordinary Shares provide the Investment Manager with rights to dividends and voting rights, however they are not entitled to sell, pledge, transfer or otherwise dispose of the shares until they become unrestricted.
During the current year, based on the outcome of the Investment Manager's performance, the Company granted, and the Investment Manager became entitled to £222,000 (2020: £2,659,000) worth of restricted Ordinary Shares in the Company. No unrestricted Ordinary Shares were due to the Investment Manager in the current year as the outstanding service period of three years still needed to be served on Ordinary Shares held by the Investment Manager. At 31 December 2021, the Board expects that all restricted Ordinary Shares issued will ultimately vest in unrestricted Ordinary Shares.
The exercise price attached to these Ordinary Shares awards is nil. The remaining vesting period at 31 December 2021 is three years in respect of the 2020 performance fee and the Ordinary Shares will vest immediately with the Investment Manager at the end of the vesting period, subject to meeting the performance conditions attached to the share awards.
The fair value of the equity instruments granted was based on the outcome of the performance fee calculation (based on the non-market performance set out above), which determined a fixed monetary amount expected to be due to the Investment Manager which is settled in a variable number of Ordinary Shares based on the prevailing NAV per share at the date on which the restricted Ordinary Shares vest with the Investment Manager.
The total expense recognised in the current year was £720,000 (2020: £665,000).
Valuation inputs and assumptions
Valuation is based on Monte Carlo simulation techniques to project changes in the NAV and the Index over a three-year period from 31 December 2021. Monte Carlo modelling was based on the inputs and assumptions such as NAV Volatility of 19.9% (2020: 19.8%) and FTSE All-Share Index (Total Return) volatility of 16.2% (2020: 17.0%).
It is possible for the Company to elect (at its own discretion) not to claw back any of the performance fee already paid or to extend the period of the claw back measurement by a further two years. These events are within the control of management and are not factored into the Monte Carlo model. As such, the result does not take into account the probability that the Company would choose not to claw back any of the performance fee even where it had rights to do so. On that basis, the adjustment derived from the expected performance fee could be regarded as the maximum possible adjustment as at 31 December 2021.
Performance fee Sensitivities
A 10% movement to the NAV volatility and FTSE All-Share Index (total return) volatility would result in the performance fee valuation as set out below:
|
|
Performance fee |
Performance fee |
|
|
Valuation 2021 |
Valuation 2020 |
|
NAV and FTSE All-Share Index volatility increase by 10% |
£1.8 million |
£1.6 million |
|
NAV volatility increase by 10% and FTSE All-Share Index |
|
|
|
volatility decrease by 10% |
£1.8 million |
£1.4 million |
|
NAV volatility decrease by 10% and FTSE All-Share Index |
|
|
|
volatility increase by 10% |
£1.9 million |
£2.3 million |
|
NAV and FTSE All-Share Index volatility decrease by 10% |
£1.8 million |
£1.8 million |
6. DIRECTORS' FEES
The fees paid or accrued for the year to 31 December 2021 were £137,000 (2020: £150,000). There were no other emoluments. The gross figures shown for Directors' fees in note 4 above does not include employers' National Insurance charges or VAT, as appropriate. Full details of the fees of each director are given in the Directors' Remuneration Report. The Company has paid National Insurance contributions of £13,000 (2020: £11,800) in respect of the Directors remuneration.
7. TAXATION
|
|
Year to 31 December 2021 |
Year to 31 December 2020 |
||||
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Corporation tax |
- |
- |
- |
- |
- |
- |
|
Overseas withholding tax |
30 |
- |
30 |
11 |
- |
11 |
|
|
------------ |
------------ |
------------ |
------------ |
------------ |
------------ |
|
Tax charge in respect of the current year |
30 |
- |
30 |
11 |
- |
11 |
|
|
======= |
======= |
======= |
======= |
======= |
======= |
Current taxation
The taxation charge for the year is different from the standard rate of corporation tax in the UK (19%). The differences are explained below:
|
|
Year to |
Year to |
|
|
31 December |
31 December |
|
|
2021 |
2020 |
|
|
£'000 |
£'000 |
|
Total (loss)/profit before tax |
30,758 |
(2,198) |
|
|
======== |
======== |
|
Theoretical tax at UK corporation tax rate of 19.0% |
|
|
|
(2020: 19.0%) |
5,844 |
(418) |
|
Effects of: |
|
|
|
Capital (profits)/losses that are not taxable |
(5,707) |
408 |
|
UK dividends which are not taxable |
(417) |
(221) |
|
Overseas withholding tax |
30 |
11 |
|
Overseas dividends that are not taxable |
(21) |
(7) |
|
Movement in unutilised management expenses |
301 |
238 |
|
Tax charge in respect of the current year |
30 |
11 |
|
|
======== |
======== |
Due to the Company's status as an investment trust and its intention to continue meeting the conditions required to maintain its status in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.
