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Aurora Investment (ARR)

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Wednesday 24 April, 2019

Aurora Investment

Annual Financial Report

RNS Number : 0022X
Aurora Investment Trust PLC
24 April 2019
 

Aurora Investment Trust plc

 

Annual results announcement for the year ended 31 december 2018

 

 

Strategic Report

 

Objective

To provide shareholders with long term returns through capital and income growth by investing predominantly in a portfolio of UK listed companies.

 

Benchmark

Performance is benchmarked against the FTSE All-Share Index (total return), representing the overall London market.

 

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 Board received shareholder approval at the AGM held on 6 June 2018 to increase the flexibility of Aurora Investment Trust plc ("the Company") to invest up to 20% of gross assets outside the UK and up to 10% of gross assets in unlisted securities.

 

Dividend

The Directors recommend a final dividend of 4.0p per share (2018: 2.75p) to be paid on 19 June 2019 to shareholders on the register as at 3 May 2019.

 

ANNUAL GENERAL MEETING ("AGM")

 

The AGM of the Company will be held at the offices of Grant Thornton, 30 Finsbury Square, London EC2A 1AG on 10 June 2019 at 12.00 noon.

 

AurorA Chairman's Statement

 

Performance Review

The performance for the year to end December 2018 was down by 10.3%, under-performing the benchmark, FTSE All Share Index, which fell 9.5%. The UK market was not alone in suffering such price falls. The majority of equity markets also fell in the face of concerns over the ongoing trade dispute between the US and China and the threat of rising interest rates, while the UK itself has had the added complexity of resolving its future relationship with Europe.

 

One of the key features of the Investment Management Agreement with Phoenix is that they earn no management fees other than an annual performance fee, equal to one third of net asset value ("NAV") total returns in excess of the FTSE All Share (total return). This fee is subject to claw back and a high water mark and is capped at 4% of NAV per annum in the case of an absolute increase in NAV per share; and 2% in the case of a decrease with performance compared to the FTSE All Share.

 

In 2018 no performance fee was earned by Phoenix. The performance fee is calculated on a cumulative basis and can only be earned after previous years underperformance has been caught-up. At the year-end, the cumulative underperformance since the appointment of Phoenix was 4.4%, after which a performance fee will be earned for subsequent outperformance.

 

The share price of Aurora traded at a premium to NAV for substantially all of the period in question which was helpful in attracting new investors to the Company. During the year almost 12.9million new shares were issued with value at issuance of £27.1m. Our hope and expectations are for the shares to continue to trade at a small premium to NAV.

 

Three Years of Phoenix Management

2018 was the third full year of Phoenix Management, which began with their appointment as Investment Manager in January 2016.

 

As is outlined in the Manager's report 2018 has been a year of much uncertainty. Significant factors were the UK's future relationship with Europe (which is still unresolved at the time of writing) and the continuing major impact of internet shopping on the retail environment.

It was comforting to see Phoenix continuing to follow its focused investment approach in times of market stress. This was especially so when Phoenix identified attractive opportunities presented by the market after significant price falls in Q4. The Company began Q4 with 8.5% cash and equivalents weight. This was put to work and the manager added additional value by rotating out of holdings with a lower "upside to intrinsic value," to those such as housebuilders with a higher upside.

Phoenix is a truly long-term investor, which enables it to take advantage of short-term mispricing in the market. In Q4 of 2018 the market penalised shares of companies associated with the domestic economy. Phoenix put this down to a tendency for the stock market to overreact to near term or current news. Phoenix's approach includes extensive stress testing and a focus on intrinsic value.

 

Investment Policy

The revised investment policy permitting some investment in companies listed outside the UK and unlisted securities received shareholder approval at the Company's AGM held on 6 June 2018.

 

Growth of the Company

Growing the Company remains a key objective of the Board. A total of 12.9m new shares were issued in 2018 with an issuance value of £27.1m. Consequently, despite the negative investment performance the market capitalisation of the Company rose from £87m in January 2018, to finish the year at £101m.

 

As reported last year, in January 2018 Phoenix announced the appointment of Frostrow Capital to assist achieving an increase in the size of the Company by raising the profile of Aurora, with potential investors across the UK. Frostrow, along with Phoenix, undertook investor meetings throughout the country in 2018.

 

As a result, it is pleasing to note the broadening of the Company's shareholder register. In January 2016, when Phoenix took over, the top ten shareholders owned 77% of the Company. As at 28 February, 2019 this had reduced to 64% with the top 20 shareholders holding 82%.

 

In last year's statement I advised that a key objective was to increase the size of Aurora to £200m over the course of the next two to three years. I am pleased to see that investor demand for new shares in 2018 positioned the Company to be able to achieve this objective. Accordingly, on 13 March, 2019 the Company published a Circular convening a General Meeting on 9 April. At the meeting resolutions were passed by shareholders to give the Board the authority to issue new ordinary shares. This authority will allow the Directors to continue to make periodic issues of new shares to manage supply and demand for the ordinary shares and to continue to grow the size of the Company. In addition, the Circular outlined the intention to publish a prospectus in relation to a share issuance programme.

 

Continuation Vote

In accordance with the articles, the Company will hold a continuation vote at the next AGM on 10 June 2019. Taking account of the Company's track record over the past three years, the maintenance of a premium on the share price our NAV per share and the successful broadening of the shareholder base, the Board strongly recommends that shareholders vote in favour of continuation. We look to the future with optimism.

 

Dividend

The Directors recommend a final dividend of 4.0p (2017: 2.75p) per share, to be paid on 19 June 2019 to shareholders on the register as at 3 May 2019.

 

AGM

A warm welcome is extended to shareholders to attend the AGM to be held at 12 noon on 10 June 2019 at the offices of Grant Thornton, 30 Finsbury Square, London EC2A 1AG.

 

Lord Flight

Chairman

 

24 April 2019

 

Investment policy and results

The Company adopted a revised Investment Policy at the Annual General Meeting on 6 June 2018, following a review of the Investment Policy that had been adopted initially upon the appointment of Phoenix Asset Management Partners Limited ("Phoenix") as the Company's new Investment Manager on 28 January 2016.

 

Investment Policy

The Company's objective is to provide Shareholders with long-term returns through capital and income growth.

 

The Company seeks to achieve its investment objective by investing predominantly in a portfolio of UK listed companies. The Company may from time to time also invest in companies listed outside the UK and unlisted securities. The investment policy is subject to the following restrictions, all of which are at the time of investment:

 

•    The maximum permitted investment in companies listed outside the UK at cost price is 20% of the Company's gross assets.

•    The maximum permitted investment in unlisted securities at cost price is 10% of the Company's gross assets.

•    There are no pre-defined maximum or minimum sector exposure levels but these sector exposures are reported to and monitored by the Board in order to ensure that adequate diversification is achieved.

•    The Company's policy is not to invest more than 15% of its gross assets in any one underlying issuer.

•    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.

•    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 purpose 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. However, 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 Net Asset Value per Ordinary Share.

 

The Company has a policy of not investing more than 10 per cent. 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 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 Net Asset Value (NAV) 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.

 

The Chairman's Statement incorporates a review of the highlights during the year.

 

The Statement from the Investment Manager's Report gives details on investments made during the year and how performance has been achieved.

