Aurora Investment Trust plc

Annual Report 31 December 2021

Company No. 03300814

Annual Report Contents 3

Contents

Strategic

Report

Financial and Performance Highlights 5

Chairman’s Statement 6

Investment Policy and Results

9

Top Holdings

13

Portfolio Analysis

14

Statement from the CIO of the Investment Manager 15

Investment Management Review and Outlook

17

Phoenix UK Fund Track Record 20

Report under Section 172 of the Companies Act 2006

22

Other Strategic Report Information

26

Governance

Directors, Investment Manager and Advisers 31

Directors’ Report 32

Corporate Governance Statement

40

Directors’ Remuneration Report

50

Statement of Directors’ Responsibilities 55

Audit Committee Report

57

Independent Auditor’s Report

60

Financials

Statement of Comprehensive Income 73

Statement of Financial Position

74

Statement of Changes in Equity 75

Cash Flow Statement

77

Notes to the Financial Statements 78

Alternative Performance Measures

99

Glossary 101

Notice of Meeting 103

4 Annual Report Strategic Report

Strategic Report

4 Annual Report Strategic Report

Annual Report Strategic Report 5

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.

Policy

Phoenix Asset Management Partners

Limited (Phoenix) was appointed

Investment Manager on 28 January 2016.

Phoenix currently seeks to achieve the

Objective by investing, primarily, in a

portfolio of UK listed equities.

The portfolio will remain relatively

concentrated. The exact number of

individual holdings will vary over time but

typically the portfolio will consist of 15

to20 holdings.

The Investment Policy of the

Company can be found on page 9.

Benchmark

Performance is benchmarked against the

FTSE All-Share Index (total return),

representing the overall UK market.

Dividend

The Board proposes to pay a ﬁnal

dividend of 1.84p per Ordinary Share

(2020: 0.55p) to be paid on 1 July 2022 to

Shareholders who appear on the register

as at 10 June 2022, with an ex-dividend

date of 9 June 2022.

Annual General Meeting

The AGM of the Company will be held at

Chartered Accountants Hall,

OneMoorgate Place, London EC2R 6EA

on 28June 2022 at 2.00 pm. If you are

unable to attend in person you have the

option of attending via webinar, where

you will have the opportunity to hear a

presentation from the Investment

Manager and ask questions. Instructions

on how to attend the webinar can be

found on the Company’s website at

https://www.aurorainvestmenttrust.com/n

ews/regulatory/56/ and in the Notes to

the notice of AGM.

Financial and

Performance

Highlights

The chart above shows the Company’s NAV performance (total return) compared to the FTSE All-Share Index

(total return) since Phoenix became the Investment Manager.

Performance

FTSE All-Share Index

Aurora Net asset value (NAV) per Ordinary Share

90

100

110

120

130

140

150

160

170

31/12/21

30/09/21

30/06/21

31/03/21

31/12/20

30/09/20

30/06/20

31/03/20

31/12/19

30/09/19

28/06/19

29/03/19

31/12/18

28/09/18

29/06/18

29/03/18

29/12/17

29/09/17

30/06/17

31/03/17

30/12/16

30/09/16

30/06/16

31/03/16

28/01/16

6 Annual Report Strategic Report

Performance Review

The Company’s daily published unaudited Net Asset Value (‘NAV’) for the year ended

December 2021 rose by 19.1% and the share price rose by 13.5% on a total return

basis, versus the benchmark, FTSE All-Share Index (total return) which increased by

18.3%. This was the third year in succession of outperformance versus the market.

• The year was again dominated by COVID-19, and the stop-start nature of the

transition back to normality post the pandemic. There are signiﬁcant elements of

the portfolio such as the low-cost airlines, which will beneﬁt from a full return to

normality, which Phoenix expects to be a source of positive performance in the

fullness of time.

• As announced on 3 September 2021 and as we have previously discussed,

Castelnau Group Limited (“Castelnau”) was listed on the Specialist Fund segment

of the London Stock Exchange in October 2021. As part of the transaction, the

Company acquired shares in Castelnau in exchange for a proportion of the Company’s

holding in Dignity PLC, Hornby PLC and Phoenix SG. Since listing Castelnau has

performed well. Further details of Castelnau’s performance can be found in

Castelnau’s fourth quarterly report of 2021 which can be found on their website at:

www.castelnaugroup.com/application/ﬁles/1416/4382/9198/Castelnau_Group_Ltd_

Q4_2021.pdf.

• The major contributor to performance in 2021 was a hedge against rising inﬂation

using options on the short sterling future contract. In early 2021, Phoenix became

concerned at the potential impact of rapidly rising interest rates on intrinsic value

of the portfolio holdings. The hedge was implemented in the summer, and in the

fourth quarter of 2021, as concerns over inﬂation increased signiﬁcantly, strong

performance was generated from the hedge.

• The outperformance in 2021 ensured that the Company has again added to

previous NAV returns in excess of its benchmark. Since Phoenix took over the

management of the Company in January 2016, the Company’s NAV and share

price have grown by 75.9% and 66.1% respectively to 31 December 2021, versus

a benchmark rise of 59.2%.

• One of the unique features of the Investment Management Agreement with

Phoenix, and one that creates signiﬁcant shareholder alignment, is that Phoenix

earns no management fee other than an annual performance fee, equal to

one-third of NAV per share total return in excess of the FTSE All-Share Index (total

return).

• In 2021 a performance fee was earned by Phoenix. This fee was received in shares

in the Company, which Phoenix cannot sell for three years, and there is a clawback

mechanism in place through which, if the outperformance which earned the shares

were to disappear on the third anniversary of their award, the shares would either

be cancelled or, in limited circumstances and following consultation with Phoenix,

the Company would have the discretion to either (i) reduce the number of shares

that are clawed back or (ii) extend the lock-in period for up to a further two years.

Chairman’s

Statement

Lord Flight

Chairman

April 2022

Annual Report Strategic Report 7

Strategic Report

• The Company’s share price rose by 13.5% over the year ended 31 December 2021.

In the ﬁrst half of 2021, NAV and share price traded around parity with share

issuance occurring in June, but in the second half of the year the Company’s share

price fell to a discount to NAV. During the year ended 31 December 2021, the

Company’s shares traded between a premium of 4.3% and discount of 11.4% to

NAV, with an average discount of 3.2%. As at 31 December 2021, the discount to

NAV was 7.6%. The Board, along with its advisors and the investment manager,

monitor any discount closely. As at the end of March 2022 the Company’s shares

were trading at a slight premium of 0.15%. The Board will consider buying back

shares in the Company if a discount becomes persistent. Phoenix took the

opportunity to purchase £5 million of shares in the Company when the NAV traded

at a discount and continues to promote the Company proactively together with

Liberum, the Company’s broker and with Frostrow Capital, its distribution advisor.

The Investment Manager

2021 was the sixth year of Phoenix’s management of the Company’s portfolio, which

began with their appointment as Investment Manager in January 2016, and it is

positive that 2021 brought continued outperformance versus the FTSE All-Share index

(total return).

Phoenix again employed a focused, patient investment approach during another

year of signiﬁcant market stress. The implementation of the hedge against inﬂation

was effective in preserving value in the underlying equity portfolio.

Growth of the Company

Growing the Company remains a key objective of the Board. Market capitalisation rose

from £162 million in January 2021, to ﬁnish the year at £179 million. This rise,

however, came almost solely from share price appreciation and not from new share

issuance.

The Board, along with Phoenix, is committed to broadening the proﬁle of the

Company and has agreed a programme of activity with Frostrow Capital and Liberum,

the Company’s distributor adviser and broker, which will include an increased number

of investor meetings, conference presentations and engagement with platform

providers.

It remains an objective of both the Board and the Investment Manager to increase

the size of Aurora to £250 million over the course of the next two to three years.

Annual General Meeting (“AGM”)

The AGM of the Company will be held at Chartered Accountants Hall, One Moorgate

Place, London EC2R 6EA on 28 June 2022 at 2.00 pm. If you are unable to attend in

person you have the option of attending via webinar, where you will have the

opportunity to hear a presentation from the Investment Manager and ask questions.

Instructions on how to attend the webinar can be found on the Company’s website at

https://www.aurorainvestmenttrust.com/news/regulatory/56/ and in the Notes to the

notice of AGM.

Continuation Vote

In accordance with the articles, the Company will hold a continuation vote at the next

AGM on 28 June 2022. This provides an opportunity for the Company’s shareholders

to vote, once every three years, on whether the Company should continue to operate,

or otherwise be wound-up and cash returned to shareholders. Taking account of the

Company’s track record over the past three years the Board strongly recommends that

shareholders vote in favour of the Company’s continuation.

8 Annual Report Strategic Report

The Board

After 10 years serving together on the Board of Aurora, James Nelson and I will be

retiring at the forthcoming AGM. It has been a great pleasure for me to have served

the Company and played a part in its development over these years. On behalf of the

Board, I thank James Nelson for his particular support and contribution over these

years.

At the AGM, Lucy Walker will be taking over from me as Chair of Aurora. I know

the Board will be in capable hands and I wish Lucy every success for the future. I trust

she will enjoy the role as much as I have done.

The Board continues its search for additional Board members and will update the

market in due course.

Aggregate Directors’ Fees

At the forthcoming AGM an ordinary resolution will be put to shareholder vote to

increase the maximum aggregate Directors’ fees from £200,000 to £250,000. This

willallow greater ﬂexibility to retain and attract Board members with suitable skills

andexperience by offering competitive remuneration.

Dividend

The Board proposes to pay a ﬁnal dividend of 1.84p (2020: 0.55p) per Ordinary Share,

to be paid on 1 July 2022 to Shareholders who appear on the register as at 10 June

2022. The ex-dividend date is 9 June 2022. This dividend will be proposed at the

forthcoming AGM to be held on 28 June 2022. The Company’s dividend policy, which

is to distribute substantially all net revenue proceeds, remains unchanged and can be

found on page 9 of this Annual Report.

Outlook and Reflection

Since the year end the world has been shocked by Russia’s invasion of Ukraine.

Thishas further exacerbated inﬂation as utility bills look set to rise even higher than

initially expected and concern increases that the conﬂict will continue. This has

impacted stock markets around the world. However, since the year end, the

Company’s performance has been strong, due to the signiﬁcant gains achieved from

its hedge against rising interest rates discussed above. This hedge has now been fully

realised. We continue to believe that the Company will maintain its relative

outperformance over the longer term.

As this is the last time I shall be writing to you, I bid you farewell. It has been a

privilege to serve as Chairman. In the years that James and I have served the Board

we have seen many changes, one of the most signiﬁcant has been the appointment of

Phoenix Asset Management as the Company’s Investment Manager in 2016. Since

then, the Company has performed well and we both feel we will be leaving the

Company in capable hands with Lucy at the helm and Phoenix Asset Management

making impressive returns on behalf of the Company’s shareholders.

Lord Flight

Chairman

29 April 2022

Annual Report Strategic Report 9

Strategic Report

At a General Meeting held on 28 September 2021 the following new investment

policy was approved:

The Company seeks to achieve its investment objective by investing predominantly

in a portfolio of UK listed companies. The Company may from time to time also invest

in companies listed outside the UK and unlisted securities. The investment policy is

subject to the following restrictions, all of which are at the time of investment:

• The maximum permitted investment in companies listed outside the UK at cost

price is 20% of the Company’s gross assets.

• The maximum permitted investment in unlisted securities at cost price is 10% of

the Company’s gross assets.

• There are no pre-deﬁned maximum or minimum sector exposure levels but these

sector exposures are reported to and monitored by the Board in order to ensure

that adequate diversiﬁcation is achieved.

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

underlying issuer (measured at the time of investment) including in respect of any

indirect exposure through Castelnau Group Limited.

• The Company may from time to time invest in other UK listed investment

companies, but the Company will not invest more than 10% in aggregate of the

gross assets of the Company in other listed closed-ended investment funds.

• Save for Castelnau Group Limited, the Company will not invest in any other fund

managed by the Investment Manager.

While there is a comparable index for the purposes of measuring performance

over material periods, no attention is paid to the composition of this index when

constructing the portfolio and the composition of the portfolio is likely to vary

substantially from that of the index. The portfolio will be relatively concentrated. The

exact number of individual holdings will vary over time but typically the portfolio will

consist of holdings in 15 to 20 companies. The Company may use derivatives and

similar instruments for the purposes of capital preservation.

The Company does not currently intend to use gearing. However, if the Board did

decide to utilise gearing the aggregate borrowings of the company would be restricted

to 30% of the aggregate of the paid-up nominal capital plus the capital and revenue

reserves.

Any material change to the investment policy of the Company will only be made

with the approval of Shareholders at a general meeting. In the event of a breach of the

Company’s investment policy, the Directors will announce through a Regulatory

Information Service the actions which will be taken to rectify the breach.

Dividend Policy

The investment policy does not include any ﬁxed dividend policy. But the Board will

distribute substantially all of the net revenue arising from the investment portfolio.

Accordingly, the Company is expected to continue to pay an annual dividend, but this

could be lower than the level of recent dividends and may vary each year.

Investment

policy and

results

10 Annual Report Strategic Report

Borrowing Policy

The Company is not prohibited from incurring borrowings for working capital purposes,

however the Board has no current intention to utilise borrowings. Whilst the use of

borrowings should enhance the total return on the Ordinary Shares where the return

on the Company’s underlying assets is rising and exceeds the cost of borrowing, it will

have the opposite effect where the underlying return is falling, further reducing the

total return on the Ordinary Shares. As a result, the use of borrowings by the

Company may increase the volatility of the NAV per Ordinary Share.

The Company has a policy not to invest more than 10% of its gross assets in other

UK listed investment companies. As a consequence of its investments, the Company

may therefore itself be indirectly exposed to gearing through the borrowings from

time to time of these other investment companies.

Objectives and Key Performance Indicators (KPIs)

The Company’s principal investment objective is to achieve capital and income growth.

The Board measures the Company’s success in attaining its objectives by reference to

KPIs as follows:

a. To make an absolute total return for Shareholders on a long-term basis.

b. The Company’s Benchmark is the FTSE All-Share Index (total return), against which

the NAV total return is compared. After achieving the goal of making absolute

returns for Shareholders, the next aim is to provide a better return from the

portfolio than from the market as measured by the Benchmark.

c. The Company seeks to ensure that the operating expenses of running the

Company as a proportion of NAV (the Ongoing Charges Ratio) are kept to the

minimum possible.

d. The discount/premium to NAV at which the Company’s Shares trade is also closely

monitored in order to maintain Shareholder value.

The Chairman’s Statement on pages 6 to 8 incorporates a review of the highlights

during the year.

The Investment Manager’s Report on pages 17 to 19 gives details on investments

made during the year and how performance has been achieved.

Performance

The Investment Manager, Phoenix Asset Management Partners Limited (‘Phoenix’),

which is regulated by the FCA. The Chief Investment Ofﬁcer of Phoenix is Gary

Channon. Phoenix reports in detail upon the Company’s activities in the Investment

Management Report and Outlook on pages 17 to 19.

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.

Annual Report Strategic Report 11

Strategic Report

The benchmark is the FTSE All-Share Index (total return). The Company’s

performance since Phoenix was appointed is shown below:

Cumulative

since Year to Year to

28 January 2016 31 December 31 December

to 31 December 2021 2021 2020

% % %

NAV per Ordinary Share (total return)

1

+75.9 +19.1 –5.3

Ordinary Share price (total return)

1

+66.1 +13.5 –10.0

Benchmark (total return) +59.2 +18.3 –9.8

The Ongoing Charge Ratio was as follows:

Year to Year to

31 December 31 December

2021 2020

% %

Ongoing Charge Ratio

1

0.49 0.45

1

These are Alternative Performance Measures (“APMs”).

Revenue Result and Dividend

The Company’s revenue proﬁt after tax for the year amounted to £1,413,000 (2020:

£599,000). The Board is today proposing the payment of a ﬁnal dividend of 1.84p per

Ordinary Share (2020: 0.55p per Ordinary Share). This dividend will be paid on 1 July

2022 to Shareholders on the register as at 10 June 2022; the Ordinary Shares will be

marked ex-dividend on 9 June 2022. In accordance with International Financial

Reporting Standards this dividend is not reﬂected in the ﬁnancial statements for the

year ended 31 December 2021.

Discount to NAV

The discount of the Ordinary Share price to NAV per Ordinary Share is closely

monitored by the Board. The Ordinary Share price closed at a 7.6% discount to the

NAV per Ordinary Share as at 31 December 2021 (2020: 4.6%discount). During the

year ended 31 December 2021, the Company’s shares traded at between a premium

of 4.3% and discount of 11.4% to NAV, with an average discount of 3.2%.

Control of the level of ongoing charges

The Board monitors the Company’s operating costs carefully. Based on the Company’s

average net assets for the year ended 31 December 2021, the Company’s ongoing

charges ﬁgure calculated in accordance with the Association of Investment

Companies (AIC) methodology was 0.49% (2020: 0.45%). As the size of the Company

grows, the Board will manage expenses with the intention of keeping costs down and

reducing the ongoing charge ratio accordingly.

12 Annual Report Strategic Report

Five Year Summary

The following data are all expressed as pence per Ordinary Share. NAV ﬁgures are all

calculated at bid prices.

Published Net Dividend per

Asset Value per Ordinary Share in Ordinary Share

Ordinary Share respective year price (mid-market)

Year (pence)

1

(pence) (pence)

Year ended 31 December 2017 205.72 2.75 208.00

Year ended 31 December 2018 182.24 4.00 183.00

Year ended 31 December 2019 232.07 4.50 237.00

Year ended 31 December 2020 213.39 0.55 207.00

Year ended 31 December 2021 253.49

1

1.84 234.50

1

This is an APM, calculation can be found on page 99.

Annual Report Strategic Report 13

Strategic Report

Date Average

Holding Percentage of first cost per Share Market

Company Sector in Company Valuation of net assets purchase share* price capitalisation

£’000 % £

Frasers Group plc Retail 5,114,011 39,429 20.3 Jan-16 3.07 £7.71 £3.9bn

Castelnau Group Limited Financial

#

24,563,184 25,300 13.0 Oct-21 1.00 £1.03 £194m

Barratt Developments plc Construction 3,242,412 24,253 12.5 Nov-18 5.03 £7.48 £7.6bn

easyJet Plc Leisure 3,565,368 19,823 10.2 Sep-16 6.90 £5.56 £4.2bn

Options – ICE 3Mth SONIA OPTSep22 Financial 47,000 19,388 10.0 Jul-21 0.03 £0.33 n/a

Ryanair Holdings plc Leisure 928,600 11,911 6.1 May-19 8.34 €15.25 €17.3bn

Lloyds Banking Group plc Financial 19,618,000 9,377 4.8 Jan-16 0.62 £0.48 £34.0bn

Randall & Quilter Investment

Holdings Limited Insurance 5,211,225 8,963 4.6 Jan-16 1.08 £1.72 £473m

Bellway plc Construction 232,440 7,754 4.0 Jan-16 20.39 £33.36 £4.1bn

RHI Magnesita N.V. Materials 225,320 7,449 3.8 Jan-20 34.65 £33.06 £1.6bn

Other holdings (less than 3%) n/a n/a 12,990 6.8 n/a n/a

Total holdings

186,637 96.1

Other current assets and

7,556 3.9

liabilities

Net assets

194,193 100.0

* Average net cost including sales.

# Castelnau is a multi-sector ﬁnancial holding company.

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

Percentage

of share

Holding in capital of

Company Sector Company Company (%)

Castelnau Group Limited Financial 24,563,184 13.4 Castelnau Group Limited is also managed by Phoenix Asset

Management. The value of Castelnau Group Limited is excluded

from the Company’s net assets when calculating performance

fees earned by Phoenix Asset Management to avoid double

charging.

Top Holdings

as at 31 December 2021

14 Annual Report Strategic Report

Portfolio Analysis

as at 31 December 2021

Percentage of net

Sector Assets

%

Financial* 29.7

Retail 20.3

Leisure 17.9

Construction 17.6

Insurance 4.6

Materials 3.8

Food & Beverage 1. 0

Industrials 0.7

Pharmaceuticals 0.5

Other current assets and liabilities 3.9

Total 100.0

* Castelnau is included in Financial’s classiﬁcation as it is a multi-sector ﬁnancial holding company.

Other current assets

and liabilities

Pharmaceuticals

Industrials

Food & Beverage

Materials

Financial*

Retail

Leisure

Constructionl

Insurance

29.7

20.3

17.9

17.6

4.6

3.9

3.8

1.0

0.7

0.5

Annual Report Strategic Report 15

Strategic Report

Dear Shareholder,

Last year was one of gratiﬁcation postponed for us, as the pandemic carried on and

lockdown restrictions further damaged a number of the businesses in the portfolio,

which itself remains well positioned for the end of restrictions and a resumption of

normal economic life. This was particularly acute for our airline holdings.

The pandemic has proved to be another pullback from which our portfolio

recovered its value and set out a new high (NAV wise); this one took 476 calendar

days. In the 24 years that Phoenix has been managing money we have experienced

6signiﬁcant pullbacks of 24% and more. In all prior occasions, the reversal from old

peak to new peak has always been within a year, but this is the ﬁrst to go over that

timescale, albeit by asmall number of months. We believe starting out with a portfolio

of very undervalued businesses and using the fall in prices to act rationally, combined

with an absence of leverage is why this happens.

Apart from the preservation of capital, what matters is the amount of future value

we add by acting rationally in those dips to acquire investments whose valuations

have overreacted to the negative short term news.

In the market drop of 2020 we did add considerable value to intrinsic value but that

had to be set against the loss in intrinsic value suffered by a number of our businesses

from the forced closures and restrictions on economic activity. Considerable value was

lost in airlines and hospitality. Putting it together we emerged with more value than

we entered with but not with as signiﬁcant a boost as we would have liked and have

achieved in most other major pullbacks.

At the beginning of 2021 we outlined our plan to buy an inexpensive hedge against

the risk that the pandemic response would unleash inﬂation. The hedge was

purchased in July/August once conditions permitted. That inﬂation risk did

subsequently manifest itself and the hedge signiﬁcantly increased in value. This added

considerably to the Company performance and value during 2021. We spent 1% of the

Company net assets on the hedge and ultimately sold it for around 17 times that.

Thoseproceeds now sit in the Company as cash and UK Treasury Bills, which we will

deploy into opportunities that meet our criteria, which is with a minimum of 100% of

upside to their intrinsic values. If we do that, we will have turned 1% into at least 34%

which should more than compensate for any damage to the overall value of our

businesses from the higher rates that inﬂation brings.

We don’t hedge often (twice in 24 years). We only hedge when the following

conditions apply; there is a risk that we believe is improbable but could damage the

intrinsic value of our portfolio materially and there is insurance available in some form

that is very cheap so that we can spend a very modest amount of the portfolio (1% or

less) to hedge against it. We don’t hedge to smooth out expected swings in the

market – that’s not our deﬁnition of risk. We will never take open ended liability, and

the most that could have been lost on this investment was 1%. We will never imperil

your capital.

As we write the world is entering another period of bad news politically and

economically with the tragedy unfolding in Ukraine. This creates even more

complications for central banks trying to work out what to do with interest rates.

Inﬂation is being pushed higher by the impact on energy prices but this is the sort of

inﬂation that ends up in recession as spending is diverted away from other things to

cover higher energy prices. Based upon what we can see at this point there is less

fundamental damage to the intrinsic value of the portfolio than that caused by the

pandemic lockdowns. Furthermore, we enter into this turbulent period with 19% of

the Company’s total assets in cash and cash equivalents and, as always, a roster of

businesses we would like to own should they become available at attractive prices.

Statement from

the Chief

Investment

Officer of the

Investment

Manager

Gary Channon

Chief Investment Officer Phoenix

Asset Management Partners

April 2022

16 Annual Report Strategic Report

An analysis of our past record shows the majority of the value we add through

portfolio changes, occur in those infrequent windows where markets are

overwhelmed with pessimism. Although as an investor it is never comfortable

watching an investment fall in value, please take some comfort that it is in those times

we plant the seeds of future growth in your capital.

In 2021 we were able to create and ﬂoat the Castelnau Group Limited (“Castelnau”)

which contains the direct business activity we do at Phoenix. You can read more about

that on the Castelnau website, but during the year the Company exchanged holdings it

had in the businesses we are directly involved in, i.e. Dignity, Hornby and Stanley

Gibbons, for shares in Castelnau when it ﬂoated. This holding in Castelnau was capped at

15% at cost. Our goal at Castelnau, as it is in the rest of the portfolio, is to put your

capital to work in businesses that generate high returns on it. For a clearer understanding

of the philosophy and objectives of Castelnau I would recommend a read of the

Castelnau Group fourth quarterly report of 2021 which can be found on their website at

www.castelnaugroup.com/application/ﬁles/1416/4382/9198/Castelnau_Group_Ltd_Q4_20

21.pdf.

