Aurora Investment Trust plc
Annual Report 31 December 2023
Company No. 03300814
Annual Report Contents 1
Contents
Strategic
Report
Financial and Performance Highlights 3
Chair’s Statement 4
Investment Policy and Results
7
Top Holdings
11
Portfolio Analysis
12
Statement from the CIO of the Investment Manager 13
Investment Management Review and Outlook
14
Phoenix UK Fund Track Record 22
Report under Section 172 of the Companies Act 2006
24
Other Strategic Report Information
28
Governance
Directors, Investment Manager and Advisers 33
Directors’ Report 36
Corporate Governance Statement
43
Directors’ Remuneration Report
51
Statement of Directors’ Responsibilities 56
Audit Committee Report
58
Independent Auditor’s Report
62
Financial Statements
Income Statement 71
Statement of Financial Position
72
Statement of Changes in Equity 73
Cash Flow Statement
75
Notes to the Financial Statements 76
Alternative Performance Measures
95
Glossary 97
Notice of Meeting 99
2 Annual Report Strategic Report
Strategic Report
2 Annual Report Strategic Report
Annual Report Strategic Report continued 3
Strategic Report
Objective
To provide shareholders with long-term
returns through capital and income
growth by investing predominantly in
aportfolio of UK listed companies.
Policy
Phoenix Asset Management Partners
Limited (“Phoenix”) was appointed as
Investment Manager on 28 January 2016.
Phoenix seeks to achieve the Company’s
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
15to20 holdings.
The Investment Policy of the Company
can be found on page 7.
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 3.45p per ordinary share
(2022: 2.97p) to be paid on 20 June 2024
to shareholders who appear on the
register as at 10 May 2024, with an ex-
dividend date of 9 May 2024.
Annual General Meeting (“AGM”)
The AGM of the Company will be held at
25 Southampton Buildings, London
WC2A1AL on 12June 2024 at 1p.m.
There will be no Investment Manager
presentation at the AGM. Instead, there
will be a separate Investment Manager
presentation and Q&A event at 3.30 p.m.
on 9 October 2024 at the Queen Elizabeth
II Centre, Broad Sanctuary, Westminster,
London SW1P 3EE.
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
80
100
120
140
160
180
200
Dec-2023Jan-2023Jan-2022Jan-2021Jan-2020Jan-2019Jan-2018Jan-2017Jan-2016
4 Annual Report Strategic Report continued
I am pleased to present the Aurora Investment Trust PLC annual report for the year
ended 31 December 2023.
Performance
Performance for the year to 31 December 2023 was very positive, with a Net Asset
Value (NAV) per share total return* of 36.3% (2022: –19.1%). The share price total
return* was 28.5% (2022: –16.3%) compared to the Company’s benchmark
FTSEAllShare Index total return of 7.9% (2022: 0.3%).
The portfolio saw strong performance across the board with no notable detractors in
the major holdings above a 3% weight. Top contributors were Barratt Developments
which contributed 6.9% (+53% in the year), Frasers Group which contributed 6%
(+29% in the year) and Hotel Chocolat which contributed 4% (after a bid by Mars at
175% premium).
Hotel Chocolat is a useful illustration of Phoenix’s philosophy. They devote their
attention to understanding a small number of businesses in depth and are patient
waiting for them to reach the right price. In the case of Hotel Chocolat, they had
monitored the business since its IPO in 2016 and only in 2022 did it reach a price
which allowed Phoenix to invest. In late 2023 it was acquired by Mars at a price
slightly higher than the intrinsic value estimated by Phoenix.
For further details on the portfolio and performance, see the Investment Manager’s
Review by Phoenix on pages 14 to 21.
The Investment Manager and Performance Fees
2023 was the eighth year of Phoenix’s management of the Company’s portfolio, since
they took over in January 2016. Throughout that time, Phoenix has employed
afocused and patient investment approach.
Phoenix uniquely receives no annual management fee. Instead, they are solely
remunerated from an annual performance fee, equal to one third of any
outperformance of the Company’s NAV against its benchmark, the FTSE All Share
Index (total return).
The performance fee is paid by issuance of the Company’s ordinary shares, which
aresubject to a fixed three-year clawback period. That means issued shares will be
returned by the Investment Manager in the event any outperformance versus the
index reverses on the third-year anniversary. If outperformance fully reverses, the
Investment Manager receives nothing.
In the years ending 2019, 2020 and 2021 the Investment Manager was awarded shares
in settlement of performance fees earned. The shares awarded for 2019 performance
were clawed back in 2022, with 530,311 shares returned to the Company and
cancelled. Following strong performance in 2023, the shares awarded for the 2020
performance were retained, with Phoenix earning a performance fee of £560,903 for
2022 and 2023. In accordance with the Investment Management Agreement, 80% of
this fee was settled in January 2024 with 172,373 shares issued to Phoenix at 260.32p
each, which was the prevailing published NAV per share at the time of issue. The
remaining 20% will be settled following publication of this annual report.
Chair’s
Statement
Lucy Walker
Chair
26 March 2024
*Alternative Performance Measure (see page 96).
Annual Report Strategic Report continued 5
Strategic Report
Chair’s
Statement
Continued
Following this share issue, the Company’s issued share capital is now 76,250,833
ordinary shares of 25p, each carrying one voting right. The Company does not hold any
shares in Treasury.
Share Price Discount
The Board closely monitors the discount at which the Company’s shares trade to NAV.
During 2023 the discount widened from 4.4% at the end of 2022 to 10.0% at the end
of 2023.
Closing the discount remains a key objective of the Board and marketing activities are
considered a key part of the strategy for achieving this. Phoenix along with Liberum,
the Company’s broker, and Frostrow Capital as investor relations and marketing
adviser continue to promote the Company proactively.
The Board is seeking to renew the power granted to it by shareholders to buy back
shares at the forthcoming annual general meeting. The Board will also seek to renew
its powers to issue new shares in order to be able to issue shares to investors should
the shares return to a premium, as well as to enable the issue of shares to the
Investment Manager in respect of performance fees earned.
Growth of the Company
Another key objective of the Board is growing the Company, with a medium-term
target of £250 million. During the year the Company’s market capitalisation increased
from £149 million at 31 December 2022, to £188 million at 31 December 2023.
Central to growing the Company to our target will be closing the discount, so this is
the Board’s first priority.
Annual General Meeting (“AGM”) and separate Investment Manager
presentation event
This year’s AGM will be held at the Company’s registered office, 25 Southampton
Buildings, London WC2A 1AL, on 12 June 2024 at 1 p.m. to consider the business set
out in the Notice of Meeting on pages 100 and 101 and, like last year, will not include
an Investment Manager presentation. Last year the Board decided to hold a separate
event in October instead of combining an Investment Manager presentation with the
AGM. This presentation was well attended and the Board has decided to follow the
same formula this year. Accordingly, a separate Investment Manager presentation
event will be held at 3.30 p.m. on 9 October 2024 at the Queen Elizabeth II Centre,
Broad Sanctuary, Westminster, London SW1P 3EE. This event is intended to be of
interest to both existing and prospective Aurora shareholders and will include multiple
speakers from the Investment Manager. It is intended for this event to be recorded
and made available afterwards on the Company’s website.
With respect to the AGM, the Board strongly encourages shareholders to register
their votes online in advance of the meeting by visiting www.signalshares.com and
following the instructions on the site. Appointing a proxy online will not restrict
shareholders from attending the meeting in person should they wish to do so and will
ensure their votes are counted if they are not able to attend. Shareholders are invited
to send any questions they may have to the Company Secretary by email to
info@frostrow.com ahead of the meeting.
6 Annual Report Strategic Report continued
Dividend
The Board is recommending a final dividend of 3.45p (2022: 2.97p) per ordinary share,
to be paid on 20 June 2024 to shareholders who appear on the register as at 10 May
2024. The ex-dividend date is 9 May 2024. This dividend will be proposed at the
forthcoming AGM to be held on 12 June 2024. The Company’s dividend policy, which
is to distribute substantially all net revenue proceeds, remains unchanged and can be
found on page 7 of this Annual Report.
Outlook
2023’s performance was very welcome, but there remains significant value in the
portfolio, with Phoenix estimating a discount to intrinsic value of 130%. The
Company’s shares, particularly trading on close to a 10% discount to NAV, offer an
excellent opportunity to access Phoenix’s differentiated strategy of investing in a
concentrated portfolio of great, thoroughly researched businesses at attractive prices.
Lucy Walker
Chair
26 March 2024
Chair’s
Statement
Continued
Annual Report Strategic Report continued 7
Strategic Report
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 (“Castelnau”);
• 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; and
• 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 Company does not have a fixed dividend policy. However, the Board expects to
distribute substantially all of the net revenue arising from the investment portfolio.
Accordingly, the Company is expected to pay an annual dividend that may vary each
year.
Borrowing Policy
The Company is not prohibited from incurring borrowings for working capital purposes,
however the Board has no current intention to utilise borrowings. Whilst the use of
borrowings should enhance the total return on the ordinary shares where the return
on the Company’s underlying assets is rising and exceeds the cost of borrowing, it will
Investment
policy and
results
8 Annual Report Strategic Report continued
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 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 underlying investment companies.
Purpose and Key Performance Indicators (“KPI’s”)
The Company’s purpose is encapsulated in its investment objective, which is to
provide shareholders with long-term returns through capital and income growth by
investing predominantly in a portfolio of UK listed companies. The Board measures the
Company’s success in attaining its objective by reference to KPIs as follows:
a. To make an absolute total return for shareholders on a long-term basis;
b. To make a relative total return for shareholders on a long-term basis, as measured
against the Company’s benchmark, the FTSE All-Share Index (total return);
c. The Board seeks to ensure that the operating expenses of running the Company
as a proportion of NAV (the Ongoing Charges Ratio) are kept to a minimum; and
d. The discount/premium to NAV per share at which the Company’s shares trade is
also closely monitored in view of its effect on shareholder returns.
These are alternative performance measures (“APMs”). The Financial Statements (on
pages 71 to 94) set out the required statutory reporting measures of the Company’s
financial performance. However, the Board additionally assesses the Company's
performance against these APMs, which are viewed as being particularly relevant for
the Company. These APMs are widely used in reporting within the investment
company sector and the Directors believe they enhance the comparability of
information and assist investors in understanding the Company's performance. Further
information on each of the KPI’s is set out below. Definitions of the APMs and the
basis of their calculation are set out on pages 95 and 96.
The Chair’s Statement on pages 4 to 6 incorporates a review of the highlights during
the year.
The Investment Management Review and Outlook on pages 14 to 21 gives details on
investments made during the year and how performance has been achieved.
Performance (KPIs a and b)
The Company’s performance in absolute terms and relative to the FTSE All-Share
Index (total return) benchmark since Phoenix was appointed as Investment Manager in
2016 is shown below:
Cumulative
since Year to Year to
28 January 2016 31 December 31 December
to 31 December 2023 2023 2022
% % %
NAV per share (total return) 93.7 36.3 (19.1)
Share price (total return) 77.9 28.5 (16.3)
Benchmark (total return) 73.9 7.9 0.3
Investment
policy and
results
Continued
Annual Report Strategic Report continued 9
Strategic Report
The Directors regard the Company’s share price total return to be the overall measure
of performance over the long term, since it approximates the return in the hands of
shareholders. It combines the change in the share price with the dividends paid to
shareholders, which are added back as though reinvested at the ex-dividend date.
The Directors regard the Company’s NAV per share total return to be a key indicator of
the Investment Manager’s performance. The NAV per share total return is the change
in the Company’s NAV per share with distributions to shareholders added back.
The Board monitors these against the Company’s benchmark and peer investment
companies.
The Company’s performance under both of these total return measures was strong in
2023.
Ongoing charges (KPI c)
Ongoing charges represent the costs that shareholders can reasonably expect the
Company to pay from one year to the next under normal circumstances, excluding
performance fees and taxation.
Phoenix does not earn an ongoing annual management fee, but instead is paid an
annual performance fee, only if the benchmark is outperformed, equal to one third of
the outperformance of the Company’s NAV against its FTSE All-Share Index (total
return) benchmark.
The Board monitors the Company’s other operating costs carefully and aims to
maintain a sensible balance between good quality services and costs. Based on the
Company’s average net assets for the year ended 31 December 2023, the Company’s
ongoing charges figure calculated in accordance with the Association of Investment
Companies (“AIC”) methodology was 0.45% (2022: 0.45%). As the size of the
Company grows the ongoing charge figure, is expected to reduce.
Premium/Discount to NAV (KPI d)
The discount of the price at which the Company’s shares trade to the NAV per share is
considered a key indicator of performance as it impacts the share price total return
and can provide an indication of how investors view the Company’s performance and
its investment objective. Accordingly, it is closely monitored by the Board as discussed
in the Chair’s Statement on page 5. The share price closed at a 10.0% discount to the
NAV per share as at 31December 2023 (2022: 4.4% discount). During the course of
the year, based on the daily published NAVs per share (which are not adjusted to
comply with IFRS 2 (see pages 10 and 60), the Company’s shares traded at a discount
of between 5.0% and 14.1%, with an average discount of 10.4% (2022: the
Company’s shares traded between a premium of 1.6% and a discount of 13.6% to
NAV per share, with an average discount of 5.4%). Discount is further discussed on
pages 5 and 38.
Revenue Result and Dividend
The Company’s revenue after tax for the year ended 31 December 2023 was
£2,661,000 (2022: £2,263,000). The Board is recommending the payment of a final
dividend of 3.45p per share (2022: 2.97p per share). This dividend, if approved by
shareholders, will be paid on 20June 2024 to shareholders on the register as at
10May 2024; the shares will be marked ex-dividend on 9May 2024. Inaccordance
with IFRS, this dividend is not reflected in the financial statements for the year ended
31 December 2023.
Investment
policy and
results
Continued
10 Annual Report Strategic Report continued
Investment
policy and
results
Continued
Our registrar, Link Group (“Link”), administers a Dividend Re-Investment Plan (“DRIP”)
on behalf of the Company whereby direct shareholders resident in the United Kingdom
can choose for Link to apply their cash dividend to buy further shares in the market. The
last date by which shareholders may elect for the DRIP to be applied for their 2023
dividend is 30May 2024. Details about the DRIP, including the terms and conditions
and how to join or exit the DRIP are available at www.signalshares.com or by calling
Link on +44 (0)371 664 0300. Calls are charged at the standard geographic rate and will
vary by provider. Calls outside the United Kingdom will be charged at the applicable
international rate. Lines are open between 9:00a.m. and 5:30p.m., Monday to Friday,
excluding public holidays in England and Wales.