 

Performance

The Investment Manager is Phoenix Asset Management Partners Limited, 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 Manager's Report.

 

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.

 

Continuation Vote

The Company's policy is to hold continuation votes every three years. A new three year schedule was established upon the appointment of Phoenix in January 2016. Therefore a resolution to approve the continuation of the Company as an investment trust will be put to the AGM on 10 June 2019.

 

The benchmark is the FTSE AllShare Index Total Return.  The Company's performance is shown below:

 

 

 

Cumulative

Year to

Year to

 

 

 

since

31 December

31 December

 

 

 

January 2016

2018

2017

 

 

Aurora Net Asset Value  ("NAV") (total return)1

+20.9%

-10.3%

+18.5%

 

 


 

 

 

 

 

Aurora Share price  (total return)1

+23.2%

-10.9%

+19.9%

 

 


 

 

 

 

 

Benchmark (total return)

+26.7%

-9.5%

+13.1%

 

 


 

 

 

 

 

The Ongoing Charges Ratio was as follows:

 

 

 

 


 

 

 

 

 


 

Year to

Year to

 

 


 

31 December 2018

31 December 2017

 

 

Ongoing Charges Ratio1

 

0.44%

0.54%

 

 

1 These are Alternative Performance Measures ('APMs').

 

Alternative Performance Measures ("APMs")

The disclosures of Performance above are considered to represent the Company's APMs (which are measurements not defined in Accounting Standards). Definitions of these APMs together with how these measures have been calculated can be found in the annual report which will be loaded onto the Company's website at www.aurorainvestmenttrust.com.

 

Revenue Result and Dividend

The Company's revenue profit after tax for the year amounted to £2,502,000 (2017: £1,306,307).

 

The directors recommend a final dividend of 4.0p per Ordinary Share (2017: 2.75p per Ordinary Share). If approved by the shareholders at the AGM, this dividend will be paid on 19 June 2019 to shareholders on the register at 3 May 2019; the ordinary shares will be marked ex-dividend on 2 May 2019. In accordance with International Financial Reporting Standards this dividend is not reflected in the financial statements for the year ended 31 December 2018.

 

Discount/premium to NAV

The discount/premium of the NAV per share relative to the share price is closely monitored by the Board. The share price closed at a 0.4% premium to the NAV as at 31 December 2018. (2017: 1.1% premium).

 

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 2018, the Company's ongoing charges figure calculated in accordance with the AIC methodology was 0.44% (2017: 0.54%). As the size of the Company grows, the Board expects to manage the ongoing charge ratio accordingly.

 

Five Year Summary

 

The following data are all expressed as pence per share. NAV figures are all calculated at bid prices.

 

 



Dividend in

Share price

 

 

Year

NAV

respect of year

(mid market)

 

 

Year ended 28 February 2015

171.37

3.85

147.50

 

 


 

 

 

 

 

Year ended 29 February 2016

162.30

1.00

158.00

 

 


 

 

 

 

 

Period from 1 March 2016 to

172.66

2.00

173.50

 

 

31 December 2016

 

 

 

 

 


 

 

 

 

 

Year ended 31 December 2017

205.72

2.75

208.00

 

 


 

 

 

 

 

Year ended 31 December 2018

182.24

4.00

183.00

 

 


 

 

 

 

 

Top Holdings

at 31 December 2018

 

Company

Valuation

Percentage of net assets

Date of first purchase

Average cost per share

Share price

Market capitalisation

Net Cash/debt



%


£

£

£billion

£billion

GlaxoSmithKline

9,585,881

9.5

Dec-15

14.17

14.91

73.400

(13.20)

Sports Direct International

 8,734,722

8.6

Dec-15

3.40

2.38

1.300

(0.51)

Lloyds Banking Group

 8,453,006

8.4

Dec-15

0.66

0.52

35.90

(8.30)

Bellway

8,285,416

8.2

Dec-15

27.42

25.15

3.10

0.99

Dignity

 8,222,929

8.1

Jan-18

9.03

6.97

0.34

(0.52)

Tesco

 8,058,263

8.0

Dec-15

1.90

1.90

18.50

(3.10)

Randall & Quilter Investment Holdings

 7,807,244

7.7

Feb-16

1.22

1.63

0.21

0.18

Phoenix SG**

 7,009,543

6.9

Jun-18

2,247.50

2,824.15***

n/a

n/a

Vesuvius

 5,712,986

5.7

Dec-15

4.38

5.07

1.40

(0.28)

Redrow

 5,615,021

5.6

Oct-16

5.26

4.91

1.80

0.63

easyJet

 5,542,349

5.5

Feb-16

11.58

11.05

4.30

0.40

Hornby

 5,495,675

5.4

Jul-16

0.29

0.32

0.41

(0.20)

W M Morrison Supermarkets

 3,829,757

3.8

Oct-16

2.07

2.13

5.00

(0.93)

J D Wetherspoon

 3,057,801

3.0

Jan-16

7.46

11.13

1.20

(0.73)

Other holdings (less than 3%)

 3,208,107

3.2

 n/a

 n/a

 n/a

 n/a

 n/a

Total

98,618,700

97.6

 

 

 

 

 

Other current assets and liabilities

 2,377,392

2.4

 

 

 

 

 

Net assets

100,996,092

100.0

 

 

 

 

 

 

* Net cost including sales.

**Comprises the assets which make up the investment in Stanley Gibbons plc. No income was derived from this holding during the year.

*** A valuation, not a quoted share price

 

The Company held over 3% of the issued share capital of the following:

 

Randall & Quilter

3.80%

Hornby PLC

14.15%

Phoenix SG

24.82%

                               

Portfolio Analysis

at 31 December 2018

 

 


Percentage of

 

 


Portfolio

 

 

Retail

28.5

 

 


 

 

 

Financial

16.5

 

 


 

 

 

Construction

15.8

 

 


 

 

 

Leisure

13.9

 

 


 

 

 

Pharmaceuticals

9.5

 

 


 

 

 

Insurance

7.7

 

 


 

 

 

Industrial

5.7

 

 


 

 

 

Other current assets and liabilities

2.4

 

 


 

 

 

Total

100.0

 

 

 

 

 

 

Analysis by Type, Market and Currency

All investments are of Ordinary Shares, denominated in sterling. All holdings carried at a value are in listed companies with the exception of Hornby and Randall & Quilter, which are quoted on AIM, and Phoenix SG which is unquoted (although part of its assets relate to AIM quoted shares in Stanley Gibbons plc).

 

The Company also has holdings in China Chaintek and Naibu Global International, which have been written down to a valuation of £nil.

 

All active holdings in the Company's portfolio are UK companies.

 

Statement from the CIO of the Investment Manager

 

This is beginning to feel a little like a pendulum because 2016 was a year of sowing, 2017 one for reaping and now 2018 was another one for sowing. The cause, as in 2016, was Brexit which created some great opportunities to invest. Although the accepted wisdom is that to minimise the risk of a hard Brexit you need to avoid those business most exposed to the domestic UK economy, we formed a different view. For us risk is a function of a number of factors but two in particular:

 

a. The relationship between the price you pay and the range of potential future value outcomes; and

b. The level of knowledge and certainty that drives the estimating of that range.