Changes we make to the portfolio are the minority and so the main engine of value

creation is the returns our underlying businesses make on their capital. We invest in

businesses which make at least 15% on capital and so the capital they retain each

year is building the long term earnings and therefore value. If we get those

assessments right, that return will ultimately be the return we achieve overall at the

portfolio level.

We continue to believe our approach will deliver long term results well in excess of

market averages, without risking permanent losses of capital.

Gary Channon

CIO Phoenix Asset Management Partners

29 April 2022

Annual Report Strategic Report 17

Strategic Report

Investment

Management

Review and

Outlook

Steve Tatters

Director

Phoenix Asset Management

Partners

April 2022

During the year to 31 December 2021, the NAV per share increased by 19.1%

1

and

the share price by 13.5%. The FTSE All-Share Index (total return) rose by 18.3% over

the same period. Net assets at year-end were £194m (2020 £163m). This compares

well with the Company’s prior year performance, when the NAV per share declined by

5.3%, the share price declined by 10.0% and the FTSE All-Share Index (total return)

declined by 9.8%. Since Phoenix began managing the Company on 28 January 2016

to 31 December 2021, the NAV has risen 75.9% versus 59.2% for the FTSE All-Share

Index (total return).

The outperformance in 2021 has again resulted in a performance fee being earned,

80% of which was paid to us by way of shares in the Company in February 2022, the

remaining 20% will become due once the audit has been ﬁnalised. In accordance with

the Investment Management Agreement we are required to hold those shares for

3years. If the outperformance versus the index disappears on the third-year

anniversary, these shares will be cancelled, and we will receive nothing. This, we

believe, is one of the most aligned fee structures in the industry.

2022 started positively as the impact of COVID restrictions related to the Omicron

variant were reversed. The inﬂation hedge also continued to perform strongly, however

as we write in April, the portfolio and market have been impacted by the war in

Ukraine. Since year end up to 28 February 2022, the NAV has fallen slightly, with the

FTSE All-Share Index (total return) falling 0.5% for the same period.

Performance Review

From a performance perspective, 2021 continued to be dominated by COVID but was

also impacted by noise around Brexit. Additionally, some of the portfolio’s holdings

ﬂagged during the year, the risk that persistent inﬂation would manifest itself became

more pertinent. Inﬂationary pressures were seen in the second half of the year and

Central Banks began to react by signalling the likelihood of interest rate rises.

The ﬁrst half of the year saw a broad market rally which the portfolio participated

in. On 30 June 2021, the NAV was up 8.5% versus 11.1% for the Index.

In Q3 the portfolio fell slightly with the market up over 2%. During this period,

performance was impacted by, what we considered was an unnecessarily large and

deeply discounted rights issue from easyJet on which we comment more fully later.

In the fourth quarter the Company posted a good performance. The NAV rose 10%

versus 1.8% for the Index, as fears over the impact of rising interest rates resulted in

the inﬂation hedge performing strongly.

From a share price perspective, holdings with the highest price rises were the

inﬂation hedge and Frasers Group. The inﬂation hedge was implemented to protect

the portfolio against the impact of inﬂation, through the purchase of September 2022

put options on the short sterling future contract, the security identiﬁer is LU2P99. The

options were purchased at £0.03 and were priced at £0.33 on 31 December 2021.

They subsequently rallied to over £1 and were sold in stages during the ﬁrst two

months of 2022. The Frasers Group share price increased by 71% during the year, as

the company demonstrated a strong recovery from the pandemic and highlighted the

potential of its elevation strategy in its Flannels luxury retail business.

Other share price risers of note were Lloyds, which rose 35% during the year, and

the housebuilders, Bellway and Barratt Development, which rose 17% and 16%

respectively.

Fallers of note included our low-cost airlines due to the continued impact of the

pandemic. easyJet fell by 20% with Ryanair falling 12%. Prior to the emergence of

the Omicron variant both holdings had beneﬁted from travel restrictions being lifted

but this was reversed when the scale of disruption around Omicron became clear.

1

This is an Alternative Performance Measure (‘APM’) the calculation of which can be found on page 99.

18 Annual Report Strategic Report

Activity Review

The only activity of note in the ﬁrst half of the year was the sale of our holding in

Redrow in February and March. We expected continued changes in environmental and

building regulations and the company is in transition following the retirement of its

founder. We preferred the way in which Barratt and Bellway utilised their landbanks

(the practice of holding land for future development) which were generally held for

short periods and turned around more quickly.

Also, in the ﬁrst half of the year, we called for a general meeting in Dignity to put

ourselves forward to replace the executive management after we came to the view

that the company was not collaborating as it had originally promised to do. We cannot

separately report on Dignity given our inside position. We appreciate your patience as

we implement a new management framework, but we can say that everything that

has happened since we were appointed leads us to believe it was the right thing to

do.

In September, as mentioned earlier, easyJet instigated a capital raise. We reported

in the Aurora September monthly report that we had anticipated and modelled for a

raise, but the size and structure of this one diluted value more than we expected and

our interactions with management revealed their shortcomings as capital allocators.

After rejecting a merger approach from Wizz Air at a premium to the £8 share price,

arguing that it undervalued the company, they issued £1.2bn of new equity at £4per

share.

At the time of the issue, easyJet had access to £2.9bn of unrestricted liquidity

versus an operating cash burn of £40m per week. 40% of their planes are owned

outright and unencumbered. In our opinion, per share shareholder value would have

been better served through a smaller raise and a more gradual balance sheet repair

from retained earnings as travel returns.

Despite strong reservations around the rights issue, we did participate as it was

the economically right thing to do and we remain conﬁdent in easyJet’s ability to

beneﬁt from the resumption of travel post the pandemic.

We were also pleased to report in the September factsheet that shareholders had

approved the inclusion of the Castelnau Group in the Company’s portfolio. We have

previously written of the rationale behind the new vehicle and for a full progress report

please see the Castelnau year end report on its website:

https://www.castelnaugroup.com/application/ﬁles/1416/4382/9198/Castelnau_

Group_Ltd_Q4_2021.pdf

We reported we are making progress in all the businesses within Castelnau. We

see signiﬁcant potential in them, and we believe we know what is required to realise

that potential. We are in the process of adding to our resourcing for Castelnau to give

us capabilities that we will deploy in Group companies.

Outlook

At the time of writing there is great uncertainty due to the Russian invasion of

Ukraine. In the December factsheet, prior to signiﬁcant concerns over Russian activity

in Ukraine, we wrote the following about the uncertainty created by rising inﬂation and

interest rates:

Annual Report Strategic Report 19

Strategic Report

For decades now investing has been done in an environment of low inﬂation and

low interest rates. That era may be drawing to a close. It probably will at some point

anyway because the nature of human progress is cyclical oscillations around a trend.

We believe our approach to stock selection is well positioned to cope with a

change in those conditions because of these three key attributes of a successful

investment in times of inﬂation and rising rates:

Pricing Power: This is the ability of a company to have some control over its

proﬁtability by passing on changes in its costs to its customers. Persistently low

returns on capital aren’t the choice of managements; they are imposed upon them by

the competitive landscape. Our process seeks out businesses that have some control

over their returns and this characteristic is highly valuable in times of inﬂation.

Absence of Leverage: Businesses with highly leveraged balance sheets run the

risk of a transfer of value away from equity holders in times of stress and higher rates.

We avoid leverage where there is a risk of ruin but there are many balance sheets we

see that will struggle with higher rates. Increasing leverage has turbo charged equity

returns over the past few decades and this has been something of a comparative

headwind for our approach. The beneﬁts of it though will be seen when those forces

reverse.

Margin of Safety: Probably Ben Graham’s most valuable contribution is the use of

a margin of safety between when you pay and what you expect value to be. Approach

this conservatively again and again and it builds into a cumulative edge that delivers

returns in excess of the average. We never pay more than half our estimate of the

present value of all its future cash generation. That margin of safety has meant that

despite all the errors in those estimations and the unexpected negative events, the

Phoenix UK Fund has returned around 6.7% more per year than the market and that

builds into a signiﬁcant difference when compounded through time since our inception

in 1998. (1,336.1% versus 232.5%). The Aurora portfolio remains a very close replica

of the Phoenix UK Fund.

The present uncertainty over Ukraine is signiﬁcant, but we have a track record in

previous crises of adding long-term value. As an organisation we strive to keep

learning and improving. The investment horizon looks fraught with danger or

opportunity depending on how you look at it; from our perspective it’s both. Thorough

analysis, patience and a long-term perspective have been and will be the winning

ingredients behind our ability to achieve superior returns over time.

Steve Tatters

Director

Phoenix Asset Management Partners

29 April 2022

20 Annual Report Strategic Report

Value of £1,000 invested

in the Phoenix UK Fund at

launch to 31 December 2021

Phoenix UK Fund Track Record

The investment strategy followed by the Phoenix UK Fund is the same as that followed by the Company*

Phoenix UK Fund (Net)

FTSE All-Share Index (total return)*

£

31 December

500

1,500

2

,500

3,500

4

,500

5,500

6,500

7,500

8,500

202120202019201820172016201520142013201220112010200920082007200620052004200320022001200019991998

Source: Phoenix. All ﬁgures shown are net of fees and do not account for an investor’s tax position. The FTSE All-Share Index is

shown with dividends re-invested. The Fund’s inception date is May 1998.

* Whilst the investment strategy is the same in all material respects, the portfolio holdings will not necessarily be the same and investors in the Company will have no

exposure to the investment performance of the Phoenix UK Fund. For illustrative purposes only, not a recommendation to buy or sell shares in the Fund.

Pastperformance is not a reliable indicator of future performance.

Annual Report Strategic Report 21

Strategic Report

Phoenix UK Fund Track Record

Investment NAV

Return NAV Return FTSE All-Share Per Share

Year (Gross) (Net) Index (A Class)

% % % %

1998 (8 mths) 17.6 14.4 -3.3 1,143.71

1999 –1.3 –4.6 24.3 1,090.75

2000 24.7 23.0 –5.8 1,341.46

2001 31.7 26.0 –13.1 1,690.09

2002 –17.8 –20.1 –22.6 1,349.64

2003 51.5 49.8 20.9 2,021.24

2004 14.1 11.2 12.8 2,247.26

2005 1.4 0.3 22.0 2,254.99

2006 9.5 8.3 16.8 2,442.90

2007 3.4 2.3 5.3 2,498.40

2008 –39.5 –40.2 –29.9 1,494.31

2009 62.8 59.7 30.2 2,386.48

2010 1.1 0.0 14.7 2,386.37

2011 3.0 1.9 –3.2 2,430.75

2012 48.3 42.2 12.5 3,456.27

2013 40.5 31.3 20.9 4,539.47

2014 1.9 0.1 1.2 4,544.25

2015 20.1 14.7 0.9 5,211.13

2016 9.1 7.6 16.8 5,605.58

2017 21.5 16.3 13.1 6,518.69

2018 –13.6 –14.7 –9.5 5,558.97

2019 30.3 27.7 19.1 7,098.36

2020 –3.9 –4.9 –9.7 6,748.66

2021 23.4 18.7 18.3 8,011.17

Cumulative 1,336.6 701.1 232.5 n/a

Annualised Returns 11.9 9.2 5.2 n/a

22 Annual Report Strategic Report

Directors’ duty to promote the success of the Company

The Board seeks to understand the views of the Company’s Shareholders and its

other key stakeholders as well as how their interests and the matters set out in

section 172 of the Companies Act 2006 have been considered. As part of the Board

and stakeholder evaluation processes that are undertaken annually, the Board reviews

its engagement mechanisms to ensure they remain effective. In fulﬁlling their duties,

the Directors carefully consider the likely consequences of their actions over the

long-term and on other key stakeholders.

During the Board’s quarterly meetings the Directors consider and are mindful of:

i. the Company’s investment objective and policy;

ii. the main trends and factors likely to affect the future development,

performance and position of the Company’s business;

iii. the Company’s key performance indicators;

iv. the Company’s peers;

v. the Company’s overall strategy; and

vi. the Company’s core values which are integrity, accountability, transparency and

commitment.

Identifying stakeholders

As an externally managed investment company, the Company’s operational activities

are all outsourced and therefore it does not have any employees. The Board has

identiﬁed its key stakeholders which include Shareholders, investee companies,

Investment Manager, ﬁnancial advisers, the Company Secretary, Administrator,

Registrar, Lawyers, Depositary and Custodian. The Board is aware of the need to

foster the Company’s relationships with its key stakeholders through its stakeholder

management activities. The Board provides oversight and challenge to the Investment

Manager to ensure that the Company meets its requirements to create and preserve

Shareholder value.

Shareholders

The Board and Investment Manager are seeking to promote an investor base of

long-term investors. The appropriate and regular feedback from its Shareholders is

achieved through the mechanisms described in detail in the ‘Other Strategic Report

Information and Corporate Governance Statement’ and through relations with

Shareholders and the investee companies with the support of Liberum, the

Company’s brokers, Frostrow, the Company’s distribution advisor, and the Investment

Manager.

The Board communicates twice a year via the Annual Report and Half-yearly

Report and more frequently via monthly factsheet. Additionally, it releases daily NAV

calculations via a regulatory news service. At each of its regular meetings the Board

tracks Shareholder changes and monitors the evolving Shareholder proﬁle. Details of

Shareholders owning a notiﬁable interest in the Company can be found on page 37.

All Shareholders have the opportunity to attend the Company’s AGM at which the

Directors and representatives of the Investment Manager are available in person to

meet with Shareholders and to answer their questions. Furthermore, a presentation

would normally be given by the Investment Manager to those present at the AGM

outlining the Company’s performance. Details of the proxy votes received on each

resolution are published on the Company’s website shortly after the AGM.

Report under

Section 172 of

the Companies

Act 2006

Annual Report Strategic Report 23

Strategic Report

Environmental, Social and Governance (‘ESG’) Matters

The Board expects good standards of business sustainability, especially on ESG (as

referred to below) at the companies in which it invests and satisfies itself that the

Investment Manager consistently and proactively engages with them on this basis.

All shareholdings are voted at listed company meetings worldwide where

practicable in accordance with the Investment Manager’s own corporate governance

policies.

Further details of the Investment Manager’s approach to ESG within its investment

framework can be found on its website at www.phoenixassetmanagement.com.

Key Service Providers

The Company relies on service providers to manage its operations. The Investment

Manager is the most fundamental service provider to the Company’s long-term

success. A description of key service providers’ role together with the terms of their

engagement can be found on pages 35 and 36. Each year and during the current

ﬁnancial year, the Board reviews the performance and terms of engagement of each

of its service providers to ensure each remain competitive and to consider the quality

of the service they provide.

Monitoring of Key Decisions and the outcome of those decisions

The Board meets at least quarterly and at such other times as deemed appropriate.

During these meetings, the Board considers reports from the Investment Manager on

the Company’s portfolio, its investment activity and sector diversity. In addition, the

Investment Manager provides an overview of engagement with the investee

companies as well as potential investee companies. The Board debates the Company’s

portfolio and notable acquisitions or disposals at each of its meetings and challenges

stock selection where deemed appropriate. In between meetings, the Investment

Manager and Board maintain contact through which they consider investment ideas,

further fundraising initiatives and market outlook and strategies to consider adjusting

the Company’s portfolio in line with the Company’s investment policy.

The Board receives reports from Frostrow (the Company’s Distribution Advisor) and

Liberum (the Company’s Stockbroker) on the Company’s Shareholder base including

any changes; its Secretary on the latest governance issues, legal or market

announcements; the Depositary’s oversight report and its Administrator on the

Company’s management accounts. Furthermore, the Board receives reports from

Liberum on the performance of the Company’s peers and ad hoc reports from its other

key stakeholders as deemed appropriate. During the year the Chairman, and

Investment Manager met with several of the Company’s Shareholders and beneﬁcial

owners to gain a greater understanding of their views and opinions and to help

promote the Company and support any share issues that were undertaken. These

discussions were relayed to the Board who considered these discussions at their

quarterly meetings.

The Board was pleased to note from Shareholders that had met with the Chairman

and Investment Manager during the year that they remained supportive of the Board

and the Company’s Investment Manager. During the year, the Board undertook a

review of its stakeholders, which included a review of its control report and policies,

such as whistleblowing, anti-bribery, anti-money laundering and corruption, cyber

security, data protection policies and each entity’s business continuity arrangements

to ensure they were in place and were adequate. During the current ﬁnancial year, the

Board reviewed the performance and terms of engagement of each of its key service

providers to ensure each remained competitive and agreed that it was appropriate that

they continue or be changed as disclosed elsewhere in this Report.

24 Annual Report Strategic Report

In satisfaction of Company’s Investment Management Agreement, the Board

agreed to issue shares to the Investment Manager in satisfaction of the performance

fee which the Investment Manager earned in respect of the year to 31 December

2020.

During the year, having debated the merits and structure of Castelnau, with the

Investment Manager and advisers and having considered the long-term interests of

the Company’s Shareholders, the Board approved the transfer of a portion of the

Company’s holding in each of Dignity PLC, Hornby PLC and Phoenix SG Limited to

Castelnau in exchange for shares in Castelnau. To facilitate the transaction, the

Boardrecommended the following to shareholders at a General Meeting held on

28September 2021 which were duly approved:

(i) amend its investment policy to permit investments in Castelnau (as a fund

managed by the Investment Manager);

(ii) transfer to Castelnau certain of the Company’s investments in exchange for

theissue to the Company of shares in the capital of Castelnau pursuant to the

terms of a share purchase agreement between the Company, the Investment

Manager and Castelnau (the “Castelnau Related Party Transaction”);

(iii) amend the performance fee provisions contained in the investment

management agreement between the Company and the Investment Manager

to exclude the Company’s investment in Castelnau and the fact that Castelnau

will pay a performance fee directly to the Investment Manager.

As part of the Board’s succession plan, the Board agreed to appoint Trust

Associates as search consultants, to search for two additional Board members to

replace Lord Howard Flight and the Honourable James Nelson who will be stepping

down from the Board at the Company’s forthcoming AGM. Trust Associates has no

connection to the Company or Board.

Other decisions included the payment of a dividend which was paid to satisfy the

Company’s dividend policy which states that nearly all the Company’s revenue is paid

to Shareholders by way of a dividend. It was also paid to satisfy the Company’s

investment trust status which states that no less than 85% of the Company’s

qualifying revenue must be distributed to Shareholders.

Boardroom Diversity

The Board currently comprises ﬁve non-executive Directors of which two are female

and three male. The Board considers its composition, including the balance of skills,

knowledge, diversity (including gender and race) and experience, amongst other

factors on an annual basis and when appointing new Directors. The Board has

considered the recommendations of the Davies and Parker review but does not

consider it appropriate to establish targets or quotas in this regard. Summary

biographical details of the Directors are set out in the Corporate Governance

Statement on page 31.

Annual Report Strategic Report 25

Strategic Report

Stewardship code

The Board and the Investment Manager support and have a strong commitment to the

UK Stewardship Code, the latest version of which was issued by FRC, effective from

1January 2020 and endorsed by the AIC which sets out the principles of effective

stewardship by institutional investors. Whilst the Investment Manager is not a formal

signatory to the Stewardship Code, it has chosen to adhere to the 12 principles as

closely as possible. Further details of the Investment Manager’s approach to the

Stewardship code can be found on the Investment Manager’s website at

www.phoenixassetmanagement.com.

Modern slavery disclosure

Due to the nature of the Company’s business, being a company that does not have

employees and does not offer goods or services to consumers, the Board considers

that the Modern Slavery Act 2015 is not applicable to the Company and the Company

is not required to issue a slavery and human trafﬁcking statement. 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 in

thismatter.

Anti-bribery and corruption

It is the Company’s policy to conduct all of its business in an honest and ethical

manner. The Company takes a zero-tolerance approach to bribery and corruption and is

committed to acting professionally, fairly and with integrity in all its business dealings

and relationships wherever it operates. The Company’s policy and the procedures that

implement it are designed to support that commitment. The Board has made enquiries

of its third-party service providers to ensure their procedures and policies are in place.

Criminal Finances Act 2017

The Company maintains a zero-tolerance policy towards the provision of illegal

services, including the facilitation of tax evasion. The Company has received

assurances from the Company’s main contractors and suppliers that they maintain a

zero-tolerance policy towards the provision of illegal services, including the facilitation

of tax evasion.

26 Annual Report Strategic Report

Principal Risks, Emerging Risks and Uncertainties

Procedure for Identifying Emerging Risks

The procedures in place to identify emerging or principal risks are described below.

The Audit Committee regularly reviews the Company’s risk matrix, focusing on

ensuring that the appropriate controls are in place to mitigate each risk. A system has

been established to identify emerging risks as they occur as detailed below. The

experience and knowledge of the Audit Committee and Board is invaluable to these

discussions, as is advice received from the Board’s service providers, speciﬁcally the

Investment Manager who is responsible for all portfolio management services.

The following is a description of the role each service provider plays in the

identiﬁcation of emerging risks.

1. Investment Manager: the Investment Manager advises the Board at each

quarterly meeting on world markets, stock market trends, information on stock

speciﬁc matters as well as regulatory, political and economic changes likely to

impact the Company’s portfolio;

2. Distributor and Broker: provide advice at each meeting speciﬁc to the Board on

the Company’s share register, sector, competitors and the investment company

market;

3. Company Secretary and Accounting Advisor: briefs the Board on forthcoming

legislation or regulatory changes that might impact the Company;

4. AIC: The Company is a member of the AIC, which provides regular technical

updates as well as drawing members’ attention to forthcoming industry and

regulatory issues.

Procedure for oversight of risks

Audit Committee: The risk matrix is reviewed at least twice a year. This includes a

review of the risk procedures and controls in place at the key service providers to

ensure that emerging (as well as known) risks are adequately identiﬁed and – so far as

practicable – mitigated. Experienced Non-Executive Directors on the Committee, each

bringing external knowledge of the investment trust (and ﬁnancial services generally)

marketplace, trends, threats etc. as well as macro/strategic insight. The principal risks

faced by the Company, together with the approach taken by the Board towards them,

have been summarised below.

Principal Risks, and Uncertainties considered during the year

Portfolio Risk

Changes in general economic and market conditions including, for example, interest

rates, cost increase, rates of inﬂation, industry conditions, competition, political events

and trends, tax laws, national and international conﬂicts and other factors, particularly

noting the ongoing threat posed by COVID-19, the war in Ukraine and the persistent

threat of inﬂation and rising interest rates as discussed below and the impact to the

economy, could substantially and adversely affect the Company’s prospects. Other

portfolio risks are outlined as follows.

• Poor stock selection, resulting in underperformance against the Company’s

benchmark;

• Poor use of gearing, creating a drag on performance during times of market declines;

• Illiquid stock creating a drag on performance;

• Concentrated portfolio; and

• Reputational damage caused by any of the above risks.

Other Strategic

Report

Information

Annual Report Strategic Report 27

Strategic Report

COVID-19

The market and operational risks and ﬁnancial impact as a result of the COVID-19

pandemic, and measures introduced to combat its spread, were considered by the

Board. Each of the Company’s key service providers was able to demonstrate

operational resilience. In addition, the Investment Manager undertook a thorough

review of the impact on the Company’s portfolio of investments and was able to

provide the Board with assurance that the Company’s portfolio of investments had

strong businesses with robust balance sheets that could withstand major interruptions

to their operations. The Directors and the Investment Manager continue to monitor the

situation closely.

Inflation

The Board has noted the sharp rise in inﬂation, the expectation that inﬂation would

continue to rise and the increasing threat this may pose to the Company. In response

to this the Board has agreed, following guidance from the Investment Manager, to

take out a put option with the intention of safeguarding the Company’s portfolio

against the impact of inﬂation. The Board and Investment Manager continue to

monitor the situation. The position was closed post year end, making substantial gains

for the Company which is discussed further in the Investment Manager’s Report.

Conflict in Ukraine

The Board and Investment Manager are monitoring the war that has erupted in

Ukraine and have considered the impact on the Company’s portfolio and operations.

The Company has a large cash position following the closure of the Company’s hedge

position which the Investment Manager intends to use strategically when an

appropriate opportunity arises.

Continuation Vote

In accordance with the articles, the Company will hold a continuation vote at the next

AGM on 28 June 2022. Having consulted with key shareholders and taking account of

the Company’s track record over the past three years, and the successful broadening

of the shareholder base, the Board believes the continuation vote will pass.

Management of risks

The Board undertakes a review of the performance of the Company and scrutinises

and challenges notable transactions at each quarterly Board meeting. At least on an

annual basis the Management Engagement Committee reviews the engagement of

the Investment Manager, including the Investment Manager’s achievements with

regard to the Company’s performance.

Diversification

The Company mainly invests in organisations listed and traded on the London Stock

Exchange, and by spreading its investments across a range of such securities. At

31December 2021, the Company held 21 (2020: 19) stocks, spread across 9 (2020: 8)

main sectors. The diversiﬁcation of the Company’s portfolio is considered at each of

the quarterly board meetings.