Deferred Tax
The Company has £12,350,000 (2020: £12,795,000) in respect of excess unutilised management expenses, equivalent to a potential tax saving of £3,088,000 (2020: £2,175,000) at the prospective tax rate of 25% (2020: 17%) and £1,491,000 (2020: £1,491,000) in respect of loan interest, equivalent to a potential tax saving of £373,000 (2020: £253,000) at the prospective tax rate of 25% (2020: 17%). The March 2021 Budget announced an increase to the main rate of corporation tax to 25% from 1st April 2023. This increase in the standard rate of corporation tax was substantively enacted on 24th May 2021 and became effective from 2nd June 2021.
These amounts are available to offset future taxable revenue. A deferred tax asset has not been recognised in respect of these expenses and will be recoverable only to the extent that the Company has sufficient future taxable revenue.
8. ORDINARY DIVIDENDS
|
|
Year to |
Year to |
|
|
31 December |
31 December |
|
|
2021 |
2020 |
|
|
£'000 |
£'000 |
|
Dividends reflected in the financial statements: |
|
|
|
Final dividend paid for the year ended 31 December 2020 |
|
|
|
at 0.55p per share (2019: 4.50p) |
420 |
3,295 |
|
Dividends not reflected in the financial statements: |
|
|
|
Final dividend accrued for the year ended 31 December 2021 |
|
|
|
at 1.84p per share (2020: 0.55p) |
1,409 |
413 |
|
|
======== |
======== |
9. EARNINGS PER SHARE
Earnings per share are based on the profit of £30,728,000 (2020: loss of £2,209,000) attributable to the weighted average of 76,253,921 (2020: 72,555,357) ordinary shares of 25p in issue during the year.
Supplementary information is provided as follows: revenue earnings per share are based on the revenue profit of £1,413,000 (2020: profit of £599,000); capital earnings per share are based on the net capital profit of £29,315,000 (2020: loss of £2,808,000), attributable to the weighted average of 76,253,921 (2020: 72,555,357) ordinary voting shares of 25p. There is no difference between the weighted average Ordinary diluted and undiluted number of Shares. There is no difference between basic and diluted earnings per share as there are no dilutive instruments.
10. SHARE CAPITAL
|
|
At |
At |
|
|
31 December |
31 December |
|
|
2021 |
2020 |
|
Allotted, called up and fully paid (Number) |
76,519,675 |
75,103,743 |
|
Ordinary Shares of 25p (£'000) |
19,130 |
18,776 |
|
|
======== |
======== |
The Company did not purchase any of its own shares during the year ended 31 December 2021 or 31 December 2020. No shares were cancelled during either years.
No shares were held in Treasury or sold from Treasury during the year ended 31 December 2021 or 31 December 2020.
Placings
There were no placings during the year ended 31 December 2021.
Block listings
The Company had established on 11 June 2019 a block listing facility for up to 12,194,444 new shares to meet market demand arising from time to time. A total of 125,000 (excluding 1,290,932 issued to the Investment Manager to settle the performance fee) new Ordinary Shares were issued during the year 1 January 2021 to 31 December 2021, raising gross proceeds of £0.3 million.
A new block listing facility for up to 14,450,605 new Ordinary Shares was established on 17 April 2020.
At 31 December 2021, the Company had 76,519,675 (2020: 75,103,743) Ordinary Shares in issue. The number of voting shares at 31 December 2021 was 76,519,675 (2020: 75,103,743).
On 3 February 2022, a total of 69,738 Ordinary Shares were issued to the Investment Manager, representing 80% of the total fee due. The Ordinary Shares were issued at the latest prevailing NAV as at 28 January 2021 of 254.37 pence per Ordinary Share. As at the date of this report the Company had 76,589,413 Ordinary shares in issue.