 

We spend a lot of time developing the expertise to estimate the value range with some confidence for a very few securities. The worry about a hard Brexit caused the market to over discount that risk and send the prices of businesses exposed to the UK down to levels, which in some cases were well below even the bottom of the range of values we expected. This included those values estimated that would result from some of the worst case scenarios set out by the Bank of England.

 

So although we were faced with the uncertainty of how Brexit would unfold we were able to invest with a high probability of a very satisfactory outcome no matter which path the politics took us down. And so we did.

 

By the end of the year, we were almost fully invested and our estimation of the intrinsic value of the portfolio was more than twice the NAV of the Company. From our past record of the last 21 years we know that is a level of cheapness that generates excellent medium and long term returns. So although we are still to find out how the Brexit saga will conclude we look forward to the future, investment wise, with a great deal of optimism.

 

Gary Channon

CIO Phoenix Asset Management Partners

 

24 April 2019

 

Investment Management Review and Outlook

 

During the year, the NAV (total return) per share decreased by 10.3% and the share price (total return) fell by 10.9%. At the end of December, the shares were trading at a 0.4% premium. The FTSE All Share (total return) fell by 9.5% over the same period. A total of 12.9m new shares were issued in the year. Net assets reached £101m as at 31 December 2018 (2017 £87m) as the Phoenix investment approach continues to attract new shareholders to the Company.

 

At the time of writing the exact nature of Britain's future relationship with Europe is still to be resolved. We have lived with the uncertainty surrounding Brexit for much of the last 12 months which reached a peak in Q4 2018 with the Company and the FTSE All Share both posting significant falls. As at 30 September 2018 the Company's NAV had risen 5.9% before losing 16.2% in Q4. The first two months of 2019 have seen a reversal with an 11% gain as at 28 February 2019 as the market began to recognise the cheap valuations in domestic focused UK equities.

 

Activity Review

2018 saw two new holdings added to the portfolio. They were Phoenix SG Ltd and Dignity PLC. Phoenix SG is a private company, which we incorporated to hold the assets that comprise our investment in Stanley Gibbons, the world's leading stamp and coin dealing business. We reported on the Stanley Gibbons investment in the June monthly factsheet as follows:

 

"The investment takes an unusual form, structured to protect our downside risk. The design makes this a far superior investment to one we could have made by just buying equity. We purchased four things: an equity stake, a loan owed to the bank, a portfolio of stamps and a receivable from the administration of the Guernsey entity. We expect the loan will be repaid in the next 5 years. Over that same period, we expect sales of the stamps we have purchased and a distribution from the receivable. In total we expect to earn from those 3 items around the same amount as our total investment leaving us with the Stanley Gibbons equity at no cost. Whilst we are owed money, we have a first charge over all the assets of the company.

 

The Group has been through a disastrous period of mismanagement, which saw it make overpriced acquisitions and distort its core business to serve an investment business which is now in administration. The current Board have in the past two years unwound and disposed of those acquisitions, including an antiques business. They also closed the investment business. What we inherit is a company ready to recover based upon its core business in the world of stamp and coin collecting.

 

The group has 3 well-known brands: Stanley Gibbons and Murray Payne in stamps, and Baldwins in coins. Stanley Gibbons was founded in 1856 and from 1899 has been located on The Strand in London. Since 1914, the company has held a Royal Warrant for supplying the Royal Household. In the philatelic world, Stanley Gibbons has the pre-eminent reputation and for that stamp buyers are willing to pay a premium because of the lifetime guarantee of authenticity. Stanley Gibbons publishes catalogues that list prices for stamps in the areas in which it specialises, and these are used by the rest of the trade as their reference point.

 

Our vision is that the company can now rebuild and update its business from a single destination location and reach a worldwide audience through an effective digital strategy. The desire to collect and have hobbies, the wherewithal to fund these pursuits, leisure time and good health are all boosted by the prevailing demographic trends. However, to achieve their potential and attract and delight new customers, it is essential to modernise and make the most of new technologies and insights.

 

The internet, rather than hurting a business-like Stanley Gibbons, in fact does the opposite. It allows a unique single iconic location in London to reach a worldwide audience inexpensively, and for a business so rich in intellectual property and knowledge, to offer an engaging and immersive experience tailored to the interest of the customer. The building blocks for a great business are there in terms of the brand, heritage, reputation and capability."

 

The Company owns 28% of Phoenix SG, which, in turn, owns 58% of Stanley Gibbons, and through the various vehicles we manage we therefore have a controlling stake. The initial months following our investment were spent setting and refining the business strategy and working on improving certain day to day operational practices, which saw progress in Q4 through laying the groundwork for the more tangible elements of the strategy to come to life in 2019.

 

More recently, it was also announced that Phoenix has increased the existing loan facility to the company by up to an additional £5m to be drawn down over time. The terms of this extension are the same as on the existing loan amount and will allow the business to invest in several potentially transformational strategic initiatives.

 

Dignity PLC in summary made up of over 800 local funeral director brands where each has many decades (and sometimes centuries) of embedded networks of customer connections. When someone is purchasing the products and services related to a funeral, they are normally grieving. The customer seeks to minimise time putting together the arrangements and wants to conduct the funeral as quickly as possible. The anguish in thinking about the arrangements, the urgency to get it done and the necessity to choose a provider they can trust, means customers tend not to shop around. Price is an afterthought.

 

Customers tend to choose a provider they have used before, or a provider that a friend or family member recommends. Repeat and referral business makes up about 90% of Dignity's sales and has done for many decades. The more funerals a provider carries out in a community over time, the deeper the web of repeat and referral customers as well as trust/awareness that exists in a local catchment. Over time, it becomes very difficult for a new provider to displace an established funeral director.

 

As well as providing funeral services, Dignity own crematoria. Again, the consumer behaviour surrounding choosing a crematorium involves almost no shopping around. Proximity and convenience are the most important factors. Crematoria have the added benefit of being incredibly hard to build. You need to prove the need which is difficult because the vast majority of crematoria are operating at less than capacity. The planning laws also make it very difficult to get permission close to areas where people live. This has resulted in a situation where demand for cremations has increased at about 2% per year, but the supply has increased at only 1%.

 

Dignity also offer prepaid funeral plans. These are plans that a customer buys before they die so that their family does not have to think about arrangements. Dignity takes payments up front, which are on average 17 years before they have to perform the funeral. Dignity get to keep any investment gains on the prepayments.

 

When you tie it all together, you have a very predictable business. There is lots of pricing power in the funeral services business because of the well documented consumer behaviour around the purchasing decision, and even more in the crematoria because of the added supply/planning constraints.

 

In Q4 2018 the Competition and Markets Authority (CMA) announced it would undertake a full review of the funeral industry. We reported in the December 2018 Aurora Fact Sheet that the major players in the industry, Dignity included, have already reduced prices. The CMA investigation and the price falls are incongruous; either there is a lack of competition and the authorities will seek ways to increase it, or there is competition driving down prices already and intervention is not needed. The truth is that for a long time the leaders in this field persistently raised prices ahead of costs, but in so doing they increased their vulnerability to competition. In Buffett's words, "they reduced the moat that protected their pricing power". Over time, they paid the price in loss of share and declining volumes until ultimately, they are now lowering prices. We assume this is the world they will operate in, i.e. price competitive, where they will need to use their scale to be the low-cost operator and where future margins will not match the past. However, even on that assumption the shares are worth, in our estimate, three times where they trade today. The best investments we have found in the past are where you can buy "the ugly duckling", of an ugly sector, in an ugly market. Dignity fits the bill perfectly.