28 Annual Report Strategic Report

Gearing

The Company has the power under its Articles to borrow money, however does not

currently intend to use gearing. If the Board did decide to utilise gearing the aggregate

borrowings of the Company would be restricted to 30% of the aggregate of the paid-

up nominal capital plus the capital and revenue reserves. The Board will keep under

review whether any provision should be made for the use of short-term borrowing for

the sole purpose of meeting working capital requirements from time-to-time. Further

details concerning currency risks, liquidity risks and interest rate risks are given in

Note 17.

Liquidity

The Board undertakes a review of the liquidity of the investments at each quarterly

Board meeting and takes appropriate action, where deemed necessary.

Operational Risk

The Company is exposed to the operational and cyber risks of its third-party service

providers. The Investment Manager, Registrar, Depositary, Administrator and Company

Secretary each have comprehensive business continuity plans which facilitate

continued operation of the business in the event of a service disruption or major

disruption. The Audit Committee received the internal controls reports of the relevant

service providers, where available and was able to satisfy itself that adequate controls

and procedures were in place to limit the impact to the Company’s operations,

particularly with regard to a ﬁnancial loss.

The performance of service providers is reviewed annually via its Management

Engagement Committee. Each service provider’s contract deﬁnes the duties and

responsibilities of each and has safeguards in place including provisions for the

termination of each agreement in the event of a breach or under certain

circumstances. Each agreement also allows for the Board to terminate subject to

astated notice period. During the year under review the Board undertook a thorough

review of each service provider and agreed that their continued appointment remained

appropriate and, in the Company’s long-term interest.

Regulatory risk

Poor governance, compliance or administration, including particularly the risk of loss of

investment trust status and the impact this may have on the Company was considered

by the Board. Having been provided with assurance from each of the key service

providers, the Board was satisﬁed that no such breach had occurred.

Viability Statement

In accordance with the articles, the Company will hold a continuation vote at the next

AGM on 28 June 2022. Having consulted with the Company’s key shareholders, who

expressed support for the continuation of the Company, and taking account of the

Company’s track record over the past three years and the successful broadening of

the shareholder base, the Board are conﬁdent the continuation vote will pass. The

continuation vote will be put to shareholders at every third AGM.

Annual Report Strategic Report 29

Strategic Report

The Directors have considered the viability of the Company over a ﬁve-year period

to 31 December 2026, which they believe is an appropriate period over which to

assess the Company, given the Company’s long-term investment strategy and the

principal and emerging risks and uncertainties outlined on pages 26 to 28.

After making enquiries, the Directors have a reasonable expectation that the

Company has adequate resources to continue in operational existence and meet its

liabilities as they fall due for at least ﬁve years to 31 December 2026. Furthermore,

having made enquiries of the Company’s largest shareholders, the Board are satisﬁed

that the continuation vote has sufﬁcient support to successfully pass.

In reaching this conclusion, the Directors have considered each of the principal

risks and uncertainties set out above, including the ongoing impact of COVID-19 on

the Company, inﬂation and the conﬂict in Ukraine. As part of this process the Board

considered several severe but plausible scenarios, including the impact of signiﬁcant

market movements. The Board has considered the liquidity and solvency of the

Company, the level of discount at which its Ordinary Shares trade at the time of

assessment, its income and expenditure proﬁle including the absence of monthly

management fees and the non-utilisation of gearing as an instrument of normal

investment policy. Most of the Company’s investments comprise readily realisable

securities which could, if necessary, be sold to meet the Company’s funding

requirements. The Company’s plan to expand by the issue of new share capital is kept

under close, ongoing review by the Board. Portfolio changes and market developments

are also discussed at quarterly Board meetings. The internal control framework of the

Company is subject to formal review on at least an annual basis.

The Board has noted the sharp rise in inﬂation, the expectation that inﬂation would

continue to rise and the increasing threat this may pose to the Company. In response

to this the Board has agreed, following guidance from the Investment Manager, to

take out a hedge position against inﬂation. The Board and Investment Manager

continue to monitor the situation and have since year end closed the position, making

substantial gains on behalf of the Company.

The Board has considered the conﬂict in Ukraine and in particular the impact this

may have on the Company, particularly a severe market downturn. The Board noted

that the Company has a large cash and near cash position, due to the disposal of the

hedge. These resources will enable the Company to continue in operational existence

and for the Investment Manager to take advantage of depressed stock prices in order

to beneﬁt the Company.

The Company’s income from investments and cash realisable from the sale of

investments provide substantial cover to the Company’s operating expenses and any

other costs likely to be faced by the Company.

Outlook

The outlook for the Company is discussed in the Chairman’s Statement on pages 6

to8, and the Investment Manager’s Review on pages 17 to 19.

This Strategic Report was approved by the Board on 29 April 2022.

Lady Rachael Robathan

Chairman

30 Annual Report Governance

Governance

Annual Report Governance 31

GovernanceGovernance

Directors, Investment Manager and Advisers

Website Address: www.aurorainvestmenttrust.com

Registered Number – 03300814

A MEMBER OF THE ASSOCIATION OF INVESTMENT COMPANIES

Directors

Lord Flight (Chairman)

L Walker (Deputy Chair)

The Honourable J Nelson

Lady R Robathan

D Stevenson

Alternative Investment Fund

Manager (“AIFM”) and Investment

Manager

Phoenix Asset Management Partners

Limited

64-66 Glentham Road

London SW13 9JJ

Telephone: 0208 600 0100

Depository & Custodian

BNP Paribas Securities Services

10 Harewood Avenue

London NW1 6AA

Secretary, Administrator &

Registered Office

Sanne Fund Services (UK) Limited

6th Floor

125 London Wall

London EC2Y 5AS

Registrar

Link Group

10th Floor

Central Square

29 Wellington Street

Leeds LS1 4DL

Stockbroker

Liberum Capital Limited

25 Ropemaker Street

London EC2Y 9LY

Auditor

Grant Thornton UK LLP

30 Finsbury Square

London EC2A 1AG

Distribution Adviser

Frostrow Capital LLP

25 Southampton Buildings

London WC2A 1AL

Directors’ Report

By Order of the Board

Jenny Thompson

PraxisIFM Fund Services (UK) Limited

Company Secretary

April 2022

32 Annual Report Governance

The Directors present their report and Financial statements for the year ended

31December 2021.

Strategic Report

The Directors’ Report should be read in conjunction with the Strategic Report on

pages 4 to 29.

Corporate Governance

The Corporate Governance Statement on pages 40 to 49 forms part of this report.

Legal and Taxation Status

The Company has sought and obtained approval from HM Revenue and Customs of

its status as an investment trust under Sections 1158 and 1159 of the Corporation Tax

Act 2010. In the opinion of the Directors, the Company has conducted its affairs so as

to be able to maintain such status in respect of the year ended 31 December 2021.

Under Section 833 of the Companies Act 2006 the Company is an investment

company and operates as such.

Future Developments

The Company’s future developments are discussed in the Managers’ Report and

Chairman’s Statement on pages 6 to 19.

The Board and Re-Election of Directors

The Directors of the Company holding ofﬁce during the year are stated below. Except

where indicated the Directors held ofﬁce throughout the year and to the date of this

report.

Lord Flight (Chairman)

L Walker (Deputy Chair)

The Honourable J Nelson

Lady R Robathan

D Stevenson

Lord Howard Flight and The Honourable James Nelson, having served in excess of

nine years as Directors of the Company have agreed to retire at the forthcoming AGM

and will not be putting themselves forward for re-election. Lucy Walker was appointed

Deputy Chair on 19 October 2021. Lucy Walker will take over from Lord Flight as Chair

of the Company with effect from the date of the AGM and Lady Rachael Robathan will

take over from James Nelson as Chairman of the Management Engagement and

Nomination & Remuneration Committees with effect from the AGM. All Directors are

non-executive. In accordance with the AIC Corporate Governance Code, the entire

Board will be subject to annual re-election. Accordingly, resolutions will be put to

re-elect Lady Rachael Robathan, Mr David Stevenson and Ms Lucy Walker at the

Company’s forthcoming AGM.

The report on Corporate Governance below contains a description of the Board’s

composition, its method of operation, its work during the year and that of its

Committees and of how its performance has been evaluated.

Annual Report Governance 33

Governance

Director’s Indemnities and Insurance

Subject to the provisions of the Companies Act 2006 and certain provisions contained

in the deeds of indemnity issued by the Company, the Company will indemnify each of

the Directors against all liabilities which each director may suffer or incur arising out of

or in connection with any claim made or proceedings taken against them, or any

application made under sections 661(3), 661(4) or 1157 of the Companies Act 2006 by

them, on the grounds of their negligence, default, breach of duty or breach of trust, in

relation to the Company or any Associated Company. The indemnities would provide

ﬁnancial support from the Company after the level of cover provided by the Company’s

Directors’ and Ofﬁcer insurance policy has been fully utilised.

A policy of insurance against Directors’ and Ofﬁcers’ liabilities is maintained by the

Company.

Auditors

In accordance with Section 489 of the Companies Act 2006, a resolution proposing

that Grant Thornton UK LLP be re-appointed as auditors of the Company will be put

shareholders at the forthcoming AGM.

Disclosure of information to auditor

The Directors conﬁrm that:

• so far as each Director is aware, there is no relevant audit information of which the

Company’s auditor is unaware; and

• the Directors have taken all the steps that they ought to have taken as Directors to

make themselves aware of any relevant audit information and to establish that the

auditor is aware of that information.

This conﬁrmation is given and should be interpreted in accordance with the

provisions of Section 418 of the Companies Act 2006.

Continuation of the Company

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. Thelast time the continuation vote was put to Shareholders was in 2019.

Therefore, a resolution to approve the continuation of the Company as an investment

trust will be put to Shareholders at the forthcoming AGM to be held on 28 June 2022.

Share Capital

The Company’s share capital comprises Ordinary Shares. There are no other class of

share and no special restrictions or obligations that apply to any of the Company’s

shares, other than the restrictions that apply to the shares issued to the Investment

Manager, in lieu of the Investment Manager’s fees, which are subject to a three-year

lock in period during which they cannot sell the shares awarded to them. Shareholders

have equal rights with regards to distributions of all kinds in proportion to their

shareholdings. Final dividends are payable subject to approval by Shareholders at

general meetings or AGMs; interim dividends can be declared by the Directors and do

not require Shareholder approval.

Purchases of the Company’s own Ordinary Shares may be carried out if the

relevant sanction is given by Shareholders. Resolutions at general meetings may be

carried by a show of hands. Each Shareholder present in person or by proxy at a

Shareholder’s meeting has one vote, or by poll, each Shareholder present in person or

by proxy has one vote for every Ordinary Share held.

34 Annual Report Governance

At 31 December 2021, there were 76,519,675 Ordinary Shares in issue.

Thenumber of Ordinary Shares with voting rights was also 76,519,675.

In accordance with the Company’s Investment Management Agreement with its

Investment Manager, 1,061,130 Ordinary Shares were issued to the Company’s

Investment Manager at a price of 200.43 pence per share on 4 February 2021 and on

23 June 2021 a further 229,802 Ordinary Shares at a price of 230.07 pence per share

were issued to the Company’s Investment Manager to settle the performance fee

(2020: 469,695 Ordinary Shares at price of 231.78 and 60,616 Ordinary Shares at price

of 166.17 pence per share), which had been earned in respect of the Company’s

outperformance against its benchmark in the year to 31 December 2021. These

Ordinary Shares were issued pursuant to the Investment Management Agreement

dated 28 January 2016 and are subject to a 36-month lock-in following the date of

issue of the New Ordinary Shares and a ﬁxed three-year clawback period. Further

details on the Investment Manager’s performance fees are disclosed in Note 4 on

page 87.

Since the year end 69,738 Ordinary Shares were issued to the Investment

Manager at a price of 254.37 pence per share on 7 February 2022 in accordance with

the Investment Management Agreement to settle 80% of the Company’s

performance fee which had been earned in respect of the Company’s outperformance

against its benchmark in the year to 31 December 2021. The remaining 20% owed will

become due following the Audit and will be based on the monetary value equivalent of

the prevailing Net Asset Value at the time the shares are issued.

The total Ordinary Shares that have been issued to the Company’s Investment

Manager since their appointment in 2016 to date is 1,890,981.

Discount and Premium Control

The Board is aiming to achieve an Ordinary Share price over the long-term that reﬂects

the level and movement of the Net Asset Value per Ordinary Share. This is intended to

be achieved in the following ways:

(i) The Company will use clear and transparent communication that seeks to

attract new and existing investors to invest and keep investing in the

Company.

(ii) Execution of the investment strategy as communicated and the delivery of

excellent long-term investment returns in excess of most peers and the

benchmark.

(iii) The Board intends the Company to buy back its Ordinary Shares when the

discount to Net Asset Value per Ordinary Share is persistent and a share

buyback represents the best use of Shareholders’ funds.

(iv) The Board intends to issue Ordinary Shares when the Company’s Ordinary

Shares trade at a premium to the then prevailing Net Asset Value per Ordinary

Share at a time when, in the opinion of the Board, a further issue of Ordinary

Shares is in the best interest of Shareholders.

Holding Shares in Treasury

The Board monitors on an ongoing basis whether Ordinary Shares should be

repurchased and, if so, whether they should be held in Treasury or whether they can

and should be sold from Treasury. Any sales of Ordinary Shares from Treasury are

made at prices not less than the latest available Net Asset Value per Ordinary Share at

the time of sale. There were no Ordinary Shares held in Treasury during the year ended

31 December 2021 (2020: nil).

Annual Report Governance 35

Governance

Investment Management Agreement

The Company entered into an Investment Management Agreement with Phoenix on

28 January 2016.

Phoenix does not earn an ongoing annual management fee. It will be paid an

annual performance fee equal to one third of the outperformance of the Company’s

NAV per Ordinary Share total return (including dividends and adjusted for the impact of

share buybacks and the issue of new Ordinary Shares) over the FTSE All-Share Index

(total return) for each ﬁnancial year. The Company’s NAV per Ordinary Share return is

based on the weighted number of the Ordinary Shares in issue and NAV over the

relevant period.

The total annual performance fee is capped at 4% per annum of the NAV of the

Company at the end of the relevant ﬁnancial year, in the event that the NAV per

Ordinary Share has increased in absolute terms over the period, and 2% in the event

that the NAV per Ordinary Share has decreased in absolute terms over the period.

Anyoutperformance that exceeds these caps will be carried forward and only paid if

the Company outperforms, and the annual cap is not exceeded, in subsequent years.

The performance fee is subject to a high-water mark so that no performance fee

will be payable in any year until all underperformance of the Company’s NAV since the

last performance fee was payable has been made up. The performance fee will also be

subject to a clawback if over a rolling period of three years following the end of the last

ﬁnancial year for which a performance fee was payable the Company underperforms.

Speciﬁcally, Phoenix must return a number of shares whose value equals the

difference between the calculated Performance Fee and the Performance Fee that

would have been earned had the relevant performance period included the lock-in

period. In accordance with the Investment Management Agreement the Board,

following consultation with Phoenix, and in limited circumstances, has discretion to

either: (i) reduce the number of shares that are clawed back; or (ii) extend the lock-in

period for up to a further two years.

The performance fee will be paid to Phoenix in Ordinary Shares (issued at the NAV

per Ordinary Share on the date of issue) and such Ordinary Shares must be retained by

Phoenix for a minimum period of three years from the date of issue. The performance

fee in the year ended 31 December 2021 was £720,000 (2020:£665,000). Further

details on the performance fees are disclosed in Note4 on page88.

Investment Management Engagement

The Management Engagement Committee has reviewed the position of the

Investment Manager and recommended to the Board that the Phoenix Investment

Management Agreement should be continued. The process of evaluation is described

in the report on Corporate Governance. Having taken into account the long-term

performance of Phoenix, the prospects for the Company and the recommendations of

the Management Engagement Committee, the Board has concluded that continuing

with the Phoenix Investment Management Agreement is in the best long-term

interests of Shareholders.

Alternative Investment Fund Managers’ Directive (AIFMD)

The Company is classiﬁed as an Alternative Investment Fund under AIFMD and is

therefore required to have an Alternative Investment Fund Manager (AIFM). Because

of the scale of its overall funds under management, Phoenix is classed as a full-scope

AIFM. This brings the Company into the full scope of AIFMD, requiring inter alia the

appointment of a Depository. The AIFM is required to make certain disclosures on its

remuneration in respect of the AIFM’s relevant reporting period, which is the year

ended 31 December 2021. These disclosures are available on the Company’s website,

which can be found at www.aurorainvestmenttrust.com or are available on request

from the AIFM.

36 Annual Report Governance

Leverage (under AIFMD)

The AIFM is required to set a limit as a percentage of net assets for the Company

utilising methods prescribed under AIFMD. These methods are known as the gross

method and the commitment method. Under both methods the AIFM has set a

maximum limit of leverage for the Company of 100%. This equates to 150x leverage.

Asdescribed in the Strategic Report Phoenix implemented an inﬂation hedge through

the purchase of September 2022 put options on the short sterling futures contract.

The underlying exposure of these options contributes to the AIFMD leverage

calculations. The Company’s leverage under each of these methods at its year end is

shown below:

Gross method Commitment method

Maximum leverage limit 15,000% 15,000%

Actual leverage at 31 December 2021 8,017% 8,021%

Financial instruments

The ﬁnancial instruments of the Company generate liquidity risk, credit risk and market

risk. An explanation of these risks and how they are managed and the policy and

practice with regard to ﬁnancial instruments are contained in note 17 of the ﬁnancial

statements.

Depository and Custodian

Since 28 January 2016 the positions of Depository and Custodian to the Company has

been held by BNP Paribas Securities Services.

Retail Distribution of Investment Company Shares

The Company has concluded that the distribution of its Ordinary Shares, being

ordinary shares in an investment trust, is not restricted as a result of the FCA rules

determining which investment products can be promoted to ordinary retail investors.

The Company conducts its affairs so that there is no bar to a ﬁnancial adviser

recommending the Company’s Ordinary Shares to ordinary retail investors when the

adviser deems it appropriate.

Company Secretary and Administrator

Sanne Fund Services (UK) Limited is responsible for all administrative matters. It is

appointed under a contract subject to 180 days’ notice. It receives a fee of one-twelfth

of £40,000 plus one-twelfth of 0.075% of the Company’s net assets at the end of

each calendar month on net assets up to £100 million and one-twelfth of 0.025% of

net assets thereafter, subject to a minimum fee of £6,500 per month, plus VAT.

Disclosure Required By Listing Rule 9.8.4

The above rule requires listed companies to report certain information in a single

identiﬁable section of their annual ﬁnancial reports. The Company conﬁrms that, other

than the allotment of equity securities for cash (LR 9.8.4(7)) which is detailed on

pages33 and 34. All such reporting applied only to non-applicable events for the year

ended 31December 2021.

Annual Report Governance 37

Governance

Banking

The Company cash balances were held with BNP at 31 December 2021 and

31December 2020. At 31 December 2021 the gross external borrowings of the

Company were £nil (2020: £nil).

Market Information

The Company’s shares are listed on the London Stock Exchange. The market price is

shown daily in the Financial Times. The NAV per Ordinary Share is calculated daily and

released daily to the London Stock Exchange and monthly to the AIC. The Company

subscribes to the website www.trustnet.com, which compares the Company’s

performance to that of its peer group

Notifiable Interest in the Company’s Voting Rights

As at the year end, the following investors had declared a notiﬁable interest in the

Company’s voting rights

% Date of Notification

Rothschild and Co. Wealth Management (UK) Limited 14.82 24 June 2020

Brewin Dolphin. Stockbrokers 6.19 5 July 2018

Phoenix Asset Management Partners Limited 5.026 24 January 2022

Settlement of Ordinary Share Transactions

Ordinary Shares in the Company are settled by the CREST share settlement system.

Greenhouse Gas Emissions

As an Investment Company with no physical assets, property, employees or

operations of its own, the Company does not provide goods or services in the normal

course of its business and nor does it have customers. In consequence, the Company

has no direct greenhouse gas emissions to report from its operations, nor does it have

responsibility for any other sources of emissions under the Companies Act 2006

(Strategic Report and Directors’ Reports) Regulations 2013 (“SECR”). The Company

consumed less than 40,000 kWh of energy during the year and is therefore exempt

from having to report against SECR.

Notice of General Meetings

AGMs and general meetings shall be convened by such notice as may be required by

law from time-to-time. The notice shall specify the place, day and time of the meeting,

the general nature of the business to be transacted, any procedures as to attendance

and voting. Notice of every general meeting shall be given to all members, to the

Directors and to the Auditors and to any other person who may be entitled to receive it.

38 Annual Report Governance

Special Business of the AGM

Continuation Vote

The Company’s Articles of Association (article 5) require that an ordinary resolution

beproposed at every third AGM of the Company that the Company should continue

asan investment trust for a further three-year period. Accordingly, resolution

10proposes the continuation of the Company at the forthcoming AGM. In the

eventthat such a resolution is not passed, the Directors are required to draw up

proposals for shareholders’ approval for the voluntary liquidation or unitisation or

otherreorganisation of the Company, which would require a special resolution

ofshareholders.

Change to Directors’ Maximum Aggregate Fee

Ordinary resolution 11 proposes the amendment of the Articles of Association to

increase the aggregate fees of the Directors from £200,000 to £250,000. As set out in

the Chairman’s Statement, the increase is required to allow ﬂexibility whilst the Board

executes its succession plan.

Power to Issue Shares

To cater for block listings, Shareholders gave authority at the AGM on 30 June 2021 for

the allotment of up to 20% of the Ordinary Shares then in issue on a non-pre-emptive

basis. This expires at the AGM to be held on 28 June 2022. The Directors have

concluded that the approval of Shareholders should be sought at the forthcoming

AGM to put in place a new, similar authority to cover the demand for Ordinary Shares

by block listing issues.

The Directors believe that it is in the interests of the Company that they can

continue to issue new Ordinary Shares under the block listing facility to meet ordinary

market demand from time to time. Ordinary Shares will only be issued at a price

representing a premium to the prevailing Net Asset Value per Ordinary Share as at

thedate of issue. The advantages are to lower the Company’s ongoing charges as

expenses are diluted and, in the short term, to address volatility in the share price.

The Directors were also empowered to make allotments of Ordinary Shares other

than according to the statutory pre-emption rights which otherwise require all new

Ordinary Shares to be offered ﬁrst to all existing Shareholders up to a limit of 20%.

This authority will expire at the forthcoming AGM. The Board intends to seek to renew

this power.

Authority to Buy Back Shares

The authority for the Company to purchase its own shares as granted at the AGM held

on 30 June 2021 will expire at the conclusion of the forthcoming AGM.

Resolution 14 provide the Board with renewed authority to buy back shares in the

Company up to a maximum of 14.99% of the issued share capital as at the date the

AGM. This authority was not utilised during the year ended 31 December 2021.

Ordinary shares purchased in accordance with the authority will either be cancelled or

held in Treasury. Shares will be purchased under this authority only at the Board’s

discretion and when it is deemed to be in the best interests of shareholders as a

whole to do so. Shares will only be purchased in accordance with this authority when

the shares are trading at a discount to the then prevailing NAV.

Annual Report Governance 39

Governance

Recommendation Regarding Resolutions

The Directors consider that all the resolutions to be considered at the AGM are in the

best interests of the Company and its Shareholders as a whole and are likely to

promote the long-term success of the Company. The Directors unanimously

recommend that Shareholders vote in favour of the resolutions as they intend to do in

respect of their own beneﬁcial holdings.

Going Concern

The ﬁnancial statements have been prepared on the going concern basis.

TheDirectors have a reasonable expectation, after making enquiries, that the

Company has adequate resources to continue in existence for at least twelve months

from the date of approval of this document. In reaching this conclusion, the Directors

have considered the liquidity of the Company’s portfolio of investments as well as its

cash position, income and expenditure. As at 31 December 2021, the Company held

£7,664,000 (2020: £5,055,000) in cash, £183,237,000 (2020: £149,828,000) in quoted

investments and £3,400,000 (2020: £8,066,000) in an unquoted investment. This is

aconservative approach which does not include the ability to access liquidity through

block trades. The total operating expenses for the year ended 31 December 2021

were £862,000 (2020: £597,000).

It is estimated that 60% of the portfolio could be liquidated in a non-market

impacting way within 7 days using 15% of average daily volume. Given the level of

market volatility experienced during 2020 and 2021, due to the impact of the

COVID-19 pandemic, and the volatility experienced as a result of the conﬂict in the

Ukraine, the Investment Manager performed stress tests on the Company’s portfolio

of investments under certain conditions and the Board remains comfortable with the

liquidity of the Company’s portfolio.

The Company is subject to a continuation vote at this year’s AGM to be held on

28June 2022. Having regard to the Company’s performance and having made

enquiries of the Company’s major shareholders, the Board are conﬁdent that the

continuation vote will be passed by shareholders at the forthcoming AGM.