Five Year Summary
Dividend per Year end
Year end Share in respect Share price
NAV per Share of the year (mid-market)
Year (pence) (pence) (pence)
Year ended 31 December 2019 232.07 4.50 237.00
Year ended 31 December 2020 216.93 0.55 207.00
Year ended 31 December 2021 253.78 1.84 234.50
Year ended 31 December 2022 203.45 2.97 194.50
Year ended 31 December 2023 274.34 3.45 247.00
Net Asset Value per Share (NAV per share)
The table below is a reconciliation between the NAV per share as at 31December
2023 announced on the London Stock Exchange on 2January 2024 and the NAV per
share disclosed in these financial statements. The difference is principally the result of
amortising performance fees over the vesting period in accordance with IFRS 2 –
Share-based Payment, in these financial statements, whereas the NAV per share as at
31 December 2023 published on 2January 2024 treated the performance fees as
earned on 31December 2023, in accordance with the investment management
agreement. The remaining reconciling balances relate to adjustment of the unquoted
investment valuation and expenses, due to timing lag.
NAV per
NAV share
£’000 p
NAV as published on 2 January 2024 207,802 273.14
Add back performance fees accrued under
non-IFRS 2 approach
673 0.89
Deduct performance fees accounted for under IFRS 2 (166) (0.22)
Adjustments on final valuation of unquoted investment
and expenses
405 0.53
NAV as disclosed in these financial statements 208,714 274.34
Annual Report Strategic Report continued 11
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 % Million
Frasers Group plc Retail 4,968,886 45,242 21.7 Jun-07 £2.93 £9.11 £4,124
Barratt Developments plc Construction 5,866,312 33,004 15.8 Nov-18 £4.87 £5.63 £5,483
Castelnau Group Limited
#
Financial 36,421,421 27,316 13.1 Oct-21 £0.92 £0.75 £239
Ryanair Holdings Plc Leisure 928,600 15,349 7.4 May-19 €8.34 €19.08 €21,742
Netflix Inc Technology &
Entertainment 33,500 12,794 6.1 Apr-22 $164 $486.86 $213,089
Lloyds Banking Group plc Financial 25,977,000 12,392 5.9 Sep-08 £0.57 £0.48 £30,326
Hotel Chocolat Group plc Food &
Beverage 2,638,800 9,711 4.7 Jul-22 £0.23 £3.68 £506
RHI Magnesita N.V. Materials 260,970 9,030 4.3 Jan-20 £33.55 £34.60 £1,631
easyJet Plc Leisure 1,667,168 8,503 4.1 Sep-16 £8.62 £5.10 £3,866
Bellway Plc Construction 306,940 7,858 3.8 Oct-12 £21.47 £25.60 £3,058
AO World plc Retail 6,396,000 6,274 3.0 Dec-21 £0.93 £0.98 £568
Other holdings (less than 3%) 14,736 7.1
Total holdings
202,209 96.9
Other current assets and liabilities
6,505 3.1
Net assets
208,714 100.0
* Average net cost including sales.
# Castelnau is a multi-sector financial holding company, listed on the Specialist Fund Segment of the London Stock Exchange. Castelnau is also managed by Phoenix
and its value is excluded from the Company’s net assets when calculating performance fees earned by Phoenix to avoid double charging.
Top Holdings
as at 31 December 2023
12 Annual Report Strategic Report continued
Portfolio Analysis
as at 31 December 2023
Percentage of Net
Sector Assets
%
Retail 24.7
Financial* 22.2
Construction 19.6
Leisure 13.9
Technology & Entertainment 6.1
Food & Beverage 5.5
Materials 4.3
Insurance 0.6
Other current assets and liabilities 3.1
Total 100.0
* Castelnau is included in the Financial classification as it is a multi-sector financial holding company.
24.7
22.2
19.6
13.9
6.1
5.5
0.6
4.3
3.1
Other current assets
and liabilities
Insurance
Materials
Food & Beverage
Retail
Financial
Construction
Leisure
Technology &
Entertainment
Annual Report Strategic Report continued 13
Strategic Report
A portfolio of undervalued businesses that are compounding their retained capital at
high rates is something that time works wonders for. If intrinsic value keeps growing
without an accompanying rise in share prices, the invisible elastic that connects them
becomes stretched. That’s where we were when we wrote at the end of 2022, and in
2023 that force finally resulted in the price of the Company’s portfolio holdings
performing ahead of the growth in intrinsic value. That said, the elastic remains very
stretched, with 130% upside in our view, and there is a cheap market for us to keep
adding future value through.
There are some emerging signs to suggest the persistent and increasing relative
undervaluation of the UK has reached its zenith. We will make the most of the
cheapness while it lasts, but no matter what the market conditions there are always
industries and companies having short-term problems that create opportunities for the
prepared and patient investor. Our approach has delivered long-term outperformance
in all types of markets because ultimately it’s about investing in a business-like way,
backing businesses we can understand and monitor, with superior and enduring
economics, available at attractive prices and run by those we trust to look after our
capital and deploy it intelligently whilst reporting to us honestly.
It is an approach full of variance and rich in lessons for continuous improvement when
things do not go as expected. We have always strived to be a learning organisation
andso we mine those lessons to improve our approach. As a result I believe we are
amuch better manager of your money today than we were 25 years ago even with
thegrowth in assets.
Gary Channon
Chief Investment Officer
Phoenix Asset Management Partners
26 March 2024
Statement from
the Chief
Investment
Officer of the
Investment
Manager
Gary Channon
Chief Investment Officer Phoenix
Asset Management Partners
26 March 2024
14 Annual Report Strategic Report continued
Over the year to 31 December 2023 the NAV per share total return was 36.3% and
the share price total return was 28.5%. The FTSE All-Share total return was 7.9% over
the same period. Since Phoenix began managing Aurora Investment Trust PLC on
27January 2016, the Company’s NAV per share has risen 93.7% versus 73.9% for
theFTSE All-Share index. Net assets at year-end were £208.7 million (2022:
£154.8million).
The strong performance in 2023 recovered the underperformance in 2022 and a new
high-water mark was reached for performance versus the FTSE All-Share index. This
resulted in a performance fee being earned at the end of the year. This fee was circa
£561,000, or 0.2% of NAV.
As a reminder, if a performance fee is payable, it is paid by way of the issuance of
Ordinary Shares, which are subject to a fixed three-year clawback period. If the
outperformance versus the index reverses on the third-year anniversary, some or all
the issued shares will be returned. If outperformance fully reverses, Phoenix will
receive nothing.
On 31 December 2023, a clawback test for the year ended 31 December 2020 was
carried out, and the performance fee awarded at the end of 2020 was not clawed back
since outperformance had continued for the three-year clawback period.
Performance for 2024 to date has been benign. As of 29 February, the NAV had fallen
1.9% for the year-to-date, versus a 1.1% fall for the FTSE All-Share index.
Performance Review
From a performance perspective, 2023 was influenced by expectations of lower
interest rates as inflation was brought under control.
The first half of the year saw positive price performances across the portfolio. On
30June 2023 the NAV per share total return for the period was 12.4%, versus 2.5%
for the benchmark.
Individual stock moves of note at the half year included AO World and Netflix, up
52% and 49% respectively. The portfolio’s low-cost airline holdings, easyJet and
Ryanair, also benefitted from the ongoing recovery in travel to end the half year up
49% and 41%.
The second half of the year saw further positive price action taking the NAV per share
total return for the year to 36.3%, versus 7.9% for the FTSE All-Share index.
The biggest contribution to the full year performance was Barratt Developments,
which contributed 6.9% to the NAV rise following a 53% share price rise during the
year.
Frasers Group was the largest holding at the year end. It contributed 6% to the NAV
rise following a 28% increase in its share price.
In November, Hotel Chocolat received a bid approach from Mars at a 175% premium
to the prevailing share price. The share price was up 138% over the year as a whole
and contributed 4% to the NAV.
After the bid, we wrote to investors with a reminder of our investment premise, which
we believe was a vindication of our approach and an example of the under valuation of
companies within the UK market. We continue to believe that today.
Investment
Management
Review and
Outlook
Steve Tatters
Director
Phoenix Asset Management
Partners
26 March 2024
Annual Report Strategic Report continued 15
Strategic Report
An excerpt from that investment premise is below. In it we outlined our intrinsic value
for the company at £3.50 per share. The bid from Mars was £3.75. It also highlights
the patience in our approach as we were aware of the company prior to its float but
were unable to invest at that time due to price. However, our ongoing monitoring
allowed us to act quickly when subsequent price falls gave us that opportunity.
“Hotel Chocolat listed on the London Stock Exchange in 2016, with both founders
retaining a significant stake in the business. As of December 31st, 2022, they each
own 27.1% of the company. We have known both Angus and Peter for a long time and
hold them in high regard.
We believe that the key moat for the business is its strong brand and resulting
customer loyalty, which it has cultivated through a combination of innovation,
creativity, disciplined pricing, and direct distribution. In so doing, it has also avoided
the pitfalls that led to the downfall of one of its competitors, Thorntons.
One of the company’s great recent innovations has been the Velvetiser hot chocolate
machine, which is increasingly becoming a staple household appliance and has formed
the foundations of an effective subscription model. As a product, it creates loyal,
repeat-customers who repurchase the chocolate sachets. The repeat purchases and
subscription service also provide the company with a steady revenue stream in an
industry where consumer purchases are usually very seasonal (Christmas, Easter and
Valentine’s Day are the main chocolate-shopping opportunities).
The differentiated taste of Hotel Chocolat’s chocolate, stems from its “More Cacao,
Less Sugar” mantra. Cacao is around five times more expensive than sugar, but the
company is committed to cacao always being the number-one ingredient in its
chocolate, even in milk and white varieties. This differentiates the product from those
of many of the Group’s competitors, in which sugar is frequently the primary
ingredient. The high-cacao content within Hotel Chocolat’s chocolate, also enables
them to justify a higher price-point and enables them a higher degree of
price-elasticity as their consumer is likely to be more driven by quality than price.
The company navigated the challenges of Covid admirably, succeeding in not only
switching from being a primarily store-based to an online business during the
lockdowns, but managing to grow sales by 21% between FY20 and FY21.
We have long admired Hotel Chocolat, so much so that at the time of the IPO we
were considering investing in the business. Although this didn’t happen because the
price was above our limit, we continued to keep a close eye on the company. Last
year, following the announcement of the closure of the Japanese and US businesses,
Hotel Chocolat’s share price dropped, opening an opportunity for us to invest. This is
acompany built on experimentation and innovation and it is inevitable that not every
experiment will lead to success. However, we believe that the market had over-
reacted, that the underlying strength of the UK business remained, and that the doors
to overseas expansion had not permanently closed. Indeed, earlier this year Hotel
Chocolat announced that it had found a new partner for its Japanese joint venture.
In some ways, the shock of the drop has had a positive cathartic effect, with the
business rationalising and cutting back on areas into which it had perhaps strayed too
far (such as coffee machines & pods and beauty products). At the same time, we
believe they haven’t lost the innovative skill upon which their hitherto success has
been built, and which will enable it to continue to grow in the future.
We have modelled out a range of potential scenarios to determine Hotel Chocolat’s
intrinsic value. A central scenario values the UK business alone at £3.50 per share. The
bottom of that IV range is around £2.00 a share. We invested at £1.35, which, based
on the central case, would result in an upside to IV of c. 160%.”
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Outlook
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16 Annual Report Strategic Report continued
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Management
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The portfolio’s low-cost airline holdings continued to perform strongly in the second
half of the year. easyJet ended the year up 57.1%, with Ryanair up 56.2%. Both
contributed circa 3% to NAV.
Other share price moves of note, but with a lower impact on NAV due to their weight,
included AO World up 89.1%, Netflix up 65.1%, RHI Magnesita up 64% and
Bellway up 42.9%.
There were no fallers of note in the major holdings above a 3% weight.
Activity Review
The year was one of modest investment activity, which reflected our confidence in the
portfolio.
One material change of note during the first half was a 5% increase in the Castelnau
holding following its bid for Dignity PLC.
We wrote about Dignity PLC in the interim report published in July 2023. We
highlighted the potential upside, the downside protection from the value embedded in
the crematoria business and freehold estate alongside the potential growth from an
expansion in the funeral plan market.
The transformation at Dignity is now underway and all of the elements of the original
investment thesis hold true today.
The increase in the Castelnau holding was partially funded by a reduction in easyJet
and this was followed by a further reduction in the second half.
In Q4 we made a modest increase to the Lloyds holding and we sold some Hotel
Chocolat rather than wait for the bid to close.
At the very end of year we began to add a new holding. The price moved away from
our target, but we hope to provide an update on it in the future if we establish a
material holding.
Outlook
As outlined above, our low activity level in 2023 was a reflection of our confidence in
the portfolio. We entered 2024 with a portfolio that we believe is cheap despite a 2023
return that has taken the NAV to an all-time high. The upside to intrinsic value is 130%,
which is attractive in historical terms.
In his year end message to investors, Gary Channon wrote:
“We expect to continue to be able to deliver you long-term investment returns that
significantly exceed those of the market and most of our peers.
Our edge remains the ability to focus effort, think clearly, do nothing for long periods
of time, act occasionally when it makes sense and with a longer time horizon than
most market participants.
That ability is because of the investors we work for, and we thank you for that.”
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In the same year end message, Gary wrote a thought piece on the potential impact of
generative AI on the economy and the whole world of business. He compares it to our
experience of the rise of the internet. It is reproduced below and it remains topical
today.
“During 2023 we passed the 25th anniversary of the launch of Phoenix. It has been an
extremely interesting period in which to invest and is bookended by two profound
technological innovations, the world wide web (often just called the internet) and
generative AI. Looking at how the first shaped business and investing over the past
25years has some useful lessons for how to think about the latter. There has also
been a further form of innovation in business management not often discussed which
we think, when combined with generative AI makes, in our opinion, what is about to
come quite different from the past.
The first websites emerged in the mid-1990s. Yahoo and Amazon launched, and then
Google launched in the same year of Phoenix’s founding in 1998. Phoenix started in
the later stages of a stock market bubble in the shares of technology, media and
telecoms (TMT) companies. That bubble peaked in early 2000 but only after having
sucked in huge amounts of capital that funded the foundational infrastructure for the
internet and mobile telephony. Investors in it did terribly but society benefited. When
investors are excited about an industry, it doesn’t need profits to grow and invest, it
can just raise more and more capital.
Our approach to investing led us to see more threat than opportunity. Fast innovation
makes forecasting the future with a degree of confidence difficult. The disruptive
nature of the rise of ecommerce meant that it wasn’t enough to just handicap those
estimates (i.e. by requiring a higher return) because we weren’t talking about differing
growth rates. It was more like Schumpeter’s creative destruction which would see
businesses made worthless. We don’t invest where there is a reasonable risk of
permanently losing money.