 

In 2018 we exited one holding Headlam Group in March. Management's approach to capital allocation is a key part of the investment process at Phoenix and we became concerned at the approach employed by the team at Headlam. We continue to monitor the business from the side-lines.

 

We made two significant changes to our housebuilding holdings (Bellway, Redrow and Barratt Developments). In March we reduced the sector weight from 18% to 10% and exited Barratt Developments completely. This move was the result of an internal process at Phoenix whereby we subject all our investments to a test of repurchase at least once every three years. The weight reduction reflected the findings of that process, that although housebuilders were good value and likely to deliver attractive long-term returns, we recognised that the market conditions could not have been more favourable and so it was reasonable to expect that the most likely future path was for a deterioration in some of the positives. With that in mind, we decided that our overall exposure was too high and reduced it.

 

Share prices subsequently reduced through concerns over the Help to Buy scheme and uncertainty over Brexit. In Q4 we took the opportunity of significant price falls to restore a position in Barratt Development and to add to our holdings in Bellway and Redrow at attractive valuation levels.

 

In Q4 we took advantage of the price falls across the portfolio to utilise our cash weight to rotate out of holdings with a lower upside to intrinsic value into holdings with higher upsides. In addition to the housebuilders we added to Sports Direct and EasyJet along with the additional purchases of Dignity. As well as utilising cash, we made small reductions in Lloyds, GlaxoSmithKline, Tesco and Morrisons to fund the new purchases.

 

From a share price perspective stronger showing this year came from Randall & Quilter +31%, GlaxoSmithKline +19% and Hornby +16%. Significant falls during the year came from CPP -49%, and Sports Direct -37%. Dignity fell sharply this year -61%, but we started the year not owning any and didn't start buying until it had fallen 45%.

 

Randall & Quilter announced an additional fundraising exercise in early 2019 to take advantage of the opportunities available to them in their core markets. We participated and remain very supportive of the management. Emma Walmsley, the GlaxoSmithKline CEO, has now been in place 18 months and we have been impressed with her focus of identifying and reducing non-performing assets whilst focussing on those with the most potential. These priorities feed into the capital allocation framework to improve the long-term competitive performance and ability to bring new breakthrough medicines and better healthcare products to the market.

 

Sports Direct fell significantly due to market concerns over its purchase of non-core businesses, such as House of Fraser, and difficult trading conditions in Q4. We remain comfortable with the investment and as outlined above, took advantage of price falls to add to the holding. We do however continue to monitor its plans for the House of Fraser business very closely together with our continuing focus on online shopping habits to asses its ongoing competitive threat to all retailers. In our December 2018 monthly report, we touched upon the retail sector:

 

"Where a far greater destructive force than Brexit has been at work, that is the changing nature of shopping brought about by the internet. This is doing serious damage, wiping out whole businesses and depressing the values of those that remain. The businesses we own (Sports Direct, Tesco, Morrisons) are all positioned where they are the lowest cost operator in both stores and online. This should protect them from being undermined by an online competitor. We do assume in our modelling of the future that physical retailing will remain, but in a different form, as a showcase for products and as an experiential activity. Consumers, we believe the evidence shows, still like to go shopping, they do it today even when an online opportunity exists with more convenience and lower prices. The winners in this space, we expect, will be able to do both well and seamlessly. The best online only retailers are now beginning to open physical stores as they recognise that."

 

Steve Tatters

Director

Phoenix Asset Management Partners

24 April 2019

 

OTHER STRATEGIC REPORT INFORMATION

 

Risk Analysis

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

 

External Risks

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

 

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

 

Internal Risks

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

 

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

 

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

 

Risk Controls

 

External risks

As described in the Investment Policy section above, external risks are mitigated by diversification of the portfolio and by not utilising gearing.

 

Risk diversification

An element of risk is inherent in investment undertaken on a selective basis. The Company seeks to mitigate the degree of risk by investing in securities in substantial organisations, normally listed and traded on the London Stock Exchange, and by spreading its investments across a range of such securities. At 31 December 2018 the Company held 18 stocks, spread across 7 main sectors.

 

Gearing

The Company has the power under its Articles to borrow money. 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.

 

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.

 

Internal risks

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

 

Viability Statement

The Company is subject to continuation votes every three years, with the next vote falling due in 2019. A resolution will be proposed at the AGM on 10 June 2019 to approve the continuation of the Company as an investment trust. Although there is a continuation vote in 2019, the Directors consider that a longer time frame is appropriate for the purpose of assessing the Company's viability. The Directors recommend that the continuation vote be passed.  Accordingly, they have concluded that they should continue to utilise a five year period to evaluate performance.

 

After making inquiries, 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 from the date of approval of this document.

 

In reaching this conclusion, the Directors have considered each of the principal risks and uncertainties set out above. They have considered the liquidity and solvency of the Company, the level of premium at which its shares trade, its income and expenditure profile including the absence of monthly management fees and the discontinuation of the use of gearing as an instrument of normal investment policy. 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 and the sale of shares from treasury 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 Directors do not expect there to be any material increase in the annual ongoing charges of the Company over the period of their assessment. 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 during the period under review.

 

Social, Ethical, Human Rights and Environmental Matters

Being an investment company, with no staff, premises, manufacturing or other operations of its own, the Company does not have any direct influence on social, ethical, human rights and environmental matters. The Company has no greenhouse gas emissions to report from its operations, nor any responsibility for emission producing sources.

 

Employees and Boardroom Diversity

The Company has no employees. At 31 December 2018 the Company had five directors, all of whom were male. The Company's policy is that the Board should have a broad range of skills; while keeping this in mind, consideration is given to the recommendations of the AIC Code and other guidance on boardroom diversity.

 

Modern slavery disclosure

Due to the nature of the Company's business, being a company that does not offer goods or services to consumers, the Board considers that it is not within the scope of modern slavery. The Board considers the Company's supply chains, dealing predominately with professional advisers and service providers in the financial service industry, to be low risk to this matter.

 

Outlook

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

 

This Strategic Report was approved by the Board on 24 April 2019.

 

For and on behalf of the Board

Lord Flight

Chairman

 

24 April 2019

 

Governance

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES FOR THE ANNUAL REPORT

 

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

 

Company law in the United Kingdom requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company for that period. In preparing these financial statements, the directors are required to:

 

•     select suitable accounting policies and then apply them consistently;

 

•     make judgements and accounting estimates which are reasonable and prudent;

 

•     state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements;

 

•     prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the Company will continue in business.

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the website used by the Company.

 

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

 

Statement under the Disclosure and Transparency Rules 4.1.12

 

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

 

a.    The financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

b.    this annual 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.