At the date of approval of this document, based on the aggregate of investments

and cash held, the Company has substantial operating expenses cover and cash ﬂows

are at the discretion of the Board. In light of the recent conﬂict in Ukraine, the Board

has considered the Company’s liabilities and noted cash and investments held are well

in excess of the level of liabilities. A prolonged and deep market decline could lead to

falling values to investments or interruptions to cash ﬂow, however the Company

currently has more than sufﬁcient liquidity available to meet any future obligations.

Financial markets have experienced considerable turmoil as a result of the

outbreak of COVID-19 and the conﬂict in Ukraine that has impacted markets

throughout the world, including the United Kingdom. The Board is keeping the

development of these situations under close scrutiny. The Board does not believe that

these will affect the Company’s going concern status.

The Board notes the expectation that inﬂation would continue to rise and the

increasing threat this may pose to the Company. During the year under review the

Board agreed, following guidance from the Investment Manager, to take out a put

option with the intention of safeguarding the Company’s portfolio against the impact

of inﬂation. A position which has since been closed. The Board is keeping a watchful

eye on inﬂation and may consider taking out a further position with the intention of

safeguarding the Company’s portfolio against inﬂation, should the need arise.

40 Annual Report Governance

Introduction

The Board is committed to maintaining and demonstrating high standards of corporate

governance. The Board has considered the principles and provisions of the Association of

Investment Companies of Corporate Governance 2019 (the “AIC Code”); the AIC Code

addresses those set out in the UK Corporate Governance Code (the “UK Code”) which

applies for the year ended 31 December 2021, as well as setting out additional provisions

on issues that are of speciﬁc relevance to investment companies and the Company.

The Board considers that reporting against the AIC Code, which has been

endorsed by the Financial Reporting Council, provides more relevant information to

Shareholders. The AIC Code is available on the AIC website (www.theaic.co.uk) and

includes an explanation of how the AIC Code adapts the Principles and Provisions set

out in the UK Code to make them relevant for investment companies.

The Company has complied with the AIC Code and the relevant provisions of the

UK Code, except as set out below. The Board considers that the following provisions

are not relevant to the position of the Company, being an externally managed

investment company with no employees. The Company has therefore not reported

further in respect of these provisions.

• Senior Independent Director – Being small in number, the Board has decided not to

nominate a Senior Independent Director.

• Executive Directors – The UK Code includes provisions relating to the role of the

chief executive and executive Directors’ remuneration, the Board considers these

provisions are not relevant to the Company as it does not have any employees and,

as such, it does not have any executive board members.

• Internal Audit function – The UK Code includes provisions for an internal audit

function. For reasons set out in the AIC Code, the Board considers these

provisions are not relevant to the Company as it is an externally managed

investment company. In particular, all of the Company’s day-to-day management

and administrative functions are outsourced to third parties. As a result, the

Company has no internal operations. The Company has therefore not reported

further in respect of these provisions.

Board composition

The Board currently consists of the Chairman, Lord Flight, Deputy Chair, Ms Walker,

three non-executive Directors (The Honourable James Nelson, Lady Robathan and

MrStevenson). Lord Flight and James Nelson, having served in excess of nine years

as directors to the Company have agreed to step down as Board members at the

conclusion of the forthcoming AGM. At that point Lord Flight will be replaced by

LucyWalker as Chairman to the Company.

Biographies

Lord Flight

Lord Flight has worked in the ﬁnancial services industry for over 40 years.

Heco-founded Guinness Flight Global Asset Management in 1986. In 1998, upon

Guinness Flight’s acquisition by Investec, he became Joint Chairman of Investec Asset

Management Limited. He was the MP for Arundel and South Downs from 1997 to

2005; was Shadow Chief Secretary to the Treasury between 2000 and 2004 and a

member of the Shadow Cabinet. He was appointed to the House of Lords in January

2011. He is Chairman of the EIS Association and of Flight & Partners; he has been

anon-executive director of Metro Bank plc and Investec Asset Management Limited

and of a number of other companies in the ﬁnancial services sector. For 12 years he

was a Commissioner of the Guernsey Financial Services Commission and a member

of the House of Lords EU Finance and Economics Committee from 2010 to 2015.

Corporate

Governance

Statement

The Corporate Governance

Statement forms part of the

Directors’ Report

April 2022

Annual Report Governance 41

Governance

Lucy Walker

Lucy Walker is founder, chair, board director and advisor in investment management,

technology and not-for-proﬁt. She is the founder of AM Insights, a platform that makes

fund research fast, intuitive and stress-free, a director of Henderson International

Income Trust and the independent member of the audit and risk committee at

SportsAid. She is a former fund researcher and fund manager at Sarasin & Partners

and HSBC Global Asset Management.

The Honourable James Nelson

The Honourable James Nelson has had a long career in the ﬁnancial service sector,

working in banking with Morgan Guaranty Trust Company of New York (the

predecessor to JP Morgan Chase) in investment management with Foreign &

Colonial, where he was a director of F & C Management Limited, and in private equity

with Graphite Capital Management Limited as a founding partner. He has held many

non-executive directorships, more recently with the Henderson Smaller Companies

Investment Trust Plc, Syncora Guarantee (UK) Limited and Intermediate Capital Group

Plc. He is a past chairman of the British Private Equity & Venture Capital Association

and is currently chairman of the McGill University Trust.

Lady Rachael Robathan

Lady Robathan is the Leader of Westminster City Council. She was ﬁrst elected in

2010 and held the Finance, Property and Housing Cabinet portfolios before becoming

Leader. Prior to this, she worked for 20 years in emerging market investment

management at Invesco and AIB Govett before joining Pictet as part of the UK based

Family Ofﬁce team. In addition, she has been a Director of the National Lottery

Community Fund since June 2015 and is a member of its Remuneration Committee.

She is also a Trustee of Westminster Almshouses Foundation, a sheltered housing

charity and a Trustee of The Royal Parks.

David Stevenson

David Stevenson is a columnist for the Financial Times, Citywire and Money Week and

author of a number of books on investment matters. He was the founding director of

Rocket Science Group. Currently he is the chairman of the Secured Income Fund Plc,

and a director at Gresham House Energy Storage Fund Plc, AltFi Limited, ETF Stream

Limited, Brismo Limited and Castelnau Group Limited and a strategy consultant to a

number of asset management ﬁrms and investment banks.

Evaluation of Board performance

The Remuneration and Nomination Committee undertook an open discussion on

Board evaluation in respect of the period to 31 December 2021. This included an

analysis of the Board’s effectiveness as a whole, the effectiveness of individual

directors and the effectiveness of each Committee. The evaluation included strategic

issues, management of risk, quality of meetings and composition of the Board, in

terms of qualiﬁcation, skills, diversity and experience, relationships, engagement with

the Investment Manager, governance matters, the performance of the Chair and the

Committees. The Board has reﬂected on its discussions and the evaluation of prior

years’ evaluations and considered its priorities for the year ahead. The Board

concluded that collectively they remained effective, as does each of the Company’s

committees and have agreed a number of priorities for the year ahead which include

implementing a number of shareholder engagement initiatives.

42 Annual Report Governance

Re-election or Election at the forthcoming AGM

Lord Flight and James Nelson, having served in excess of nine years as directors to

the Company, have agreed to step down as Board members at the conclusion of the

forthcoming AGM and will not be put forward for re-election. Having considered the

appointment of each Board member individually, the Board regards each to have

invaluable experience, knowledge and commitment both within and outside meetings

and are strongly recommending that Shareholders vote in favour of each Board

member’s re-election or election at the forthcoming AGM.

Independence

The Board has noted the inference of the provisions in the AIC Code that

Non-Executive Directors who sit on the board of other companies managed by the

same manager should be presumed not to be independent. The Board have further

noted that, Mr Stevenson, as the Company’s nominated representative on the Board

of Castelnau, would fall within this deﬁnition. However, it is the Board’s assessment

that the provisions in place to manage actual or potential situational conﬂicts of

interest are sufﬁciently robust and always promote the success of the Company. The

Board has concluded that Mr Stevenson continues to demonstrate independence of

character and judgement. His skills and experience have added signiﬁcantly to the

strength of the Board and his continued service is invaluable to the long-term success

of the Company. The Directors have a broad range of relevant experience to meet the

Company’s requirements and their biographies are shown below. In accordance with

the Companies Conﬂicts of Interest policy (see page 45), Mr Stevenson will recuse

himself from any decisions relating to Castelnau.

The Board believes that during the period ended 31 December 2021 its composition

was appropriate for an investment company of the Company’s nature and size. All of the

Directors are therefore considered independent of the Investment Manager and are able

to allocate sufﬁcient time to the Company to discharge their responsibilities effectively.

Balance of Skills

As described above under “Evaluation of Board performance”, the Board conducts

areview of its strengths and weaknesses, with the aim of ensuring that there is

available a good balance of attributes that are useful to the direction of the Company,

in addition to the skills and commitment of the Investment Manager. The Chairman

has wide and deep experience of the management and governance of investment

trust companies through the other relevant directorships that he holds and has held.

The Honourable James Nelson, Lady Robathan and Ms Walker have a long track

record of success in the ﬁelds of investment and asset management. Mr Stevenson

has a strong record of independent scrutiny of the markets and commentary upon

them. The Board conﬁrms that its members are highly experienced, both generally and

in respect of the direction of an investment trust company, and that the backgrounds

and seniority of the Directors provide the Board with a high overall level of

independence.

Annual Report Governance 43

Governance

Policy with regard to tenure and reappointment

The Directors recognise that independence is not a function of length of service and

that experience is an important attribute within the Board. The Board has noted the

implication of the provisions in the UK Corporate Governance Code that Non-executive

Directors who have served for more than nine years should be presumed not to be

independent. The AIC does not believe that this presumption is appropriate for

investment companies and therefore does not recommend that long-serving directors

be prevented from forming part of the independent majority of an investment trust

board. Accordingly, the Directors may decide to recommend a director with more than

nine years’ service for re-election. In accordance with the 2019 AIC Code of Corporate

Governance, Directors stand for re-election annually. The performance of each Director

is appraised by the Remuneration and Nomination Committee annually. The Directors

have appointment letters which do not state any speciﬁc term.

How the Board operates

The Company does not have any employees. The Board has contractually delegated to

external agencies, including the Investment Manager, for the management of the

Company’s investment portfolio, the custodial services (which include the

safeguarding of the Company’s assets), the registration services and the accounting

and company secretarial requirements. Each of these contracts was entered into after

full and proper consideration of the quality and cost of services offered, including the

ﬁnancial control systems in operation in so far as they relate to the affairs of the

Company. The Board reviews these contracts annually. The Board does not undertake

any executive function but is responsible to Shareholders for the overall strategy and

performance of the Company. It reviews and evaluates all aspects of the Company’s

performance and all functions performed by the service providers.

A formal schedule of matters reserved for the board has been established covering

strategy; structure and capital; investment objective, policy and limits; gearing;

dividend and corporate governance policy; performance; key contracts; risk; ﬁnancial

reporting and board membership. This is reviewed annually to ensure compliance with

latest regulatory requirements and best market practice.

A procedure has been adopted for Directors, in the furtherance of their duties, to

take independent professional advice at the expense of the Company.

Division of Responsibility

The AIC Corporate Governance Code requires the Board to agree the responsibilities

of the chairman, board and committees and to set them out in writing and make them

publicly available. The below are the current division of responsibilities agreed by the

Board. The Role of the Committees was reviewed during the year and, as a result the

Remuneration and Management Engagement Committee is now known as the

Management Engagement Committee and the Nomination Committee is now known

as the Remuneration and Nomination Committee. The revised role of these

committees is set out below.

44 Annual Report Governance

Role of the Chairman

• To provide leadership to the Board;

• To promote high standards of governance;

• To ensure the Board are provided with sufﬁcient information to enable them to

discharge their duties;

• To ensure each Board member’s views are considered and appropriate action

taken;

• To ensure each Committee has the support required to fulﬁl their duties;

• To ensure the Board assesses and improves its performance, following the advice

of the Nomination Committee;

• To oversee the induction of new Directors and the development of existing

Directors;

• To remain independent of the Investment Manager, whilst providing effective

support, challenge and advice;

• To support other service providers;

• To ensuring the Board as a whole has a clear understanding of the views of

Shareholders;

• To ensure regular engagement with each service provider; and

• To keep up to date with key developments.

Role of Committees

Audit Committee

• To consider the Company’s risk management;

• To consider the internal control reports of each of the Company’s key service

providers;

• To consider the need for an internal audit;

• To review the Half-yearly and the Annual Report and ﬁnancial statements and

recommend them to the Board for approval;

• To review the Audit Plan and recommend it for approval by the Board;

• To consider the Audit Fee and recommend the fees for approval by the Board;

• To consider the Auditors’ appointment/re-appointment and the independence and

objectivity of the Independent Auditor; and

• To manage the Audit Tender process.

Management Engagement Committee

• To consider the terms of engagement and continued appointment of the

Investment Manager; and

• To consider the terms of appointment of each of the Company’s service providers

and the continued appointment of each.

Remuneration and Nomination Committee

• To consider succession planning arrangements;

• To oversee the Board’s appraisal process;

• To consider the engagement of an external board evaluation agency or recruitment

consultant and agree their fees;

• To consider the Board appointment/re-appointment;

• To oversees the recruitment process of additional Board members; and

• To consider the Board’s remuneration.

Annual Report Governance 45

Governance

Role of the Board

• To set the parameters for monitoring the investment strategy and investment

policy;

• To review the Company’s investment performance;

• To consider all strategic policy matters, including share issuance and buy backs,

discount/premium management, corporate governance matters, dividends and

gearing and oversight of the Company’s activities;

• To promote the long-term success of the Company and generate value for

Shareholders;

• To establish the Company’s purpose, values and strategy, and satisfy itself that

these and its culture are aligned;

• To ensure the necessary resources are in place for the Company to meet its

objective;

• To establish key performance indicators and to measure performance against

them;

• To establish a framework of prudent and effective controls, which enable risk to be

assessed and managed; and

• To ensure effective engagement with and encourage participation from

Shareholders and stakeholders.

Conflicts of Interest

As required by law, a Director must avoid a situation where they have an interest that

conﬂicts with the Company’s interests. The Company’s Articles of Association permit

the Directors to authorise potential conﬂicts of interest. The Directors are able to

impose limits or conditions when giving authorisation if they think this is appropriate.

The procedure observed by the Board in dealing with conﬂicted matters is as follows:

• Any Board member so conﬂicted must recuse themself from the decisions

involving the relevant conﬂict. As stated earlier, Mr Stevenson will recuse himself

from decisions concerning Castelnau;

• Only Directors who have no interest in the matter being considered are able to

debate the matter and take the relevant decision; and

• In taking the decision the Directors must act in a way they consider, in good faith,

will be most likely to promote the Company’s long-term success and is in the best

interest of the Company’s Shareholders.

The Directors have declared any potential conﬂicts of interest to the Company.

These are entered into the Company’s conﬂicts of interest register, which is reviewed

regularly by the Board. The Directors are obliged to advise the Company Secretary as

soon as they become aware of any potential conﬂicts of interest.

46 Annual Report Governance

Attendance at Board meetings

The Board holds at least four meetings a year. During the year ended 31 December

2021 there were ﬁve regular and eight other ad-hoc meetings of the Board. The entire

Board attended the quarterly board meetings. Additionally, ad hoc meetings and Audit

sub-committee meetings are held as required for administrative purposes.

Management

Engagement

Committee Remuneration

(previously and

known as Nomination

Remuneration Committee

and (previously

Management known as the

Audit Engagement Nomination

Board Committee Committee Committee

Lord Flight 5/5 3/3 1/1 2/2

Lucy Walker 5/5 3/3 1/1 2/2

The Hon. James Nelson 5/5 3/3 1/1 2/2

Lady Rachael Robathan 5/5 3/3 1/1 2/2

David Stevenson 5/5 3/3 1/1 2/2

Board Committees

The Board has formed three committees: the Audit Committee, Management

Engagement Committee (previously known as the Remuneration and Management

Engagement Committee) and the Remuneration and Nomination Committee

(previously known as the Nomination Committee). The role, responsibilities and

activities during the year of the Audit Committee are detailed in its report on page 57

and the Management Engagement Committee and the Remuneration and Nomination

Committee are shown below.

Since all Directors are independent, non-executive Directors, including the

Chairman, the Board considers that all Directors may be members of each Committee.

On certain occasions, as described below, it is inappropriate for the representative of

the Investment Manager to be involved. The main purpose of the Committees in the

context of the Company’s structure is that their existence ensures time is set aside on

a formal basis to cover certain important issues of governance, without those issues

obscuring the ﬂow of general Board business. Each Committee has a separate

chairman, as detailed under the separate headings below. The Committees have

formal terms of reference, which are available to Shareholders upon request from the

Company’s registered ofﬁce and can be viewed via the Company’s website at

www.aurorainvestmenttrust.com.

Management Engagement Committee

The Board has formed a Management Engagement Committee (previously known as

the Remuneration and Management Engagement Committee), which considers issues

related to the engagement of the Investment Manager and other service providers,

making recommendations as appropriate to the Board. The Committee considers

whether amounts paid to service providers are appropriate, with particular reference

to those contracted to the Company on a continuing basis, including the Investment

Manager, and whether those contracts should be maintained. The Honourable James

Nelson is chairman of the Committee. Upon James’ retirement at the forthcoming

Annual General Meeting, Lady Rachael Robathan will assume the role of Chairman of

the Management Engagement Committee.

Annual Report Governance 47

Governance

The criteria which are taken into consideration when reviewing the performance of

the Investment Manager are as follows:

• The performance of the Company;

• Quality of team – the skills and particularly the experience of the team

involved;

• Commitment to the investment trust business generally and to the Company

in particular;

• Investment management skills – experience, track record, use of gearing,

knowledge of currency issues and other investment-related considerations;

• General management skills – understanding of administrative and ﬁnancial

issues and working relationship with the Administrator/Company Secretary;

• Shareholder relations – consciousness of and commitment to Shareholders’

needs and objectives, share price awareness and discount management;

• Reasonableness of the Investment Management Agreement – fees, notice

period and duties.

The Management Engagement Committee is also responsible for reviewing the

remuneration and services of the Company’s other service providers.

The Committee met once in 2021 and considered the appraisal of the Investment

Manager and other key service providers.

The Committee concluded that the continued appointment of each of the service

providers, including the Investment Manager, remained in the best interest of

Shareholders.

Audit Committee

The Board has formed an Audit Committee comprised of the Non-Executive Directors,

all of whom are independent of the Investment Manager. During the year ended

31December 2021, the Committee comprised Lord Flight, Ms Walker, TheHonourable

James Nelson, Lady Robathan and Mr Stevenson. LadyRobathan is the chairman of

the Committee.

The Audit Committee also reviews any non-audit services provided by the auditor.

Under the Revised Ethical Code, it is necessary for the tax compliance function to be

separated from the audit role. Ernst & Young has been appointed to provide tax

compliance services. The auditor did not perform any non-audit services during the

year ended 31 December 2021. All members of the Committee are active in the

investment markets and/or the investment trust sector and the Committee considers

that all have recent and relevant ﬁnancial sector experience.

Remuneration and Nomination Committee

A Remuneration and Nomination Committee (previously known as the Nomination

Committee) has been established by the Board to identify and interview candidates for

vacancies on the Board, to consider the Board’s remuneration and to undertake Board

appraisals. It is established as a principle that this process should be led by the

independent Directors. The Honourable James Nelson is chairman of the Committee.

Upon James’ retirement at the forthcoming Annual General Meeting, Lady Rachael

Robathan will assume the role of Chairman of the Committee. The Committee will

meet as and when required. The Remuneration and Nomination Committee met twice

during the year ended 31 December 2021.

During the year the Committee considered a number of items of business

including:

1. The Board appraisal;

2. Board fees;

3. The Board recruitment process;

48 Annual Report Governance

4. External Director search consultants – having considered a number of search

consultants the Committee recommended to the Board that Trust Associates

be engaged to search for two additional Board members to replace Lord

Howard Flight and the Honourable James Nelson who will be stepping down

from the Board at the Company’s forthcoming AGM. Trust Associates has no

connection to the Company or Board.

Relations with Shareholders and with Investee Companies

Relations with Shareholders and key stakeholders

The Investment Manager regularly meets the largest Shareholders and reports back to

the Board on those meetings. The Company encourages all Shareholders to attend the

AGM. The Notice of Meeting sets out the business of the AGM and any item not of an

entirely routine nature is explained in the Directors’ Report. Separate resolutions are

proposed for each substantive issue.

The Chairman, and where relevant, each committee chair, seeks to engage with

the Company’s Shareholders (and the Company’s other key stakeholders) on

signiﬁcant issues raised by them at the AGM or at other times. The Board seeks to

understand the views of the Shareholders and the Company’s other key stakeholders

and how their interests and the matters set out in section 172 of the Companies Act

2006 have been considered and especially in Board discussions and decision-making.

The Board keeps engagement mechanisms under review so that they remain

effective. In fulﬁlling their duties, the Directors carefully consider the likely

consequences of their actions over the long-term and on other key stakeholders.

These include the investors, Investment Manager, Company Secretary, Administrator,

Registrar, Lawyers, Auditor, Depositary and Bankers amongst others.

Internal Controls and Risk Management

Review of internal controls

The UK Corporate Governance Code requires the Board to review the effectiveness of

the Company’s risk management and system of internal controls. TheBoard

recognises its ultimate responsibility for the Company’s system of internal controls

and for monitoring its effectiveness. The system of internal controls is designed to

manage rather than eliminate the risk of failure to achieve business objectives. It can

provide only reasonable assurance against material misstatement or loss. The Board

has undertaken a review of risk management and internal control and has identiﬁed

risk management controls in the key areas of business objectives, accounting,

compliance, operations and secretarial as being matters of particular importance upon

which it requires reports. The Board believes that the existing arrangements, set out

below, represent an appropriate framework to meet the internal control requirements.

By these procedures the Directors have kept under review the effectiveness of the

risk management and internal control system throughout the year and up to the date

of this report. The monitoring and review include all material controls, covering

ﬁnancial, operational and compliance. The Board has concluded that the Company’s

risk management and internal control system are adequate to meet the needs of

theCompany.

Annual Report Governance 49

Governance

Assessment of service providers by the Board

The Investment Manager and the Administrator are normally invited to attend each full

meeting of the Board and have in practice done so. Between these meetings there is

further regular contact with the Investment Manager and the Administrator.

TheInvestment Manager reports in writing to the Board on operational and compliance

issues prior to each meeting, and otherwise as necessary. Directors receive and

consider regular monthly reports from the Administrator, giving full details of all holdings

in the portfolio, including all transactions, and of all aspects of the ﬁnancial position of

the Company. The Administrator reports separately in writing to the Board concerning

risks and internal control matters within its purview, including internal ﬁnancial control

procedures, compliance with investment trust rules and secretarial matters, highlighting

any changes which have occurred. Additional ad hoc reports are received as required and

Directors have access at all times to the advice and services of the Corporate Company

Secretary, which is responsible to the Board for ensuring that Board procedures are

followed and applicable rules and regulations are complied with.

Contact with the Investment Manager and the Administrator enables the Board to

monitor the Company’s progress towards its objectives and encompasses an analysis

of the risks involved. These matters are assessed on an ongoing basis throughout the

year and again, formally, at year end and this process of assessment has continued up

to the date of this report.

Financial Aspects of Internal Control

The Directors are responsible for the internal ﬁnancial control systems of the

Company and for reviewing their effectiveness. These aim to ensure the maintenance

of proper accounting records, the reliability of the ﬁnancial information upon which

business decisions are made and which is used for publication and that the assets of

the Company are safeguarded. In accordance with the AIC Code, the Directors are

responsible for making a robust assessment of the principal and emerging risks facing

the Company including those that would threaten its company’s business model,

future performance, solvency or liquidity and reputation. As stated above, the Board

has contractually delegated to external agencies the services the Company requires,

but they are fully informed of the internal control framework established by the

Investment Manager and the Administrator to provide reasonable assurance on the

effectiveness of internal ﬁnancial controls.

The key procedures include monthly production of management accounts and daily

NAV calculations, monitoring of performance at regular board meetings, supervision

by Directors of the valuation of securities, segregation of the administrative function

from that of securities and cash custody and of both from investment management,

maintenance of appropriate insurance and adherence to physical and computer

security procedures.

The Directors’ statement of responsibilities in respect of the accounts is on

pages55 and 56, a statement of going concern is on page 39 and the report of the

independent auditor is on pages 60 to 71.

Principal and emerging risks

The Directors conﬁrm that they have carried out a robust assessment of the emerging

and principal risks facing the Company, including those that would threaten its

business model, future performance, solvency or liquidity. The principal risks and how

they are being managed is set out in the Strategic Report.