We weren’t averse to looking for opportunity, but our experiences demonstrate the
difficulty from an investment perspective. For example, we believed in 2001 that
smartphones would be ‘a thing’, and this was when that was not the consensus view.
We were invested in the company that provided the operating system for all the
upcoming smartphones, used by all the leading makers of the day; Nokia, Motorola,
Ericsson, Sony, etc. but there you see the problem. Smartphones did become a big
thing but none of the leading mobile phone manufacturers survived and even before
that Psion sold the business with the operating system in (Symbian). In investing that
is called getting it wrong!
The internet has profoundly changed business but interestingly it has happened at the
pace of consumer behaviour changes not at the pace the technology could handle. The
rise of e-commerce has transformed retail, but it has varied depending on the
consumer. Food shopping is often cited as one of the least favourite shopping
experiences by consumers and yet it was very slow to shift online. It had only reached
a 7% penetration rate in the UK before Covid and then as soon as Covid passed it fell
back and is today only 10%.
The UK has the highest penetration of online retail in the world, it currently sits at 27%
of all retail sales, and that has dramatically changed the competitive landscape,
creating winners and losers. The winners in most sectors have been the incumbent
operators who were able to adapt their business models. Amazon was more the
exception than the rule because it turns out that supply chain and logistics are critical
and physical stores can be an advantage. For example, only 1 of the top 10 fashion
retailers is a pure online player (ASOS).
Investment
Management
Review and
Outlook
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Management
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The emergence of online searching and social media radically transformed advertising
as a more targeted and measurable means of reaching customers. This caused ad
spending to switch away from traditional media and completely reshaped the
advertising industry, which is now dominated by Google, Meta (Facebook), Amazon,
Alibaba and ByteDance (TikTok). This happened at the pace at which consumers
moved online, which was quicker than their adoption of ecommerce. The internet and
then social media have become the way consumers often begin their journey towards
an act of consumption, and therefore, the gatekeepers to those audiences have built
highly valuable franchises.
Investment discussion is dominated by the sort of macro factors that are largely
cyclical and cause oscillations in economic progress. This is very relevant to the near
term but becomes much less important as your time horizon increases to the point of
irrelevance over the very long term. It doesn’t matter how many business cycles
we’ve had in the UK over the past 25 years or even when they happened. We know
they will keep happening. What is much more important for investors are secular
trends, i.e. those changes that occur over the long term that are not cyclical in nature.
The most important ones during our history of investing have been those related to
the rise of the internet and the changes that had on commerce.
There has, however, been another innovation that hasn’t attracted much attention or
discussion, but which could cause even bigger changes in the coming decade, when
combined with what might be coming with AI. The “innovation” is a new way of doing
business, a culture, that gives a big competitive advantage versus the traditional way.
Because this new way of working emerged in what were mainly technology
companies it was easy to miss, their success has been attributed to the specifics of
what they did rather than explained by a way of operating, a culture-based edge. It
took us 2 decades to figure it out and pretty much all we do is watch businesses.
There are a few key ingredients to this new way of working that are key: they develop
through trial and error, they empower deep into the organisation which devolves and
multiplies decision making, they execute at speed by breaking projects into small
releasable iterations, they use data and science to make decisions and they foster a
culture in which this can happen.
The two most studied companies at Phoenix in the past 25 years have probably been
Amazon and Google because they touch just about every area of commerce. Following
what they do and trying to interpret it misses the point though, they have evolved not
through grand strategy from the top but as a result of the interaction between
innovation through trial and error and the results of those iterations.
At the heart of this new model is a better understanding of human motivation which
originally came from Maslow. When you are trying to get the best out of people who
are doing complex, creative and innovative tasks then the traditional management
tools of reward and punishment, carrot and stick, do not work; what works, in the
words of Daniel Pink, who has written well on the subject, is Autonomy, Mastery and
Purpose. (He summarises his work well in a TED Talk called The Puzzle of Motivation.
His book on the topic is Drive: The Surprising Truth About What Motivates Us). The
businesses that have developed this new way of working have built cultures that tap
into this.
Annual Report Strategic Report continued 19
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It’s not easy to do and has been a continually evolving affair but it links a whole group
of companies, with a North California connection whose combined market
capitalisation is now greater than that of all the stock markets in Europe. These
companies, although defending their intellectual property, have been very open about
this aspect of their business. The Netflix culture deck was shared with the world in
2009 and has been downloaded millions of times and has influenced lots of
businesses. Google has shared lots of its practices and its whole OKR (objective and
key results) framework and toolkits openly which again have influenced many other
businesses. Amazon also has been open about the way it operates and innovates. The
closer you get to this topic the more you see how the cross influences have occurred.
Andrew McAfee, a professor previously at Harvard and now at MIT Sloan, has spent
his career around these businesses and has written a very good book on the subject
called The Geek Way.
All of those companies talk about culture as something they have to keep working
hard to maintain. Microsoft turned into a hierarchical bureaucracy, stagnated and was
overtaken by its competitors and was missing out on innovation until Satya Nadella
took over as CEO in 2014. The company’s value had not changed in the previous
16years since Phoenix launched but it has increased 10-fold since he took over. What
did he do? He changed the culture, tapping into all the best of what he saw amongst
their competitors. He embraced empowerment and a goal-driven approach to
leadership (like OKRs as used by Google) rather than decision by what are referred to
in these new companies as HiPPOs (Highest Paid Person’s Opinion). He started by
teaching and fostering empathy, an understanding of human beings and from the top
he changed the culture at Microsoft in what has to be one of the biggest and probably
most valuable cultural transformations in corporate history.
It may be no accident that Microsoft has gone from an innovation laggard to being the
owner of OpenAI and at the cutting edge of the generative AI revolution.
As we take the lessons from investing in the past 25 years and apply them to thinking
about how AI will impact the future, one of the biggest differences we see is that
whereas the changes brought about by the internet were very influenced by the pace
of consumer adoption, a lot of the benefits of AI are internal to businesses and can
therefore be deployed at the pace businesses can handle. Change therefore is likely to
be quicker and more impactful, both positive and negative.
Much has been written about the seeming lack of productivity growth that has
followed from the internet and we have written on this before. We believe it is due to
the nature of change, and the measurement of productivity which is generally GDP per
person. Ecommerce takes an activity that was not part of GDP, like going to the shop
to buy something, and replaces it with something that is, a low paid delivery driver
brings your shopping or meal to you for a small cost. This adds lots of low value, low
productivity output and doesn’t measure the big quality of life improvement. In our
25years the number of people in logistics in the UK has trebled at a time when the
total workforce has grown 28% (ONS Labour force data). This growth has exceeded
that in computer programming or information services. In fact, the only category with
higher growth has been what the ONS calls activities at Head Office and Management
Consultancy. Lots of the other benefits of the internet are quality of life, greater
information and knowledge and do not show up in productivity data.
Investment
Management
Review and
Outlook
Continued
20 Annual Report Strategic Report continued
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Management
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Outlook
Continued
AI looks to be different, very different. Generative AI is going to be able to replace a lot
of current roles in the workforce. For example, the UK has 800,000 call centre
workers, most of those jobs are likely to be done more efficiently and cost effectively
by tools utilising generative AI. The change will happen as pioneering companies figure
out how to do it and the rest will then follow or go out of business. Paying attention to
how management teams are thinking and acting on this is going to be very crucial
work for us. Many of these improvements will not give a permanent competitive
advantage and so the value is most likely to flow to consumers, but for businesses
with strong economic moats and pricing power these improvements will flow to
shareholders.
Whereas the rise of ecommerce required a judgement about consumer behaviour and
adoption curves, AI doesn’t. It requires a judgement about the willingness and
capability of organisations to adopt innovations. This is where the cultural advantage
discussed above comes into play. Those companies that are already set up to
continuously improve through innovative trial and error have a distinct advantage.
In evolutionary biology, the rate at which a species evolves is impacted by how much
mutation (or variation) there is and how quickly replication happens. Humans evolve at
the pace we reproduce at, which is over 20 years, whereas for some bacteria it is
minutes. We think this is a useful model for thinking about how competitive
landscapes develop where those companies who are trying the newest things the
fastest, evolve and adapt more quickly than those who are more traditional. The
culture of the likes of Netflix, Google or Amazon is highly suited to tying lots of
permutations of how AI can help their business and as they find things that work, they
can execute quickly. Because they are not waiting on consumer adoption for the
effects, then the pace at which they get ahead of competitors who are not set up in
the same way is greater.
All the above is learnable and can be copied. Business management innovation is
happening everywhere and what you want most in a business is that hunger and
curiosity to keep learning and trying to improve. We just think it’s going to be even
more important in the future than it has been in the past.
In the past 25 years we have navigated a huge change in the way commerce happens
and we’ve done it by applying the same investment philosophy, focusing on a small
number of businesses we could understand well enough to value. We have devoted
most of our time to monitoring these businesses, their customers and their
competitive landscapes and using our findings to update our assessments and
judgements.
We have also been continuously improving as we’ve learned by doing and analysing.
We believe we are a much more competent organisation than we were 25 years ago,
and we need to be because we are working with a bigger pool of capital (£1.5billion
vs £6million). AI is improving our productivity too. For example, one of the monitoring
programmes we have been running for Barratt Developments since 2008 which
involves stripping their individual construction site websites periodically and comparing
the change in order to estimate sales rates, used to take up a considerable amount of
time for the analyst who did it but now one analyst has written a tool assisted by
ChatGPT that runs it automatically. In this way we are able to capture more data, more
frequently and with only minimal work from the analyst. By itself it is not an edge
because anyone else could do the same but, combined with the way we work, it is.
Annual Report Strategic Report continued 21
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We have a portfolio shaped by all of the above and believe that the businesses we are
invested in are either set to benefit or at least not be hurt by what is coming. Frasers
is an example of the former, a business built by trial and error, it is not the result of
agrand vision by Mike Ashley of what a retailer should be but rather as the result of
away of operating that combines trial and error with analysis of the results, (the
analytical team surrounding Mike were known as the “statos”). Trials, which include
acquisitions, are also designed to have limited or protected downside, so failures don’t
hurt but are an accepted part of business, and successes are backed and multiplied.
Applying AI should be a great advantage for Frasers but first they have to figure out
the how. They have a culture and mindset that should lead them to do that. Barratt is
an example of the latter, i.e. not likely to be hurt by AI. This is because the essence of
the business is the ability to source and build on land to the UK regulatory standard at
a price that makes sense at secondary market prices. AI may improve productivity in
some areas but not in a way at the moment that seems to threaten to disrupt the
competitive landscape.”
Steve Tatters
Director
Phoenix Asset Management Partners
26 March 2024
Investment
Management
Review and
Outlook
Continued
22 Annual Report Strategic Report continued
Value of £1,000 invested
in the Phoenix UK Fund at
launch to 31 December 2023
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
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
20232022202120202019201820172016201520142013201220112010200920082007200620052004200320022001200019991998
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.
Pastperformance is not a reliable indicator of future performance.
Annual Report Strategic Report continued 23
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
2022 (16.7) (17.4) 0.2 6,619.32
2023 33.6 32.5 7.7 8,770.25
Cumulative 1,501.1 777.0 258.9 n/a
Annualised Returns 11.4 8.8 5.1 n/a
24 Annual Report Strategic Report continued
Directors’ duty to promote the success of the Company
Section 172 of the Companies Act 2006 requires the Directors to seek to promote the
success of the Company for the benefit of its members as a whole, having regard to
the likely consequences of any decision in the long term, the need to foster the
Company’s business relationships with suppliers and others, the impact of the
Company’s operations on the community and the environment, the desirability of the
company maintaining a reputation for high standards of business conduct, and the
need to act fairly as between members of the Company.
The Board seeks to understand the views of the Company’s shareholders and their
interests, and those of its other key stakeholders, and to consider these, together with
the other matters set out in section 172, in Board discussions and decision-making.
The Board keeps engagement mechanisms under review so that they remain effective
and in fulfilling their duties the Directors carefully consider the likely consequences of
their actions over the long term.
The following describes how the Directors have had regard to the views of the
Company’s stakeholders in their decision-making.
Shareholders
The Investment Manager regularly meets the largest shareholders and beneficial
owners and reports back to the Board on those meetings. Liberum Capital Limited
(“Liberum”), the Company’s corporate broker, and Frostrow Capital LLP (“Frostrow”),
in its capacity as the Company’s investor relations & marketing adviser, also meet with
investors and seek to understand their views, which they relay to the Board.
Additionally, the Company Chair is available to meet with investors on request and did
engage with certain shareholders during the year. Through these interactions and
other communications the Board and the Investment Manager seek to promote
asupportive investor base of long-term investors.
The Board communicates with investors twice a year via the Annual Report and
Half-yearly Report and more frequently via the Company’s website which hosts
various information, including news reports, video presentations by the Investment
Manager and monthly factsheets. Additionally, the NAV per share is announced daily
via a regulatory information service.
Shareholders may attend the Company’s AGM, at which the Directors are available in
person to meet with shareholders and to answer their questions. As was the case last
year, the AGM will not include a presentation from the Investment Manager. Instead,
a separate Investment Manager presentation and Q&A event will be held at 3.30p.m.
on 9October 2024 at the Queen Elizabeth II Centre, Broad Sanctuary, Westminster,
London SW1P 3EE. This event is intended to be of interest to both existing and
prospective Aurora shareholders and will include multiple speakers from the
Investment Manager. It is intended for this event to be recorded and made available
afterwards on the Company’s website.
The Notice of Meeting on pages 100 and 101 sets out the business of the AGM and
each resolution is explained in Explanatory Notes to the Resolutions, which follow the
Notice, starting on page 106. Separate resolutions are proposed for each substantive
issue. The Company Chair, and where relevant, each Committee Chair, welcomes
engagement 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.
Details of the votes cast on each resolution will be announced via a regulatory
information service shortly after the AGM and published on the Company’s website.
Report under
Section 172 of
the Companies
Act 2006
Annual Report Strategic Report continued 25
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At each of its regular meetings the Board tracks shareholder changes and monitors the
evolving shareholder profile. A list of the largest shareholders in the Company can be
found on page 41.
Shareholder interactions in the year did not result in substantive actions being taken,
although they did feature in Board discussions.
Other stakeholders
As an externally managed investment company, the Company has no employees and
all operational activities are outsourced to third party service providers. These include
the Investment Manager, the Company Secretary and Administrator, the Registrar, the
Depositary, the Custodian, lawyers and financial advisers. The Board has identified
these service providers to be key stakeholders in the Company, together with its
shareholders and investee companies. The Board is aware of the need to foster the
Company’s relationships with its key stakeholders through its stakeholder
management activities.
