Half Yearly Report

RNS Number : 0097E

Aurora Investment Trust PLC

30 October 2015

 



AURORA INVESTMENT TRUST plc

Half Yearly Financial Report

For the six months ended 31 August 2015

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 28/02/15	At 31/08/15	Change	At 31/08/14
Net Asset Value per share	171.37p	161.64p	(5.7%)	186.98p
Share price	147.50p	151.50p	2.7%	164.25p
Discount	13.9%	6.3%	7.6%	12.2%
Gearing (net)*	19.2%	6.01%	(13.2%)	18.8%

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

Review of the period

The six months to end August have been a difficult time for global stock-markets. Investors have been stalked by a series of worries ranging from the unsustainability of the levels of Greek indebtedness, to the timing of the expected US interest rate increase and growing confirmation of a slow-down in the Chinese economy. The ramifications for the global economy, particularly that part represented by emerging economies, have caused many investors to raise cash and await developments from the sidelines. The FTSE ALL-Share index declined by 8.3%, whereas the FTSE100 Index, on account of its high exposure to oils and commodities, fell by 10.0%.  In comparison the Net Asset Value of the portfolio reduced by 5.7%, representing some welcome outperformance.

In the USA the rate of unemployment has continued to reduce reaching its current level of 5.1%, close to the level which is viewed as potentially inflationary. Despite this apparent good news about the strength of the US economy, the Federal Reserve Board  has been  cautious  about raising rates, fearing the impact of a stronger US $ abroad and on export industries.

Conversely, in China a period of tighter monetary policy and reduced money supply earlier in the year brought the significant bull market to an end in June with sharp retrenchment thereafter. The devaluation of the Renmimbi by 3% in August added to bearish sentiment. The Authorities have responded with a fourth interest rate reduction this year and a relaxation of Reserve ratio requirements to boost money supply. In consequence, the latest evidence is demonstrating that house prices in Tier 1 and 2 cities are rising rapidly once more. Although many recently published economic statistics have proved disappointing, the likelihood is that the economy may have already bottomed and that future reports will be more positive.

In the UK, post the unexpected overall victory by the Conservative Party in May, the economy has remained robust, led by the services industries. The confidence of a further five years of domestic political certainty has resulted in a spurt of increased levels of investment by the private sector. Meanwhile in Continental Europe, despite the adverse effects of economic sanctions against Russia, there has been definite evidence of improvement in certain economies, notably Germany, Spain and Ireland, resulting from the belated introduction of Q.E., together with the dramatic falls in commodity prices in general.

Against such a global background of inflation remaining very low in most territories and the possibility of further stimulation of the Chinese economy, investor sentiment could improve rapidly. With deployment by both institutions and corporates of the high current levels of liquidity a sharp bounce in equity valuations would be a logical result.

Investment Policy

There has been no overall change in the Investment Policy. The Manager has continued in the belief that Asian economies will grow more strongly than the economies of developed nations in the West. This major weighting in the portfolio is represented both by smaller Chinese companies listed on the AIM market in London as well as by a variety of larger UK quoted companies oriented to energy and metals. Although these investments should benefit from the recovery in the world economy they have performed poorly during the period largely due to the unexpected weakness in all commodity markets.

By contrast, the section of the portfolio represented by housebuilders (Berkeley Group, Persimmon and Barratt Developments) has continued to perform well at a time when UK consumer confidence is returning in the UK on account of falling unemployment and reduced oil prices.  The Manager has reduced the level of gearing in the portfolio.

Change of Management contract

As I announced at last year's AGM on 18 July 2014, the Manager indicated an intention to retire within the next three years, as a result of which no further Continuation Votes would be sought in the future.

Since then, the Board has been in contact with a number of other Investment Trusts to discuss possible merger options, with the intent of selecting and putting a proposal to shareholders next year.

In the meantime, the Phoenix Asset Management Partners ("Phoenix") approached the Board with a proposal to take on the management of Aurora.

An announcement was made by the Board to the London Stock Exchange advising that it had agreed in principle to proposals which it believes will achieve the Board's objective of offering an attractive continuing vehicle and cash exit for shareholders.  The proposal is for the Company's existing Manager to be acquired by Phoenix.  It is then intended that the Company's investment policy and strategy will reflect the successful investment style adopted by Phoenix since its establishment in 1998.

Since its founding in 1998, the Phoenix UK Fund has risen by 435.1% compared to 110.6% for the FTSE All-Share Index, including dividends.

It is intended that a new Investment Management Agreement will be entered into, under which Phoenix will receive no base management fee but will be entitled to a performance fee based on annual outperformance of the FTSE All-Share Total Return.

The Board also intends to implement a tender offer for all shareholders at a 2% discount to the NAV per share, less the direct costs of the tender offer, provided the tender offer offers shareholders a lower discount to NAV than can be achieved through the market.