 

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

 

For and on behalf of the Board

Lord Flight

Chairman

24 April 2019

 

 

FINANCE

 

Statement of Comprehensive Income

For the year ended 31 December 2018

 

 




Year ended


Year ended




31 December 2018


31 December 2017











Revenue

Capital

Total

Revenue

Capital

Total









Notes


£'000

£'000

£'000

£'000

£'000

£'000










(Losses)/gains on

-

(14,585)

(14,585)

-

10,621

10,621


investments at fair value

 

 

 

 

 

 



 

 

 

 

 

 



 

 

 

 

 

 

2

Income

2,959

-

2,959

1,683

-

1,683



 

 

 

 

 

 


Total income

2,959

(14,585)

(11,626)

1,683

10,621

12,304



 

 

 

 

 

 

3

Investment

-

-

-

-

-

-


management fees

 

 

 

 

 

 



 

 

 

 

 

 

3

Other expenses

(457)

-

(457)

(376)

-

(376)



 

 

 

 

 

 


Profit/(loss)  before tax

2,502

(14,585)

(12,083)

1,307

10,621

11,928



 

 

 

 

 

 

6

Tax

-

-

-

-

-

-



 

 

 

 

 

 


Profit/(loss)  and total

2,502

(14,585)

(12,083)

1,307

10,621

11,928


comprehensive

 

 

 

 

 

 


income for the

 

 

 

 

 

 


year

 

 

 

 

 

 



 

 

 

 

 

 



 

 

 

 

 

 

8

Earnings per share

4.99p

(29,09p)

(24.10p)

3.67p

29.85p

33.52p

 

The revenue and capital columns, including the revenue and capital earnings per 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 year. All revenue is attributable to the equity holders of the Company.

 

The Board has recommended a final dividend of 4.0p per share (see note 7).

 

Statement of Financial Position

At 31 December 2018

 


2018

2017




Notes

£'000

£'000


NON-CURRENT ASSETS

 

 

 

9

Investments held at fair value through

98,619

82,587


profit or loss

 

 



 

 



98,619

82,587



 

 


CURRENT ASSETS

 

 



 

 


Receivables

459

351



 

 


Cash and cash equivalents

2,008

4,507



 

 



2,467

4,858



 

 



 

 


TOTAL ASSETS

101,086

87,445



 

 



 

 


CURRENT LIABILITIES:

 

 



 

 


Payables

90

72



 

 



90

72



 

 



 

 


NET ASSETS

100,996

87,373



 

 



 

 


EQUITY

 

 



 

 

10

Called up share capital

13,855

10,618



 

 


Capital redemption reserve

179

179



 

 


Share premium account

77,764

54,009



 

 

12

Investment holding (losses)/gains

(5,218)

10,887



 

 

12

Other capital reserves

11,573

10,053



 

 


Revenue reserve

2,843

1,627



 

 



 

 


TOTAL EQUITY

100,996

87,373



 

 



 

 

13

Net assets per ordinary share

182.24p

205.72p

 

Statement of Changes in Equity

Year to 31 December 2018

 



Share

Capital

Share

Invest-

Other

Revenue

Total



capital

redemp-     premium

ment

capital

reserve





tion

account

holding

reserves






reserve


gains

/(losses)












Notes


£'000

£'000

£'000

£'000

£'000

£'000

£'000



 

 

 

 

 

 

 


Opening equity

10,618

179

54,009

10,887

10,053

1,627

87,373



 

 

 

 

 

 

 



 

 

 

 

 

 

 


Profit

-

-

-

(16,105)

1,520

2,502

(12,083)


 for the year

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 


Issue of new

3,237

-

24,016

-

-

-

27,253


shares

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 


Share issue

-

-

(261)

-

-

-

(261)


costs

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

7

Dividends paid

-

-

-

-

-

(1,286)

(1,286)



 

 

 

 

 

 

 



 

 

 

 

 

 

 


Closing equity

13,855

179

77,764

(5,218)

11,573

2,843

100,996

 



Share

Capital

Share

Invest-

Other

Revenue

Total



capital

redemp-     premium

ment

capital

reserve





tion

account

holding

reserves






reserve


gains

/(losses)












Notes


£'000

£'000

£'000

£'000

£'000

£'000

£'000



 

 

 

 

 

 

 


Opening equity

7,448

179

32,557

2,111

8,208

935

51,438



 

 

 

 

 

 

 



 

 

 

 

 

 

 


Profit

-

-

-

8,776

1,845

1,307

11,928


 for the year

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 


Issue of new

3,170

-

21,737

-

-

-

24,907


shares

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 


Share issue

-

-

(285)

-

-

-

(285)


costs

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 

7

Dividends paid

-

-

-

-

-

(615)

(615)



 

 

 

 

 

 

 



 

 

 

 

 

 

 


Closing equity

10,618

179

54,009

10,887

10,053

1,627

87,373

 

Cash Flow Statement

For the year ended 31 December 2018

 


Year to

Year to

 


31 December

31 December

 


2018

2017

 




 


£'000

 

NET CASH OUTFLOW FROM OPERATING ACTIVITIES



 


 

 

 

Cash inflow from investment income and interest

2,801

1,631

 


 

 

 

Cash outflow from management expenses

(389)

(417)

 


 

 

 

Receipts on disposal of non-current asset investments

60,258

22,778

 


 

 

 


 

 

 

Payments to acquire non-current asset investments

(90,875)

(44,895)

 


 

 

 

NET CASH INFLOW  FROM IN INVESTING ACTIVITIES

(28,205)

(20,903)

 


 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 


 

 

 

Net proceeds from issue of new shares

26,992

24,622

 


 

 

 


 

 

 

Dividends paid

(1,286)

(615)

 


 

 

 

NET CASH INFLOW FROM FINANCING ACTIVITIES

25,706

24,007

 


 

 

 


 

 

 

(DECREASE)/INCREASE IN CASH

(2,499)

3,104

 


 

 

 


 

 

 


 

 

 

Cash and cash equivalents at beginning of year

4,507

1,403

 


 

 

 

 (Decrease)/ increase in cash

(2,499)

3,104

 


 

 

 

Cash and cash equivalents at end of year

2,008

4,507

 

 

NOTES TO THE FINANCIAL STATEMENTS

 

1.      Accounting Policies

 

Basis of Accounting

The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS), which comprise standards and interpretations approved by the IASB and International Accounting Standards and Standing Interpretations Committee interpretations approved by the IASC that remain in effect, and to the extent that they have been adopted by the European Union.

 

Under IFRS, the AIC Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" issued in November 2014 and updated in February 2018 has no formal status, but the Company adheres to the guidance of the SORP.

 

Going concern

The Directors have adopted the going concern basis in preparing the financial statements. 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 on the annual report. The accounting policies are unchanged from those used in the last annual financial statements except where otherwise stated. The particular accounting policies adopted are described below:

 

a.  Accounting Convention

The accounts are prepared under the historical cost basis, except for the measurement of fair value of investments.

 

b Adoption of new and revised standards

In the current period the Company has adopted IFRS 9 Financial Instruments on its effective date of 1 January 2018. IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement and introduces new requirements for classification and measurement, impairment and hedge accounting. IFRS 9 is not applicable to items that have already been derecognised at 1 January 2018, the date of initial application.