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, for
stakeholders and otherwise, of their actions over the long term.
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 financial position of the Company;
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.
The service provider most fundamental to the Company’s long-term success is the
Investment Manager, and the Board provides oversight and challenge to the
Investment Manager at all Board meetings to ensure that the portfolio is managed in
line with the Company’s published investment policy.
A description of key service providers’ roles together with the terms of their
engagement can be found on pages 39 and 40. The Management Engagement
Committee, on behalf of the Board, reviews the performance and terms of
engagement of each of the Company’s key service providers annually to ensure each
remains competitive and to consider the quality of the services they provide.
Environmental, Social and Governance (“ESG”) Matters
The Board expects good standards of business sustainability to be maintained,
especially with respect to ESG, at the companies in which the Company invests and
satisfies itself that the Investment Manager consistently and proactively engages with
them on this basis.
Report under
Section 172 of
the Companies
Act 2006
Continued
26 Annual Report Strategic Report continued
Report under
Section 172 of
the Companies
Act 2006
Continued
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.
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, investment activity and sector diversification. In addition, the
Investment Manager provides an overview of engagement with the investee
companies and with potential investee companies. The Board discusses the
Company’s portfolio and notable acquisitions or disposals at each of its meetings and
challenges stock selection where deemed appropriate.
The Board receives reports from Frostrow, in its capacities as Company Secretary,
Administrator and Investor Relations & Marketing Adviser, respectively on the latest
governance, legal and investment trust sector issues, the Company’s management
accounts and, together with Liberum, the Company’s corporate stockbroker, on the
Company’s shareholder base, including changes thereto. The Depositary also provides
oversight reports and Liberum also reports on performance relative to the Company’s
peers and the market liquidity of the Company’s shares. Contact with shareholders by
the Investment Manager, Frostrow and Liberum is also relayed to the Board who
consider these discussions at their quarterly meetings.
The retail focus group initiative embarked upon last year, aimed at further
understanding retail shareholders, was completed and informed the Board with
respect to its considerations of marketing and communications focus. During the year,
in addition to regular interactions, the Management Engagement Committee on behalf
of the Board reviewed the performance and terms of engagement of each of its key
service providers, which included a review of their control reports 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. Additionally, service providers participated in
a360degree review whereby they provided comments on their interactions with the
Board and each other. As a result of these reviews it was concluded that the new
service providers appointed in 2022 had bedded into their roles satisfactorily and the
transition risk previously recognised was downgraded.
In relation to engagement with shareholders, the Board decided in 2023 to decouple
the Investment Manager’s presentation from the AGM and hold aseparate Manager
presentation event in October, where Directors were also available to interact. This
event was well attended and seemed to be a successful formula for increasing
engagement, so it is being repeated in 2024 as mentioned above.
Other decisions included recommending the payment of a final dividend in respect of
the year ended 31 December 2022, which was paid on 4 July 2023, in accordance
with the Company’s dividend policy to distribute substantially all the Company’s
revenue to shareholders by way of a dividend. It was also paid to satisfy the
investment trust status requirement that no less than 15% of the Company’s
qualifying revenue must be retained each year.
Annual Report Strategic Report continued 27
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Boardroom Diversity
The Board supports the principle of Boardroom diversity, and the Board currently
comprises four non-executive Directors of which three are female and one male.
OneDirector is from a minority ethnic background. The Board considers its
composition, including the balance of skills, knowledge, diversity (including gender
and ethnicity) and experience, amongst other factors on an annual basis and when
appointing new Directors. The Board has considered the requirements under the FCA’s
Listing Rule 9.8.6R (10) in relation to target reporting, and has provided full details in
the Corporate Governance Statement section on pages 44 and 45. Summary
biographical details of the Directors are set out on pages 33 and 34.
Stewardship code
The Board and the Investment Manager support and have a strong commitment to the
FRC’s UK Stewardship Code, the latest version of which was effective from 1January
2020. It is endorsed by the AIC and sets out 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 Company falls outside of the scope of the Modern Slavery Act 2015 and is not
required to issue a slavery and human trafficking statement. The Board considers the
Company’s supply chains, since it deals predominately with professional advisers and
service providers in the UK financial service industry, to be low risk in thismatter.
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 they have procedures and policies 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 service providers that they maintain a
zero-tolerance policy towards the provision of illegal services, including the facilitation
of tax evasion.
Report under
Section 172 of
the Companies
Act 2006
Continued
28 Annual Report Strategic Report continued
Principal Risks and Risk Management
The Board is responsible for the identification, evaluation and management of the risks
facing the Company. Risk is a key element of all the Board’s deliberations. Additionally,
the Board has delegated to the Audit Committee the formal regular review of these
risks, together with their mitigation and the discerning of emerging risks, on its behalf.
This process accords with the UK Corporate Governance Code and the FRC’s Guidance
on Risk Management, Internal Control and Related Financial and Business Reporting.
The Audit Committee and the Board has 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 and liquidity.
The Board’s policy on risk management has not materially changed during the course
of the reporting period and up to the date of this report. In particular, the Board
undertakes a review of the performance of the Company and scrutinises and
challenges notable transactions at each quarterly Board meeting.
The Audit Committee maintains a framework of the key risks and the policies and
processes in place to monitor, manage and mitigate them where possible. This risk
map is reviewed regularly by the Audit Committee, as set out in the Audit Committee
Report starting on page 58.
The Audit Committee and the Board consider that the risks summarised below are the
principal risks currently facing the Company. It is not an exhaustive list of all risks
faced by the Company.
Principal Risks and Uncertainties
Geopolitical and economic risks
The Company and its portfolio are at risk from economic and market conditions such
as from rising interest rates; inflation; recession; local and global politics; and
disruptive local and global events. These can disrupt trade and supply chains and cause
increased market volatility, which could substantially and adversely affect the
Company’s prospects and the market prices of its investments. Increased interest
rates, inflation and the threat of recession are all contemporary areas of concern,
together with the conflicts in Ukraine and the Middle East.
The opportunity for the Board to mitigate such macro risks is somewhat limited. The
Board and the Investment Manager monitor and discuss the macroeconomic
environment at each Board meeting, along with potential impacts. The Investment
Manager also provides a detailed update on the investments at each meeting,
including, inter alia, developments in relation to the macro environment and trends.
Mitigating factors include the experience and expertise of the Investment Manager,
that the Company’s portfolio, although concentrated, is diversified across a range of
sectors, and that the Company has no leverage and a net cash balance. Sanctions
imposed in relation to the Ukraine conflict have not had any direct impact on the
Company, but the Board continues to monitor developments.
Other Strategic
Report
Information
Annual Report Strategic Report continued 29
Strategic Report
Other Strategic
Report
Information
Investment objective and strategy risks
The Company’s investment objective is to provide shareholders with long-term returns
through capital and income growth by investing predominantly in a portfolio of UK
listed companies. It is not assured that the objective will be met or that it will continue
to meet investors’ needs. Poor performance or the investment objective losing its
attractiveness to shareholders could result in reputational damage and a widening
discount.
The Board reviews performance at every Board meeting and challenges the
Investment Manager on stock selection and diversification.
The Board also seeks to understand shareholder sentiment with respect to the
investment objective and the strategy being followed with the help of the Company’s
Investment Manager, corporate broker and investor relations & marketing adviser.
Shareholders are provided with an opportunity to vote on the Company’s continuation
every three years. The continuation vote provides a gauge of the attractiveness of the
Company to its shareholders. The most recent continuation vote took place at the
Company’s AGM on 28 June 2022 and was successfully passed with overwhelming
support from shareholders (100% voted in favour).
Risks related to the Investment Manager
The Company’s success is closely dependent on the performance of the Investment
Manager. In addition to the performance of the portfolio, the Company is also exposed
to any potential loss of key personnel from, and the reputation of, the Investment
Manager.
The Investment Manager has a well-defined investment strategy, a proven process
and an extensive track record. The performance and the terms of engagement of the
Investment Manager are reviewed annually by the Management Engagement
Committee on behalf of the Board, in addition to the Board’s ongoing communications,
monitoring and challenge. The Investment Manager also reports regularly to the Board
on personnel changes and other developments.
Discount risk
The Board specifically recognises the risk that the price of the Company’s shares may
not reflect their underlying net asset value, which could compromise shareholders’
returns.
The Board, along with its advisers and the Investment Manager, monitors the discount
closely and seeks to enhance share price performance through effective marketing.
The Board also seeks authority from shareholders each year to buy back shares and
will consider doing so if a discount becomes excessive and persistent.
Continued
30 Annual Report Strategic Report continued
Operational Risks
Operational Risks incorporate, amongst other things, the potential for errors or
irregularities in published information, cyber risks, business continuity risks, and
regulatory risks.
The Audit Committee has received internal controls reports from the relevant service
providers, where available, and has satisfied itself that adequate controls and
procedures are in place to limit any impact on the Company’s operations, particularly
with regard to a financial loss. It has also satisfied itself that they have appropriate
business continuity plans in place. The performance of service providers is reviewed
annually by the Management Engagement Committee. Each service provider’s
contract defines their duties and responsibilities and has safeguards in place including
provisions for termination in the event of a breach or under certain circumstances.
ESG
The Board recognises the risks posed by environmental, social and governance
(“ESG”) factors, particularly with respect to portfolio risks and potential reputational
risk should the Company not meet investor expectations in relation to ESG.
Investment companies are currently exempt from reporting under the Task Force on
Climate-Related Financial Disclosures (“TCFD”) and the Company has not voluntarily
adopted the requirements, but considers ESG factors that might affect portfolio
companies to be an emerging risk area for the Company. The Board and Investment
Manager also recognise the potential opportunity afforded by attention to the wider
climate change agenda. ESG risk assessment is embedded in the Investment
Manager’s due diligence and decision-making process when investing in new
companies and monitored thereafter.
Financial Risks
The Company is exposed to liquidity risk and credit risk arising from the use of
counterparties. If a counterparty were to fail it could adversely affect the Company
through either delay in settlement or loss of assets. The most significant counterparty
to which the Company is exposed is the Depositary, which is responsible for the
safekeeping of the Company’s custodial assets.
Further details on the Company’s financial risks are included in Note 12 to the financial
statements starting on page 90.
The Board reviews the services provided by the Depositary and the internal controls
report of the Custodian to ensure that the security of the Company’s custodial assets
is maintained. The Investment Manager is responsible for undertaking reviews of the
credit worthiness of the counterparties that it uses.
Viability Statement
In accordance with the UK Corporate Governance Code, the Directors have carefully
assessed the Company’s position and prospects as well as the principal risks and have
formed a reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the next five financial years to
31December 2028.
Other Strategic
Report
Information
Continued
Annual Report Strategic Report continued 31
Strategic Report
The Board has chosen a five-year horizon in view of the long-term nature and outlook
adopted by the Investment Manager when making investment decisions.
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 2028. A continuation vote, as
required by the Company’s Articles, was held on 28 June 2022 and passed with
overwhelming support from shareholders. The next vote is expected to take place at
the Company’s AGM in 2025. The Board and the Company’s advisers will continue to
work closely with shareholders and are confident that the next vote will successfully
pass.
In reaching this conclusion, the Directors have considered each of the principal risks
and uncertainties set out above as well as the following assumptions in assessing the
Company’s viability:
• there will continue to be demand for investment trusts;
• the Board and Investment Manager will continue to adopt a long-term view when
making investments;
• the Company invests principally in the securities of UK listed companies to which
investors will wish to continue to have exposure; and
• regulation will not increase to a level that makes running the Company
uneconomical.
Factors including higher interest rates, inflation, and the conflicts in Ukraine and the
Middle East were also incorporated into the key assumptions. As part of this process
the Board considered the impact of severe but plausible scenarios, including the impact
of significant market movements, on the Company’s liquidity and solvency, its income
and expenses profile and that (although not utilised) gearing is an instrument permitted
by the Company’s investment policy. A significant proportion of the Company’s
investments comprise readily realisable securities which could, if necessary, be sold to
meet the Company’s cash requirements. The financial considerations were based on
the going concern assessment, discussed on pages 41 and 42, and extended to cover
the five year period from the approval of this annual report.
The Company’s aspiration to expand by the issue of new share capital is kept under
close and 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 Audit Committee considered the operational resilience of the
Company’s service providers, and thereby the operational viability of the Company. The
Committee is reassured that all key service providers have demonstrated they were
able to operate effectively and to their normal high service standards during the period
of Covid-19 disruption and the general continuation since then of less structured
working arrangements than in the past.
Outlook
The outlook for the Company is discussed in the Chair’s Statement on page 6, and the
Investment Manager’s Review on pages 16 to 21.
This Strategic Report was approved by the Board on 26 March 2024.
Lucy Walker
Chair of the Board of Directors
Other Strategic
Report
Information
Continued
32 Annual Report Governance
Governance
Annual Report Governance continued 33
Governance
Directors
Lucy Walker
Company Chair
Lucy Walker joined the Board on 2 December 2019 and became Chair of the Company
on 28 June 2022.
She is a founder, chair, board director and adviser in investment management,
technology and not-for-profit organisations. She is founder of AM Insights, afund data
platform for the asset and wealth management industry. She is also senior
independent director of Henderson International Income Trust plc and interim chair of
the audit and risk committee at SportsAid. She is a former fund researcher and fund
manager at Sarasin & Partners LLP and HSBC Global Asset Management.
Farah Buckley
Chair of the Audit Committee
Farah Buckley joined the Board as a non-executive Director on 8 September 2022 and
became chair of the Audit Committee on 27 February 2023.
She has spent over 20 years in financial services across audit, mergers & acquisitions
and private equity and brings extensive experience of growth, innovation and strategy
with a particular focus on technology and ESG. She is a non-executive director of
Caledonia Investments plc, Leeds Building Society and Lloyds of London managing
agent Apollo Syndicate Management Limited.
Lady Rachael Robathan
Chair of the Management Engagement Committee and the Nomination &
Remuneration Committee
Lady Robathan joined the Board on 2 December 2019 and served as Audit Committee
chair from then until 8 September 2022, when she became chair of the Management
Engagement Committee and the Nomination & Remuneration Committee.
She was the Leader of Westminster City Council until the elections in May 2022 since
when, until January 2024, she was the Leader of the Opposition. First elected in 2010,
she 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. She is also a Trustee of Westminster Almshouses Foundation,
asheltered housing charity, a director of The Knightsbridge Neighbourhood Forum
Limited and until May 2022 was a Trustee of The Royal Parks and remains a member
of the Investment Committee.