11. TOTAL EQUITY
Total Equity includes, in addition to Share Capital, the following reserves:
Capital Redemption Reserve. When any shares are redeemed or cancelled, a transfer of realised profit must be made to this reserve in order to maintain the level of capital that is not distributable.
Share Premium Account. When shares are issued at a premium to their nominal value, the "capital profit" arising on their allotment must be held in a Share Premium Account, which is not distributable in the ordinary course and may be utilised only in certain limited circumstances.
Capital profits arising from the Company's investment transactions are held as Capital Reserves, subdivided between Gains on Disposal for profits arising upon sales of investments and Investment Holding gains/losses for portfolio revaluations. The movements on this account are analysed in note 12.
The Company's Revenue Reserves are the net profits that have arisen from the Company's revenue income in the form of dividends and interest, less operating expenses and dividends paid out to the Company's shareholders.
The Company's Other Reserve represents the share-based payment expense in relation to the performance fee payable to the Investment Manager combined with the effect of issuing restricted Ordinary Shares to the Investment Manager.
12. CAPITAL RESERVES
|
|
31 December |
31 December |
|
|
2021 |
2020 |
|
|
£'000 |
£'000 |
|
Investment holding gains/(losses) |
|
|
|
Opening balance |
20,621 |
23,231 |
|
Revaluation of investments - listed |
28,020 |
(2,610) |
|
|
-------------- |
-------------- |
|
Balance of investment holding gains/(losses) as at 31 December |
48,641 |
20,621 |
|
|
======== |
======== |
|
Other capital reserves |
|
|
|
Opening balance |
13,219 |
13,417 |
|
Net gains on realisation of investments |
2,018 |
251 |
|
Capital distributions received |
- |
236 |
|
Losses on currency |
(3) |
(20) |
|
Investment management fees |
(720) |
(665) |
|
Total of realised gains and losses reflected in the Statement |
|
|
|
of Comprehensive Income |
1,295 |
(198) |
|
|
-------------- |
-------------- |
|
Balance of other capital reserves as at 31 December |
14,514 |
13,219 |
|
|
======== |
======== |
|
Total capital reserve as at 31 December |
60,499 |
33,840 |
|
|
======== |
======== |
13. NET ASSETS PER ORDINARY SHARE
The figure for net assets per Ordinary Share is based on £194,193,000 (2020: £162,921,000) divided by 76,519,675 (2020: 75,103,743) voting Ordinary Shares in issue at 31 December 2021.
The table below is a reconciliation between the NAV per Ordinary share announced on the London Stock Exchange and the NAV per Ordinary share disclosed in these financial statements. The difference is as a result of amortising the performance fees over the vesting period in accordance with IFRS 2 - Share based payment, in these financial statements, whereas the NAV as 31 December 2021, published on 4 January 2022 treated the performance fees as earned on the 31 December 2021, in accordance with the IMA.
|
|
|
NAV per |
|
|
|
|
Ordinary |
|
|
|
Net assets |
share |
|
|
|
(£'000) |
(p) |
|
|
NAV as published on 4 January 2022 |
193,971.3 |
253.49 |
|
|
Performance fees earned as at year end |
221.7 |
0.29 |
|
|
|
-------------- |
-------------- |
|
|
NAV as disclosed in these financial statements |
194,193.0 |
253.78 |
|
|
|
======== |
======== |
|
14. RECONCILIATION OF PROFIT AFTER FINANCE COSTS AND TAX TO NET OPERATING ACTIVITIES CASH FLOW
|
|
Year to |
Year to |
|
|
|
31 December |
31 December |
|
|
|
2021 |
2020 |
|
|
|
£'000 |
£'000 |
|
|
Profit/(loss) after finance costs and tax |
30,728 |
(2,209) |
|
|
Increase in non-current investments |
(28,743) |
(19,082) |
|
|
Decrease in other receivables |
36 |
164 |
|
|
Increase/(decrease) in other payables |
41 |
(1) |
|
|
Investment management fees |
723 |
665 |
|
|
|
-------------- |
-------------- |
|
|
Net cash outflow from/(used in) operating activities |
2,785 |
(20,463) |
|
|
|
======== |
======== |
|
15. RELATED PARTY TRANSACTIONS
Castelnau Group Limited are also managed by Phoenix Asset Management. Further details can be found in the Investment Manager's report on the, portfolio holdings and the "Castelnau Related Party Transaction" above.