Order of the Board

Jenny Thompson

Sanne Fund Services (UK) Limited

Company Secretary

29 April 2022

50 Annual Report Governance

The report below is the Annual Report on Remuneration which has been prepared in

accordance with the requirements of the Large and Medium-sized Companies and

Groups (Accounts and Reports) (Amendment) Regulations 2013 (the Regulation).

The Remuneration Policy is required to be put before Shareholders for approval

once every three years (unless changed, in which case the changes must be

approved). The Remuneration Policy is binding on the Company and was last put to

Shareholders at the Annual General Meeting (‘AGM’) held in 2020. At that meeting the

resolution to approve the Remuneration Policy was passed unanimously. The proxy

voting was 18,058,233 in favour, representing just under 100% of the votes cast, and

5,127 against, representing just over 0% of the votes cast and 4,712 votes withheld.

The Remuneration Report is required to be put before Shareholders each year and

will be put forward at the forthcoming AGM. The Shareholders’ vote on the

Remuneration Policy Implementation Report is not binding upon the Company, but the

Board and the Committee take account of any concerns that are expressed by

Shareholders. At the AGM in 2021, the resolution to approve the Remuneration

Implementation Report was passed unanimously. The proxy voting on this resolution

was 28,379,701 votes in favour, representing 99.94% of votes cast, and 17,073 votes

against, representing 0.06% of votes cast and 4,281 votes withheld.

Shareholders are encouraged as part of the Company’s engagement strategy to

have the opportunity to ask questions and to express their views in respect of the

Remuneration Policy and Remuneration Implementation report. Since the last AGM,

no Shareholders have commented in respect of the Remuneration Policy or

Remuneration Implementation Report.

Information not subject to audit

Remuneration Policy

Current and future policy

The Company’s remuneration policy is linked to the Company’s strategy and promotes

the long-term success of the Company in accordance with S172 Companies Act 2006.

This provides fees payable to the Directors to reﬂect the value of the time spent by the

Board on the Company’s affairs, the duties of the Directors and is sufﬁcient to attract

and retain candidates of a high calibre. This is reviewed by the Board annually based

upon market rates for non-executive directors commensurate with the growth and size

of the Company and reported accordingly in their Remuneration Policy Implementation

Report.

Directors are remunerated in the form of fees only, payable quarterly in arrears,

paid to the Directors personally. Directors are authorised to claim reasonable expenses

in the performance of their duties.

Remuneration and Nomination Committee

The Company has ﬁve non-executive Directors. The Remuneration and Nomination

Committee (the “Committee”) comprises the whole Board.

Directors’

Remuneration

Report

James Nelson

Chairman of the Remuneration and

Management Engagement

Committee

April 2022

Annual Report Governance 51

Governance

Policy on Directors’ fees

It is the policy of the Board and the Committee that the remuneration of non-executive

Directors should be fair and should reﬂect the experience, work involved, responsibilities

and potential liabilities of the Board as a whole and their time commitment. The

non-executive Directors’ fees are determined within the maximum limit set out in the

Company’s Articles of Association, which currently stands at £200,000 per year. At the

forthcoming AGM the Board are proposing, via an ordinary resolution, an increase to this

limit to a maximum of £250,000 per year. The increase is being proposed to enable the

Board to attract and retain Board members with suitable skills and experience.

The Directors are not eligible for bonuses, pension beneﬁts, share beneﬁts, share

options, long-term incentive schemes or other beneﬁts and fees are not linked to

Director’s individual or collective performance. There are no arrangements in place with

respect to compensation for loss of ofﬁce (for whatever reason) or recruitment incentive

remuneration and Directors have no entitlement to any such payments. No Director has

waived or agreed to waive any emoluments from the Company.

Directors’ service contracts

The Directors do not have service contracts. The Directors have appointment letters,

which do not state any speciﬁc term. In accordance with the AIC Corporate

Governance Code the Board put themselves forward for annual re-election.

Payments to past Directors

No payments were made during the year to any past Directors.

Remuneration Policy Implementation Report

The levels of remuneration in 2021 were:

Component Director Current Purpose of Operation

annual rate reward

Annual fee Chairman of the £33,800 For services as Determined by

Board Chairman of a plc the Board

Annual fee Other independent £24,500 For services as Determined by

Directors non-executive the Board

Directors of a plc

Annual fee

Chairman of the £28,680 For additional Determined by

Audit Committee responsibility and the Board

time commitment

Annual fee Deputy Chair £31,500 For services as Determined by

of the Board Deputy Chair the Board

of a plc

Expenses All Directors – Reimbursement of Submission

expenses incurred in of appropriate

the performance of supporting

duties documentation

The Committee met once during the year ended 31 December 2021. All members

of the Committee attended the meeting. The Committee, in conjunction with the

Chair, is responsible for setting the remuneration levels of the Directors and

considering whether to appoint an external remuneration consultant if felt appropriate.

In this case it decided not to appoint an external consultant and considered the results

of the review of Directors’ performance together with an internal survey of board

remuneration among a peer group of similar companies. It concluded that the annual

increase of the consumer price index applied on 1 January 2021 was acceptable, and

no other changes were recommended. These recommendations were accepted and

implemented by the Board. No other services were provided by advisers in respect of

remuneration policy during the year ended 31 December 2021.

Performance

The performance of the Company’s Ordinary Shares, with dividends reinvested, is

compared to that of the FTSE All-Share Index (total return) which is the Company’s

Benchmark. Phoenix took over the investment management on 28 January 2016.

Relative importance of spend on pay

The table below shows the proportion of the Company’s income spent on pay.

Year to Year to Change

31 December 31 December Favourable/

2021 2020 (unfavourable)

£’000 £’000 £’000

Revenue income 2,305 1,207 1,098

Spend on Directors’ fees 137 150 (37)

Other expenses 725 447 278

Dividends paid to Shareholders 420 3,295 (2,875)

The information in the table above is required by the Regulations with the exception of

other expenses, which have been included to show the total operating expenses of

the Company.

FTSE All-Share Index (total return)

Aurora share price plus dividends reinvested

100

125

150

175

200

225

250

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

52 Annual Report Governance

Annual Report Governance 53

Governance

Information subject to audit

Single Total Figure of Remuneration for The Year (Audited)

The fees and expenses paid to the Directors who served during the years ended

31December 2021 and 31 December 2020 were as follows:

31 December 2021 31 December 2020

Taxable Taxable

Fees expenses

1

Total Fees expenses

1

Total

£ £ £ £ £ £

Lord Flight 33,800 – 33,800 33,500 – 33,500

Lady Rachael Robathan

2

28,700 – 28,700 28,500 – 28,500

The Hon. James Nelson 24,600 – 24,600 24,500 – 24,500

David Stevenson 24,600 – 24,600 24,500 – 24,500

Lucy Walker

3

25,964 – 25,964 24,500 – 24,500

Richard Martin

4

– – – 14,500 – 14,500

Total 137,664 – 137,664 150,000 – 150,000

1

Taxable expenses incurred by the Board in carrying out their duties as Directors.

2

Appointed as the replacement Audit Chair, following Richard Martin’s retirement, on 2 December 2019.

3

Appointed as a non-executive Director on 2 December 2019. On 19 October 2021 Lucy Walker was

appointed Deputy Chair of the Board.

4

Resigned from the Board on 18 June 2020.

None of the fees referred to above were paid to any third-party in respect of services

provided by the Directors.

Annual Percentage Change in Directors’ Remuneration (unaudited)

In accordance with The Companies (Directors’ Remuneration Policy and Directors’

Remuneration Report) Regulations 2019, these columns have been included to show

the annual percentage change over the preceding ﬁnancial year by comparison to the

current ﬁnancial year in respect of each Director. The Board will publish this annual

percentage change cumulatively each year going forward until there is an annual

percentage change over the ﬁve ﬁnancial years preceding the relevant ﬁnancial year in

accordance with the new regulation:

31 December 2021 31 December 2020

Lord Flight 0.9% 1.5%

Lady Rachael Robathan 0.7% 1,138.6%

1

The Hon. James Nelson 0.4% 2.1%

David Stevenson 0.4% 2.1%

Lucy Walker 6.0%

4

1,141.8%

2

Richard Martin

3

n/a -48%

3

1

The high annual change increase of Lady Rachael Robathan’s fees for the year to 31 December 2020

reﬂectthe fact that Lady Robathan joined the Board and became Audit Chair part way through 2019, on

2December 2019. Lady Robathan’s fee increase would have been 1.79% if she had served as Audit Chair

for the whole of the previous year.

2

The high annual change in Lucy Walker’s fees for the year to 31 December 2020 reﬂects the fact that

MsWalker became a non-executive Director part way through 2019, on 2 December 2019. Ms Walker’s fee

increase would have been the same as the other non-executive Directors if she had been a non-executive

Director for the whole of the previous year.

3

Richard Martin resigned from the Board on 18 June 2020.

4

The high annual change in Lucy Walker’s fees for the year to 31 December 2021 reﬂects the fact that

MsWalker was appointed Deputy Chair of the Board on 19 October 2021 and her fees were increased to

reﬂect her new responsibilities.

Remuneration Consideration (unaudited)

During the year the Committee reviewed the Directors’ remuneration and agreed the

following increases which was based on the Consumer Price Index for the period to

31 December 2021 of 4.8%:

Current fee from Fee rate from

1 January 2022 1 January 2021

Role £ £

Lord Flight 35,400 33,500

Lady Rachael Robathan 30,100 28,500

The Hon. James Nelson 25,800 24,500

David Stevenson 25,800 24,500

Lucy Walker

33,000 24,500 rising to £31,500

on 19 October 2021)

Directors’ Shareholdings (audited)

The Directors’ shareholdings in the Company were:

At 31 December 2021

and at the date

of this report At 31 December 2020

Director Ordinary Shares Ordinary Shares

Lord Flight 43,000 43,000

Lady Rachael Robathan – –

The Hon. James Nelson 50,117 40,000

David Stevenson 18,266 18,266

Lucy Walker 12,000 12,000

There are no requirements or formal guidelines in effect for Directors holding

shares in the Company, although the Board welcomes such holdings. The interests of

each director include the interests of connected persons of which the Company is or

ought reasonable upon enquiry to become aware. Connected persons are person

closely associated as deﬁned in the Market Abuse Regulations.

Annual statement

On behalf of the Board and in accordance with the Large and Medium-sized

Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013,

Iconﬁrm that the above Reports on Remuneration Policy and Remuneration

Implementation summarise, as applicable, for the year to 31 December 2021:

a. the major decisions on Directors’ remuneration;

b. any substantial changes relating to Directors’ remuneration made during the year;

and

c. the context in which the changes occurred and decisions have been taken.

James Nelson

Chairman of the Remuneration and Management Engagement Committee

29 April 2022

54 Annual Report Governance

Annual Report Governance 55

Governance

The Directors are responsible for preparing the Annual Report and the ﬁnancial

statements in accordance with applicable law and regulation.

Company law requires the Directors to prepare ﬁnancial statements for each

ﬁnancial year. Under that law the Directors have prepared the ﬁnancial statements in

accordance with UK-adopted International Accounting Standards and in accordance

with those parts of the Companies Act 2006 that apply to those companies reporting

under UK-adopted International Accounting Standards.

Under company law, Directors must not approve the ﬁnancial statements unless

they are satisﬁed that they give a true and fair view of the state of affairs of the

Company and of the proﬁt or loss of the Company for that period. In preparing the

ﬁnancial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• state whether applicable UK-adopted International Accounting Standards have

been followed, subject to any material departures disclosed and explained in the

ﬁnancial statements;

• make judgements and accounting estimates that are reason- able and prudent; and

• prepare the ﬁnancial statements on the going concern basis unless it is

inappropriate to presume that the Company will continue in business.

The Directors are also responsible for safeguarding the assets of the Company and

hence for taking reasonable steps for the prevention and detection of fraud and other

irregularities.

Under applicable law and regulations, the Directors are also responsible for

preparing a Strategic Report, a Directors’ Report, a Corporate Governance Statement

and a Directors’ Remuneration Report which comply with that law and those

regulations.

The Directors are responsible for keeping adequate accounting records that are

sufﬁcient to show and explain the Company’s transactions and disclose with

reasonable accuracy at any time the ﬁnancial position of the Company and enable

them to ensure that the ﬁnancial statements and the Remuneration Report comply

with the Companies Act 2006. They are also responsible for safeguarding the assets of

the Company and hence for taking reasonable steps for the prevention and detection

of fraud and other irregularities.

The Directors have delegated responsibility to the Investment Manager for the

maintenance and integrity of the Company’s page of the Investment Manager’s

website.

Legislation in the United Kingdom governing the preparation and dissemination of

ﬁnancial statements may differ from legislation in other jurisdictions.

Statement of

Directors’

Responsibilities

for the Annual

Report

Lady Rachael Robathan

Director

April 2022

56 Annual Report Governance

Directors’ confirmations

The Directors consider that the Annual Report and Accounts, taken as a whole, is fair,

balanced and understandable and provides the information necessary for Shareholders

to assess the Company’s position and performance, business model and strategy.

Each of the Directors, whose names and functions are listed in the Corporate

Governance section conﬁrm that, to the best of their knowledge:

• the Company’s ﬁnancial statements, which have been prepared in accordance with

UK-adopted international accounting standards and in accordance with those parts

of the Companies Act 2006 that apply to those companies reporting under

UK-adopted international accounting standards and give a true and fair view of the

assets, liabilities, ﬁnancial position and loss of the Company; and

• the Strategic Report includes a fair review of the development and performance of

the business and the position of the Company, together with a description of the

principal risks and uncertainties that it faces.

For and on behalf of the Board

Lady Rachael Robathan

Director

29 April 2022

Annual Report Governance 57

Governance

I am pleased to present the Committee’s report to shareholders for the year ended

31December 2021.

Composition

All of the Directors are members of the Committee.

In accordance with the UK Code, the Chairman of the Board should not be a

member. However, the AIC Code permits the Chairman to be a member of, but not

chair, the Committee if they were independent on appointment – which the Chairman

was and in the Board’s view continues to be. In view of the size of the Board, the

Directors feel it is appropriate for him to continue as a member, so that the Committee

can continue to beneﬁt from his experience and knowledge.

The members of the Committee consider that they have the requisite skills and

experience to fulﬁl the responsibilities of the Committee. The Committee as a whole

has competence relevant to the sector.

Role and Responsibilities

The main role and responsibilities of the Committee are set out in the Committee’s

terms of reference. The terms are regularly reviewed and are available on the

Company’s website or on request from the Company Secretary.

The Committee meets formally at least twice a year for the purpose, amongst

other things, of advising the Board on the appointment, effectiveness independence,

objectivity and remuneration of the external auditor.

The Committee monitors the integrity of the ﬁnancial statements of the Company

and any formal announcements relating to the Company’s ﬁnancial performance,

reviewing signiﬁcant ﬁnancial reporting judgements contained in them. The Committee

also reviews the Company’s risk management, internal ﬁnancial controls and internal

control systems and reviews the Manager’s whistleblowing arrangements.

The provision of non-audit services by the auditor are also reviewed.

Meetings

There were ﬁve Committee meetings during the year ended 31 December 2021.

Inaddition, the Committee Chair met the audit partner for a private discussion on the

audit process and was pleased to conclude that the auditors had nothing signiﬁcant to

bring to her attention.

Committee evaluation

The Committee’s activities fell within the scope of the review of Board effectiveness

performed during the year. Details can be found on page 41.

Work of the Audit Committee

During the year ended 31 December 2021 the Audit Committee formally met three

times. Three additional meetings were held to consider the accounting treatment of

the Company’s performance fee.

The Committee considered and recommended for Board Approval the interim

accounts to 30 June 2021 and Annual Accounts for the year to 31 December 2020

including agreeing on the valuations of the Company’s portfolio of investments, the

Company’s Risk Register, the Company’s exposure to illiquid investments, and the

internal control report of its service providers.

Audit

Committee

Report

Lady Rachael Robathan

Chair of the

Audit Committee

April 2022

58 Annual Report Governance

The Committee considered and reviewed the Audit Plan from Grant Thornton UK

LLP (“Grant Thornton”) and the approach to the audit as set out and planned audit

procedures. It also considered the appointment of Mazars to provide guidance around

the accounting treatment of the performance fee and speciﬁcally the accounting

treatment of the clawback provisions and to undertake a valuation of the performance

fee. Mazars are independent of the Company and the Company’s auditors.

Since 31 December 2021, the Committee has met with a number of

representatives of each contender to the audit tender process which remains ongoing.

The Company will announce the successful contender in due course. In the

meantime, and in order to remain compliant with relevant regulations which require a

listed entity to maintain the appointment of an auditor at all times, a resolution will be

put to shareholders at the forthcoming AGM to re-appoint Grant Thornton as the

Company’s Auditor.

Financial statements and significant accounting matters

In its meetings during the year ended 31 December 2021, the Audit Committee in

performing its role and meeting its objectives, considered the following signiﬁcant

accounting issues in relation to the Company’s ﬁnancial statements for the year ended

31 December 2021:

Performance Fee and clawback provisions

The Company awarded shares to the Investment Manager in settlement of a

performance fee during the years ended 31 December 2019, 31 December 2020 and

31 December 2021. The shares are subject to a clawback at the end of a 36-month

period following the date the shares were awarded. The valuation of the clawback

provisions and the accounting treatment of those provisions was considered by the

Audit Committee. The Board agreed to appoint Mazars to provide a valuation in

accordance with the Company’s Investment Management Agreement. The Audit

Committee reviewed the results of the valuation and concluded that the valuation was

reliable.

Valuation of investments

The Company holds most of its assets in quoted investments. The valuation of these

investments is the most material matter in the production of the ﬁnancial statements.

The Audit Committee reviewed the procedures in place for ensuring accurate valuation

of investments and discussed the valuation of the Company’s investments at the year

end with the Investment Manager and the Administrator. The results of the audit in

this area were discussed with the external auditor and there were no signiﬁcant

issues arising from this.

The Company holds a small proportion of the portfolio in an unquoted company,

Phoenix SG. The valuation of this investment is based on a proportionate share of the

investment’s NAV. The Investment Manager provided valuation recommendations for

the investment in the unquoted company held at the year end and it was discussed

and approved by the Audit Committee. The Company’s unquoted investment in

Phoenix SG Limited is valued by Duff & Phelps.

Financial statement presentation

The Audit Committee obtained assurances from the Investment Manager, the

Administrator and Secretary that the ﬁnancial statements had been prepared appropriately

and questioned the external auditor on this area. There were no unresolved issues.

Annual Report Governance 59

Governance

Going concern

The Audit Committee reviewed the Company’s ﬁnancial resources and concluded that

it is appropriate for the Company’s ﬁnancial statements to be prepared on a going

concern basis as described in the Directors’ Report.

Conclusion with respect to the Annual Report and financial

statements

The Audit Committee has concluded that the Annual Report for the year ended

31December 2021, taken as a whole, is fair, balanced and understandable and

provides the information necessary for Shareholders to assess the Company’s

position, business model, strategy and performance. The Audit Committee has

reported its conclusions to the Board of Directors. The Audit Committee reached this

conclusion through a process of review of the document and enquiries to the various

parties involved in the production of the annual report.

Provision of non-audit services

The Audit Committee has put in place a non-audit service policy to ensure that the

auditor’s independence and objectivity are not impaired. The Company has appointed

Ernst & Young to provide tax compliance services and Mazars to value the clawback

provisions included in the Company’s Annual Accounts. No non-audit work was

performed for the Company by the auditor during the year ended 31 December 2021

and the Committee has no current plans to seek any non-audit services from the auditor.

Effectiveness of external audit

The Audit Committee is responsible for reviewing the effectiveness of the external

audit process. The Audit Committee received a presentation of the audit plan from the

external auditor prior to the commencement of the audit and a presentation of the

results of the audit following completion of the main audit testing. In accordance with

the EU Directive that a review of the auditor be carried out after 10 years’ service,

afull review of the audit service on a competitive basis was conducted during 2016.

TheCommittee gave careful consideration to proposals put forward by Grant Thornton

and by a competitor ﬁrm. After discussion, it concluded that the appointment of Grant

Thornton should be continued, subject to approval by the Board and the Shareholders

of the Company.

The renewed appointment of Grant Thornton is potentially for a further period up to

31 December 2023, the maximum permitted by the EU Directive, but always subject

to annual conﬁrmation. The Audit Committee performed a further review of the

external auditor following the presentation of the results of the latest audit. The review

included a discussion of the audit process and the ability of the external auditor to fulﬁl

its role. The Committee subsequently conﬁrmed to the Board it was satisﬁed on the

basis that the independence criterion was still met, that a resolution be put to

Shareholders at the AGM in 2022 for the re-appointment of Grant Thornton.

As mentioned earlier, the audit tender process is ongoing. The successful

contender will be announced to the market in due course.

Lady Rachael Robathan

Chair of the Audit Committee

29 April 2022

60 Annual Report Governance

Independent

Auditor’s Report

to the Members

of Aurora

Investment

Trust Plc

William Pointon

Senior Statutory Auditor

for and on behalf of

Grant Thornton UK LLP

Statutory Auditor,

Chartered Accountants

London

April 2022

Opinion

Our opinion on the financial statements is unmodified

We have audited the ﬁnancial statements of Aurora Investment Trust plc (the

‘Company’) for the year ended 31 December 2021, which comprise the Statement of

Comprehensive Income, the Statement of Financial Position, the Statement of

Changes in Equity, the Cash Flow Statement and notes to the ﬁnancial statements,

including a summary of signiﬁcant accounting policies. The ﬁnancial reporting

framework that has been applied in their preparation is applicable law and UK-adopted

international accounting standards.

In our opinion, the ﬁnancial statements:

• give a true and fair view of the state of the Company’s affairs as at 31 December

2021 and of its proﬁt for the year then ended;

• have been properly prepared in accordance with UK-adopted international

accounting standards; and

• have been prepared in accordance with the requirements of the Companies Act

2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK)

(ISAs (UK)) and applicable law. Our responsibilities under those standards are further

described in the ‘Auditor’s responsibilities for the audit of the ﬁnancial statements’

section of our report. We are independent of the Company in accordance with the

ethical requirements that are relevant to our audit of the ﬁnancial statements in the

UK, including the FRC’s Ethical Standard as applied to listed public interest entities,

and we have fulﬁlled our other ethical responsibilities in accordance with these

requirements. We believe that the audit evidence we have obtained is sufﬁcient and

appropriate to provide a basis for our opinion.

Conclusions relating to going concern

We are responsible for concluding on the appropriateness of the directors’ use of the

going concern basis of accounting and, based on the audit evidence obtained,

whether a material uncertainty exists related to events or conditions that may cast

signiﬁcant doubt on the Company’s ability to continue as a going concern. If we

conclude that a material uncertainty exists, we are required to draw attention in our

report to the related disclosures in the ﬁnancial statements or, if such disclosures are

inadequate, to modify the auditor’s opinion. Our conclusions are based on the audit

evidence obtained up to the date of our report. However, future events or conditions

may cause the Company to cease or continue as a going concern.

Our evaluation of the directors’ assessment of the Company’s ability to continue to

adopt the going concern basis of accounting included:

Annual Report Governance 61

• Obtaining management’s assessment of the Company’s ability to continue as

agoing concern which covered a period of at least 12 months from when the

ﬁnancial statements are authorised for issue. The assessment included forecasts

on future performance and the net assets position. We assessed how the

forecasts were compiled and their accuracy by examining the appropriateness of

underlying assumptions such as dividend expectations, ongoing expenses and

portfolio size;

• Critically evaluating the revenue and cost projections underlying the model with

reference to market information, past performance of the Company as well as any

known post balance sheet events;

• Performing analysis on the forecasts prepared by management, including

evaluation of the likelihood of the reverse stress test scenario; and

• Assessing the adequacy of the going concern disclosures included within the

ﬁnancial statements.

In our evaluation of the directors’ conclusions, we considered the inherent risks

associated with the Company’s business model including affects arising from

macro-economic uncertainties such as Brexit and Covid-19. We assessed and

challenged the reasonableness of estimates made by the directors and the related

disclosures and analysed how those risks might affect the Company’s ﬁnancial

resources or ability to continue operations over the going concern period.

Based on the work we have performed, we have not identiﬁed any material

uncertainties relating to events or conditions that, individually or collectively, may cast

signiﬁcant doubt on the Company’s ability to continue as a going concern for a period

of at least twelve months from when the ﬁnancial statements are authorised for

issue.

In auditing the ﬁnancial statements, we have concluded that the directors’ use of

the going concern basis of accounting in the preparation of the ﬁnancial statements is

appropriate.

In relation to the Company’s reporting on how it has applied the UK Corporate

Governance Code, we have nothing material to add or draw attention to in relation to

the directors’ statement in the ﬁnancial statements about whether the directors

considered it appropriate to adopt the going concern basis of accounting.

The responsibilities of the directors with respect to going concern are described in

the ‘Responsibilities of directors for the ﬁnancial statements’ section of this report.