Directors,
Investment
Manager, Other
Service
Providers and
Advisers
34 Annual Report Governance continued
David Stevenson
David Stevenson joined the Board as a non-executive Director on 2 February 2016.
He is a columnist for the Financial Times, Citywire and Money Week and author of
anumber of books on investment matters. He is the chairman of Secured Income
Fund Plc and a non-executive director of Gresham House Energy Storage Fund Plc and
Castelnau Group Limited (Guernsey). He is also a director of ETF Stream Limited and
Stockmarkets Digest Limited. He was the founding director of Rocket Science Group
Holdings Limited and of AltFi Limited, which is now part of ETFStream.com. He has
also been a strategy consultant to a number of asset management firms and
investment banks.
Alternative Investment Fund Manager (“AIFM”) and Investment
Manager
Phoenix Asset Management Partners Limited
64-66 Glentham Road
London SW13 9JJ
Telephone: 0208 600 0100
The Company’s Investment manager is Phoenix Asset Management Partners Limited
(“Phoenix”). Phoenix is a specialist fund management company, founded in 1998.
Itmanages the Phoenix UK Fund, which it has managed since 1998, and other
segregated accounts following the same strategy. It has been the Company’s
Investment Manager since 28 January 2016.
Phoenix is a focused and patient investor, aiming to buy a relatively small number of
great businesses, with a high return on capital, pricing power and strong prospects, at
attractive prices and which it expects to hold for very long periods.
Phoenix defines risk as being the potential for a permanent loss of capital, rather than
share price volatility. They see permanent loss of capital as a function of an
insufficiently thorough understanding of a business and the potential threats it faces.
An ongoing monitoring and research programme for every stock in the portfolio seeks
to mitigate this risk.
Although the portfolio is concentrated, Phoenix pay attention to the fundamental
business risks across the holdings, ensuring sufficient diversification and avoiding
duplication and doubling up.
Directors,
Investment
Manager, Other
Service
Providers and
Advisers
Continued
Annual Report Governance continued 35
GovernanceGovernance
Other Service Providers and Advisers
Website Address: www.aurorainvestmenttrust.com
Registered Number – 03300814
A MEMBER OF THE ASSOCIATION OF INVESTMENT COMPANIES
Company Secretary,
Administrator, Investor
Relations & Marketing
Adviser and Registered
Office
Frostrow Capital LLP
25 Southampton Buildings
London WC2A 1AL
Registrar
Link Group
Central Square
29 Wellington Street
Leeds LS1 4DL
Depositary & Custodian
Northern Trust Investor Services Ltd
50 Bank Street
London E14 5NT
Stockbroker
Liberum Capital Limited
25 Ropemaker Street
London EC2Y 9LY
Auditor
BDO LLP
55 Baker Street
London
W1U 7EU
Directors,
Investment
Manager, Other
Service
Providers and
Advisers
Continued
Directors’ Report
By Order of the Board
Frostrow Capital LLP
Company Secretary
26 March 2023
36 Annual Report Governance continued
The Directors present their report and Financial statements for the year ended
31December 2023.
Strategic Report
The Directors’ Report should be read in conjunction with the Strategic Report on
pages 2 to 31, including the Principal Risks and Uncertainties faced by the Company.
Corporate Governance
The Corporate Governance Statement on pages 43 to 50 forms part of this report.
Legal and Taxation Status
The Company was incorporated and registered in England and Wales on 10 January
1997 as a public limited company, registered number 03300814. It is an investment
company as defined by section 833 of the Companies Act 2006 and operates as an
investment trust within the meaning of the Corporation Tax Act 2010 (CTA) and the
Investment Trusts (Approved Company) (Tax) Regulations 2011. HM Revenue &
Customs has approved the Company’s status as an investment trust and, in the
opinion of the Directors, the Company has conducted its affairs so as to enable it to
maintain such approval.
The Board and Re-Election of Directors
The Directors of the Company, who are listed on pages 33 and 34, all served
throughout the year to 31 December 2023. All Directors are non-executive. In
accordance with the AIC Corporate Governance Code, the entire Board is subject to
annual re-election and accordingly resolutions will be put to shareholders to re-elect all
of the Directors at the Company’s forthcoming AGM.
The report on Corporate Governance starting on page 43 contains a description of the
Board’s method of operation, its work during the year, together with that of its
Committees, and of how its performance has been evaluated.
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 Officers’ insurance policy has been fully utilised.
A policy of insurance against Directors’ and Officers’ liabilities is maintained by the
Company.
Annual Report Governance continued 37
Governance
Disclosure of information to the auditor
The Directors are listed on pages 33 and 34. The Directors confirm that:
• to the best of each Director’s knowledge and belief, 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 articles require that a continuation vote is held every three years.
Acontinuation vote was put to shareholders, and passed, on 28 June 2022. Therefore,
the next resolution to approve the continuation of the Company as an investment trust
will be put to shareholders at the AGM to be held in 2025.
Share Capital and Voting Rights
The Company has a single share class, being ordinary shares that each have a nominal
value of 25p, and has not issued any other forms of security. Each share, other than
any held by the Company in Treasury, entitles the holder to one vote on a poll. Total
voting rights at 31 December 2023 was 76,078,460. Should voting on a resolution at
ashareholder meeting be by show of hands rather than by poll, each shareholder
present in person or by proxy will have one vote.
Shares contractually issued to the Investment Manager in lieu of the Investment
Manager’s fees are subject to a three-year lock-in period during which the Investment
Manager cannot sell the shares awarded to it. Aside from this, no special restrictions
or obligations apply to any of the Company’s shares. 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.
The Board seeks shareholders’ authority each year to issue and buy back shares. As at
31December 2023 the Directors had shareholders’ authority to buy back up to
11,404,161 shares and to issue, and/or sell from Treasury, up to 15,215,692 shares.
No shares were issued during the year under review. During the previous year the
Company issued to the Investment Manager, 69,738 shares at a deemed price of
254.37 pence per share and 19,358 shares at 226.40 pence per share, in January and
May 2022 respectively. These issues were to settle performance fees earned by the
Investment Manager from the Company’s outperformance against its benchmark in
the year to 31December 2021. Pursuant to the terms of the Company’s Investment
Management Agreement with Phoenix Asset Management Partners Limited these
shares are subject to a fixed three-year lock-in and clawback period from the date of
issue. Further details on the Investment Manager’s performance fees are disclosed in
Note 4, starting on page 83.
Directors’ Report
Continued
38 Annual Report Governance continued
No shares were bought back during the year under review. However, the three-year
clawback period in relation to the performance fee for the year ended 31 December
2019 ended on 31 December 2022 and this resulted in an entitlement as at
31December 2022 for the Company to claw back 530,311 shares from the Investment
Manager. These shares were delivered to the Company and were cancelled on
9January 2023.
A performance fee has been earned for the year ended 31 December 2023 in respect
of the Company’s outperformance against its benchmark over 2022 and 2023. Since
the year end, the Board resolved on 17 January 2024 to issue 172,373 shares to the
Investment Manager at a deemed price of 260.32 pence per share (being the
published NAV per share as at close of 16 January 2024) to settle 80% of the
performance fee in accordance with the Investment Management Agreement. These
shares were admitted to the premium segment of the Official List of the FCA and
totrading on the London Stock Exchange’s Main Market for listed securities on
26January 2024. The remaining 20% will become due following publication of this
annual report and will be settled by the issue of shares priced at the prevailing NAV
per share at the time.
The total number of shares that have been issued to the Company’s Investment
Manager since their appointment in 2016 to date, net of the claw back, is 1,552,401.
Discount and Premium Control
The Board aims for the ordinary share price over the long term to reflect the level and
movement of the NAV per share. Means by which it is hoped this can be achieved are
as follows:
(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 may arrange for the Company to buy back its shares when the
discount to NAV per share is persistent and it considers that a share buyback
represents the best use of shareholders’ funds.
(iv) The Board intends to issue new shares and/or sell shares from Treasury when
the Company’s shares trade at a premium to the then prevailing NAV per
share when the Board considers this to be in the best interest of
shareholders.
Holding Shares in Treasury
The Board monitors on an ongoing basis whether shares in the Company 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 shares from Treasury are made at
prices not less than the latest available NAV per share at the time of sale. On
31December 2022, the clawback period on restricted shares issued to the Investment
Manager in relation to the performance period to 31 December 2019 ended and
530,311 shares that had been issued to the Investment Manager in respect of that
period were returned to the Company. These were held in Treasury as at 31December
2022 and subsequently cancelled on 9 January 2023.
Directors’ Report
Continued
Annual Report Governance continued 39
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. Rather, it is paid an annual
performance fee equal to one third of the outperformance of the Company’s NAV per
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 Company’s NAV per share return is based on the weighted number of 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 share
has increased in absolute terms over the period, and 2% in the event that the NAV per
share has decreased in absolute terms over the period. Anyoutperformance 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 the value of which 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.
The performance fee will be paid to Phoenix by means of the issue of shares (issued at
the prevailing NAV per share at the time) and such shares must be retained by Phoenix for
a minimum period of three years from the date of issue. A performance fee of £560,903
was earned in the performance fee period ended 31 December 2023 (2022:nil). Further
details on the performance fees are disclosed in Note4, starting on page83.
Continuing Appointment of the Investment Manager
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
the appointment of Phoenix as Investment Manager on the terms outlined above is in
the best long-term interests of shareholders.
Alternative Investment Fund Managers’ Regulation (“UK AIFMD”)
The Company is classified as an Alternative Investment Fund under UK 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 UK AIFMD, requiring inter alia the
appointment of a Depositary. 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 2023. These disclosures are available on the AIFM’s website,
www.phoenixassetmanagement.com, in a document labelled MIFIDPRU Disclosure
that can be found in the Information section, or are available on request from the AIFM.
Directors’ Report
Continued
40 Annual Report Governance continued
Company Secretary, Administrator and Investor Relations &
Marketing Adviser
Frostrow Capital LLP provides the Company with all of the usual and necessary
services of an administrator and company secretary and also serves as the Company’s
investor relations & marketing adviser, under an administration and distribution
agreement dated 28September 2022. Under that agreement, which is terminable on
six months notice, Frostrow is entitled to a periodic fee equal to 17.5 basis points per
annum of the Company’s market capitalisation up to (but not including) £150 million
plus 15 basis points per annum on that part of the Company’s market capitalisation in
excess of £150 million.
Prior to Frostrow’s appointment in 2022, Sanne Fund Services (UK) Limited had been
the company secretary and administrator to the Company. It received 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.
Depositary and Custodian
Since 28 September 2022 the positions of Depositary and Custodian to the Company
have been held by Northern Trust Investor Services Ltd. Prior to this these positions
were held by BNP Paribas Securities Services (“BNP”).
Banking
The Company’s cash balances were held with Northern Trust at 31 December 2023
and 31December 2022. At 31 December 2023 the gross external borrowings of the
Company were £nil (2022: £nil).
Leverage (under UK AIFMD)
The AIFM is required to set a limit as a percentage of net assets for the Company
utilising methods prescribed under UK 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 15,000%. This equates to 150x leverage.
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 2023 97.10% 100.11%
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 there
is no information to report under this rule for the year ended 31December 2023.
Retail Distribution of Investment Company Shares
The Company has concluded that the distribution of its 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
Directors’ Report
Continued
Annual Report Governance continued 41
Governance
conducts its affairs so that there is no bar to a financial adviser recommending the
Company’s shares to ordinary retail investors when the adviser deems it appropriate.
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 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.
Substantial Interests in Share Capital
The Company was aware of the following substantial interests of 3% or more in the
voting rights of the Company as at 31 December 2023 and 29 February 2024.
29 February 2024 31 December 2023
% of issued % of issued
Number of share Number of share
Shareholder shares capital shares capital
Rothschild Wealth
Management^ 11,163,317 14.6 11,163,317 14.7
RBC Brewin Dolphin 6,896,273 9.0 7,067,990 9.3
Phoenix Asset Management
Partners 5,556,612 7.3 5,384,239 7.1
Hargreaves Lansdown 4,189,898 5.5 4,264,003 5.6
Raymond James Investment
Services 4,138,329 5.4 4,153,168 5.5
Interactive Investor 3,524,517 4.6 3,576,164 4.7
ING Luxembourg 2,882,721 3.8 2,885,176 3.8
Pictet & Cie, Luxembourg 2,477,526 3.2 2,464,910 3.2
^ Rothschild Wealth Management has notified the Company that its holding reduced to 10,377,411 shares
(13.6%) on 20 March 2024.
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.
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 12 months from the date
of approval of this Annual Report. In reaching this conclusion, the Directors have
considered the liquidity of the Company’s portfolio of investments as well as its latest
financial position and forecast of income and expenses.
Directors’ Report
Continued
42 Annual Report Governance continued
As at 31 December 2023, the Company held £6,248,000 (2022: £5,348,000) in cash,
£200,377,000 (2022: £146,356,000) in quoted investments and £1,476,000 (2022:
£2,871,000) in an unquoted investment. The total ongoing operating expenses for the
year ended 31 December 2023 were £749,000 (2022: £777,000). It is estimated that
31.2% of the Company’s latest portfolio could be liquidated in a non-market impacting
way within 7 days, using 25% of historic three-month average daily volume. This
approach is considered conservative as it does not include the Company’s ability to
access liquidity through block trades.
The Company’s going concern status has been assessed under stress scenarios, which
incorporated key assumptions such as significant falls in the Company’s investment
portfolio value and investment income. These scenario tests encompassed possible
impacts from factors such as the existing and potential further risks arising from the
conflicts in the Middle East and Ukraine, as well as any tail risks from Brexit.
Aprolonged and deep market decline could lead to falling investment values or
interruptions to cash flow, however the Company currently has more than sufficient
liquidity to meet any liabilities when they fall due in the foreseeable future. The Board is
keeping the development of external risk factors under close scrutiny and does not
believe that these will have any impact on the Company’s going concern status.
At the date of approval of this Annual Report the Company’s cash balance and the
market value of its investments are well in excess of the estimated level of liabilities
and the Company has substantial operating expenses cover.
Annual General Meeting
The Company’s Annual General Meeting (“AGM”) will be held at 25 Southampton
Buildings, London WC2A 1AL on 12 June 2024 at 1 p.m.
The business of the meeting is summarised in some detail in the Explanatory Notes to
the Resolutions on pages 106 to 108 of this Annual Report.
The AGM resolutions include the following items of special business:
Resolution 9 (ordinary resolution) Authority to allot shares.
Resolution 10 (special resolution) Authority to disapply pre-emption rights.
Resolution 11 (special resolution) Authority to repurchase shares.
