Half Yearly Report

RNS Number : 6886R

Aurora Investment Trust PLC

29 October 2013

AURORA INVESTMENT TRUST plc

Half Yearly Financial Report

For the six months ended 31 August 2013

Investment Policy

The policy of the Company is to achieve capital appreciation through investments listed mainly on the London Stock Exchange, primarily comprising equities but with some exposure also to fixed interest. The portfolio comprises a mix of large, mid and smaller capitalised stocks. A distinctive feature is an emphasis on investments in companies with exposure to economies growing at a faster rate than the UK.

CHAIRMAN'S STATEMENT

The half year returns were:

	At 28/2/13	At 31/8/13	Change	At 31/8/12

Net Asset Value per share	186.13p	180.75p	(2.9%)	171.36p
Share price	152.75p	140.00p	(8.3%)	147.00p
Discount	17.9%	22.5%	(25.7%)	14.2%
Gearing (net)*	13.3%	8.5%	36.1%	10.1%

*Borrowings less net current assets (excluding any short term borrowings) as a percentage of Net Asset Value

Review of the period

In the face of continued de-rating of Emerging markets' price earnings ratios relative to those in Developed Markets, which have continued to expand, the portfolio has, during the six months under review continued its trend of underperformance against its UK Benchmark. Whereas the former appreciated by 1.8%, the Net Asset Value, I regret to say, has declined by 2.9%.

There are, however, good grounds for believing that a turning point in this trend has now been reached with the recent appointment of the new Chairman of the Federal Reserve Board. Mrs Yellen is a renowned 'dove'. In her inaugural statement, she made it abundantly clear that she wishes to pay greater attention to the rate of unemployment than her predecessor. In this light, worries over tapering of Quantitative Easing should reduce, enabling investor confidence in Emerging markets to recover. Indeed it looks as if this has started to happen already. The Manager has remained faithful to Aurora's mandate to invest in growth companies with a high exposure to these regions.

During the first two months of the period under review investors' appetite for risk continued to increase, spurred on by encouraging signs of economic recovery, particularly in the US, but also in the UK; it was further aided by loose global monetary conditions. Thereafter, worries over the pending withdrawal of Quantitative Easing in the USA caused the majority of global markets to fall. Currently, Emerging markets are still trading at record levels of discount to Developed markets. Uppermost in investors' minds during the period was the economic behaviour of the USA and China, with problems in the eurozone pushed into the background on the assumption that there was unlikely to be any crisis before the German elections in late September.

Recovery in the US economy increased the probability that the Federal Reserve Board would reduce its liquidity stimulus, perhaps by the end of the current calendar year, which caused significant uncertainty for equity markets. Whilst such uncertainty is logical in the context of the USA, the ramifications for global markets, and particularly emerging market currencies and economies, are unclear.

A strong rebound in growth in Chinese manufacturing activity during recent months has allayed fears that growth forecasts (currently 7.5%) would need to be reduced further. Nevertheless, the level of confidence in Chinese stocks by foreign investors remains low.

International investors deserted Emerging stock markets across the board, almost regardless of their prospects. All Emerging markets were de-rated significantly over the summer months. This has been a major negative for Aurora, which has sought exposure to these faster growing geographies as a part of fulfilling its growth mandate, at a time when the prospects for the UK, although improving slowly (and as finally acknowledged by the IMF in its most recently published forecasts) are by comparison modest.

The skilful withdrawal of US monetary stimulus, albeit now at a later date, will be necessary if there is not to be major stock-market volatility as bond yields rise. The effects of improving economic growth and corporate profitability should support equities, but there is heightened uncertainty over the timing of when the era of abundant Central Bank liquidity will eventually come to an end.

The ongoing stand-off over the US Government debt ceiling will continue to be a threat to markets until there is a US political settlement. As and when this is achieved, markets can begin to normalise and the huge potential within the portfolio, of which I remain convinced, should be realised. The portfolio is fully invested, awaiting such an upturn; although shareholders should be aware that the level of borrowing at the period end was about to be reduced by the cash proceeds, since received, from the take-over of Prosperity Minerals.

AIFMD

The board of Mars Asset Management Ltd, the Manager, has given an undertaking to the Aurora Board that it is taking the necessary steps to register as an AIFM as required by recent regulation.

Continuation

In view of the Continuation vote at the next AGM in July 2014, as promised in the Annual Report, I will be having a programme of meetings, this autumn, with all Aurora's major shareholders; its purpose is to discuss proposals for the future of Aurora. Thereafter I will be writing to all shareholders to advise on the options for Aurora.