Details of the management, administration and secretarial contracts can be found in the Directors' Report. There were no transactions with directors other than disclosed in the Directors' Remuneration Report. Fees payable to Phoenix are shown in note 4.
A £720,000 charge has been recognised as performance fee for the performance period ended 31 December 2021 (2020: £665,000). Any performance fee would be payable in Ordinary Shares at the prevailing NAV on the issue date. In accordance with the Management Agreement, 69,738 of the Company's New Ordinary Shares were allotted, representing 80% of the £222,000 provision. Further details on the issuance of the remaining 20% can be found in Note 4 above. Other than the performance related fees, the Investment Manager does not receive any financial benefits derived from its relationship with the Company. There are measures in place to avoid the double charging of fees and expenses as a result of the Company's holdings in Phoenix SG, which also have Phoenix as its Investment Advisor.
Other payables include accruals of administration fees of £14,000 (2020: £13,000). All figures include any applicable VAT.
16. 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
The Company's financial assets may include equity investments, fixed interest securities, short-term receivables and cash balances. The currency and cash-flow profile of those financial assets was:
|
|
2021 |
2020 |
||||
|
|
|
Non- |
|
|
Non- |
|
|
|
Interest |
interest |
|
Interest |
interest |
|
|
|
bearing |
bearing |
Total |
bearing |
bearing |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Non-current investments at |
|
|
|
|
|
|
|
fair value through profit or loss: |
|
|
|
|
|
|
|
£ sterling denominated security |
|
|
|
|
|
|
|
holdings |
- |
174,726 |
174,726 |
- |
144,231 |
144,231 |
|
|
------------ |
------------ |
------------ |
------------ |
------------ |
------------ |
|
€ euro denominated security holdings |
- |
11,911 |
11,911 |
- |
13,663 |
13,663 |
|
|
======= |
======= |
======= |
======= |
======= |
======= |
|
|
- |
186,637 |
186,637 |
- |
157,894 |
157,894 |
|
Cash at bank: |
|
|
|
|
|
|
|
|
------------ |
------------ |
------------ |
------------ |
------------ |
------------ |
|
Floating rate - £ sterling |
- |
7,561 |
7,561 |
- |
5,027 |
5,027 |
|
Floating rate - € euro |
- |
103 |
103 |
- |
28 |
28 |
|
|
- |
7,664 |
7,664 |
- |
5,055 |
5,055 |
|
|
======= |
======= |
======= |
======= |
======= |
======= |
|
Current assets: |
|
|
|
|
|
|
|
Receivables |
- |
222 |
222 |
- |
258 |
258 |
|
|
------------ |
------------ |
------------ |
------------ |
------------ |
------------ |
|
|
- |
194,523 |
194,523 |
- |
163,207 |
163,207 |
|
|
======= |
======= |
======= |
======= |
======= |
======= |
Cash at bank includes £7,663,798 (2020: £5,055,374) held by the Company's Depository, BNP Paribas.
Financial liabilities
The Company finances its investment activities through its ordinary share capital and reserves. It has discontinued the use of borrowing for such purposes. The Company's financial liabilities comprise short-term trade payables. Foreign currency balances are stated in the accounts in sterling at the exchange rate as at the Balance Sheet date.
There were no short-term trade payables (other than accrued expenses).
17. FINANCIAL INSTRUMENTS - RISK ANALYSIS
The general risk analysis undertaken by the Board and its overall policy approach to risk management are set out in the Strategic Report. Issues associated with portfolio distribution and concentration risk are discussed in the Investment Policy section of the Strategic Report. This note, which is incorporated in accordance with accounting standard IFRS7, examines in greater detail the identification, measurement and management of risks potentially affecting the value of financial instruments and how those risks potentially affect the performance and financial position of the Company. The risks concerned are categorised as follows:
a. Potential Market Risks, which are principally:
i. Currency Risk
ii. Interest Rate Risk and
iii. Other Price Risk.
b. Liquidity Risk
c. Credit Risk
Each is considered in turn below:
A (i) Currency Risk
The portfolio as at 31 December 2021 was invested predominantly in sterling securities and there was no significant currency risk arising from the possibility of a fall in the value of sterling impacting upon the value of investments or income.
The Company had no foreign currency borrowings at 31 December 2021 or 31 December 2020 and no sensitivity analysis is presented for this risk.