 

Receivables that were previously measured at amortised cost under IAS 39 are held to collect contractual cash flows and give rise to cash flows representing solely payments of principal and interest. Therefore, such instruments continue to be measured at amortised cost under IFRS 9. The classification of financial liabilities under IFRS 9 remains broadly the same as under IAS 39. The main impact on measurement from the classification of liabilities under IFRS 9 relates to the element of gains or losses for financial liabilities designated at fair value through profit or loss attributable to changes in credit risk. The Company has not designated any financial liabilities at fair value through profit or loss therefore this requirement has not had an impact on the Company. IFRS 9 requires the Company to record expected credit losses on all of its receivables, either on a 12 month or lifetime basis. As the Company has limited exposure to credit risk, this amendment has not had a material impact on the financial statements as the Company only holds receivables with no financing component that have maturities of 12 months or less. This requirement has not significantly changed the carrying amounts of the Company's financial assets under IFRS 9.

 

There has been no restatement in the comparative figures for the year ended 31 December 2017 as a result of adopting IFRS 9. The adoption of IFRS 15 during the year had no impact on the Company.

 

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 net profit or loss as a capital item and transaction costs on acquisition or disposal of investments are expensed. 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. Investments are held at fair value through profit or loss as they fail the contractual cash flows test under IFRS 9 so there is no change to comparative figures as investments were historically held at fair value through profit or loss under IAS 39.

 

Unquoted investments are measured at fair value, which is determined by the Directors in accordance with the International Private Equity and Venture Capital guidelines.

 

d.  Income from Investments

Investment income from ordinary shares is accounted for on the basis of ex-dividend dates. Income from fixed interest shares and securities is accounted for on an accruals basis using the effective interest method. Special Dividends are assessed on their individual merits and are credited to the capital column of the Statement of

 

Comprehensive Income if the substance of the payment is a return of capital; with this exception all investment income is taken to the revenue column of the Statement of Comprehensive Income. Income from gilts receivable is accounted for on an accruals basis using the effective yield.

 

e.   Capital Reserves

The Company is not precluded by its Articles from making any distribution of capital profits by way of dividend, but the Directors have no current plans to do so. Profits and losses on disposals of investments are taken to the 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, Finance Costs and Other Costs

Performance-related fees are charged to other capital reserves (gains on disposal) via the capital column of the Statement of Comprehensive Income. Other costs are normally charged to revenue, unless there is a compelling reason to charge to capital. Tax relief in respect of costs allocated to capital is credited to capital via the capital column of the Statement of Comprehensive Income on the marginal basis.

 

g.  Taxation

Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting period, that are unpaid at the 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 income statement, except where they relate to items that are charged or credited directly to equity.

 

h.  Foreign currency

The currency of the primary economic environment in which the 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.

 

k.  Judgements, estimations and assumptions

The directors have reviewed matters requiring estimation and/or judgement. The preparation of the financial statements requires management to make judgements, estimations and 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. There are no judgements or estimates that have had a significant effect on amounts recognised in the financial statements.

The critical judgement, estimates and assumptions that have a significant risk of causing a material adjustment to the Company's NAV relate to the valuation of the Company's unquoted (Level 3) investment in Phoenix SG, which is 6.9% 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% (£700,954), the impact on the Company's NAV would be 0.7%.

 

2.Income

 

 


Year to

Year to

 

 


31 December

31 December

 

 


2018

2017

 

 




 

 


£'000

£'000

 

 

Income from investments:

 

 

 

 


 

 

 

 

Franked dividends from listed or quoted investments

2,956

1,683

 

 


 

 

 

 

Other income:

 

 

 

 

Interest on deposits

3

-

 

 


 

 

 

 

Total income

2,959

1,683

 

 


 

 

 

 

 

3.Investment Management Fees and Other Expenses

 

 




2018



2017

 

 








 

 


Revenue

Capital

Total

Revenue

Capital

Total

 

 








 

 


£'000

£'000

£'000

£'000

£'000

£'000

 

 








 

 

Investment management fees

 

 

 

 

 

 

 

 

  monthly

-

-

-

-

-

-

 

 

  performance

-

-

-

-

-   

-

 

 


 

 

 

 

 

 

 

 

Administration fees

139

-

139

111

-

111

 

 


 

 

 

 

 

 

 

 

Depository/custodian fees

66

-

66

60

-

60

 

 


 

 

 

 

 

 

 

 

Registrar's fees

32

-

32

24

-

24

4

 


 

 

 

 

 

 

 

 

Directors' fees

81

-

81

81

-

81

 

 


 

 

 

 

 

 

 

 

Auditors' fees

33

-

33

31

-

31

 

 


 

 

 

 

 

 

 

 

Printing

13

-

13

14

-

14

 

 


 

 

 

 

 

 

 

 

Miscellaneous expenses

93

-

93

55

-

55

 

 


 

 

 

 

 

 

 

 

Total expenses

457

-

457

376

-

376

 

 

All expenses include any relevant irrecoverable VAT. The amounts excluding VAT paid or accrued for the audit of the Company are £26,800 (2017: £25,250).

 

4.Directors' Fees

 

The fees paid or accrued were £81,250 (2017: £81,250 ). There were no other emoluments. Full details of the fees of each director are given in the Directors' Remuneration Report.

 

5.       Transaction Charges

 

 


Year to

Year to

 

 


31 December

31 December

 

 


2018

2017

 

 




 

 


£'000

£'000

 

 


 

 

 

 

Transaction costs on purchases of investments

39

132

 

 


 

 

 

 

Transaction costs on sales of investments

12

11

 

 


 

 

 

 

Total transaction costs included in gains or losses on

51

143

 

 

investments at fair value through profit or loss

 

 

 


 

6.       Taxation

(a) Analysis of tax charge in the year:

 

 




Year to

Year to

 

 



31 December 2018


31 December 2017

 

 








 

 


Revenue

Capital

Total

Revenue

Capital

Total

 

 








 

 


£'000

£'000

£'000

£'000

£'000

£'000

 

 








 

 

Corporation tax

-

-

-

-

-

-

 

 


 

 

 

 

 

 

 

 

Overseas tax

-

-

-

-

-

-

 

 


 

 

 

 

 

 

 

 

Tax charge in respect of the

-

-

-

-

-

-

 

 

current year

 

 

 

 

 

 

 

 

(b) Factors affecting total tax charge for the year:

The taxation charge for the year is different from the standard rate of corporation tax in the UK (19.0%). The differences are explained below:

 

 


Year ended

Year to

 

 


31 December

31 December

 

 


2018

2017

 

 




 

 


£'000

£'000

 

 




 

 

Total (loss)/profit before tax

(12,083)

11,928

 

 


 

 

 

 


 

 

 

 

Theoretical tax at UK corporation tax rate of 19.0%

(2,296)

2,296

 

 

(2017: 19.25%)

 

 

 

 


 

 

 

 

Effects of:

 

 

 

 


 

 

 

 

Capital losses/(profits) that are not taxable

2,771

(2,045)

 

 


 

 

 

 

UK dividends which are not taxable

(561)

(324)

 

 


 

 

 

 

Increase in excess tax losses

86

73

 

 


 

 

 

 

Total tax charge for the year

-

-

 

 

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 tax losses of £9,635,000 (2017: £9,182,000) in respect of management expenses, equivalent to a potential tax saving of £1,638,000 at the prospective tax rate of 17% (2017: £1,560,950 at 17%) and tax losses of £1,491,000(2017: £1,490,706) in respect of loan interest, equivalent to a potential tax saving of £253,000 at the prospective tax rate of 17% (2017: £253,420 at 17%).