Lord Flight

Chairman

29 October 2013

INTERIM MANAGEMENT REPORT

MANAGER'S REVIEW

The six month period under review has proved a difficult one for the Company's portfolio. During this time the London market displayed considerable volatility and ended the half year with a small gain of 1.8% whereas the net asset value per share declined, much to my regret, by 2.9%.

Investors' appetite for risk has certainly increased by comparison with one year ago when only the top ten largest market capitalisations showed any signs of life. The situation currently is much more encouraging; selected smaller companies are now performing strongly and some of the stodgy blue chips, which had become overvalued, are now falling back. Stock-picking skills are coming to the fore once more as the herd mentality is becoming slightly less relevant.

Shareholders will be fully aware that I continue to remain extremely cautious about the long term prospects for many of the southern based countries in the Eurozone. Throughout the region the banking system remains in poor shape and high rates of taxation and social security costs act as a deterrent to foreign inward investment, hence the lack of exposure within the portfolio.

In consequence, a huge portion of the portfolio remains invested in stocks which are highly oriented towards faster growing economies than the UK, in accordance with the Company's mandate. There has, however, been yet another 'flight to safety' and to more liquid markets.

Within the portfolio there were three stocks which performed notably well during the period. Prosperity Minerals received a cash takeover approach from its controlling Hong Kong based shareholder at 130p. I considered this price too low, being well below the realistic net asset value, but received no support from the non-executives or other shareholders whom I contacted. Accordingly, I accepted the offer rather unwillingly, in order not to be left stranded with an unmarketable stock. Notwithstanding these reservations, a good profit was made on the holding during the period.

Gresham Computing announced several further new contracts with some large international banks for its new banking software product. Should the company gain a few more such contracts then the process begins to snowball. Not surprisingly, the share price has risen strongly.

Persimmon (one of the few pure exposures to the UK economy in the portfolio) continued to perform as the UK housing market recovered against a background of loose monetary conditions and Government aid for new buyers, even after having paid a generous dividend.

By contrast, the mining sector has continued to prove a great detractor to performance on account of falling metal prices. Although there may be a larger increase in supplies of some metals coming on stream at the moment than I had forecast, all the large mining groups have announced sharp reductions in the number of new future projects to which they will commit capital expenditure. Meanwhile the demand for metals continues to increase from the rapidly expanding nations; they now account for the bulk of that demand.

I feel that one of the greatest myths prevailing in the market currently is that, as China slowly becomes a consumer rather than investment oriented nation, then its demand for metal will decline. One only has to examine the graphs of say copper consumption per head in Japan, Korea and Taiwan since the 1950's as they have developed to realise that such a theory is fallacious. I was delighted to read a recent report from McKinsey & Co which agreed with my thinking that the concept of the commodity super-cycle will soon be revived.

The holding in Asian Citrus has been a notably poor performer following a year of two bad harvests as a result of exceptional rain - as well as poor corporate governance. The valuation is currently so lowly that the market capitalisation equates to the net cash alone, leaving 5m trees set to produce in excess of 700,000 tonnes of oranges and 100,000 tonnes of fruit juice making capacity valued at nil; an obvious candidate for corporate activity.

The majority of the few adjustments made to the portfolio were minor; these included an addition to Persimmon, the disposal of BP and a new holding in IGas Energy, a company involved in exploration for oil and shale gas onshore UK, whose potential is massive if the geological reports are proved correct. There was also a small purchase of Speedy Hire (plant hire for the construction industry).

While I can only hope that certain corporate governance issues relevant to stocks held in the portfolio can be resolved, I do feel confident that Emerging markets will soon return to favour with international investors in view of their relative superior rates of long term growth at a time of modest growth in the global economy. Accordingly, I remain enthusiastic that the huge potential that lies within the portfolio can be realised as investor risk appetite continues to improve.

MJ Barstow

Mars Asset Management Ltd

29 October 2013

ANALYSIS OF NET ASSET VALUE RETURNS

	Movement		Attribution of
	in net assets		change to NAV
	£'000		pence per share

Revenue income	515		4.95
Trading gains	720		6.92
Expenses, costs and tax	(294)		(2.82)
Dividend paid	(390)		(3.75)
Capital losses	(1,111)		(10.68)
Of which:
Change in market		395
Net gearing		(33)
Stock selection		(1,473)
		(1,111)
Total movement in NAV	(560)		(5.38)

SECTOR BREAKDOWN

As at 31 August 2013

SECTOR	AURORA
	%

Oil & Gas	15.2

Industrials	6.8

Construction & Engineering	8.3

Consumer Goods	9.7

Consumer Services	11.1

Information Technology	11.8

Financials	10.8

Resources (Mining)	18.7

Transport	1.2

	93.6
Fixed Interest Securities	6.4
	100.0

TOP TEN HOLDINGS

Consolidated portfolio

As at 31 August 2013


All holdings shown are of ordinary shares, unless shown otherwise		£'000	Portfolio