Resolution 12 (special resolution) Authority to hold General Meetings (other than the
AGM) on at least 14 clear days’ notice.
The full text of the resolutions can be found in the Notice of AGM beginning on
page100.
The Board considers that the proposed resolutions are in the best interests of
shareholders as a whole. Accordingly, the Board unanimously recommends to
shareholders that they vote in favour of the resolutions to be proposed at the
forthcoming AGM, as the Directors intend to do in respect of their own beneficial
holdings.
By order of the Board
Frostrow Capital LLP
Company Secretary
26 March 2024
Directors’ Report
Continued
Annual Report Governance continued 43
Governance
Introduction
The Board is committed to maintaining and demonstrating high standards of corporate
governance. The Board has considered the Association of Investment Companies’ Code
of Corporate Governance (the “AIC Code”); the AIC Code addresses the principles and
provisions set out in the 2018 UK Corporate Governance Code (the “UK Code”) as well
as setting out additional provisions on issues that are of specific relevance to investment
companies, including 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
UKCode, 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.
Evaluation of the Board and its Committees
The Directors undertook an internal evaluation of the Board and its Committees in
November 2023, based on questionnaires and led by Lady Rachael Robathan. At the
same time a 360 degree evaluation process was conducted whereby questionnaires
were completed by the Board and the Company’s principal service providers, each
providing scores and comments on the respective entities they had interactions with.
This provided some third party insight into their views of the Board’s effectiveness in
addition to the Directors’ internal assessment. The Directors concluded that, overall,
the Board and its Committees worked effectively, incorporated appropriate
qualifications, skills, knowledge, experience, diversity and independence and provided
good oversight of the Company on behalf of shareholders.
Re-elections at the forthcoming AGM
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 strongly recommends that shareholders vote in favour of
each Board member’s re-election at the forthcoming AGM.
Corporate
Governance
Statement
The Corporate Governance
Statement forms part of the
Directors’ Report
26 March 2024
44 Annual Report Governance continued
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 has further noted that
MrStevenson, as the Company’s nominated representative on the Board of Castelnau
Group Limited, 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 all of the Directors undertake to 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 contribute
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 as can be seen from their biographies
on pages 33 and 34. In accordance with the Company’s Conflicts of Interest policy (see
page 48), Mr Stevenson will recuse himself from any decisions relating to Castelnau.
The Board believes that during the period ended 31 December 2023 its composition
was appropriate for the Company’s nature and size. All of the Directors are considered
independent of the Investment Manager and are able to allocate sufficient time to the
Company to discharge their responsibilities effectively.
Balance of Skills and Diversity
As described on the previous page under “Evaluation of the Board and its
Committees”, the Nomination & Remuneration Committee, on behalf of the Board,
conducts areview of the Board’s 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 Company’s policy on diversity is that the Board should be comprised of Directors
who collectively display the necessary balance of professional skills, experience,
length of service and industry knowledge and that appointments to the Board should
be made on merit, against objective criteria, including diversity in its broadest sense.
The objective of the policy is to have a broad range of approaches, backgrounds, skills,
knowledge and experience represented on the Board. The Board believes that this will
make the Board more effective in promoting the long-term sustainable success of
theCompany and generating value for its shareholders by ensuring there is a breadth
of perspectives among the Directors and the capacity to challenge needed to support
good decision-making.
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.
The Board has noted the FCA’s listing rules LR 9.8.6R(9) to (11) which require
companies to report against the following diversity targets using prescribed tables:
(a) At least 40% of individuals on the board are women;
(b) At least one of the senior board positions is held by a woman; and
(c) At least one individual on the board is from a minority ethnic background.
The following tables set out the Company’s positions against these targets in
compliance with the rules. Being an externally managed investment company, the
Company does not have the roles of CEO or CFO, nor has the Board appointed
asenior independent Director, and therefore, as allowed by the rules, it does not need
to report against target (b) above as it is not applicable. Accordingly, for both tables,
Corporate
Governance
Statement
Continued
Annual Report Governance continued 45
Governance
the right hand column, which relates to target (b), is deliberately left blank and other
columns related specifically to executive management have been excluded in entirety.
Each Director volunteered how they wished to be included in the tables.
The Board has chosen to align its diversity reporting reference date with the
Company’s financial year end and proposes to maintain this alignment for future
reporting periods.
(a) Table for reporting on gender identity or sex
Number of
senior
positions on
Number of the board
board Percentage of (CEO, CFO,
As at 31 December 2023 members the board SID and Chair)
Men 1 25
Women 3 75
Not specified/prefer not to say – –
(b) Table for reporting on ethnic background
Number of
senior
positions on
Number of the board
board Percentage of (CEO, CFO,
As at 31 December 2023 members the board SID and Chair)
White British or other White (including
minority-white groups) 3 75
Mixed/Multiple Ethnic Groups – –
Asian/Asian British 1 25
Black/African/Caribbean/Black British – –
Other ethnic group, including Arab – –
Not specified/prefer not to say – –
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 AIC Code of Corporate
Governance, Directors stand for re-election annually. The performance of each Director
is appraised by the Nomination & Remuneration Committee annually. The Directors
have appointment letters which do not state any specific term. Notwithstanding the
forgoing, the tenure of each independent non-executive Director, including the Chair,
isnot ordinarily expected to exceed nine years.
Corporate
Governance
Statement
Continued
46 Annual Report Governance continued
How the Board operates
The Company does not have any employees. The Board has contractually delegated
the Company’s operations to external agencies, including the Investment Manager for
the management of the Company’s investment portfolio, the depositary (which
includes responsibility for the safeguarding of the Company’s custodial assets), the
registrar and the administrator and company secretary. 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. The Board has a culture of open and inclusive debate on all
issues and aims to conduct itself responsibly, ethically and fairly in its dealings with
shareholders, service providers and other stakeholders.
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 Chair, Board and Committees and to set them out in writing and make them
publicly available.
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 monitoring, corporate governance matters, dividends, 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 other stakeholders.
Corporate
Governance
Statement
Continued
Annual Report Governance continued 47
Governance
Role of the Chair of the Board
• To provide leadership to the Board;
• To promote high standards of governance;
• To ensure the Board is provided with sufficient information to enable it to discharge
its duties;
• To ensure each Board member’s views are considered and appropriate action
taken;
• To ensure each Committee has the support required to fulfil its duties;
• To ensure the Board assesses and improves its performance, following the advice
of the Nomination & Remuneration 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 ensure 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 function;
• To review the Half-yearly and the Annual Report and financial statements and
recommend them to the Board for approval;
• To agree the scope of the external Auditor’s work;
• To approve the remuneration of the external Auditor;
• To consider the external Auditors’ appointment/re-appointment and the Auditor’s
independence and objectivity; 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.
Nomination & Remuneration 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 Board appointments/re-appointments;
• To oversee the recruitment process of additional Board members; and
• To consider the Board’s remuneration.
Corporate
Governance
Statement
Continued
48 Annual Report Governance continued
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 policy 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 Group Limited;
• 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 decisions 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 be 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.
Attendance at Board meetings
The Board holds at least four meetings a year. During the year ended 31 December
2023 there were five regular meetings of the Board and the Directors also met on
another occasion to consider strategy. Additional ad hoc Board and committee
meetings were held as required for administrative purposes. Directors’ attendance of
all meetings is set out below.
Management Ad Hoc
Board Audit Engagement Nomination & Board and
(scheduled) Committee Committee Remuneration Committees
Type and number of
meetings 5 3 1 1 3
Lucy Walker 5 3 1 1 1
Farah Buckley 5 3 1 1 2
Lady Rachael Robathan 5 3 1 1 2
David Stevenson 5 3 1 1 2
Helen Vaughan
1
1 – – – 1
1
Resigned from the Board on 27 February 2023.
Board Committees
The Board has formed three permanent committees: the Audit Committee, the
Management Engagement Committee and the Nomination & Remuneration Committee.
The role, responsibilities and activities during the year of the Audit Committee are
detailed in its report on pages 58 to 61. Those of the Management Engagement
Committee and the Nomination & Remuneration Committee are shown below.
The Board considers that all of the Directors are independent and so may be members
of each Committee. 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
Corporate
Governance
Statement
Continued
Annual Report Governance continued 49
Governance
flow of general Board business. Each Committee has a separate chair, 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 Management Engagement Committee 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. Lady Rachael Robathan chairs the
Management Engagement Committee and all of the Directors are members.
The criteria which are taken into consideration when reviewing the performance of the
Investment Manager are as follows:
• The performance of the Company;
• Commitment to the investment trust business generally and to the
Company in particular;
• Investment management skills and 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
and share price awareness; and
• 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 2023 and considered the appraisal of the Investment
Manager and other key service providers. As explained on page 43 under “Evaluation
of the Board and its Committees”, a 360 degree evaluation process was conducted in
November 2023 whereby questionnaires were completed by the Board and the
Company’s principal service providers, each providing scores and comments on the
respective entities they had interactions with. This provided third party insight into the
effectiveness of the service providers, and the Board, in addition to the Directors’ own
assessment.
The Committee concluded that the continued appointment of each of the service
providers, including the Investment Manager, was in the best interest of shareholders.
Nomination & Remuneration Committee
The Nomination & Remuneration Committee has been established to identify and
interview candidates for vacancies on the Board, consider the Board’s remuneration
and undertake Board appraisals. It is established as a principle that this process should
be led by independent Directors. Lady Rachael Robathan chairs the Committee and all
of the Directors are members. The Committee meets at least annually.
During the year the Committee oversaw a Board and Committee appraisal process and
also considered the Directors’ fees.
Corporate
Governance
Statement
Continued
50 Annual Report Governance continued
Internal Controls and Risk Management
The Board has delegated the review of the effectiveness of the Company’s risk
management and system of internal controls to the Audit Committee, as set out in the
Audit Committee Report on pages 58 to 61. The Board recognises its ultimate
responsibility for the Company’s system of internal controls and accordingly receives
and considers reports from the Audit Committee. The system of internal controls is
designed to manage rather than eliminate the risk of errors and irregularities, so it can
provide only reasonable assurance against material misstatement or loss. The Board
has undertaken a robust review of the Company’s risk management and internal
control framework, which covers financial, operational and compliance controls.
As an externally managed investment company, the Board has contractually delegated
to external agencies the services the Company requires to operate. The Board
continuously monitors the performance of all the principal service providers with a
formal evaluation process being undertaken each year. The Audit Committee, on behalf
of the Board, reviews internal controls reports and key policies (including measures
taken to mitigate cyber risks and disaster recovery procedures) put in place by its
principal service providers.
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 that 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.
The Board believes that the existing arrangements represent an appropriate control
framework and has concluded that the Company’s risk management and internal
control systems are adequate to meet the needs of the Company.
The Directors’ statement of responsibilities in respect of the accounts is on pages56
and 57, a statement of going concern is on pages 41 and 42, and the report of the
independent auditor is on pages 62 to 69.
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 are set out in the Strategic Report.
By order of the Board
Frostrow Capital LLP
Company Secretary
26 March 2024
Corporate
Governance
Statement
Continued
Annual Report Governance continued 51
Governance
This Remuneration Report has been prepared in accordance with the requirements of
the Large and Medium-sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013.
The Directors’ Remuneration Policy (which must be put to shareholders at least every
three years and is binding) was approved by shareholders at the AGM in 2023 and is
set out below. The annual Remuneration Policy Implementation Report (which must be
put to a shareholder advisory vote every year) for 2023 will be put to shareholders at
this year’s Annual General Meeting.
The law requires the Company’s Auditor to audit certain disclosures provided in this
report. Where disclosures have been audited, they are indicated as such and the
Auditor’s opinion is included in their report to shareholders on pages 62 to 69.
Directors’ Remuneration Policy
It is the policy of the Board and the Nomination & Remuneration Committee that the
remuneration of non-executive Directors should be fair and should reflect experience,
time commitment and work involved, responsibilities and potential liabilities of the
Board as a whole. The non-executive Directors’ fees are determined within the
maximum limit set out in the Company’s Articles of Association, which currently
stands at £250,000 per year.
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
(forwhatever 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 are entitled to be reimbursed for any reasonable expenses properly incurred
by them in connection with the performance of their duties and attendance at board,
general and committee meetings.
The Directors’ fees are subject to regular review by the Nomination & Remuneration
Committee having regard to the above factors, the rate of inflation and fee trends in
the investment company sector. Notwithstanding the above, the Company’s Articles
also provide that additional discretionary payments can be made for services which in
the opinion of the Board are outside the scope of the ordinary duties of a Director. Any
such payment would reflect the Board’s assessment of the value to the Company of
such services. The above principles also apply to any new appointments.
The Company has no employees and consequently has no policy on the remuneration
of employees. The Board will consider, where raised, shareholders’ views on Directors’
remuneration.
The Directors do not have service contracts. Directors are appointed under letters of
appointment, copies of which are available for inspection at the registered office of the
Company. These do not state any specific term. In accordance with the AIC Corporate
Governance Code all of the Directors put themselves forward for annual re-election.
Directors’
Remuneration
Report
Lady Rachael Robathan
Chair of the Nomination &
Remuneration Committee
26 March 2024
52 Annual Report Governance continued
Remuneration Policy Implementation Report
The Nomination & Remuneration Committee considers the framework for the
remuneration of the Directors on an annual basis. It reviews the ongoing
appropriateness of the Company’s remuneration policy and the individual remuneration
of the Directors by reference to the activities and particular complexities of the
Company and in comparison with other companies of a similar structure and size, also
taking into account the inflationary environment. No remuneration consultants were
appointed during the year (2022: none). During its latest review, in November 2023,
the Committee decided, subject to confirmation by the Board in January 2024, to
continue the practice adopted in recent years of incrementing the fees by the annual
increase in the Consumer Price Index. This decision was duly confirmed in January
2024.
Accordingly, with effect from 1 January 2024 the Directors’ fees increased to: £45,968
per annum for the Company Chair; £34,590 per annum for the Audit Committee Chair;
and £29,640per annum for the other Directors. No additional discretionary payments
were made in the year, nor in the previous year.
No payments were made to former Directors.
Performance
The chart below shows the performance of the Company’s shares, with dividends
reinvested, compared with that of the FTSE All-Share Index (total return), which is the
Company’s Benchmark, over the past 10 years.
FTSE All-Share Index (total return)
Aurora share price plus dividends reinvested
80
100
120
140
160
180
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
Directors’
Remuneration
Report
Continued
Annual Report Governance continued 53
Governance
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/
2023 2022 (unfavourable)
£’000 £’000 £’000
Revenue income 3,459 3,117 342
Spend on Directors’ fees 139 136 (3)
Other expenses 610 630 20
Dividends paid to Shareholders 2,260 1,409 851
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.