The proposals are subject to the approval in a General Meeting of the Company's shareholders.  A shareholder circular with further detail of the proposals accompanies the Half Year Report.

Lord Flight

Chairman

30 October 2015

INTERIM MANAGEMENT REPORT

MANAGER'S REVIEW

The half year just ended started on a promising note with the London stock-market continuing to make gains until the end of April; thereafter it started to retrench. It then enjoyed a sudden spurt as a result of the surprise victory by the Conservatives in the General Election in May; this boosted both investor and consumer confidence for a brief period. With the onset of the summer months global events, particularly the unexpected devaluation of the Chinese currency (albeit by only 3%) undermined the rosy domestic picture, resulting in steadily falling markets ever since.

Despite such a difficult background, the Fund managed to outperform the benchmark, the FTALL-Share index by 2.6%.

The investment policy has remained broadly unchanged during the period with the exception of the level of gearing which has been halved.

Despite the poor performance of commodity producers and small Chinese oriented companies, as well as by the large holding in Aberdeen Asset Management, the Fund has outperformed during the six months. The stocks which performed notably well were the housebuilders, Persimmon and Berkeley Group, as a result of both increasing margins and volumes against a background of political pressure encouraging the industry to raise production. This sector remains a long standing favourite of the Manager. It is, during this disinflationary era in which we live, one of the very few sectors with high relative pricing power caused by the shortage of new supply in relation to rapid household formation and the influx of foreign buyers, combined with substantial inward migration.

The surprise takeover, which came out of the blue,' of Amlin by Mitsui towards the end of the period also boosted the performance.

Ashtead meanwhile continues to produce one set of excellent results after another, far in excess of its peers. Sadly, these are currently not reflected in the share price, probably in view of misconstrued worries over its exposure, which is minimal, to slow-down in the oil and gas industry.

At a time when the majority of Developed Economies appear to be strengthening and when the prospects for interest rates to remain low are set fair, the level of investor sentiment is unduly negative against a background of high institutional liquidity. Accordingly, a sudden rebound in equity markets could easily occur in the near term, with a likely catalyst being the faintest glimpse of improved economic statistics emanating from China, where some are already of the firm opinion that the leading indicators have turned upwards.

MJ Barstow                    

Mars Asset Management Ltd

30 October 2015

ANALYSIS OF NET ASSET VALUE RETURNS

		Movement		Attribution of
		in net assets		change to NAV
		£'000		pence per share
Revenue income		483		4.65p
Trading gains		326		3.13p
Expenses, costs and tax		(310)		(2.98p)
Dividend paid		(400)		(3.85p)
Capital losses		(1,110)		(10.68p)
Of which:
Change in market		(1,756)		(16.89p)
Net gearing		(1,999)		(19.23p)
Stock selection		2,645		25.44p
Total movement in NAV		(1,011)		(9.73p)

SECTOR BREAKDOWN

As at 31 August 2015

SECTOR	AURORA
	%
Oil & Gas	7.2
Construction & Materials	27.4
Consumer Services	17.1
Financials	18.2
Information Technology	8.4
Resources (Mining)	5.1
Support Services	7.9
Consumer Goods	3.6
Industrials	0.6
Alternative Energy	1.8
	97.3
Fixed Interest Securities	2.7
	100.0

TOP TEN HOLDINGS

Consolidated portfolio

As at 31 August 2015

All holdings shown are of ordinary shares, unless shown otherwise			£'000	Portfolio
Berkeley Group	Housebuilding		1,853	10.4%
BTG	Health Care		1,830	10.3%
Persimmon	Housebuilding		1,682	9.4%
Ashtead Group	Support Services		1,418	8.0%
West China Cement	Building Materials		1,224	6.9%
Gresham Computing	Software		1,089	6.1%
Royal Dutch Petroleum 'B'	Oil Integrated		1,024	5.7%
Aberdeen Asset Management	Investment		957	5.4%
Amlin	Insurance		773	4.3%
Jupiter Fund	Investment		668	3.8%
Total top ten holdings			12,518	70.3%
Other investments			5,298	29.7%
			17,816	100.0%

FORMAL DECLARATIONS

The Chairman's Statement on pages 1 and 2 and the Manager's Review on pages 4 to 5 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 2016 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 on page 6.

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 and (ii) 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 2015.  Except as disclosed in the Chairman's Statement and Manager's Review, 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 material changes to the related party transactions described in the Annual Report that could have an 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 on page 9.