 

These amounts are available to offset future taxable revenue. A deferred tax asset has not been recognised in respect of those expenses and they will be recoverable only to the extent that the Company has sufficient future taxable revenue.

 

7. Ordinary Dividends

 

 


Year to

Year to


 


31 December

31 December


 


2018

2017


 





 


£'000

£'000


 





 

Dividends reflected in the financial statements:

 

 

 

 


 

 

 

 

Interim dividend for the period to 31 December 2016

-

615

 

 

at 2.00p per share

 

 

 

 


 

 

 

 

Final dividend for the year ended 31 December 2017 at

1,286

-

 

 

2.75p per share

 

 

 

 


 

 

 

 

Dividends not reflected in the financial statements:

 

 

 

 


 

 

 

 

Final dividend for the year to 31 December 2018 of 4.0p per share

2,398

-

 

 

 

 

 

 

 

8. Earnings Per Share

 

Earnings per share are based on the loss of £12,083,000 (2017:profit  £11,928,000) attributable to the weighted average of 50,131,873 (35,585,776) 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 £2,502,000 (2017: £1,307,000); capital earnings per share are based on the net capital loss of £14,585,000 (2017: £10,621,000), attributable to the weighted average of 50,131,873 (2017: 35,585,776) ordinary voting shares of 25p.

 

9.       Investments held at Fair Value Through Profit or Loss

 

 

At 31 December

2018

2017

 

 




 

 


£'000

£'000

 

 


 

 

 

 

UK listed securities

84,922

71,574

 

 


 

 

 

Securities traded on AIM

6,687

11,013

 

 


 

 

 

Unquoted securities

7,010

-

 

 


 

 

 

Total non-current investments held at fair value

98,619

82,587

 

 

through profit or loss

 

 

 

 


 

 

 

Movements during the year:

 

 

 

 


 

 

 

Opening balance of investments, at cost

71,700

47,738

 

 


 

 

 

Additions, at cost

90,875

44,895

 

 


 

 

 

Disposals - proceeds received or receivable

(60,258)

(22,778)

 

 


 

 

 

- less realised profits

1,520

1,845

 

 


 

 

 

- at cost

(58,739)

(20,933)

 

 


 

 

 

Cost of investments held at fair value through

103,837

71,700

 

 

profit or loss at 31 December

 

 

 

 


 

 

 


 

 

 

 

Revaluation of investments to market value:

 

 

 

 


 

 

 

Opening balance

10,887

2,111

 

 


 

 

 

(Decrease)/Increase in unrealised appreciation debited/credited to

(16,105)

8,776

 

 

investment holding reserve

 

 

 

 


 

 

 

Balance at 31 December

(5,218)

10,887

 

 


 

 

 


 

 

 

 

Market value of non-current investments held

98,619

82,587

 

 

at fair value through profit or loss at 31 December

 

 

 

 

The Company's unquoted investment represents investments 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 58.1 percent holding in the total equity of Stanley Gibbons;

 

A loan agreement with Stanley Gibbons for a principal amount of £10.0 million over a term of 5 years (the "Debt Investment"). The loan will accrue interest at a rate of 5.0 percent compounding annually and will be repaid in full at maturity. The loan structure also gives Phoenix SG a first charge over the assets and brands of Stanley Gibbons;

 

The rights to any receivables resulting from a claim of £23.5 million over the assets of Stanley Gibbons (Guernsey) Ltd ("SGG") (the "Receivables Investment"). SGG is a subsidiary of Stanley Gibbons which is currently in administration;

 

Receivables resulting from the sale of the stamp inventory which Phoenix SG purchased from the administrator of SGG (the "Inventory Investment").

 

The total fair value attributable to the Company's investments in Phoenix SG as of 31 December 2018 is £7.0 million. The Company held 24.8% of the share capital of Phoenix SG.

 

10.  Share Capital

 

 

At 31 December


2018

2017

 

 





 

 

Allotted, called up and fully paid

Number

55,418,716

42,471,503

 

 


 

 

 

 

Ordinary shares of 25p

£'000

13,855

10,618

 

 

The Company did not purchase any of its own shares during the year ended 31 December 2018 or the year ended 31 December 2017. No shares were cancelled during either year. No shares were held in Treasury or sold from Treasury during the year ended 31 December 2018 or the year ended 31 December 2017.

 

Placings

 

A placing and intermediary offer was completed on 2 July 2018 under the terms of the placing programme that had been established by a prospectus dated 5 September 2017. This raised £9,241,000, net of commission but before professional and other fees, for the issue of 4,302,420 new shares. The price at which shares can be issued under this prospectus is the NAV per share at the time of issue plus a premium of 1.25%.

 

Block listings

 

The Company had established on 16 October 2017 a block listing facility for up to 8,160,700 new shares to meet market demand arising from time to time. Under this facility a total of 5,779,088 new shares were issued during the period 1 January-5 June 2018, raising £11,904,000, net of commission.

A new block listing facility for up to 9,650,118 new shares was established on 6 June 2018. Under this facility a total of 2,865,705 new shares were issued during the period 6 June-31 December 2018, raising £5,979,000, net of commission.

 

At 31 December 2018, the Company had 55,418,716 (2017: 42,471,503) shares in issue. The number of voting shares at 31 December 2018 was 55,418,716 (2017: 42,471,503).  

 

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 below.

 

The Company's Revenue Reserves are the net profits that have arisen from the Company's revenue income in the form of dividends and interest, less operating expenses and dividends paid out to the Company's shareholders.

 

12.  Capital Reserves

 

 


31 December

31 December

 

 

 

 


2018

2017

 

 

 

 




 

 

 

 


£'000

£'000

 

 

 

 




 

 

 

 

Investment holding gains/(losses)

 

 

 

 

 

 


 

 

 

 

 

 

Opening balance

10,887

2,111

 

 

 

 


 

 

 

 

 

 

Revaluation of investments

(16,105)

8,776

 

 

 

 


 

 

 

 

 

 

Balance of investment holding (losses)/ gains at 31 December

(5,218)

10,887

 

 

 

 


 

 

 

 

 

 


 

 

 

 

 

 

Other capital reserves

 

 

 

 

 

 


 

 

 

 

 

 

Opening balance

10,053

8,208

 

 

 

 


 

 

 

 

 

 

Net gains on realisation of investments

1,520

1,615

 

 

 

 


 

 

 

 

 

 

Capital distributions received

-

230

 

 

 

 


 

 

 

 

 

 


 

 

 

 

 

 


 

 

 

 

 

 


 

 

 

 

 

 

Total gains of other capital reserves

1,520

1,845

 

 

 

 


 

 

 

 

 

Balance of other capital reserves at 31 December

11,573

10,053

 

 

 


 

 

 

 

 


 

 

 

 


 

 

 

 

 

 

Total capital reserve at 31 December

6,355

20,940

 

 

 

 

 

13.  Net Assets Per Ordinary Share

 

The figure for net assets per ordinary share is based on £100,996,000 (2017: £87,372,561) divided by 55,418,716 (2017: 42,471,503) voting ordinary shares in issue at 31 December 2018.