Currency sensitivity
The following table shows the strengthening/(weakening) of sterling against the local currencies over the financial year for the Company's financial assets and liabilities held at 31 December 2021.
|
|
2021 |
2020 |
|
|
% Change1 |
% Change1 |
|
Euro |
+6.1 |
-5.5 |
|
|
======== |
======== |
1 Percentage change of sterling against local currency from 1 January to 31 December of relevant year.
Based on the financial assets and liabilities at 31 December 2021 and all other things being equal, if sterling had strengthened by 10%, the profit after taxation for the year ended 31 December 2021 and the Company's net assets at 31 December 2021 would have decreased by the amounts shown in the table below. If sterling had weakened by 10% this would have had the opposite effect.
|
|
2021 |
2020 |
|
|
£'000 |
£'000 |
|
Euro |
1,201 |
1,369 |
|
|
======== |
======== |
A (ii) Interest Rate Risk
The Company did not hold fixed interest securities at 31 December 2021 or 31 December 2020.
With the exception of cash, no interest rate risks arise in respect of any current asset. All cash held as a current asset is sterling denominated, earning interest at the bank's or custodian's variable interest rates.
The Company had no borrowings at 31 December 2021 or 31 December 2020.
A (iii) Other Price Risk
The principal price risk for the Company is the price volatility of shares that are owned by the Company. As described in the Investment Manager's Review, the Company spreads its investments across different sectors and geographies, but as shown by the Portfolio Analysis in the Business Review, the Company may maintain relatively strong concentrations in particular sectors selected by the Investment Manager.
The effect on the portfolio of a 10.0% increase or decrease in market prices would have resulted in an increase or decrease of £18,664,000 (2020: £17,789,000) in the investments held at fair value through profit or loss at the period end, which is equivalent to 9.6% (2020: 9.7%) in the net assets attributable to equity holders. This analysis assumes that all other variables remain constant.
B Liquidity Risk
Liquidity Risk is considered to be small, because most of the portfolio is invested in readily realisable securities. As a consequence, cash flow risks are also considered to be immaterial. The Investment Manager estimates that, under normal market conditions and without causing excessive disturbance to the prices of the securities concerned, 65% of the portfolio could be liquidated in a non-market impacting way within 7 days, based on 15% of average daily volume. This is conservative as it does not include the ability to access liquidity through block trades.
C Credit Risk
The Company invests in quoted equities and fixed interest securities. The Company's investments are held by BNP ("the Depository"), which is a large international bank with a high reputation. The Company's normal practice is to remain fully invested at most times and not to hold very large quantities of cash. At 31 December 2021, cash at bank comprised £7,664,000 (2020: £5,055,000) held by the Depository.
Credit Risk arising on transactions with brokers relates to transactions awaiting settlement. This risk is considered to be very low because transactions are almost always undertaken on a delivery versus payment basis with member firms of the London Stock Exchange.
D Capital management policies and procedures
The Company's capital management objectives are:
• to ensure the Company's ability to continue as a going concern; and
• to provide an adequate return to shareholders
by pursuing investment policies commensurately with the level of risk.
The Company monitors capital on the basis of the carrying amount of equity, less cash and cash equivalents as presented on the face of the statement of financial position.
The Company sets the amount of capital in proportion to its overall financing structure, i.e. equity and financial liabilities. The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders (within the statutory limits applying to investment trusts), return capital to shareholders, issue new shares, or sell assets.
18. POST YEAR END EVENTS
On 7 February 2022, 69,738 Ordinary shares were issued to the Investment Manager, representing 80% of the total fee due. The Ordinary shares were issued at the latest prevailing NAV as at 28 January 2022 of 254.37 pence per Ordinary share.
Since the year end, equity markets have been impacted by a number of events, particularly the conflict in Ukraine, the prospects of a rise in inflation, two increases to interest rates and the concern that more will follow and the impact this may have on the economy and the rising number of COVID-19 cases and concern that numbers will continue to rise.
ALTERNATIVE PERFORMANCE MEASURES ('APMS')
An APM is a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework. Definitions of these APMs together with how these measures have been calculated is shown below.