Single Total Figure of Remuneration for The Year (Audited)
The fees and expenses paid to the Directors who served during the years ended
31December 2023 and 31 December 2022 were as follows:
31 December 2023 31 December 2022
Taxable Taxable
Fees expenses
^
Total Fees expenses
^
Total
£ £ £ £ £ £
Lucy Walker
1
44,200 – 44,200 34,133 – 34,133
Lady Rachael Robathan
2
28,500 – 28,500 28,675 – 28,675
David Stevenson 28,500 196 28,696 25,800 183 25,983
Farah Buckley
3
32,503 114 32,617 8,124 26 8,150
Helen Vaughan
4
5,543 381 5,924 9,479 889 10,368
Lord Flight
5
n/a n/a n/a 17,264 – 17,264
The Hon. James Nelson
6
n/a n/a n/a 12,582 – 12,582
Total 139,246 691 139,937 136,057 1,098 137,155
^
Taxable expenses primarily comprise travel and associated expenses incurred by the Directors in attending
Board and Committee meetings in London. These are reimbursed by the Company and, under HMRC Rules,
are subject to tax and National Insurance and therefore are treated as a benefit in kind within this table.
1
Appointed as a non-executive Director on 2 December 2019. Appointed Deputy Chair of the Board on
19October 2021. Succeeded Lord Flight as Chair of the Company on 28 June 2022.
2
Appointed as Audit Committee Chair on 2 December 2019. Stepped down from being Chair of the Audit
Committee on 8 September 2022.
3
Appointed as a non-executive Director on 8 September 2022. Appointed as Audit Committee Chair on
27February 2023.
4
Appointed as Audit Committee Chair on 8 September 2022. Stepped down from the Board on 27 February
2023.
5
Chairman of the Company until his retirement on 28 June 2022.
6
Non-executive Director until his retirement on 28 June 2022.
None of the fees referred to above were paid to any third-party in respect of services
provided by the Directors.
Directors’
Remuneration
Report
Continued
54 Annual Report Governance continued
Changes in Directors’ Remuneration
2024 2023 2022 2021 2020
Fee Level % Fee % Fee % Fee % Fee
Director (projected) Change Level Change Level Change Level Change Level
Lucy Walker
1
45,968 4.0 44,200 29.5 34,133 31.5 25,964 6.0 24,500
Lady Rachael Robathan
2
29,640 4.0 28,500 –0.6 28,675 –0.1 28,700 0.7 28,500
David Stevenson 29,640 4.0 28,500 10.5 25,800 4.9 24,600 0.4 24,500
Farah Buckley
3
34,590 6.4 32,503 300.1 8,124 – n/a – n/a
Helen Vaughan
4
n/a n/a n/a – 9,479 – n/a – n/a
Lord Flight
5
n/a n/a n/a – 17,264 -48.9 33,800 0.9 33,500
The Hon. James Nelson
6
n/a n/a n/a – 12,582 -48.9 24,600 0.4 24,500
Please refer to the notes under the previous table, which also apply to the references
in this table.
Directors’ Shareholdings (audited)
The Directors’ shareholdings in the Company were:
Ordinary shares of 25p each
as at 31 December
2023 2022
Lucy Walker 26,300 12,000
Lady Rachael Robathan 9,584 9,584
David Stevenson 18,266 18,266
Farah Buckley 4,500 –
No changes have been notified to the date of this report.
There are no requirements or formal guidelines in effect for Directors to hold shares in
the Company, although the Board welcomes such holdings. The interests of each
Director includes the interests of connected persons of which the Company is aware.
Connected persons are persons closely associated as defined in the Market Abuse
Regulation.
Statement of shareholder voting
The Company is committed to ongoing shareholder dialogue and takes an active
interest in voting outcomes. Where there are substantial votes against resolutions in
relation to Directors’ remuneration, the reasons for any such vote will be sought and
any actions in response will be detailed in future Directors’ Remuneration Reports.
Directors’
Remuneration
Report
Continued
Annual Report Governance continued 55
Governance
The voting on the 2022 Remuneration Policy Implementation Report and the Directors’
Remuneration Policy that were put to shareholders at the AGM on 27June 2023 is set
out below.
Total
Votes Votes Votes Votes
Resolution For % Against % Cast Withheld
Approval of the Remuneration Policy
Implementation Report for the year ended
31 December 2022
22,793,548 99.9 21,763 0.1 22,815,311 9,919
Approval of the Directors’ Renumeration Policy 22,711,675 99.9 21,763 0.1 22,733,438 91,792
Lady Rachael Robathan
Chair of the Nomination & Remuneration Committee
26 March 2024
Directors’
Remuneration
Report
Continued
56 Annual Report Governance continued
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 companies reporting under
UK-adopted International Accounting Standards.
Under company law, Directors must not approve the financial statements unless they
are satisfied that they give a true and fair view of the state of affairs of the Company
and of the profit or loss of the Company for that period. In preparing the financial
statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• state whether applicable UK-adopted International Accounting Standards have
been followed, subject to any material departures disclosed and explained in the
financial statements;
• make judgements and accounting estimates that are reasonable and prudent; and
• prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
Under applicable law and regulations, the Directors are responsible for preparing
aStrategic Report, a Directors’ Report, a Corporate Governance Statement and
aDirectors’ 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 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
Lucy Walker
Chair of the Board of Directors
26 March 2024
Annual Report Governance continued 57
Governance
Directors’ confirmations
The Directors consider that the Annual Report and financial statements, taken as
awhole, 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 on
pages33 and 34 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, give a true and fair view of the
assets, liabilities, financial position and profit 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
Lucy Walker
Chair of the Board of Directors
26 March 2024
Statement of
Directors’
Responsibilities
for the Annual
Report
Continued
58 Annual Report Governance continued
I am pleased to present the Audit Committee’s report to shareholders for the year
ended 31December 2023.
Composition
All of the Directors are members of the Audit Committee (the “Committee”).
According to the UK Code the Chair of the Board should not be a member. However,
the AIC Code permits the Chair to be a member of, but not chair, the Committee if
they were independent on appointment – which the Company Chair 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 her to continue as a member, so that the Committee can continue to
benefit from her 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 Committee’s principal functions are:
• to monitor the integrity of the Company’s annual and half-year financial statements
and any announcements relating to the Company’s financial performance and to
challenge judgements and assumptions made in their construction;
• to review the internal controls and risk management systems of the Company and
its third-party service providers;
• to make recommendations to the Board regarding the appointment,
re-appointment or removal of the external Auditor, and to be responsible for
leading an audit tender process at least once every 10 years;
• to have primary responsibility for the Company’s relationship with the external
Auditor, including reviewing the external Auditor’s independence and objectivity as
well as the effectiveness of the external audit process;
• to agree the scope of the external Auditor’s work and to approve their
remuneration; and
• to develop and implement policy on the engagement of the external Auditor to
supply non-audit services and to review and approve any non-audit work to be
carried out by the external Auditor.
Meetings
The Committee meets formally at least twice a year. There were three Committee
meetings during the year ended 31 December 2023. Inaddition, the Committee Chair
met the audit partner for a private discussion on the audit process and was pleased to
find 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 as mentioned on page 43.
Audit
Committee
Report
Farah Buckley
Chair of the
Audit Committee
26 March 2024
Annual Report Governance continued 59
Governance
Work of the Audit Committee
During the year ended 31 December 2023 the Committee:
• Reviewed the Audit Committee terms of reference and the Company’s accounting
policies;
• Reviewed and recommended to the Board for Approval the Annual Report and
financial statements for the year to 31 December 2022;
• reviewed and recommended to the Board for Approval the Half-yearly Report for
the six months to 30 June 2023;
• In relation to the financial statements, agreed the valuations of the Company’s
portfolio of investments and considered significant accounting matters including
going concern;
• Considered the Company’s exposure to illiquid investments;
• Met with the external auditor without management present;
• Reviewed and approved the audit plan with respect to the 31 December 2023 year
end audit;
• Discussed and approved the audit fee;
• Reviewed the Company’s key risks and internal controls, including reviewing the
internal control reports of its key service providers; and
• Assessed whether there was a need for an internal audit function.
Internal Controls and Risk Management
The Board has overall responsibility for risk management and for the review of the
internal controls of the Company.
The Audit Committee, on behalf of the Board, reviews the key business, operational,
compliance and financial risks facing the Company. In arriving at its judgement of what
risks the Company faces, the Committee and the Board have considered the
Company’s operations in light of the following factors:
• the nature of the Company, with all management functions outsourced to
thirdparty service providers;
• the nature and extent of risks which it regards as acceptable for the Company to
bear within its overall investment objective;
• the likelihood of such risks crystallising; and
• the Company’s ability to reduce the likelihood and impact of such risk.
A summary of the principal risks facing the Company is provided in the Strategic
Report on pages 28 to 30.
Against this background, a risk matrix has been developed which covers the key risks
the Company faces, the likelihood of their occurrence and their potential impact, how
these risks are monitored and the mitigating controls in place.
The Board has delegated to the Audit Committee responsibility for the review and
maintenance of the risk matrix and it reviews, in detail, the risk matrix each time it
meets, bearing in mind emerging risks and any changes to the Company, its
environment or service providers since the last review. Any significant changes to the
risk matrix are discussed with the whole Board.
There were no changes to the Company’s risk management processes during the year
and no significant failings or weaknesses were identified from the Committee’s most
recent risk review.
The Committee reviews internal controls reports from its principal service providers on
an annual basis. The Committee is satisfied that appropriate systems have been in
place for the year under review and up to the date of approval of this report.
Audit
Committee
Report
Continued
60 Annual Report Governance continued
Financial statements and significant accounting matters
The Audit Committee considered the following significant accounting issues in relation
to the Company’s financial statements for the year ended 31 December 2023:
Performance fee
The Company awarded shares to the Investment Manager in settlement of
performance fees earned over the years ended 31 December 2019, 31 December
2020 and 31 December 2021 and has since clawed back those shares issued in
respect of the 2019 performance fee. This claw back was treated in the financial
statements for the year ended 31December 2022 as having occurred as at
31December 2022. A performance fee was earned, and has been accrued, for the
performance period from 1January 2022 to 31December 2023. The Committee
reviewed the calculation of this and the status of the fees earned for 2020 and 2021.
The shares clawed back were delivered to the Company and cancelled shortly after the
2022 year end. Performance fees have been accounted for under IFRS 2 Share-based
Payment in the Company’s financial statements on the basis of accounting advice
sought in 2022. This varies from the treatment used for the purpose of the unaudited
net asset values per share released daily by the Company because the Board believes
that for that purpose recognising performance fee charges and any subsequent
clawback on aliability basis i.e. divergent from IFRS 2, better represents the related
economic impacts and is more informative to investors.
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, with no significant issues arising.
The Company holds a small proportion of the portfolio in an unquoted company,
Phoenix SG Limited. The Committee considered and accepted the valuation of this
investment, which was provided by the Investment Manager. It was based on
aproportionate share of the company’s NAV, which had also been independently
reviewed by Kroll Advisory Ltd. This valuation was also discussed with the external
auditor.
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.
External Auditor
Chris Meyrick was the audit partner for the financial year under review, which was the
second audit of the Company’s financial statements conducted by BDO LLP since
their appointment. He confirmed BDO LLP’s willingness to continue to act as Auditor
to the Company for the forthcoming financial year. The re-appointment of BDO will be
put to shareholders at the forthcoming AGM.
Audit
Committee
Report
Continued
Annual Report Governance continued 61
Governance
Conclusion with respect to the Annual Report and financial
statements
The Audit Committee has concluded that the Annual Report for the year ended
31December 2023, 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. 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. No non-audit work was performed for
the Company by the auditor during the year ended 31 December 2023 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 Committee undertook a formal evaluation of the audit process
following completion of the December 2022 year end audit. The Committee was, and
continues to be, satisfied with the Auditor’s independence and the effectiveness of
the audit process, together with the degree of diligence and professional scepticism
brought to bear. The Audit Committee received a presentation of the audit plan for the
December 2023 year end audit from the external auditor prior to its commencement
and a presentation of the results of the audit following completion of the main audit
testing.
Farah Buckley
Chair of the Audit Committee
26 March 2024
Audit
Committee
Report
Continued
62 Annual Report Governance continued
Independent
Auditor’s Report
to the Members
of Aurora
Investment
Trust plc
Chris Meyrick
Senior Statutory Auditor
for and on behalf of
BDO LLP
Statutory Auditor,
Chartered Accountants
London
26 March 2023
Opinion on the financial statements
In our opinion the financial statements:
• give a true and fair view of the state of the Company’s affairs as at 31 December
2023 and of its profit for the year then ended;
• have been properly prepared in accordance with United Kingdom adopted
international accounting standards; and
• have been prepared in accordance with the requirements of the Companies Act2006.
We have audited the financial statements of Aurora Investment Trust plc (the
‘Company’) for the year ended 31 December 2023 which comprise the Income
Statement, 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
material accounting policies. The financial reporting framework that has been applied in
their preparation is applicable law and UK adopted international accounting standards.
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 believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion. Our audit opinion is consistent with
the additional report to the Audit Committee.
Independence
Following the recommendation of the Audit Committee, we were appointed by the
Board of Directors on 20 September 2022 to audit the financial statements for the
year ended 31 December 2022 and subsequent financial periods. The period of total
uninterrupted engagement including retenders and reappointments is two years,
covering the years ended 31 December 2022 to 31 December 2023. We remain
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. The non-audit services
prohibited by that standard were not provided to the Company.
Conclusions relating to going concern
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. Our evaluation of the Directors’ assessment of the Company’s ability to
continue to adopt the going concern basis of accounting included:
• Evaluating the appropriateness of the Directors’ method of assessing the
Company’s ability to continue as a going concern in the light of economic and
market conditions by reviewing the information used by the Directors in
completing their assessment;
• Assessing the appropriateness of the Directors’ assumptions and judgements
made, by comparing the prior year forecasted costs to the actual costs incurred to
check the accuracy of historical forecasting;
Annual Report Governance continued 63
Governance
• Assessing the projected management fees for the year to check that it was in line
with the current assets under management levels and the projected market
growth forecasts for the following year;
• Assessing the appropriateness of the Directors’ assumptions and judgements
made in both their base case, and stress tested forecasts, including consideration
of the available cash resources relative to forecast expenditure and commitments;
• Challenging the Directors’ assumptions and judgements made in their forecasts by
performing an independent analysis of the liquidity of the investment portfolio; and
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 12 months from when the financial statements are authorised for issue.
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.
Our responsibilities and the responsibilities of the Directors with respect to going
concern are described in the relevant sections of this report.