Governance

62 Annual Report Governance

Our approach to the audit

Key audit matters

Overview of our audit approach

Overall materiality: £1.9m, which represents

approximately 1% of the Company’s net assets.

Key audit matters were identiﬁed as:

• Completeness and occurrence of investment

income (same as previous year); and

• Valuation and existence of investments

measured at fair value through proﬁt or loss

(same as previous year).

Our auditor’s report for the year ended

31December 2020 included accuracy, occurrence,

valuation and presentation of performance fee as a

key audit matter, which has not been reported as a

key audit matter in our current year’s report. This is

due to the performance fee no longer being material

in the current year, and the lack of complexity in

arriving at the performance fee valuation this year as

compared to the prior year. The valuation method

and accounting for performance fee was

established in the previous year and has been

applied in the current ﬁnancial year consistently with

prior year.

Our audit approach was a risk-based substantive

audit focused on the valuation and existence of

investments at year end and completeness and

occurrence of investment income recognised during

the year. Other than exclusion of the performance

fee as a key audit matter, there was no signiﬁcant

change in our approach from the prior year.

Key audit

matters

Scoping

Materiality#

Description

Audit

reponse

Disclosures Our results

KAM

Key audit matters are those matters

that, in our professional judgement,

were of most signiﬁcance in our audit

of the ﬁnancial statements of the

current period and include the most

signiﬁcant assessed risks of material

misstatement (whether or not due to

fraud) that we identiﬁed. These

matters included those that had the

greatest effect on: the overall audit

strategy; the allocation of resources in

the audit; and directing the efforts of

the engagement team. These matters

were addressed in the context of our

audit of the ﬁnancial statements as a

whole, and in forming our opinion

thereon, and we do not provide a

separate opinion on these matters.

Annual Report Governance 63

In the graph below, we have presented the key audit matters, signiﬁcant risks and

other risks relevant to the audit.

Key Audit Matter How our scope addressed the matter

In responding to the key audit matter, we

performed the following audit procedures:

• assessed whether the Company’s

accounting policy for revenue recognition is in

accordance with International Financial

Reporting Standard (IFRS) 9 ‘Financial

Instruments’ and the Statement of

Recommended Practice ‘Financial Statements

of Investment Trust Companies and Venture

Capital Trusts’ (the ‘SORP’) issued by the

Association of Investment Companies (‘AIC’);

• substantively evaluated all income

transactions, as described below, to assess if

they were recognised in accordance with the

accounting policy;

• for investments held during the year, obtained

the ex-dividend dates and rates for dividends

declared during the year from an independent

source and agreed the expected dividend

entitlements to those recognised in the

Statement of Comprehensive Income; and

– agreed dividend income recognised by the

Company to an independent source; and

– agreed dividend income recognised to

the bank statements.

• performed an evaluation of special dividends

to determine the appropriateness of the

accounting treatment and classiﬁcation as

either revenue or capital.

Completeness and occurrence of investment

income

We identiﬁed the completeness and

occurrence of investment income from the

investment portfolio as a signiﬁcant risk, which

was one of the most signiﬁcant assessed risks

of material misstatement due to fraud and

error.

This is as under ISA (UK) 240 ‘The Auditor’s

Responsibilities Relating to Fraud in an Audit of

Financial Statements’, there is a rebuttable

presumption that there are risks of fraud in

revenue recognition. Investment income

recognised during the year was £2,305,000

(2020: £1,207,000).

The Company’s investment objective is to

provide shareholders with long term returns

through capital and income growth. Investment

income is the Company’s major source of

revenue and is a material balance in the

Statement of Comprehensive Income.

Our results

Our audit testing did not identify any material

misstatements in the completeness and

occurrence of investment income.

Relevant disclosures in the Annual Report 2021

• Financial statements: accounting policy note

1(d), ‘Income from investments’; and note 3,

‘Income’.

Governance

64 Annual Report Governance

Key Audit Matter How our scope addressed the matter

In responding to the key audit matter, we

performed the following audit procedures:

• assessed whether the Company’s accounting

policy for investments is in accordance with

relevant accounting standards and the AIC

SORP, and tested whether management have

valued the investments in accordance with that

policy;

• conﬁrmed the existence and ownership of all

investments by agreeing the holdings listed in

the portfolio at year end to an independent

conﬁrmation we received directly from the

Company’s custodian;

• examined the independent service auditor’s

assurance report on the custodian’s controls

over assets under its custody;

• independently priced 100% of the quoted

equity portfolio by obtaining the bid prices from

independent market sources and calculating the

total valuation based on Company investment

holdings, which was agreed to the ﬁnancial

statements;

• assessed the valuation of the Company’s

unquoted investment in Phoenix SG Limited by

examining the valuation report prepared by

management’s expert as at 26 January 2022

and examining management’s assessment of

its valuation at 31 December 2021. This

included engaging our valuation specialists to

evaluate the adequacy of assumptions made by

management’s expert and enabled us to

challenge the assumptions made by

management. We also obtained Phoenix SG

Limited’s audited ﬁnancial statements for the

year ended 31 December 2021 and

recomputed the Company’s proportionate share

of the net assets;

• agreed the Company’s holding in Phoenix SG

Limited at the year end to a conﬁrmation from

the Company’s custodian;

• substantively agreed a sample of additions and

disposals of investments during the year by

agreeing to trade conﬁrmations, agreements

and bank statements, as applicable; and

• examined the book cost reconciliation prepared

by management for accuracy and consistency

with the results of other substantive audit

procedures performed on investments.

Valuation and existence of investments measured

at fair value through profit or loss

We identiﬁed the valuation and existence of

investments measured at fair value through

proﬁt or loss as a signiﬁcant risk, which was

one of the most signiﬁcant assessed risks of

material misstatement due to error.

The Company’s principal investment

objective is to provide shareholders with long

term returns through capital and income

growth by investing in a concentrated portfolio

of UK equities.

The investment portfolio, at £186,637,000

(2020: £157,894,000), is the largest balance on

the statement of ﬁnancial position at the year

end and the main driver of the Company’s

performance. Included within this is the

Company’s investment in Phoenix SG Limited

amounting to £3,400,000 (2000: £8,066,000).

This is a level 3 investment and its valuation is

based on unobservable inputs and is carried

out by a third party valuer.

Incorrect asset pricing or failure to maintain

proper legal title of the investments held by the

Company could have an impact on the portfolio

valuation and therefore, the return generated

for Shareholders.

Our results

Our audit testing did not identify any material

misstatements in the valuation of the

Company’s investment portfolio as at the year-

end or any material misstatements with regards

to the existence of the underlying investments

at the year-end.

Relevant disclosures in the Annual Report 2021

• Financial statements: accounting policy, note

1c ‘Investments’; and note 2 ‘Investments

held at fair value through proﬁt or loss’; and

• Audit Committee Report: ‘Valuation of

investments’, page 58.

Annual Report Governance 65

Our application of materiality

We apply the concept of materiality both in planning and performing the audit, and in

evaluating the effect of identiﬁed misstatements on the audit and of uncorrected

misstatements, if any, on the ﬁnancial statements and in forming the opinion in the

auditor’s report.

Materiality was determined as follows:

Materiality measure Company

We deﬁne materiality as the magnitude of

misstatement in the ﬁnancial statements

that, individually or in the aggregate, could

reasonably be expected to inﬂuence the

economic decisions of the users of these

ﬁnancial statements. We use materiality in

determining the nature, timing and extent

of our audit work.

Materiality for financial statements as a

whole

£1.9m, which comprises approximately

1% of the Company’s net assets.

Materiality threshold

In determining materiality, we made the

following signiﬁcant judgements:

• Net assets, which primarily comprise

the Company’s investment portfolio,

are considered to be the key driver of

the Company’s total return

performance and form a part of the net

asset value calculation.

• The performance of the business is

assessed based on the value of the

investments and the net asset value

(NAV) of the Company. We note that

valuation of investments is a key

concern for stakeholders and users of

the ﬁnancial statements, and is the key

driver of performance as opposed to

proﬁt. This is based on our general

sector understanding and more

speciﬁcally based on reading of the

strategic report, where the Company’s

performance is measured in terms of its

NAV and NAV increase relative to the

FTSE All-Share (Total Returns) Index.

• As the Company invests predominantly

in liquid investments, and by

benchmarking against other entities in

the same industry, we consider a

measurement percentage of 1% to be

appropriate.

Materiality for the current year is higher

than the level that we determined for the

year ended 31 December 2020 to reﬂect

the increase in the Company’s net assets

in the year from £163m to £194m.

Signiﬁcant judgements made by auditor in

determining the materiality

Governance

Materiality measure Company

We set performance materiality at an

amount less than materiality for the

ﬁnancial statements as a whole to reduce

to an appropriately low level the probability

that the aggregate of uncorrected and

undetected misstatements exceeds

materiality for the ﬁnancial statements as

a whole.

Performance materiality used to drive the

extent of our testing

Performance materiality threshold £1.4m, which is 75% of ﬁnancial

statement materiality.

Signiﬁcant judgements made by auditor in

determining the performance materiality

In determining performance materiality

at75% of ﬁnancial statement materiality

(asin the previous year), we made the

following signiﬁcant judgements:

• our risk assessment procedures - there

have been no changes to business

activities, systems and controls nor an

increase in fraud risk indicators during

the year; and

• the strength of the control environment

and our experience auditing the

ﬁnancial statements of the Company,

including the effect of misstatements

identiﬁed in previous audits.

Specific materiality

We determine speciﬁc materiality for one

or more particular classes of transactions,

account balances or disclosures for which

misstatements of lesser amounts than

materiality for the ﬁnancial statements as

a whole could reasonably be expected to

inﬂuence the economic decisions of users

taken on the basis of the ﬁnancial

statements.

Speciﬁc materiality

We determined a lower level of speciﬁc

materiality for the following areas:

• investment income;

• related party transactions; and

• directors’ remuneration.

Communication of misstatements to the

Audit Committee

We determine a threshold for reporting

unadjusted differences to the Audit

Committee.

Threshold for communication £97,000 and misstatements below that

threshold that, in our view, warrant

reporting on qualitative grounds.

66 Annual Report Governance

Annual Report Governance 67

Governance

The graph below illustrates how performance materiality interacts with our overall

materiality and the tolerance for potential uncorrected misstatements.

Overall materiality

An overview of the scope of our audit

We performed a risk-based audit that requires an understanding of the Company’s

business and in particular matters related to:

Understanding the Company and its environment, including controls

• We obtained an understanding of the Company and its environment, including the

design and implementation of controls around areas of signiﬁcant risks to the

audit, and assessed the risks of material misstatement;

• We obtained an understanding of, and evaluated, the relevant internal controls at

the Company’s third-party service providers. This included obtaining and reading

internal controls reports prepared by the third-party service providers on the

description, design, and operating effectiveness of the internal controls at the

custodian and administrator and performing procedures to get assurance over the

design and implementation of controls at the investment manager; and

• We conﬁrmed our understanding of the Company’s business and the investment

trust companies’ sector. Based on this, we identiﬁed valuation and existence of

investments at the year end and completeness and occurrence of investment

income as key areas of audit focus.

Work to be performed on financial information of the Company

(including how it addressed the key audit matters)

• Our audit approach was a risk-based substantive audit focused on the valuation

and existence of investments at year end and the completeness and occurrence of

investment income recognised during the year, both of which we determined to be

key audit matters.

Performance of our audit

• We performed substantive testing by obtaining direct conﬁrmations on the

existence of quoted investments, validating valuation of quoted investments by

agreeing it to an independent source of valuation, agreeing the investment income

to an independent source and examining the supporting evidence and bank

statements in support of investment income recognised during the year; and

• We performed substantive testing of the Company’s unquoted investment in

Phoenix SG Limited by agreeing the holding to direct conﬁrmation from the

custodian, obtained the year end net asset value from CIBC (administrator and

custodian of Phoenix SG Limited) and engaged our valuation specialists to evaluate

the valuation methodology and input assumptions used by management.

Net Assets

£194m

PM

£1.4m, 75%

TFPUM

£0.5m, 25%

FSM

£1.9m, 1%

Changes in approach from previous year

• Other than exclusion of the performance fee as a key audit matter, there was no

signiﬁcant change in our approach from the prior year. This change was based on

our understanding of the likely amount of the performance fee this year and on our

agreement with the valuation model and accounting approach used by the

Company in the prior year.

Other information

The directors are responsible for the other information. The other information

comprises the information included in the annual report, other than the ﬁnancial

statements and our auditor’s report thereon. Our opinion on the ﬁnancial statements

does not cover the other information and, except to the extent otherwise explicitly

stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the ﬁnancial statements, our responsibility is to

read the other information and, in doing so, consider whether the other information is

materially inconsistent with the ﬁnancial statements or our knowledge obtained in the

audit or otherwise appears to be materially misstated. If we identify such material

inconsistencies or apparent material misstatements, we are required to determine

whether there is a material misstatement in the ﬁnancial statements or a material

misstatement of the other information. If, based on the work we have performed, we

conclude that there is a material misstatement of this other information, we are

required to report that fact.

We have nothing to report in this regard.

Our opinions on other matters prescribed by the Companies Act

2006 are unmodified

In our opinion, the part of the directors’ remuneration report to be audited has been

properly prepared in accordance with the Companies Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

• the information given in the strategic report and the directors’ report for the

ﬁnancial year for which the ﬁnancial statements are prepared is consistent with the

ﬁnancial statements; and

• the strategic report and the directors’ report have been prepared in accordance

with applicable legal requirements.

Matters on which we are required to report under the Companies Act

2006

In the light of the knowledge and understanding of the Company and its environment

obtained in the course of the audit, we have not identiﬁed material misstatements in

the strategic report or the directors’ report.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters in relation to which the

Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept, or returns adequate for our audit

have not been received from branches not visited by us; or

• the ﬁnancial statements and the part of the directors’ remuneration report to be

audited are not in agreement with the accounting records and returns; or

68 Annual Report Governance

Annual Report Governance 69

• certain disclosures of directors’ remuneration speciﬁed by law are not made; or

• we have not received all the information and explanations we require for our audit.

Corporate governance statement

The Listing Rules require us to review the directors’ statement in relation to going

concern, longer-term viability and that part of the Corporate Governance Statement

relating to the Company’s compliance with the provisions of the UK Corporate

Governance Code speciﬁed for our review.

Based on the work undertaken as part of our audit, we have concluded that each

of the following elements of the Corporate Governance Statement is materially

consistent with the ﬁnancial statements or our knowledge obtained during the audit:

• the directors’ statement in the ﬁnancial statements about whether the directors

considered it appropriate to adopt the going concern basis of accounting in

preparing the ﬁnancial statements and the directors’ identiﬁcation of any material

uncertainties to the Company’s ability to continue to do so over a period of at least

twelve months from the date of approval of the ﬁnancial statements;

• the directors’ explanation in the annual report as to how they have assessed the

prospects of the Company, over what period they have done so and why they

consider that period to be appropriate, and their statement as to whether they

have a reasonable expectation that the Company will be able to continue in

operation and meet its liabilities as they fall due over the period of their

assessment, including any related disclosures drawing attention to any necessary

qualiﬁcations or assumptions;

• the directors’ statement that they consider the annual report and ﬁnancial

statements taken as a whole is fair, balanced and understandable and provides the

information necessary for shareholders to assess the Company’s performance,

business model and strategy;

• the directors’ conﬁrmation in the annual report that they have carried out a robust

assessment of the principal and emerging risks facing the Company, including the

impact of Brexit and Covid-19, and the disclosures in the annual report that

describe the principal risks, procedures to identify emerging risks and an

explanation of how they are being managed or mitigated, including the impact of

Brexit and Covid-19;

• the section of the annual report that describes the review of the effectiveness of

the Company’s risk management and internal control systems, covering all material

controls, including ﬁnancial, operational and compliance controls; and

• the section of the annual report describing the work of the audit committee,

including signiﬁcant issues that the audit committee considered relating to the

ﬁnancial statements and how these issues were addressed.

Responsibilities of directors for the financial statements

As explained more fully in the statement of directors’ responsibilities for the annual

report, the directors are responsible for the preparation of the ﬁnancial statements and

for being satisﬁed that they give a true and fair view, and for such internal control as

the directors determine is necessary to enable the preparation of ﬁnancial statements

that are free from material misstatement, whether due to fraud or error.

In preparing the ﬁnancial statements, the directors are responsible for assessing

the Company’s ability to continue as a going concern, disclosing, as applicable,

matters related to going concern and using the going concern basis of accounting

unless the directors either intend to liquidate the Company or to cease operations, or

have no realistic alternative but to do so.

Governance

70 Annual Report Governance

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the ﬁnancial

statements as a whole are free from material misstatement, whether due to fraud or

error, and to issue an auditor’s report that includes our opinion. Reasonable assurance

is a high level of assurance but is not a guarantee that an audit conducted in

accordance with ISAs (UK) will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if,

individually or in the aggregate, they could reasonably be expected to inﬂuence the

economic decisions of users taken on the basis of these ﬁnancial statements.

A further description of our responsibilities for the audit of the ﬁnancial statements

is located on the Financial Reporting Council’s website at:

www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s

report.

Explanation as to what extent the audit was considered capable of

detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and

regulations. We design procedures in line with our responsibilities, outlined above, to

detect material misstatements in respect of irregularities, including fraud. Owing to

the inherent limitations of an audit, there is an unavoidable risk that material

misstatements in the ﬁnancial statements may not be detected, even though the

audit is properly planned and performed in accordance with ISAs (UK).

The extent to which our procedures are capable of detecting irregularities,

including fraud, is detailed below:

• We obtained an understanding of the legal and regulatory frameworks applicable

to the Company and the industry in which it operates. We determined that the

following laws and regulations were most signiﬁcant: UK-adopted international

accounting standards, the Companies Act 2006, the AIC SORP, the AIC Code of

Corporate Governance, and sections 1158 and 1159 of the Corporation Tax Act

2010. We enquired of management whether there were any instances of non-

compliance with laws and regulations and whether they had any knowledge of

actual or suspected fraud. We corroborated the results of our enquiries through our

review of board minutes and papers provided to the Audit Committee.

• In assessing the potential risks of material misstatement, we obtained an

understanding of:

– the Company’s operations, including the nature of its revenue sources, and of

its objective and strategy to understand the classes of transactions, account

balances, expected ﬁnancial statement disclosures and business risks that may

result in risks of material misstatement; and

– the Company’s control environment, including the policies and procedures

implemented to comply with annual and ﬁnancial reporting requirements.

• We assessed the susceptibility of the Company’s ﬁnancial statements to material

misstatement, including how fraud might occur. Audit procedures performed by

the engagement team included:

– determining completeness of journal entries and identifying and testing journal

entries, in particular manual journal entries processed at the year-end for

ﬁnancial statements preparation; and

– in respect of investment income, we maintained the presumed fraudulent

revenue recognition risk arising from ISA (UK) 240 because it is a signiﬁcant

class of transactions in the ﬁnancial statements. Details of the audit work

performed are described in the investment income key audit matter included in

the key audit matters section of our report.

Annual Report Governance 71

• These audit procedures were designed to provide reasonable assurance that the

ﬁnancial statements were free from fraud or error. The risk of not detecting a

material misstatement due to fraud is higher than the risk of not detecting one

resulting from error and detecting irregularities that result from fraud is inherently

more difﬁcult than detecting those that result from error, as fraud may involve

collusion, deliberate concealment, forgery or intentional misrepresentations. Also,

the further removed non-compliance with laws and regulations is from events and

transactions reﬂected in the ﬁnancial statements, the less likely we would become

aware of it.

• The engagement partner’s assessment of the appropriateness of the collective

competence and capabilities of the engagement team included consideration of

the engagement team’s:

– understanding of, and practical experience with, audit engagements of a similar

nature and complexity, through appropriate training and participation; and

– knowledge of the industry in which the Company operates.

• Relevant laws and regulations and potential fraud risks were communicated to all

engagement team members, including internal specialists. We remained alert to

any indications of fraud or non-compliance with laws and regulations throughout

the audit.

Other matters which we are required to address

We were appointed by the members on 1 January 2000 to audit the ﬁnancial

statements for the year ended 29 February 2000 and subsequent ﬁnancial periods.

The period of total uninterrupted engagement including previous renewals and

reappointments of the ﬁrm is 21 years, covering the years ended 29 February 2000 to

31 December 2021.

The non-audit services prohibited by the FRC’s Ethical Standard were not provided

to the Company and we remain independent of the Company in conducting our audit.

Our audit opinion is consistent with the additional report to the Audit Committee.

Use of our report

This report is made solely to the Company’s members, as a body, in accordance with

Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken

so that we might state to the Company’s members those matters we are required to

state to them in an auditor’s report and for no other purpose. To the fullest extent

permitted by law, we do not accept or assume responsibility to anyone other than the

Company and the Company’s members as a body, for our audit work, for this report, or

for the opinions we have formed.

William Pointon

Senior Statutory Auditor

for and on behalf of Grant Thornton UK LLP

Statutory Auditor, Chartered Accountants

London

29 April 2022

Governance

72 Annual Report Finance

Finance

Annual Report Finance 73

Year ended Year ended

31 December 2021 31 December 2020

Revenue Capital Total Revenue Capital Total

Notes £’000 £’000 £’000 £’000 £’000 £’000

2 Gains/(losses) on – 30,038 30,038 – (2,123) (2,123)

investments

Losses on currency – (3) (3) – (20) (20)

3 Income 2,305 – 2,305 1,207 – 1,207

Total income 2,305 30,035 32,340 1,207 (2,143) (936)

4 Investment – (720) (720) – (665) (665)

management fees

4 Other expenses (862) – (862) (597) – (597)

Profit/(loss) before 1,443 29,315 30,758 610 (2,808) (2,198)

tax

7 Tax (30) – (30) (11) – (11)

Profit/(loss) and 1,413 29,315 30,728 599 (2,808) (2,209)

total comprehensive

income for the

year

9 Earnings per share –

Basic and diluted 1.85p 38.44p 40.29p 0.83p (3.87p) (3.04p)

The total column represents the statement of comprehensive income of the

Company.

The revenue and capital columns, including the revenue and capital earnings per

Ordinary Share data, are supplementary information prepared under guidance

published by the AIC.

All revenue and capital items in the above statement derive from continuing

operations. No operations were acquired or discontinued during the period. All

revenue is attributable to the equity holders of the Company.

The Company does not have any other comprehensive income. Therefore, no

separate Statement of Comprehensive Income has been presented.

The notes on pages 78 to 98 form part of these accounts.

Statement of Comprehensive

Income

Finance

74 Annual Report Finance

31 December 31 December

2021 2020

Notes

£’000 £’000

NON-CURRENT ASSETS

2 Investments held at fair value through profit or loss 186,637 157,894

CURRENT ASSETS

Trade and other receivables 222 258

Cash and cash equivalents 7,664 5,055

7,886 5,313

TOTAL ASSETS 194,523 163,207

CURRENT LIABILITIES:

Investment management fees payable (174) (171)

Other operating expenses payable (156) (115)

(330) (286)

NET ASSETS 194,193 162,921

EQUITY

10 Called up share capital 19,130 18,776

Capital redemption reserve 179 179

Share premium account 110,984 108,438

Other reserve (1,271) 665

12 Investment holding gains 48,641 20,621

12 Other capital reserve 14,514 13,219

Revenue reserve 2,016 1,023

TOTAL EQUITY 194,193 162,921

10 Number of Ordinary Shares in issue 76,519,675 75,103,743

13 NAV per Ordinary Share 253.78 216.93p

The notes on pages 78 to 98 form part of these accounts.

Statement of Financial Position

Approved by the Board of

Directors on 29 April 2022 and

signed on its behalf by:

Lady Rachael Robathan

Company no. 03300814

Annual Report Finance 75

Called up Capital Share Other Investment Other Revenue Total

share redemption premium reserve holding capital reserve

capital reserve account gains reserve

Notes £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000

Opening equity 18,776 179 108,438 665 20,621 13,219 1,023 162,921

Profit for the year – – – – 28,020 1,295 1,413 30,728

5 Performance fee charge for the year – – – 720 – – – 720

8 Dividends paid – – – – – – (420) (420)

10 Issue of new Ordinary Shares 354 – 2,599 (2,656) – – – 297

Ordinary Share issue costs – – (53) – – – – (53)

Closing equity 19,130 179 110,984 (1,271) 48,641 14,514 2,016 194,193

The notes on pages 78 to 98 form part of these accounts.

Finance

Statement of Changes in Equity

Year to 31 December 2021

76 Annual Report Finance

Called up Capital Share Other Investment Other Revenue Total

share redemption premium reserve holding capital reserve

capital reserve account gains reserve

Notes £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000

Opening equity 16,628 179 97,186 – 23,231 13,417 3,719 154,360

(Loss)/profit for the year – – – – (2,610) (198) 599 (2,209)

5 Performance fee charge for the year – – – 665 – – – 665

8 Dividends paid – – – – – – (3,295) (3,295)

10 Issue of new Ordinary Shares 2,148 – 11,408 – – – – 13,556

Ordinary Share issue costs – – (156) – – – – (156)

Closing equity 18,776 179 108,438 665 20,621 13,219 1,023 162,921

The notes on pages 78 to 98 form part of these accounts.