Prosperity Minerals*	Mining	2,432	10.7%
BTG	Health Care	1,964	8.7%
Asian Citrus	Food & Drink	1,560	6.9%
Royal Dutch Petroleum 'B'	Oil Integrated	1,520	6.7%
Gresham Computing	Software	1,183	5.2%
Emblaze Systems	Telecommunications	1,176	5.1%
West China Cement	Building	1,150	5.1%
Antofagasta Holding	Mining	981	4.3%
BG Group	Oil & Gas	920	4.1%
Persimmon	Housebuilding	878	3.9%

Total top ten holdings		13,764	60.7%
Other investments		8,897	39.3%
		22,661	100.0%

*includes holding by AIT Trading Limited

FORMAL DECLARATIONS

The Chairman's Statement and the Manager's Review provide details on the performance of the Company. Those reports also include an indication of the important events that have occurred during the first six months of the financial year ending 28 February 2013 and the impact of those events on the condensed set of financial statements included in this Half-yearly financial report.

Details of the largest ten investments held at the period end and the structure of the portfolio at the period end are provided above.

Principal Risks and Uncertainties

The Board considers that the main risks and uncertainties faced by the Company fall into the categories of (i) Market risks (ii) Environmental Markets and (iii) Corporate governance and internal control risks. A detailed explanation of these risks and uncertainties can be found in the Company's most recent Annual Report for the year ended 28 February 2013. The principal risks and uncertainties facing the Company remain unchanged from those disclosed in the Annual Report.

Related Party Transactions

Details of the investment management arrangements were provided in the Annual Report. There have been no changes to the related party transactions described in the Annual Report that could have a material effect on the financial position or performance of the Company. Amounts payable to the investment manager in the period are detailed in the Income Statement.

Board of Directors

29 October 2013

DIRECTORS STATEMENT OF RESPONSIBILITY

FOR THE HALF YEARLY REPORT

The Directors confirm to the best of their knowledge that:

· The condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting"; and

· The interim management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the FSA's Disclosure and Transparency Rules.

The half yearly financial report was approved by the Board on 29 October 2013 and the above responsibility statement was signed on its behalf by:

Lord Flight

Chairman

29 October 2013

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

		6 months to 31 August 2013		6 months to 31 August 2012
		(unaudited)		(unaudited)


		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000

Gains/(losses) on investments designated at fair value through profit or loss		720	(1,111)	(391)	(726)	(4,130)	(4,856)

Income
Investment income		515	-	515	585	-	585
		515	-	515	585	-	585

Expenses
Investment management fees		(41)	(41)	(82)	(48)	(48)	(96)
Other expenses		(114)	-	(114)	(124)	-	(124)
		(155)	(41)	(196)	(172)	(48)	(220)

Profit/(loss) before finance costs and tax		1,080	(1,152)	(72)	(313)	(4,178)	(4,491)

Finance costs		(48)	(48)	(96)	(56)	(56)	(112)

Profit/(loss) before tax		1,032	(1,200)	(168)	(369)	(4,234)	(4,603)
Tax		(2)	-	(2)	(10)	-	(10)
Profit/(loss) and total comprehensive income for the period		1,030	(1,200)	(170)	(379)	(4,234)	(4,613)

Earnings per share	4	9.91p	(11.54p)	(1.63p)	(3.28p)	(36.65p)	(39.93p)

The total column of this statement represents the Group's Income Statement, prepared in accordance with IFRS. The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations. All income is attributable to the equity holders of the parent company. There are no minority interests.

In the annual report there are lines disclosing trading subsidiary gains and losses.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

		Six months Ended	Six months Ended	Year ended
		31 August 2013	31 August 2012	28 February 2013
	Notes
		(unaudited)	(unaudited)	(audited)
		£'000	£'000	£'000

Opening balance		19,352	24,819	24,819

Total comprehensive income for the financial period/year		(170)	(4,613)	(3,207)

Purchase of own shares		-	-	(1,850)

Dividends paid or legally committed to be paid on ordinary shares	5	(390)	(410)	(410)

Closing balance		18,792	19,796	19,352

CONSOLIDATED BALANCE SHEET

	At 31 August 2013	At 31 August 2012	At 28 February 2013
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Non-current assets Investments - designated at fair value through profit or loss	20,392	21,789	21,932

Current assets
Investments held for trading	2,269	1,018	988
Sales for future settlement	-	-	430
Other receivables	207	444	107
Cash and cash equivalents	10	740	120
	2,486	2,202	1,645