Board of Directors

30 October 2015

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 ** October 2015 and the above responsibility statement was signed on its behalf by:

Lord Flight

Chairman

30 October 2015

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

		6 months to 31 August 2015		6 months to 31 August 2014
		(unaudited)		(unaudited)

		Revenue	Capital	Total		Revenue	Capital	Total
	Notes	£'000	£'000	£'000		£'000	£'000	£'000
(Losses)/gains on investments designated at fair value through profit or loss		326*	(1,110)	(784)		(17)*	(303)	(320)
Income
Investment income		483	-	483		536	-	536
		483	-	483		536	-	536
Expenses
Investment management fees		(37)	(37)	(74)		(45)	(45)	(90)
Other expenses		(150)	-	(150)		(126)	-	(126)
		(187)	(37)	(224)		(171)	(45)	(216)
Profit/(loss) before finance costs and tax		622	(1,147)	(525)		348	(348)	-
Finance costs		(42)	(42)	(84)		(52)	(52)	(104)
Profit/(loss) before tax		580	(1,189)	(609)		296	(400)	(104)
Tax		(2)	-	(2)		-	-	-
Profit/(loss) and total comprehensive income for the period		578	(1,189)	(611)		296	(400)	(104)
Earnings per share		5.56p	(11.44p)	(5.88p)		2.85p	(3.85p)	(1.00p)

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.

*Trading subsidiary (losses) and gains.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

			Six months Ended		Six months Ended		Year ended
			31 August 2014		31 August 2014		28 February 2015
		Notes
			(unaudited)		(unaudited)		(audited)
			£'000		£'000		£'000
Opening equity			17,817		19,939		19,939
Total comprehensive income for the financial period/year			(611)		(104)		(1,727)
Dividends paid			(400)		(395)		(395)
Closing equity			16,806		19,440		17,817

CONSOLIDATED BALANCE SHEET

	At 31 August 2015		At 31 August 2014		At 28 February 2015
	(unaudited)		(unaudited)		(audited)
	£'000		£'000		£'000
Non-current assets Investments - designated at fair value through profit or loss	17,816		23,104		21,243
Current assets
Investments held for trading	736		143		385
Other receivables	160		134		112
Cash and cash equivalents	149		171		150
	1,045		448		647
Total assets	18,861		23,552		21,890
Current liabilities
Bank loan/overdraft	(2,000)		(4,047)		(4,000)
Other payables	(55)		(65)		(73)
	(2,055)		(4,112)		(4,073)
Total assets less current liabilities	16,806		19,440		17,817
Equity
Called up share capital	3,598		3,598		3,598
Share premium account	10,997		10,997		10,997
Capital reserves	3,121		5,718		4,312
Revenue reserve	(910)		(873)		(1,090)
	16,806		19,440		17,817

Net asset value per ordinary share (excluding     shares held in Treasury)	161.64p		186.98p		171.37p
No. of ordinary shares in issue (excluding shares     held in Treasury)	10,397,059		10,397,059		10,397,059
No. of ordinary shares held in Treasury	3,994,330		3,994,330		3,994,330

CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 31 August 2014

	2014		2014
	£'000		£'000
	(unaudited)		(unaudited)
Cash flows from operating activities
Cash inflow from disposal of non-current operating assets	3,302		5,488
Cash outflow from purchase of non-current operating assets	(986)		(4,823)
Cash inflow from revenue income	437		462
Cash (inflow)/outflow from trading current asset investments	(25)		10
Cash outflow from expenses	(243)		(202)
Tax paid	(2)		-
Net cash flow from operating activities	2,483		935
Financing
Equity dividends paid	(400)		(395)
Interest and finance charges paid	(84)		(103)
Decrease in bank borrowings	(2,000)		(406)
Net cash flow from financing activities	(2,484)		(904)
Net (decrease)/increase in cash and cash equivalents	(1)		31
Cash and cash equivalents at beginning of period	150		140
(Decrease)/increase in cash	(1)		31
Cash and cash equivalents at end of period	149		171

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 2015 and 31 August 2014 has not been audited. 

The information for the year ended 28 February 2015 has been extracted from the latest published audited financial statements.  The audited financial statements for the year ended 28 February 2015 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 30 October 2015.  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 2015.  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 2015 are stated by reference to the weighted average of 10,397,059 shares in issue during the period, excluding shares held in Treasury (2014: 10,397,059 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 3.85p per share in respect of the year ended on 28 February 2015 was declared by the Annual General Meeting on 16 July 2015 and was paid on 27 July 2015.  This dividend was not reflected in the financial statements for the year ended 28 February 2015, but is reflected in the financial statements for the half year ended 31 August 2015.

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 £10,758 to the Manager and £6,000 (incl. VAT) to the Administrator at 31 August 2015; 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:  [phone]
BANKERS	SECRETARY & REGISTERED OFFICE
Coutts & Co	Cavendish Administration Limited
440 Strand	145-157 St John Street
London WC2R 0QS	London EC1V 4RU
	Tel: [phone]
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

LAWYERS                    

Dickson Minto W.S.

Broadgate Tower

20 Primrose Street

London EC2A 2EW

 

END

 

 

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