Statement of Changes in Equity

Year to 31 December 2020

Annual Report Finance 77

Finance

Year to Year to

31 December 31 December

2021 2020

£’000 £’000

NET OPERATING ACTIVITIES CASH FLOW

Cash inflow from investment income and interest 2,318 1,358

Cash outflow for expenses (825) (597)

Payments to acquire non-current asset investments* (45,092) (33,756)

Receipts on disposal of non-current asset investments* 46,458 12,316

Transaction costs on Investments (71) –

Capital distributions received – 236

NET OPERATING ACTIVITIES CASH FLOW 2,788 (20,443)

FINANCING ACTIVITIES CASH FLOW

Proceeds from issues of new Ordinary Shares 297 12,367

Ordinary Share issue costs (53) (156)

Dividends paid (420) (3,295)

NET FINANCING ACTIVITIES CASH FLOW (176) 8,916

INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 2,612 (11,547)

Cash and cash equivalents at beginning of year 5,055 16,602

Losses on currency (3) (20)

Increase/(decrease) in cash and cash equivalents 2,612 (11,547)

CASH AND CASH EQUIVALENTS AT END OF YEAR 7,664 5,055

* Payments to acquire investments and receipts from the disposal of investments have been classiﬁed as

components of cash ﬂow from operating activities because they form part of the Company’s operating

activities.

The notes on pages 78 to 98 form part of these accounts.

Cash Flow Statement

78 Annual Report Finance

1. Reporting entity

Aurora Investment Trust plc is a closed-ended investment company, registered in

England and Wales on 10 January 1997 with Company number 03300814. The

Company’s registered ofﬁce is 1st Floor, Senator House, 85 Queen Victoria Street,

London, EC4V 4AB. Business operations commenced on 13 March 1997 when the

Company’s Ordinary Shares were admitted to trading on the London Stock Exchange.

The Company invests predominantly in a portfolio of UK listed companies and may

from time to time also invest in companies listed outside the UK and unlisted

securities, with the objective of providing Shareholders with long-term returns through

capital and income growth. The Investment Policy limits the Company’s exposure to

unlisted investments at cost price to 10% of the Company’s gross assets.

Details of the Directors, Investment Manager and Advisers can be found on

page31.

The ﬁnancial statements of the Company are presented for the year ended

31December 2021 and were authorised for issue by the Board on 29 April 2022.

Basis of Accounting

The ﬁnancial statements have been prepared in accordance with UK-adopted

international accounting standards and the applicable legal requirements of the

Companies Act 2006. On 31 December 2020, International Financial Reporting

Standards (“IFRS”) as adopted by the European Union at that date were brought into

UK law and became UK-adopted international accounting standards, with future

changes being subject to endorsement by the UK Endorsement Board. The Company

transitioned to UK-adopted international accounting standards in its ﬁnancial

statements on 1 January 2021. There was no impact or change in accounting policies

from the transition.

Under UK-adopted IFRS, the AIC Statement of Recommended Practice “Financial

Statements of Investment Trust Companies and Venture Capital Trusts” (“SORP”)

issued in April 2021 has no formal status, but the Company adheres to the guidance of

the SORP.

Going concern

The ﬁnancial statements have been prepared on a going concern basis. In forming this

opinion, the directors have considered the continuation vote and any potential impact

of the war in Ukraine on the going concern and viability of the Company. In making

their assessment, the Directors have reviewed income and expense projections and

the liquidity of the investment portfolio, and considered the mitigation measures

which key service providers, including the Manager, have in place to maintain

operational resilience.

The Directors have a reasonable expectation that the Company has adequate

operational resources to continue in operational existence for at least twelve months

from the date of approval of these ﬁnancial statements. Further information on the

Company’s going concern can be found on page 39.

Notes to the

Financial

Statements

Annual Report Finance 79

Significant accounting policies

The accounting policies adopted are described below:

a. Accounting Convention

The accounts are prepared under the historical cost basis, except for the

measurement of fair value of investments and measurement of performance fee

award.

b. Adoption of new IFRS standards

New standards, interpretations and amendments adopted from 1 January

2022

A number of new standards, amendments to standards are effective for the annual

periods beginning after 1 January 2022. None of these are expected to have a

signiﬁcant effect on the measurement of the amounts recognised in the ﬁnancial

statements of the Company.

New standards and amendments issued but not yet effective

The relevant new and amended standards and interpretations that are issued, but not

yet effective, up to the date of issuance of the Company’s ﬁnancial statements are

disclosed below. These standards are not expected to have a material impact on the

entity in future reporting periods and on foreseeable future transactions.

Amendments to IAS 1: Classification of Liabilities as Current or Non-current

In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to

specify the requirements for classifying liabilities as current or non-current. The

amendments are effective for annual reporting periods beginning on or after 1 January

2023.

Reference to the Conceptual Framework – Amendments to IFRS 3

In May 2020, the IASB issued Amendments to IFRS 3 Business Combinations -

Reference to the Conceptual Framework. The amendments are effective for annual

reporting periods beginning on or after 1 January 2022.

Definition of Accounting Estimates – Amendments to IAS 8

In February 2021, the IASB issued amendments to IAS 8, in which it introduces a

deﬁnition of ‘accounting estimates’. The amendments are effective for annual reporting

periods beginning on or after 1 January 2023.

Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice

Statement 2

In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice Statement

2 Making Materiality Judgements. The amendments to IAS 1 are applicable for annual

periods beginning on or after 1 January 2023.

Finance

80 Annual Report Finance

1. Reporting entity continued

c. Investments

Investments held at fair value through proﬁt or loss are initially recognised at fair value,

being the consideration given and excluding transaction or other dealing costs

associated with the investment. After initial recognition, investments are measured at

fair value through proﬁt or loss. Gains or losses on investments measured at fair value

through proﬁt or loss are included in Statement of Comprehensive Income as a capital

item and transaction costs on acquisition or disposal of investments are also included

in the capital column of the Statement of Comprehensive Income. For investments

that are actively traded in organised ﬁnancial markets, fair value is determined by

reference to stock exchange quoted market bid prices at the close of business on the

year end date. All purchases and sales of investments are recognised on the trade

date, i.e. the date that the Company commits to purchase or sell an asset.

Investments held at fair value through proﬁt or loss are initially recognised at fair value,

being the consideration given and excluding transaction or other dealing costs

associated with the investment.

Unquoted investments are measured at fair value, which is determined by the

Directors in accordance with the International Private Equity and Venture Capital

valuation guidelines and IFRS 9. The fair value of the Company’s investments in

Phoenix SG is based on the reported NAV as at the reporting date. Valuation reports

provided by the Investment Manager of the unquoted investments are used to

calculate the fair value where there is evidence that the valuation is derived using fair

value principles that are consistent with the Company’s accounting policies and

valuation methods. Such valuation reports may be adjusted to take account of changes

or events to the reporting date, or other facts and circumstances which might impact

the underlying value.

Upon the sale of Phoenix SG in part or wholly, the fair value would be the expected

sale price where this is known or can be reliably estimated.

d. Income from Investments

Investment income from the Company’s investment portfolio is accounted for on the

basis of ex-dividend dates. Income from ﬁxed interest shares and securities is

accounted for on an accruals basis using the effective interest method. Special

Dividends are assessed on their individual merits and are credited to the capital

column of the Statement of Comprehensive Income if the substance of the payment

is a return of capital; with this exception all investment income is taken to the revenue

column of the Statement of Comprehensive Income. Income from gilts receivable is

accounted for on an accrual basis using the effective yield.

Annual Report Finance 81

e. Capital Reserves

The Company is not precluded by its Articles from making any distribution of capital

proﬁts by way of dividend, but the Directors have no current plans to do so. Proﬁts and

losses on disposals of investments are taken to the other capital (gains on disposal)

reserve. Revaluation movements are taken to the investment holding reserve via the

capital column of the Statement of Comprehensive Income.

f. Investment Management Fees and Other expenses

The performance fee, which is equity settled, has been recognised and measured in

accordance with IFRS 2. The performance fee is recognised as an expense in the

capital column of proﬁt and loss with a corresponding entry to equity over the period

which the Investment Manager is required to perform services to the Company in

order to be entitled to receive unrestricted Ordinary Shares in the Company.

The amount recognised as an expense is adjusted to reﬂect the number of

Ordinary Shares for which the related service and non-market performance conditions

are expected to be met, such that the amount ultimately recognised is based on the

number of Ordinary Shares retained that meet the related service and non-market

performance conditions at the vesting date at the end of the four year service period.

Restricted Ordinary Shares are issued to the Investment Manager at the end of

the ﬁrst year of service.

Further details on the judgements that the Board has made on the recognition and

measurement of the performance fee can be found in Note 1(k) on page 82, and

further details on the performance fees can be found in Note 4 on pages 87 and 88.

g. Taxation

Current income tax assets and/or liabilities comprise those obligations to, or claims

from, ﬁscal authorities relating to the current or prior reporting period, that are unpaid

at the year end date.

Deferred income taxes are calculated using the liability method on temporary

differences. Deferred tax is generally provided on the difference between the carrying

amounts of assets and liabilities and their tax bases. In addition, tax losses available to

be carried forward as well as other income tax credits are assessed for recognition as

deferred tax assets. Deferred tax assets and liabilities are calculated, without

discounting, at tax rates that are expected to apply at their respective period of

realisation, provided they are enacted or substantively enacted at the year end date.

Deferred tax liabilities are always provided for in full. Deferred tax assets are

recognised to the extent that it is probable that they will be able to be offset against

future taxable income.

Changes in deferred tax assets or liabilities are recognised as a component of tax

expense in the Statement of Comprehensive Income, except where they relate to

items that are charged or credited directly to equity.

h. Foreign currency

The currency of the primary economic environment in which the Company operates

(the functional currency) is pounds sterling (“sterling”), which is also the

presentational currency of the Company. Transactions involving currencies other than

sterling are recorded at the exchange rate ruling on the transaction date. At each year

end date, monetary items and non-monetary assets and liabilities, which are fair

valued, and which are denominated in foreign currencies, are retranslated at the

closing rates of exchange. Such exchange differences are included in the Statement of

Comprehensive Income and allocated to capital if of a capital nature or to revenue if of

a revenue nature. Exchange differences allocated to capital are taken to gains on

disposal or investment holding losses, as appropriate.

Finance

82 Annual Report Finance

1. Reporting entity continued

i. Cash and cash equivalents

Cash and Cash Equivalents in the Cash Flow Statement comprise cash held at bank.

j. Dividends payable to equity Shareholders

Dividends payable to equity Shareholders are recognised in the Statement of Changes

in Equity when they are paid or have been approved by Shareholders in the case of

aﬁnal dividend. Interim dividends payable are recognised in the period in which they

are paid.

k. Judgements, estimations or assumptions

The Directors have reviewed matters requiring judgements, estimations or

assumptions. The preparation of the ﬁnancial statements requires management to

make judgements, estimations or assumptions that affect the amounts reported for

assets and liabilities as at the year end date and the amounts reported for revenue and

expenses during the year. However, the nature of the estimation means that actual

outcomes could differ from those estimates.

Performance fees

The performance fee earned by the Investment Manager is calculated on Company’s

NAV outperformance against its benchmark. In the current ﬁnancial year, this resulted

in the issue of 1,290,932 (2020: 530,311) Ordinary Shares during the year. Since the

year end the Company issued 69,638 Ordinary Shares on 7 February 2022. These

issued Ordinary Shares are subject to a ﬁxed three-year clawback period. If the

outperformance versus the index reverses on the third-year anniversary, subject to

theBoard’s discretion, the shares will be returned, and the Investment Manager will

receive nothing.

The Board has considered that the settlement of the performance fee in the

Ordinary Shares of the Company is in the scope of IFRS 2 ‘Share-based Payment’.

Further, due to the nature of the service being provided, the Board considers that

measuring the performance fee indirectly with reference to the fair value of the

Ordinary Shares is more appropriate as it is not possible to reliably measure the fair

value of the services received.

In measuring the performance fee, the Board has made further judgements in

relation to the service period, which it considers to be four years (being the current

year of service plus the further three year period which is the clawback period). The

Board has made the judgement that the performance fee contains a non-market based

performance condition as the hurdle is based on the outperformance of the

Company’s NAV against its benchmark.

However, as the performance fee calculates a ﬁxed fee which is settled in a

variable number of shares, the cumulative charge over the four year period will equate

to either the amount calculated at the end of the ﬁrst year where the performance of

the Investment Manager remains on target, or lower where it is considered that the

clawback will take effect. This is as a result of the performance fee charge being

adjusted during the service period, which is a requirement of IFRS 2 where there is

anon-market based performance condition.

Annual Report Finance 83

The performance fee is recognised on a straight line basis in the statement of

comprehensive income and is based on the outcome of the performance fee

calculation as stated in the Investment Management Agreement. This amount

excludes the projection of whether the clawback may occur at the end of the

performance period, and only takes account of the clawback when, and if, it occurs.

Management have veriﬁed that the amount recognised is materially accurate by

analysing what the performance fee may be using a Monte Carlo model which

projects possible movements in the share price of the Company and the return of the

benchmark index. The difference between the straight line basis and the Monte Carlo

valuation method is not considered material to the ﬁnancial statements.

The Board has considered it necessary to make certain judgements in relation to

the recognition and measurement of the performance fee, which it considers are

reasonable and supportable, because of the lack of speciﬁc guidance in IFRS 2 in this

area. However, it is acknowledged that if alternative judgements were made, for

accounting purposes, the measurement of the performance fee charge to the income

statement may be signiﬁcantly different in timing within the four-year service period.

Investment valuation

The critical judgement, estimate or assumption that may have a signiﬁcant risk of

causing a material adjustment to the Company’s NAV relates to the valuation of the

Company’s unquoted (Level 3) investment in Phoenix SG, which is approximately 1.8%

(2020: 5.0%) of the Company’s NAV.

The Level 3 holding is valued in line with accounting policy as disclosed in

Note1(c). Under the accounting policy, the reported NAV methodology has been

adopted in valuing the Level 3 investment. As the Company has judged that it is

appropriate to use the reported NAV in valuing the unquoted investment, the

Company does not have any other key assumptions concerning the future, or other

key sources of estimation uncertainty in the reporting period, which may have a

signiﬁcant risk of causing a material adjustment to the Company’s NAV within the next

ﬁnancial year.

Whilst the Board considers the methodologies and assumptions adopted in the

valuation of unquoted investments are reasonable and robust, because of the inherent

uncertainty of the valuation, the values used may differ signiﬁcantly from the values

that would have been used had a ready market for the investment existed and the

differences could be signiﬁcant. These values may need to be revised as

circumstances change and material adjustments may still arise as a result of

revaluation of the unquoted investments fair value within the next year.

If the fair value of the Level 3 investment changed by 10% the impact on the

Company’s NAV would be £340,000 (2020: £806,600), representing 0.2% (2020:

0.5%) of NAV.

Finance

84 Annual Report Finance

2. Investments held at Fair Value Through Profit or Loss

Year to Year to

31 December 31 December

2021 2020

£’000 £’000

UK listed securities 150,063 133,858

Other listed securities 19,388 –

Securities traded on AIM 13,786 15,970

Unquoted securities 3,400 8,066

Total non-current investments held at fair value

through profit or loss

186,637 157,894

Movements during the year:

Opening balance of investments, at cost 137,273 115,582

Additions, at cost 45,092 33,756

Disposals – proceeds received or receivable* (46,458) (12,316)

– realised profits 2,089 251

– at cost (44,369) (12,066)

Cost of investments held at fair value through profit

or loss at 31 December

137,996 137,273

Revaluation of investments to market value:

Opening balance 20,621 23,231

Increase/(decrease) in unrealised appreciation

Credited/(debited) to investment holding gains

28,020 (2,610)

Balance at 31 December 48,641 20,621

Market value of non-current investments held at fair

value through profit or loss at 31 December

186,637 157,894

* These investments have been revalued over time and until they were sold any unrealised gains/losses were

included in the fair value of the investments.

Gains/(losses) on investments

Year to Year to

31 December 31 December

2021 2020

£’000 £’000

Realised gains on disposal of investments 2,089 251

Movement in unrealised gains/(losses) on investments held 28,020 (2,610)

Other charges to capital (71) –

Capital distributions received – 236

Total gains/(losses) on investments 30,038 (2,123)

Annual Report Finance 85

Transaction costs on investment purchases and sales for the year ended 31 December

2021 are disclosed as shown in the following table. These transaction costs are

calculated in accordance with the AIC SORP.

Transaction costs

Year to Year to

31 December 31 December

2021 2020

£’000 £’000

Transaction costs on purchases of investments 123 15

Transaction costs on sales of investments 21 1

Total transaction costs included in gains or losses on

investments at fair value through profit or loss

144 16

Fair Value Hierarchy

Under IFRS13 investment companies are required to disclose the fair value hierarchy

that classiﬁes ﬁnancial instruments measured at fair value at one of three levels

according to the relative reliability of the inputs used to estimate the fair values.

Classification Input

Level 1 Valued using quoted prices in active markets for identical assets

Level 2 Valued by reference to valuation techniques using observable inputs

other than quoted prices included within Level 1

Level 3 Valued by reference to valuation techniques using inputs that are

not based on observable market data

Categorisation within the hierarchy has been determined on the basis of the lowest

level input that is signiﬁcant to the fair value measurement of the relevant asset.

Year to Year to

31 December 31 December

Classification 2021 2020

Level 1 183,237 149,828

Level 2 – –

Level 3 3,400 8,066

Total non-current investments held at ‘FVTPL’ 186,637 157,894

There were no transfers between levels during the year.

Finance

86 Annual Report Finance

2. Investments held at Fair Value Through Profit or Loss continued

The movement on the Level 3 unquoted investments during the year is shown below:

Year to Year to

31 December 31 December

2021 2020

Opening balance 8,066 8,487

Disposals during the year (4,523) –

Unrealised gains/(losses) at year end 143 (421)

Closing balance 3,400 8,066

The Company’s unquoted investment represents investment in Phoenix SG Limited

(Phoenix SG). The fair value of the investment in Phoenix SG includes its shares in

Stanley Gibbons Group Plc (Stanley Gibbons) and some other assets related to

StanleyGibbons.

Phoenix SG direct investments in Stanley Gibbons Group Plc include the following;

Quoted equity shares in Stanley Gibbons, trading on the Alternative Investment

Market branch of the London Stock Exchange (the “Equity Investment”). Phoenix SG

holds 58% in the total equity of Stanley Gibbons.

During the year, the Company transferred 1,852 Ordinary shares of its holding in

Phoenix SG and its holding in Hornby and Dignity to Castelnau in exchange for

24,563,184 Ordinary shares in Castelnau.

The total fair value attributable to the Company’s investment in Phoenix SG as of

31 December 2021 is £3.4 million (2020: £8.5 million). The Company held 10.3% of

the share capital of Phoenix SG and 13.35% of the share capital of Castelnau.

3. Income

Year to Year to

31 December 31 December

2021 2020

£’000 £’000

Income from investments:

Dividends from listed or quoted investments 2,196 1,164

Unfranked income from overseas dividends 109 39

Other income:

Deposit interest – 4

Total income 2,305 1,207

Annual Report Finance 87

4. Investment Management Fees and Other Expenses

Year ended 31 December 2021 Year ended 31 December 2020

Revenue* Capital Total Revenue* Capital Total

£’000 £’000 £’000 £’000 £’000 £’000

Performance fees monthly – – – – – –

Investment management fees – 720 720 – 665 665

Administration fees 161 – 161 153 – 153

Depositary and Custody fees 64 – 64 65 – 65

Registrar’s fees 49 – 49 40 – 40

Directors’ fees 137 – 137 150 – 150

Auditors’ fees* 109 – 109 49 – 49

Printing 30 – 30 18 – 18

Broker’s fees 48 – 48 48 – 48

Professional fees 39 – 39 27 – 27

Public relation fees 90 – 90 13 – 13

Consultancy fees 82 – 82 – – –

Miscellaneous expenses 53 – 53 34 – 34

Total other expenses 862 – 862 597 – 597

* All expenses include any relevant irrecoverable VAT. The amounts excluding VAT paid or accrued for the audit

of the Company are £ 65,000 (2020: £41,200). The year ended 31 December 2021 charge includes prior

year’s overrun costs of £25,000 excluding VAT.

The Company has an agreement with its Investment Manager. Under the terms of this

agreement, the Investment Manager does not earn an ongoing annual management

fee, but will be paid an annual performance fee equal to one third of any

outperformance of the Company’s NAV per Ordinary Share total return (including

dividends and adjusted for the impact of share buybacks and the issue of new shares)

over the FTSE All-Share Index (total return) for each ﬁnancial year.

The total annual performance fee is capped at 4% per annum of the NAV of the

Company at the end of the relevant ﬁnancial year, in the event that the NAV per

Ordinary Share has increased in absolute terms over the period, and 2% in the event

that the NAV per Ordinary Share has decreased in absolute terms over the period. Any

outperformance that exceeds these caps will be carried forward and only paid if the

Company outperforms, and the annual cap is not exceeded, in subsequent years.

The performance fee is subject to a high-water mark so that no fee will be payable

in any following year until all underperformance of the Company’s NAV since the last

performance fee was paid has been made up.

Performance fees are settled by issuance of the Company’s Ordinary Shares. Such

Ordinary Shares are issued at the NAV per Ordinary Share on the date of issue, so that

the then current value of the Ordinary Shares equates in terms of NAV to the

performance fees calculated at the end of the ﬁrst relevant ﬁnancial period.

Any part of the performance fee that relates to the performance of Phoenix SG will

be accrued but will not be paid until such time as the Company’s investment in

Phoenix SG has been realised or is capable of realisation. The position will be reviewed

at that time by reference to the realised proceeds of sale or the fully realisable value of

Phoenix SG as compared to the original cost of acquisition.

Finance

88 Annual Report Finance

4. Investment Management Fees and Other Expenses continued

All other performance fees are subject to a review and claw-back procedure if the

Company has underperformed its benchmark during a period of three years following

the end of the ﬁnancial year in respect of which the relevant fee was paid. Ordinary

Shares received by the Investment Manager under this arrangement must be retained

by the Investment Manager throughout the three-year period to which the claw-back

procedure applies.

As a result of the above reviewed procedures all or any part of the performance

fees might become recoverable, the Company reﬂects this in the charge recognised in

subsequent accounting periods within the service period of the Investment Manager

through the periodic adjustment to accruals mechanism in IFRS 2.

The proportion of performance fee for the year ended 31 December 2021 was

£720,000 (2020: £665,000). During the current year, based on the outcome of the

Investment Manager’s performance, the Company granted, and the Investment

Manager became entitled to £222,000 (£2,659,000) worth of restricted Ordinary

Shares in the Company. On 7 February 2022, a total of 69,738 Ordinary Shares were

issued to the Investment Manager, representing 80% of restricted Ordinary Shares.

The restricted Ordinary Shares were issued at the latest prevailing NAV as at 28

January 2022 of 254.37 pence per Ordinary Share. The Share based payment expense

in relation to Phoenix SG in accordance with the clawback period is £1,000 (£3,000)

will be retained in the Company’s Statement of Financial Position. The remaining

£44,300 will be paid by issuing restricted Ordinary Shares once the Final Results

arereleased.

5. Share-based Payment arrangements

The Company settles its performance fee to its Investment Manager in Ordinary Shares.

Further description of the arrangement is included in Note 4 on pages 87 and 88.

Restricted Ordinary Shares are awarded to the Investment Manager conditional

upon the following non-market performance and service conditions:

• Outperformance of the Company’s NAV per Ordinary Share total return (including

dividends and adjusted for the impact of share buybacks and the issue of new

shares) over the FTSE All-Share Index (total return) over a one-year service period.

Restricted Ordinary Shares become unrestricted upon completion of the following

non-market performance and service conditions:

• Outperformance of the Company’s NAV per Ordinary Share total return (including

dividends and adjusted for the impact of share buybacks and the issue of new

shares) over the FTSE All-Share Index (total return) over a service period of

fouryears.

Restricted Ordinary Shares provide the Investment Manager with rights to dividends

and voting rights, however they are not entitled to sell, pledge, transfer or otherwise

dispose of the shares until they become unrestricted.

During the current year, based on the outcome of the Investment Manager’s

performance, the Company granted, and the Investment Manager became entitled to

£222,000 (2020: £2,659,000) worth of restricted Ordinary Shares in the Company. No

unrestricted Ordinary Shares were due to the Investment Manager in the current year

as the outstanding service period of three years still needed to be served on Ordinary

Shares held by the Investment Manager. At 31 December 2021, the Board expects

that all restricted Ordinary Shares issued will ultimately vest in unrestricted Ordinary

Shares.