Total assets	22,878	23,991	23,577

Current liabilities
Purchases for future settlement	-	(140)	-
Bank loan/overdraft	(4,010)	(4,000)	(4,153)
Other payables	(76)	(55)	(72)
	(4,086)	(4,195)	(4,225)


Total assets less current liabilities	18,792	19,796	19,352

Equity
Called up share capital	3,598	3,598	3,598
Share premium account	10,997	10,997	10,997
Capital reserves	5,150	6,821	6,349
Revenue reserve	(953)	(1,620)	(1,592)

	18,792	19,796	19,352

Net asset value per ordinary share (excluding shares held in Treasury)	180.75p	171.36p	186.13p

No. of ordinary shares in issue (excluding shares held in Treasury)	10,397,059	11,552,250	10,397,059
No. of ordinary shares held in Treasury	3,994,330	2,839,139	3,994,330

CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 31 August 2013

	2013	2012
	£'000	£'000
	(unaudited)	(unaudited)
Cash flows from operating activities
Cash inflow from disposal of non-current operating assets	2,679	3,379
Cash outflow from purchase of non-current operating assets	(1,820)	(1,686)
Cash inflow from revenue income	471	524
Cash outflow from trading current asset investments	(561)	-
Cash outflow from expenses	(261)	(357)

Tax paid	(2)	(10)

Net cash flow from operating activities	506	1,850

Financing
Equity dividends paid	(390)	(410)
Interest and finance charges paid	(83)	(121)
Decrease in bank borrowings	(143)	(616)

Net cash flow from financing activities	(616)	(1,147)

Net increase/(decrease) in cash and cash equivalents	(110)	703

Cash and cash equivalents at beginning of period	120	37

Increase/(decrease) in cash	(110)	703

Cash and cash equivalents at end of period	10	740

NOTES

1. Status of the financial statements

These financial statements are not the Group's statutory accounts as defined in section 434 of the Companies Act 2006. The financial information for the half years ended 31 August 2013 and 31 August 2012 has not been audited.

The information for the year ended 28 February 2013 has been extracted from the latest published audited financial statements. The audited financial statements for the year ended 28 February 2013 have been filed with the Registrar of Companies. The report of the auditors on those accounts contained no qualification or statement under section 498(2) or (3) of the Companies Act 2006.

The directors approved the half-yearly report on 29 October 2013. This report is being sent to shareholders and copies will be made available to the public at the registered office of the Group. The report will be available in electronic format on the Manager's website www.marsassetmanagement.co.uk

2. Accounting policies

The half-yearly financial information has been prepared in accordance with IAS34 Interim Financial Reporting. The accounting policies are unchanged from those used in the last annual financial statements except where otherwise stated.

3. Purchase of own shares

The Company did not purchase any of its own shares during the half year ended 31 August 2013. A total of 3,994,330 shares are being held in Treasury and are available for re-sale.

4. Earnings per share

Returns for the period ended on 31 August 2013 are stated by reference to the weighted average of 10,397,059 shares in issue during the period, excluding shares held in Treasury (2012: 11,552,250 shares in issue, excluding shares held in Treasury).

5. Dividends

In accordance with the stated policy of the Group, the directors do not recommend an interim dividend.

The final dividend of 3.75p per share in respect of the year ending on 28 February 2013 was declared by the Annual General Meeting on 17 July 2013 and was paid on 26 July 2013. This dividend was not reflected in the financial statements for the year ended 28 February 2013, but is reflected in the financial statements for the half year ended 31 August 2013.

6. Related party transactions

Fees payable to the Manager are shown in the Consolidated Income Statement. £36,000 (incl. VAT) was payable to the Administrator in respect of the period. Fees were accrued of £14,028 to the Manager and £6,000 (incl. VAT) to the Administrator at 31 August 2013; these fees were paid following the period end.

DIRECTORS AND ADVISERS

DIRECTORS	INVESTMENT MANAGER
Lord Flight (chairman)	Mars Asset Management Limited
MJ Barstow FCA	10-11 Charterhouse Square
The Honourable James Nelson	London EC1M 6LQ
RM Martin	Tel: 0207-490-4440


BANKERS	SECRETARY & REGISTERED OFFICE
Coutts & Co	Cavendish Administration Limited
440 Strand	145-157 St John Street
London WC2R 0QS	London EC1V 4RU


CUSTODIAN	ADMINISTRATOR
The Northern Trust Company	Cavendish Administration Limited
50 Bank Street	145-157 St John Street
London E14 5NT	London EC1V 4RU


REGISTRARS	AUDITORS
Capita Registrars	Grant Thornton UK LLP
Northern House	30 Finsbury Square
Woodsome Park	London EC2P 2YU
Fenay Bridge
Huddersfield HD8 0LA