 

14.   Reconciliation of Profit before Finance Costs and Tax to Net Inflow from Operating Activities

 





Year to 31 December 2018

Year to 31 December 2017


£'000

£'000

(Loss)/profit before finance costs and tax

(12,083)

11,928

Increase in non-current investments

(16,032)

(32,738)

Increase in other receivables

(108)

(100)

Increase in other payables

18

7

Net cash inflow from operating activities

(28,205)

(20,903)

 

 

15.  Related Party Transactions

 

Details of the management, administration and secretarial contracts can be found in the Directors' Report. Mr Tatters is a director of the company and an employee of Phoenix. There were no transactions with directors other than disclosed in the Directors' Remuneration Report. Fees payable to Phoenix are shown in note 3.

 

Other payables include accruals of administration fees of £11,800 (2017: £9,825).

No provision has been made for a performance fee at 31 December 2018 (2017: £Nil). Any performance fee would be payable in shares after the end of the performance fee period, but the amount that would have to be payable is provided in the accounts as an equivalent value of money. All figures include any appropriate VAT.

 

The Company holds 24.8% of the issued share capital of Phoenix SG, a company established by Phoenix and in which other clients of Phoenix hold shares. Phoenix does not earn fees from any agreement between itself and Phoenix SG.

 

16.  Financial Assets/Liabilities

 

Investments are carried in the Statement of Financial Position at fair value. For other financial assets and financial liabilities, the Statement of Financial Position 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:

 

 

At 31 December



2018



2017

 

 








 

 


Interest

Non-

Total

Interest

Non-

Total

 

 


bearing

interest


bearing

interest


 

 



bearing



bearing


 

 








 

 


£'000

£'000

£'000

£'000

£'000

£'000

 

 








 

 

Non-current investments

 

 

 

 

 

 

 

 

at fair value through profit

 

 

 

 

 

 

 

 

or loss:

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

£ sterling equities

-

98,619

98,619

-

82,587

82,587

 

 


 

 

 

 

 

 

 

 


-

98,619

98,619

-

82,587

82,587

 

 


 

 

 

 

 

 

 

 

Cash at bank:

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

Floating rate - £ sterling

-

2,008

2,008

-

4,507

4,507

 

 


 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Receivables

 -  

 459

 459

 -  

 351

 351

 

 

 

 -  

 101,086

 101,086

 -  

 87,445

 87,445

 

 

 

 

 

 

 

 

 

 

 

Cash at bank comprises £2,008,000 (2017: £4,506,798) 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 year end.

 

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 2018 was invested entirely in sterling securities and there was no 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 2018 or 31 December 2017 and no sensitivity analysis is presented for this risk.

 

A (ii) Interest Rate Risk

 

The Company did not hold fixed interest securities at 31 December 2018 or 31 December 2017.

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 2018 or 31 December 2017.

 

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.

 

B Liquidity Risk

 

Liquidity Risk is considered to be small, because the portfolio is mostly invested in readily realisable securities. As a consequence, cash flow risks are also considered to be small. The Manager estimates that, under normal market conditions and without causing excessive disturbance to the prices of the securities concerned, the majority of the portfolio could be realised within 7 days.

 

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 2018, cash at bank comprised £2,008,000 (2017: £4,506,798) 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.  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.

 

 

At 31 December

2018

2017

 

 

 

 

 

 

 

 

 

 

£'000

£'000

 

 

 

Level 1

                                                   91,609

82,587

 

 

 

 

 

 

 

 

 

Level 2

-

-

 

 

 

 

 

 

 

 

 

Level 3

7,010

-

 

 

There were no transfers between levels during the year.

 

 

The movements in the level 3 investments during the year is shown below:

 

 

 

 

2018

2017

 

 

Opening valuation

                          -  

                          -  

 

 

Additions during the year

                   5,578

                          -  

 

 

Unrealised gains at year end

                     1, 432

                          -  

 

 

Closing valuation

                   7,010

                          -  

 

 

 

The value of the Company's level 3 holding has been valued based on a proportionate share of the NAV of Phoenix SG, after discussion with the Investment Manager concerning that NAV.

 

 

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

 

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

 

Information on new standards, amendments and interpretations that are expected to be relevant to the Company's financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Company's financial statements.

 

The Company intends to adopt these standards (where applicable) when they become effective.

 

•     IFRS 16 Leases (effective date 1 January 2019).

 

It is not expected that the adoption of IFRS 16 will have any significant impact on the Company.

 

 

20.  Post Balance Sheet Date Events

 

Shares Issued

Since 31 December 2018 the Company has made further issues from its block listing facility of 4,428,598 new shares.

 

As at 23 April 2019 the Company had 59,947,314 shares in issue and the number of voting shares is 59,947,314. Ordinary shares issued since 31 December 2018 are as detailed below:

 

Date

Number Issued

Issue price (£)

04/01/2019

69,658

1.8510

07/01/2019

200,400

1.8718

08/01/2019

50,000

1.9037

09/01/2019

110,000

1.9280

15/01/2019

75,000

1.9627

16/01/2019

42,769

1.9664

05/02/2019

60,000

2.0177

07/02/2019

725,677

2.0461

13/02/2019

50,000

2.0149

15/02/2019

50,000

2.0074

20/02/2019

50,000

2.0232

25/02/2019

75,000

2.0319

26/02/2019

27,945

2.0281

05/03/2019

188,945

2.0677

11/03/2019

70,000

2.0413

12/03/2019

50,000

2.0437

14/03/2019

50,000

2.0581

15/03/2019

126,675

2.0681

18/03/2019

89,553

2.0898

20/03/2019

1,425,652

2.1043

26/03/2019

116,495

2.0417

27/03/2019

48,000

2.0503

01/04/2019

50,000

2.0555

03/04/2019

100,000

2.0463

08/04/2019

75,000

2.0570

10/04/2019

71,016

2.0432

11/04/2019

168,434

2.0541

15/04/2019

185,047

2.0992

23/04/2019

100,000

2.1167

 

General Meeting

On 9 April 2019 a General Meeting of the Company was held to seek shareholder approval to allot Ordinary Shares on a non pre-emptive basis in connection with a potential share issuance programme up to a maximum of 57 million Ordinary Shares in aggregate, such authority to expire on 15 July 2020, being 15 months from the passing of the resolution. The proposed resolutions were duly passed at the General Meeting.

 

21.   FINANCIAL INFORMATION

This announcement does not constitute the Company's statutory accounts. The financial information for the period to 31 December 2018 is derived from the statutory accounts for that period, which will be delivered to the registrar of companies following the Company's Annual General Meeting.  The statutory accounts for the period to 31 December 2017 have been delivered to the registrar of companies.  The auditors reported on the accounts for the period to 31 December 2017; their report was unqualified and did not include a statement under Section 498(2) or (3) of the Companies Act 2006.

 

 The annual report for the year ended 31 December 2018 will be posted to shareholders and will be made available on the Company's website at www.aurorainvestmenttrust.com.

 

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

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

 

22.  ANNUAL GENERAL MEETING

The Annual General Meeting will be held on 10 June 2019 at 12.00 noon at the offices of Grant Thornton (UK) LLP, 30 Finsbury Square, London EC2A 1AG.

 

24 April 2019

 

Secretary and registered office

 

PraxisIFM Fund Services Limited

Mermaid House

2 Puddle Dock

London EC4V 3DB

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
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