The exercise price attached to these Ordinary Shares awards is nil. The remaining

vesting period at 31 December 2021 is three years in respect of the 2020

performance fee and the Ordinary Shares will vest immediately with the Investment

Manager at the end of the vesting period, subject to meeting the performance

conditions attached to the share awards.

Annual Report Finance 89

The fair value of the equity instruments granted was based on the outcome of the

performance fee calculation (based on the non-market performance set out above),

which determined a ﬁxed monetary amount expected to be due to the Investment

Manager which is settled in a variable number of Ordinary Shares based on the

prevailing NAV per share at the date on which the restricted Ordinary Shares vest

withthe Investment Manager.

The total expense recognised in the current year was £720,000 (2020: £665,000).

Valuation inputs and assumptions

Valuation is based on Monte Carlo simulation techniques to project changes in the NAV

and the Index over a three-year period from 31 December 2021. Monte Carlo modelling

was based on the inputs and assumptions such as NAV Volatility of 19.9% (2020:

19.8%) and FTSE All-Share Index (Total Return) volatility of 16.2% (2020: 17.0%).

It is possible for the Company to elect (at its own discretion) not to claw back any

of the performance fee already paid or to extend the period of the claw back

measurement by a further two years. These events are within the control of

management and are not factored into the Monte Carlo model. As such, the result

does not take into account the probability that the Company would choose not to claw

back any of the performance fee even where it had rights to do so. On that basis, the

adjustment derived from the expected performance fee could be regarded as the

maximum possible adjustment as at 31 December 2021.

Performance fee Sensitivities

A 10% movement to the NAV volatility and FTSE All-Share Index (total return) volatility

would result in the performance fee valuation as set out below:

Performance fee Performance fee

Valuation 2021 Valuation 2020

NAV and FTSE All-Share Index volatility increase by 10% £1.8 million £1.6 million

NAV volatility increase by 10% and FTSE-All Share Index

volatility decrease by 10%

£1.8 million £1.4 million

NAV volatility decrease by 10% and FTSE-All Share Index

volatility increase by 10%

£1.9 million £2.3 million

NAV and FTSE-All Share Index volatility decrease by 10% £1.8 million £1.8 million

6. Directors’ Fees

The fees paid or accrued for the year to 31 December 2021 were £137,000 (2020:

£150,000). There were no other emoluments. The gross ﬁgures shown for Directors’

fees in note 4 above does not include employers’ National Insurance charges or VAT,

as appropriate. Full details of the fees of each director are given in the Directors’

Remuneration Report. The Company has paid National Insurance contributions of

£13,000 (2020: £11,800) in respect of the Directors remuneration.

Finance

90 Annual Report Finance

7. Taxation

Year to 31 December 2021 Year to 31 December 2020

Revenue Capital Total Revenue Capital Total

£’000 £’000 £’000 £’000 £’000 £’000

Corporation tax – – – – – –

Overseas withholding tax 30 – 30 11 – 11

Tax charge in respect of the

current year

30 – 30 11 – 11

Current taxation

The taxation charge for the year is different from the standard rate of corporation tax in

the UK (19%). The differences are explained below:

Year to Year to

31 December 31 December

2021 2020

£’000 £’000

Total (loss)/profit before tax 30,758 (2,198)

Theoretical tax at UK corporation tax rate of 19.0%

(2020: 19.0%)

5,844 (418)

Effects of:

Capital (profits)/losses that are not taxable (5,707) 408

UK dividends which are not taxable (417) (221)

Overseas withholding tax 30 11

Overseas dividends that are not taxable (21) (7)

Movement in unutilised management expenses 301 238

Tax charge in respect of the current year 30 11

Due to the Company’s status as an investment trust and its intention to continue

meeting the conditions required to maintain its status in the foreseeable future, the

Company has not provided deferred tax on any capital gains and losses arising on the

revaluation or disposal of investments.

Deferred Tax

The Company has £12,350,000 (2020: £12,795,000) in respect of excess unutilised

management expenses, equivalent to a potential tax saving of £3,088,000 (2020:

£2,175,000) at the prospective tax rate of 25% (2020: 17%) and £1,491,000 (2020:

£1,491,000) in respect of loan interest, equivalent to a potential tax saving of

£373,000 (2020: £253,000) at the prospective tax rate of 25% (2020: 17%). The March

2021 Budget announced an increase to the main rate of corporation tax to 25% from

1st April 2023. This increase in the standard rate of corporation tax was substantively

enacted on 24th May 2021 and became effective from 2nd June 2021.

These amounts are available to offset future taxable revenue. A deferred tax asset

has not been recognised in respect of these expenses and will be recoverable only to

the extent that the Company has sufﬁcient future taxable revenue.

Annual Report Finance 91

8. Ordinary Dividends

Year to Year to

31 December 31 December

2021 2020

£’000 £’000

Dividends reflected in the financial statements:

Final dividend paid for the year ended 31 December 2020

at 0.55p per share (2019: 4.50p)

420 3,295

Dividends not reflected in the financial statements:

Final dividend accrued for the year ended 31 December 2021

at 1.84p per share (2020: 0.55p) 1,409 413

9. Earnings Per Share

Earnings per share are based on the proﬁt of £30,728,000 (2020: loss of £2,209,000)

attributable to the weighted average of 76,253,921 (2020: 72,555,357) ordinary shares

of 25p in issue during the year.

Supplementary information is provided as follows: revenue earnings per share are

based on the revenue proﬁt of £1,413,000 (2020: proﬁt of £599,000); capital earnings

per share are based on the net capital proﬁt of £29,315,000 (2020: loss of

£2,808,000), attributable to the weighted average of 76,253,921 (2020: 72,555,357)

ordinary voting shares of 25p. There is no difference between the weighted average

Ordinary diluted and undiluted number of Shares. There is no difference between

basic and diluted earnings per share as there are no dilutive instruments.

10. Share Capital

At At

31 December 31 December

2021 2020

Allotted, called up and fully paid (Number) 76,519,675 75,103,743

Ordinary Shares of 25p (£’000) 19,130 18,776

The Company did not purchase any of its own shares during the year ended

31December 2021 or 31 December 2020. No shares were cancelled during either years.

No shares were held in Treasury or sold from Treasury during the year ended

31December 2021 or 31 December 2020.

Placings

There were no placings during the year ended 31 December 2021.

Block listings

The Company had established on 11 June 2019 a block listing facility for up to

12,194,444 new shares to meet market demand arising from time to time. A total of

125,000 (excluding 1,290,932 issued to the Investment Manager to settle the

performance fee) new Ordinary Shares were issued during the year 1 January 2021 to

31 December 2021, raising gross proceeds of £0.3 million.

A new block listing facility for up to 14,450,605 new Ordinary Shares was

established on 17 April 2020.

Finance

92 Annual Report Finance

10. Share Capital continued

At 31 December 2021, the Company had 76,519,675 (2020: 75,103,743) Ordinary

Shares in issue. The number of voting shares at 31 December 2021 was 76,519,675

(2020: 75,103,743).

On 3 February 2022, a total of 69,738 Ordinary Shares were issued to the

Investment Manager, representing 80% of the total fee due. The Ordinary Shares

were issued at the latest prevailing NAV as at 28 January 2021 of 254.37 pence per

Ordinary Share. As at the date of this report the Company had 76,589,413 Ordinary

shares in issue.

11. Total Equity

Total Equity includes, in addition to Share Capital, the following reserves:

Capital Redemption Reserve. When any shares are redeemed or cancelled, a transfer

of realised proﬁt must be made to this reserve in order to maintain the level of capital

that is not distributable.

Share Premium Account. When shares are issued at a premium to their nominal

value, the “capital proﬁt” arising on their allotment must be held in a Share Premium

Account, which is not distributable in the ordinary course and may be utilised only in

certain limited circumstances.

Capital proﬁts arising from the Company’s investment transactions are held as

Capital Reserves, subdivided between Gains on Disposal for proﬁts arising upon sales

of investments and Investment Holding gains/losses for portfolio revaluations. The

movements on this account are analysed in Note 12.

The Company’s Revenue Reserves are the net proﬁts that have arisen from the

Company’s revenue income in the form of dividends and interest, less operating

expenses and dividends paid out to the Company’s shareholders.

The Company’s Other Reserve represents the share-based payment expense in

relation to the performance fee payable to the Investment Manager.

Annual Report Finance 93

12. Capital Reserves

31 December 31 December

2021 2020

£’000 £’000

Investment holding gains/(losses)

Opening balance 20,621 23,231

Revaluation of investments – listed 28,020 (2,610)

Balance of investment holding gains/(losses) at 31 December 48,641 20,621

Other capital reserves

Opening balance 13,219 13,417

Net gains on realisation of investments 2,018 251

Capital distributions received – 236

Losses on currency (3) (20)

Investment management fees (720) (665)

Total of realised gains and losses reflected in the Statement

of Comprehensive Income

1,295 (198)

Balance of other capital reserves at 31 December 14,514 13,219

Total capital reserve at 31 December 60,499 33,840

13. Net Assets Per Ordinary Share

The ﬁgure for net assets per Ordinary Share is based on £194,193,000 (2020:

£162,921,000) divided by 76,519,675 (2020: 75,103,743) voting Ordinary Shares in

issue at 31 December 2021.

The table below is a reconciliation between the NAV per Ordinary share

announced on the London Stock Exchange and the NAV per Ordinary share disclosed

in these ﬁnancial statements. The difference is as a result of amortising the

performance fees over the vesting period in accordance with IFRS 2 - Share based

payment, in these ﬁnancial statements, whereas the NAV as 31 December 2021,

published on 4 January 2022 treated the performance fees as earned on the

31December 2021, in accordance with the IMA.

NAV per

Ordinary

Net assets share

(£’000) (p)

NAV as published on 4 January 2022 193,971.3 253.49

Performance fees earned as at year end 221.7 0.29

NAV as disclosed in these financial statements 194,193.0 253.78

Finance

94 Annual Report Finance

14. Reconciliation of Profit after Finance Costs and Tax to Net

Operating Activities Cash flow

Year to Year to

31 December 31 December

2021 2020

£’000 £’000

Profit/(loss) after finance costs and tax 30,728 (2,209)

Increase in non-current investments (28,743) (19,082)

Decrease in other receivables 36 164

Increase/(decrease) in other payables 41 (1)

Investment management fees 723 665

Net cash outflow from/(used in) operating activities 2,785 (20,463)

15. Related Party Transactions

Castelnau Group Limited are also managed by Phoenix Asset Management. Further

details can be found in the Investment Manager’s report on pages 17 to 19, portfolio

holdings on page 13 and the “Castelnau Related Party Transaction” on page 24.

Details of the management, administration and secretarial contracts can be found

in the Directors’ Report. There were no transactions with directors other than

disclosed in the Directors’ Remuneration Report. Fees payable to Phoenix are shown

in note 4.

A £720,000 charge has been recognised as performance fee for the performance

period ended 31 December 2021 (2020: £665,000). Any performance fee would be

payable in Ordinary Shares at the prevailing NAV on the issue date. In accordance with

the Management Agreement, 69,738 of the Company’s New Ordinary Shares were

allotted, representing 80% of the £ 222,000 provision. Further details on the issuance

of the remaining 20% can be found in Note 10 on pages 91 and 92. Other than the

performance related fees, the Investment Manager does not receive any ﬁnancial

beneﬁts derived from its relationship with the Company. There are measures in place

to avoid the double charging of fees and expenses as a result of the Company’s

holdings in Phoenix SG, which also have Phoenix as its Investment Advisor.

Other payables include accruals of administration fees of £14,000 (2020: £13,000).

All ﬁgures include any applicable VAT.

Annual Report Finance 95

16. Financial Assets/Liabilities

Investments are carried in the balance sheet at fair value. For other ﬁnancial assets

and ﬁnancial liabilities, the balance sheet value is considered to be a reasonable

approximation of fair value.

Financial assets

The Company’s ﬁnancial assets may include equity investments, ﬁxed interest

securities, short-term receivables and cash balances. The currency and cash-ﬂow

proﬁle of those ﬁnancial assets was:

2021 2020

Non- Non-

Interest interest Interest interest

bearing bearing Total bearing bearing Total

£’000 £’000 £’000 £’000 £’000 £’000

Non-current investments at

fair value through profit or loss:

£ sterling denominated security

holdings

– 174,726 174,726 – 144,231 144,231

€ euro denominated security

holdings

– 11,911 11,911 – 13,663 13,663

– 186,637 186,637 – 157,894 157,894

Cash at bank:

Floating rate – £ sterling – 7,561 7,561 – 5,027 5,027

Floating rate – € euro – 103 103 – 28 28

– 7,664 7,664 – 5,055 5,055

Current assets:

Receivables – 222 222 – 258 258

– 194,523 194,523 – 163,207 163,207

Cash at bank includes £7,663,798 (2020: £5,055,374) held by the Company’s

Depository, BNP Paribas.

Financial liabilities

The Company ﬁnances its investment activities through its ordinary share capital and

reserves. It has discontinued the use of borrowing for such purposes. The Company’s

ﬁnancial liabilities comprise short-term trade payables. Foreign currency balances are

stated in the accounts in sterling at the exchange rate as at the Balance Sheet date.

There were no short-term trade payables (other than accrued expenses).

Finance

96 Annual Report Finance

17. Financial Instruments – Risk Analysis

The general risk analysis undertaken by the Board and its overall policy approach to

risk management are set out in the Strategic Report. Issues associated with portfolio

distribution and concentration risk are discussed in the Investment Policy section of

the Strategic Report. This note, which is incorporated in accordance with accounting

standard IFRS7, examines in greater detail the identiﬁcation, measurement and

management of risks potentially affecting the value of ﬁnancial instruments and how

those risks potentially affect the performance and ﬁnancial position of the Company.

The risks concerned are categorised as follows:

a. Potential Market Risks, which are principally:

i. Currency Risk

ii. Interest Rate Risk and

iii. Other Price Risk.

b. Liquidity Risk

c. Credit Risk

Each is considered in turn below:

A (i) Currency Risk

The portfolio as at 31 December 2021 was invested predominantly in sterling

securities and there was no signiﬁcant currency risk arising from the possibility of

afallin the value of sterling impacting upon the value of investments or income.

The Company had no foreign currency borrowings at 31 December 2021 or

31December 2020 and no sensitivity analysis is presented for this risk.

Currency sensitivity

The following table shows the strengthening/(weakening) of sterling against the local

currencies over the ﬁnancial year for the Company’s ﬁnancial assets and liabilities held

at 31 December 2021.

2021 2020

% Change

1

% Change

1

Euro +6.1 –5.5

1 Percentage change of sterling against local currency from 1 January to 31 December of relevant year.

Based on the ﬁnancial assets and liabilities at 31 December 2021 and all other things

being equal, if sterling had strengthened by 10%, the proﬁt after taxation for the year

ended 31 December 2021 and the Company’s net assets at 31 December 2021 would

have decreased by the amounts shown in the table below. If sterling had weakened by

10% this would have had the opposite effect.

2021 2020

£’000 £’000

Euro 1,201 1,369

Annual Report Finance 97

A (ii) Interest Rate Risk

The Company did not hold ﬁxed interest securities at 31 December 2021 or

31December 2020.

With the exception of cash, no interest rate risks arise in respect of any current

asset. All cash held as a current asset is sterling denominated, earning interest at the

bank’s or custodian’s variable interest rates.

The Company had no borrowings at 31 December 2021 or 31 December 2020.

A (iii) Other Price Risk

The principal price risk for the Company is the price volatility of shares that are owned

by the Company. As described in the Investment Manager’s Review, the Company

spreads its investments across different sectors and geographies, but as shown by

the Portfolio Analysis in the Business Review, the Company may maintain relatively

strong concentrations in particular sectors selected by the Investment Manager.

The effect on the portfolio of a 10.0% increase or decrease in market prices would

have resulted in an increase or decrease of £18,664,000 (2020: £17,789,000) in the

investments held at fair value through proﬁt or loss at the period end, which is

equivalent to 9.6% (2020: 9.7%) in the net assets attributable to equity holders. This

analysis assumes that all other variables remain constant.

B Liquidity Risk

Liquidity Risk is considered to be small, because most of the portfolio is invested in

readily realisable securities. As a consequence, cash ﬂow risks are also considered to

be immaterial. The Investment Manager estimates that, under normal market

conditions and without causing excessive disturbance to the prices of the securities

concerned, 65% of the portfolio could be liquidated in a non-market impacting way

within 7 days, based on 15% of average daily volume. This is conservative as it does

not include the ability to access liquidity through block trades.

C Credit Risk

The Company invests in quoted equities and ﬁxed interest securities. The Company’s

investments are held by BNP (“the Depository”), which is a large international bank

with a high reputation. The Company’s normal practice is to remain fully invested at

most times and not to hold very large quantities of cash. At 31 December 2021, cash

at bank comprised £7,664,000 (2020: £5,055,000) held by the Depository.

Credit Risk arising on transactions with brokers relates to transactions awaiting

settlement. This risk is considered to be very low because transactions are almost

always undertaken on a delivery versus payment basis with member ﬁrms of the

London Stock Exchange.

D Capital management policies and procedures

The Company’s capital management objectives are:

• to ensure the Company’s ability to continue as a going concern; and

• to provide an adequate return to shareholders

by pursuing investment policies commensurately with the level of risk.

The Company monitors capital on the basis of the carrying amount of equity, less cash

and cash equivalents as presented on the face of the statement of ﬁnancial position.

The Company sets the amount of capital in proportion to its overall ﬁnancing

structure, i.e. equity and ﬁnancial liabilities. The Company manages the capital

structure and makes adjustments to it in the light of changes in economic conditions

and the risk characteristics of the underlying assets. In order to maintain or adjust the

capital structure, the Company may adjust the amount of dividends paid to

shareholders (within the statutory limits applying to investment trusts), return capital

to shareholders, issue new shares, or sell assets.

Finance

98 Annual Report Finance

18. Post Year End Events

On 7 February 2022, 69,738 Ordinary shares were issued to the Investment Manager,

representing 80% of the total fee due. The Ordinary shares were issued at the latest

prevailing NAV as at 28 January 2022 of 254.37 pence per Ordinary share.

Since the year end, equity markets have been impacted by a number of events,

particularly the conﬂict in Ukraine, the prospects of a rise in inﬂation, two increases to

interest rates and the concern that more will follow and the impact this may have on

the economy and the rising number of COVID-19 cases and concern that numbers will

continue to rise.

Annual Report Finance 99

An APM is a ﬁnancial measure of historical or future ﬁnancial performance, ﬁnancial

position, or cash ﬂows, other than a ﬁnancial measure deﬁned or speciﬁed in the

applicable ﬁnancial reporting framework. Deﬁnitions of these APMs together with how

these measures have been calculated as follows:

Discount

The amount, expressed as a percentage, by which the share price is less that the NAV

per Ordinary Share.

As at As at

31 December 31 December

Page 2021 2020

NAV per Ordinary Share a 74 253.78 216.93

Share price b 12 234.50 207.00

Discount (b÷a)-1 11 7.60% 4.58%

Gearing

A way to magnify income and capital returns, but which can also magnify losses.

Abank loan is a common method of gearing.

As at As at

31 December 31 December

Page 2021 2020

£’000 £’000

Total assets a 74 194,523 163,207

Cash and cash equivalents b 74 7,664 5,055

Total assets less cash and

cash equivalents

c=a-b 186,859 158,152

Loan d n/a – –

Gearing d÷c 28 Nil Nil

Alternative

Performance

Measures

(‘APMs’)

Finance

100 Annual Report Finance

NAV per Ordinary Share

The Company’s assets less its liabilities, as adjusted for total performance fees earned

in the corresponding performance period, divided by the Company’s number of

Ordinary Shares in issue (excluding any shares held in treasury).

As at As at

31 December 31 December

Page 2021 2020

£’000 £’000

Total assets (excluding performance fees) a 74 194,523 163,207

Less liabilities (excluding performance

fees)

b 74 (330) (286)

Performance fees earned for the year c (222) (2,659)

Net assets (a+b+c) d n/a 193,971 160,262

Number of Ordinary shares in issue e 91 76,519,675 75,103,743

NAV per Ordinary Share published d÷e 93 253.49p 213.39p

NAV per Ordinary Share per

financial statements

(d-c) ÷ e 93 253.78p 216.93p

Ongoing charges

A measure of the regular, recurring annual costs of running an investment company,

expressed as a percentage of average net assets. The measure is calculated by

expressing the regular expenses of the year as a percentage of the average net assets

during the year.

As at As at

31 December 31 December

Page 2021 2020

£’000 £’000

Average NAV a n/a 175,216 131,925

Annualised expenses b n/a 862 597

Ongoing charges figure b÷a 11 0.49% 0.45%

Total return

A measure of performance that includes both income and capital returns. This takes

into account capital gains and reinvestment of dividends paid out by the Company into

its Ordinary Shares on the ex-dividend date.

31 December 2021 31 December 2020

Share Share

Year ended 31 December Page NAV price NAV price

Opening at 1 January a 74 216.93 207.00 232.07 237.00

Closing at 31 December b 74 253.78 234.50 216.93 207.00

Price movement (b÷a)–1 c n/a 17.0% 13.3% (6.5)% (12.7)%

Dividend reinvestment d n/a 0.1% 0.2% 13.9% 2.7%

Total return (c+d) 17.1% 13.5% 7.4% 10.0%

Annual Report Finance 101

Finance

AIC Association of Investment Companies.

Alternative Investment An investment vehicle under AIFMD. Under AIFMD (see

Fund or “AIF” below) the Company is classiﬁed as an AIF.

Alternative Investment A European Union directive which came into force on

Fund Managers 22 July 2013 and has been implemented in the UK.

Directive or “AIFMD”

Annual General A meeting held once a year which shareholders can attend

Meeting or AGM and where they can vote on resolutions to be put forward

at the meeting and ask directors questions about the

company in which they are invested.

Alternative See deﬁnitions on pages 99 and 100.

Performance

Measures (‘APMs’)

Articles The Company’s Articles of Association adopted on 10 June

2019.

Custodian An entity that is appointed to safeguard a company’s assets.

Discount The amount, expressed as a percentage, by which the

share price is less than the net asset value per share.

Depositary Certain AIFs must appoint depositaries under the

requirements of AIFMD. A depositary’s duties include,

interalia, safekeeping of the Company’s assets and cash

monitoring. Under AIFMD the depositary is appointed

under a strict liability regime.

Dividend Income receivable from an investment in shares.

Ex-dividend date The date from which you are not entitled to receive a

dividend which has been declared and is due to be paid to

shareholders.

Financial Conduct The independent body that regulates the ﬁnancial services

Authority or “FCA” industry in the UK.

Index A basket of stocks which is considered to replicate

aparticular stock market or sector.

Investment company A company formed to invest in a diversiﬁed portfolio of

assets.

Investment Manager Phoenix Asset Management Partners Limited.

or Phoenix

Investment Trust An investment company which is based in the UK and

which meets certain tax conditions which enables it to be

exempt from UK corporation tax on its capital gains. The

Company is an investment trust.

Glossary

102 Annual Report Finance

Leverage An alternative word for “Gearing”. Under AIFMD, leverage is

any method by which the exposure of an AIF is increased

through borrowing of cash or securities or leverage

embedded in derivative positions. Under AIFMD, leverage

isbroadly similar to gearing, but is expressed as a ratio

between the assets (excluding borrowings) and the net

assets (after taking account of borrowing). Under the gross

method, exposure represents the sum of the Company’s

positions after deduction of cash balances, without taking

account of any hedging or netting arrangements. Under the

commitment method, exposure is calculated without the

deduction of cash balances and after certain hedging and

netting positions are offset against each other.

Liquidity The extent to which investments can be sold at short

notice.

Net assets An investment company’s assets less its liabilities.

Net asset value The Company’s daily published unaudited net assets

per Ordinary divided by the number of Ordinary Shares in issue

Share (NAV) (excluding any shares held in treasury). This takes into

account any accrued performance fees assuming no claw

back at the end of the performance fee period.

Ordinary Shares The Company’s ordinary shares in issue.

Portfolio A collection of different investments held in order to deliver

returns to shareholders and to spread risk.

Secretary or Sanne Fund Services (UK) Limited.

Administrator

Share buyback A purchase of a company’s own shares. Shares can either

be bought back for cancellation or held in treasury.

Share price The price of a share as determined by a relevant stock

market.

Tracking error A measure, expressed as a percentage, of how closely

aportfolio follows an index over a period of time.

Treasury shares A company’s own shares which are available to be sold by

acompany to raise funds.

Value at Risk A statistical technique used to measure and quantify the

level of ﬁnancial risk within a portfolio over a speciﬁc time

frame.

Volatility A measure of how much a share moves up and down in

price over a period of time.