DISCOUNT
The amount, expressed as a percentage, by which the share price is less that the NAV per Ordinary Share.
|
|
|
As at |
As at |
|
|
|
31 December |
31 December |
|
|
|
2021 |
2020 |
|
NAV per Ordinary Share |
a |
253.78 |
216.93 |
|
Share price |
b |
234.50 |
207.00 |
|
Discount |
(b÷a)-1 |
7.60% |
4.58% |
|
|
========= |
========= |
|
GEARING
A way to magnify income and capital returns, but which can also magnify losses. A bank loan is a common method of gearing.
|
|
|
As at |
As at |
|
|
|
31 December |
31 December |
|
|
|
2021 |
2020 |
|
|
|
£'000 |
£'000 |
|
Total assets |
a |
194,523 |
163,207 |
|
Cash and cash equivalents |
b |
7,664 |
5,055 |
|
Total assets less cash and cash equivalents |
c=a-b |
186,859 |
158,152 |
|
Loan |
d |
- |
- |
|
|
|
|
|
|
Gearing |
d÷c |
Nil |
Nil |
|
|
========= |
========= |
========= |
NAV PER ORDINARY SHARE
The Company's assets less its liabilities, as adjusted for total performance fees earned in the corresponding performance period, divided by the Company's number of Ordinary Shares in issue (excluding any shares held in treasury).
|
|
|
As at |
As at |
|
|
|
31 December |
31 December |
|
|
|
2021 |
2020 |
|
|
|
£'000 |
£'000 |
|
Total assets (excluding performance fees) |
a |
194,523 |
163,207 |
|
Less liabilities (excluding performance fees) |
b |
(330) |
(286) |
|
Performance fees earned for the year |
c |
(222) |
(2,659) |
|
|
|
|
|
|
Net assets (a+b+c) |
d |
193,971 |
160,262 |
|
Number of Ordinary shares in issue |
e |
76,519,675 |
75,103,743 |
|
NAV per Ordinary Share published |
d÷e |
253.49p |
213.39p |
|
|
|
|
|
|
NAV per Ordinary Share per financial statements |
(d-c) ÷ e |
253.78p |
216.93p |
|
|
========= |
========= |
========= |
ONGOING CHARGES
A measure of the regular, recurring annual costs of running an investment company, expressed as a percentage of average net assets. The measure is calculated by expressing the regular expenses of the year as a percentage of the average net assets during the year.
|
|
|
As at |
As at |
|
|
|
31 December |
31 December |
|
|
|
2021 |
2020 |
|
|
|
£'000 |
£'000 |
|
Average NAV |
a |
175,216 |
131,925 |
|
Annualised expenses |
b |
862 |
597 |
|
Ongoing charges figure |
b÷a |
0.49% |
0.45% |
|
|
========= |
========= |
========= |
TOTAL RETURN
A measure of performance that includes both income and capital returns. This takes into account capital gains and reinvestment of dividends paid out by the Company into its Ordinary Shares on the ex-dividend date.
|
|
|
31 December 2021 |
31 December 2020 |
||
|
Year ended 31 December |
|
NAV |
Share price |
NAV |
Share price |
|
Opening at 1 January |
a |
216.93 |
207.00 |
232.07 |
237.00 |
|
Closing at 31 December |
b |
253.78 |
234.50 |
216.93 |
207.00 |
|
Price movement (b÷a)-1 |
c |
17.0% |
13.3% |
(6.5)% |
(12.7)% |
|
Dividend reinvestment |
d |
0.1% |
0.2% |
13.9% |
2.7% |
|
Total return |
(c+d) |
17.1% |
13.5% |
7.4% |
10.0% |
|
|
========= |
========= |
========= |
========= |
========= |
PUBLICATION OF NON STATUTORY ACCOUNTS
The financial information contained in this announcement does not constitute statutory accounts as defined in the Companies Act 2006. The Annual Report and Financial Statements for the year ended 31 December 2021 will be filed with the Registrar of Companies.
The figures set out above have been reported upon by the auditor, whose report for the year ended 31 December 2021 contains no qualification or statement under section 498(2) or (3) of the Companies Act 2006.
The comparative figures are extracts from the audited financial statements of the Company for the year ended 31 December 2020, which have been filed with the Registrar of Companies. The report of the auditor on those financial statements contained no qualification or statement under section 498 of the Companies Act 2006.
ANNUAL REPORT AND FINANCIAL STATEMENTS
Copies of the Annual Report and Financial Statements will be published shortly on the Company's website - https://www.aurorainvestmenttrust.com and will be available from the registered office, c/o Sanne Fund Services (UK) Limited - 6th Floor, 125 London Wall, London EC2Y 5AS. Copies of the Annual Report and Financial Statements will shortly be submitted to the National Storage Mechanism. These documents will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
End
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