Overview
2023 2022
Key audit matters
Valuation and ownership of listed
investments
Valuation and ownership of unlisted
investments
Valuation and ownership of unlisted investments is no longer
considered to be a key audit matter because it is not material
to the audit of financial statements for the current year.
Materiality Company financial statements as a whole:
£2.10 million (2022: £1.50 million) based on 1% of net assets
(2022: 1% of net assets)
An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the Company and its
environment, including the Company’s system of internal control, and assessing the
risks of material misstatement in the financial statements. We also addressed the risk
of management override of internal controls, including assessing whether there was
evidence of bias by the Directors that may have represented a risk of material
misstatement.
Key audit matters
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, including those which had the greatest effect on: the overall
Independent
Auditor’s Report
Continued
64 Annual Report Governance continued
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.
How the scope of our audit addressed the key
Key audit matter audit matter
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in
evaluating the effect of misstatements. We consider materiality to be the magnitude
by which misstatements, including omissions, could influence the economic decisions
of reasonable users that are taken on the basis of the financial statements.
We responded to this matter by testing the
valuation and ownership of the whole
portfolio of listed investments. In respect of
the listed investments, we performed the
following procedures:
• Confirmed the year-end bid price was
used by agreeing to externally quoted
prices;
• Assessed if there were contra
indicators, such as liquidity
considerations, to suggest bid price is
not the most appropriate indication of
fair value by considering the realisation
period for individual holdings;
• Recalculated the valuation by multiplying
the number of shares held per the
statement obtained from the custodian
by the valuation per share;
• Reviewed the appropriateness of the
foreign exchange rate applied to
securities dealt in non-GB currency from
an external source; and
• Obtained direct confirmation of the
number of shares held per equity
investment from the custodian
regarding all investments held at the
balance sheet date.
Key observations:
Based on our procedures performed we did
not identify any matters to suggest that the
valuation and ownership of the listed equity
investments were inappropriate.
The investment portfolio at
the year-end mostly
comprised of listed equity
investments held at fair value
through profit or loss.
We considered the valuation
and ownership of the listed
investments to be a
significant audit area as
investments represent the
most significant balance in
the financial statements and
underpins the principal
activity of the entity.
There is a risk that the bid
price used as a proxy for fair
value of listed investments
held at the reporting date is
inappropriate. Given the
nature of listed level 1
investments, we do not
consider the use of bid price
to be subject to significant
estimation uncertainty.
There is also a risk of error in
the recording of investment
holdings such that those
recordings do not
appropriately reflect the
property of the Company.
For these reasons and given
the materiality of the balance
in relation to the financial
statements as a whole, we
considered this to be a Key
Audit Matter.
Valuation and
ownership of listed
investments
(Note 1(c) and Note
2 to the financial
statements)
Independent
Auditor’s Report
Continued
Annual Report Governance continued 65
Governance
In order to reduce to an appropriately low level the probability that any misstatements
exceed materiality, we use a lower materiality level, performance materiality, to
determine the extent of testing needed. Importantly, misstatements below these
levels will not necessarily be evaluated as immaterial as we also take account of the
nature of identified misstatements, and the particular circumstances of their
occurrence, when evaluating their effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial
statements as a whole and performance materiality as follows:
Company Financial Statements
2023 2022
£million £million
Materiality 2.10 1.50
Basis for
determining
1% of net assets 1% of net assets
materiality
Rationale for the As an investment trust, the net asset value is the key measure of
benchmark applied performance for users of the financial statements.
Performance
materiality
1.57 1.05
Basis for determining
performance
75% of materiality 70% of materiality
materiality
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual audit
differences in excess of £105,000 (2022: £75,000). We also agreed to report
differences below this threshold that, in our view, warranted reporting on qualitative
grounds.
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
The level of performance
materiality applied was set
after having considered
anumber of factors including
the expected total value of
known and likely
misstatements and the level of
transactions in the year.
The increase in the level of
perf
ormance materialit
y is
based on our knowledge and
experience of the entity,
history of low errors identified
and low level of expected
misstatements.
Rationale for the
percentage applied
for performance
materiality
Independent
Auditor’s Report
Continued
66 Annual Report Governance continued
stated in our report, we do not express any form of assurance conclusion thereon. 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 course of 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 this gives rise to a material
misstatement in the financial statements themselves. 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.
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 with regards to the appropriateness
of adopting the going concern basis of accounting and any
material uncertainties identified set out on pages 41 and 42;
and
• The Directors’ explanation as to their assessment of the
Company’s prospects, the period this assessment covers and
why the period is appropriate set out on pages 30 and 31.
Going concern and
longer-term
viability
• Directors’ statement on fair, balanced and understandable set
out on page 61;
• Board’s confirmation that it has carried out a robust
assessment of the emerging and principal risks set out on
page 28;
• The section of the annual report that describes the review of
effectiveness of risk management and internal control
systems set out on page 50; and
• The section describing the work of the audit committee set
out on page 59.
Other Code
provisions
Independent
Auditor’s Report
Continued
Annual Report Governance continued 67
Governance
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during the
course of the audit, we are required by the Companies Act 2006 and ISAs (UK) to
report on certain opinions and matters as described below.
Responsibilities of Directors
As explained more fully in the Statement of Directors’ Responsibilities, 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.
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
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.
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.
Strategic report
and Directors’
report
In our opinion, the part of the Directors’ remuneration report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
Directors’
remuneration
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
• 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.
Matters on which
we are required to
report by
exception
Independent
Auditor’s Report
Continued
68 Annual Report Governance continued
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.
Extent to which the audit was 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. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below:
Non-compliance with laws and regulations
Based on:
• Our understanding of the Company and the industry in which it operates;
• Discussion with the Investment Manager, Administrator and the Audit Committee;
• Obtaining and understanding of the Company’s policies and procedures regarding
compliance with laws and regulation; and
• Review of any legal correspondence.
We considered the significant laws and regulations to be the Companies Act 2006, the
FCA listing and DTR rules, the principles of the AIC Code of Corporate Governance,
industry practice represented by the AIC SORP, International Financial Reporting Standards
(“IFRS”), and the Company’s qualification as an Investment Trust under UK tax legislation
as any non-compliance of this could have a material effect on the amount or disclosures in
the financial statements, for example through the imposition of fines or litigations.
Our procedures in respect of the above included:
• Agreement of the financial statement disclosures to underlying supporting
documentation;
• Enquiries of management and the Audit Committee relating to the existence of any
non-compliance with laws and regulations;
• Reviewing legal expenditure accounts to understand the nature of legal costs
incurred;
• Reviewing minutes of meetings of the Audit Committee throughout the period for
instances of non-compliance with laws and regulations; and
• Reviewing the calculation in relation to Investment Trust compliance to check that
the Company was meeting its requirements to retain Investment Trust Status. This
included a review of other qualitative factors and ensuring compliance with these.
Fraud
We assessed the susceptibility of the financial statement to material misstatement
including fraud.
Our risk assessment procedures included:
• Enquiry with the Investment Manager, Administrator and the Audit Committee
regarding any known or suspected instances of fraud;
• Review of minutes of meetings of the Audit Committee for any known or
suspected instances of fraud; and
Independent
Auditor’s Report
Continued
Annual Report Governance continued 69
Governance
• Discussion amongst the engagement team as to how and where fraud might
occur in the financial statements.
Based on our risk assessment, we considered the area most susceptible to be
management override of controls.
Our procedures in respect of the above included:
• Review of estimates and judgements applied by management in the accounting of
the performance fee and valuation of the unlisted investment to assess their
appropriateness and the existence of any bias;
• Considering the opportunity and incentive to manipulate accounting entries and
target tested relevant adjustments made in the period end financial reporting
process;
• Reviewing for significant transactions outside the normal course of business; and
• Review of unadjusted audit differences, if any, for indications of bias or deliberate
misstatement.
We also communicated relevant identified laws and regulations and potential fraud
risks to all engagement team members, who were deemed to have the appropriate
competence and capabilities and remained alert to any indications of fraud or non-
compliance with laws and regulations throughout the audit.
Our audit procedures were designed to respond to risks of material misstatement in
the financial statements, recognising that the risk of not detecting a material
misstatement due to fraud is higher than the risk of not detecting one resulting from
error, as fraud may involve deliberate concealment by, for example, forgery,
misrepresentations or through collusion. There are inherent limitations in the audit
procedures performed and the further removed non-compliance with laws and
regulations is from the events and transactions reflected in the financial statements,
the less likely we are to become aware of it.
A further description of our responsibilities is available on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor’s report.
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.
Chris Meyrick (Senior Statutory Auditor)
For and on behalf of BDO LLP Statutory Auditor
55 Baker Street
London
W1U 7EU
26 March 2024
BDO LLP is a limited liability partnership registered in England and Wales (with
registered number OC305127)
Independent
Auditor’s Report
Continued
70 Annual Report Financial Statements
Financial
Statements
Annual Report Financial Statements continued 71
Financial Statements
Year ended Year ended
31 December 2023 31 December 2022
Revenue Capital Total Revenue Capital Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
2 Gains/(losses) on – 53,535 53,535 – (40,410) (40,410)
investments
Losses on currency – – – – (17) (17)
3 Income 3,459 – 3,459 3,117 – 3,117
Total income/(loss) 3,459 53,535 56,994 3,117 (40,427) (37,310)
4 Investment – (2,824) (2,824) – 2,746 2,746
management
performance fee
(charge)/clawback
4 Other expenses (749) – (749) (777) – (777)
Profit/(loss) before 2,710 50,711 53,421 2,340 (37,681) (35,341)
tax
5 Tax (49) – (49) (77) – (77)
Profit/(loss) 2,661 50,711 53,372 2,263 (37,681) (35,418)
for the year
7 Earnings/(losses)
per share –
basic and diluted 3.50p 66.66p 70.16p 2.95p (49.20)p (46.25)p
The total column represents the Income Statement of the Company, prepared in
accordance with International Financial Reporting Standards (“IFRSs”) as adopted by
the United Kingdom.
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.
The Company does not have any other comprehensive income. Therefore, no separate
Statement of Comprehensive Income has been presented.
The notes on pages 76 to 94 form part of these accounts.
Income Statement
72 Annual Report Financial Statements continued
31 December 31 December
2023 2022
Notes
£’000 £’000
NON-CURRENT ASSETS
2 Investments held at fair value through profit or loss 202,209 149,227
CURRENT ASSETS
Trade and other receivables 372 310
Cash 6,248 5,348
6,620 5,658
TOTAL ASSETS 208,829 154,885
CURRENT LIABILITIES:
Other payable (115) (107)
(115) (107)
NET ASSETS 208,714 154,778
EQUITY
8 Called up share capital 19,019 19,152
Share premium account 111,166 111,166
Capital redemption reserve 312 179
Treasury shares – (133)
8 Other reserve (219) (2,877)
8 Share-based 166 –
payment reserve
8 Capital reserve 74,999 24,421
Revenue reserve 3,271 2,870
TOTAL EQUITY 208,714 154,778
8 Number of voting shares in issue 76,078,460 76,078,460
9 NAV per share 274.34p 203.45p
The notes on pages 76 to 94 form part of these accounts.
Statement of Financial Position
Approved by the Board of
Directors on 26 March 2024 and
signed on its behalf by:
Lucy Walker
Chair of the Board
Company no. 03300814
Annual Report Financial Statements continued 73
Financial Statements
Called up Share Capital Treasury Other Share- Capital Revenue Total
share premium redemption shares reserve based reserve reserve
capital account reserve payment
reserve
Notes £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Opening equity 19,152 111,166 179 (133) (2,877) – 24,421 2,870 154,778
Profit for the year – – – – – – 53,369 2,661 56,030
8 Shares cancelled in relation
to 2019 performance fee
clawback (crystallised)
(133) – 133 133 – – (133) – –
4 Performance fee in relation
to performance year 2020
(crystallised)
– – – – 2,658 – (2,658) – –
4 Performance fee charge in
relation to performance
year 2021
– – – – – 166 – – 166
6 Dividends paid – – – – – – – (2,260) (2,260)
Closing equity 19,019 111,166 312 – (219) 166 74,999 3,271 208,714
The notes on pages 76 to 94 form part of these accounts.
Statement of Changes in Equity
Year to 31 December 2023
74 Annual Report Financial Statements continued
Called up Share Capital Treasury Other Capital Revenue Total
share premium redemption shares reserve reserve reserve
capital account reserve
Notes £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Opening equity 19,130 110,984 179 – (1,271) 63,155 2,016 194,193
(Loss)/income for the year – – – – – (37,681) 2,263 (35,418)
4 Performance fee clawback in relation
to performance year 2019 (crystallised)
– – – (133) – (1,053) – (1,186)
4 Performance fee clawback in relation
to performance year 2020 and 2021
– – – – (1,385) – – (1,385)
6 Dividends paid – – – – – – (1,409) (1,409)
8 Issue of new ordinary shares 22 199 – – (221) – – –
Share issue costs – (17) – – – – – (17)
Closing equity 19,152 111,166 179 (133) (2,877) 24,421 2,870 154,778
The notes on pages 76 to 94 form part of these accounts.
Statement of Changes in Equity
Year to 31 December 2022
Annual Report Financial Statements continued 75
Financial Statements
Year to Year to
31 December 31 December
Note 2023 2022
£’000 £’000
Net cash inflow from operating activities 10 2,607 2,126
Investing activities
Payments to acquire non-current asset investments 2 (11,503) (47,454)
Receipts on disposal of non-current asset investments 2 12,056 44,455
Net cash inflow/(outflow) from investing activities 553 (2,999)
Financing activities
Ordinary Share issue costs – (17)
Dividends paid 6 (2,260) (1,409)
Net cash outflow from financing activities (2,260) (1,426)
Increase/(decrease) in cash 900 (2,299)
Cash at beginning of year 5,348 7,664
Losses on currency – (17)
CASH AT END OF YEAR 6,248 5,348
The notes on pages 76 to 94 form part of these accounts.
Cash Flow Statement
76 Annual Report Financial Statements continued
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 25 Southampton Buildings, London WC2A 1AL.
Details of the Directors, Investment Manager and Advisers can be found on pages33
to 35.
Basis of Accounting
The financial statements of the Company have been prepared in accordance with
UK-adopted International Accounting Standards (“IFRS”) and the applicable legal
requirements of the Companies Act 2006.
The annual financial statements have also been prepared in accordance with the
Association of Investment Companies (“AIC”) Statement of Recommended Practice
(“SORP”) for the financial statements of investment trust companies and venture capital
trusts, except to any extent where it is not consistent with the requirements of IFRS.
In order to better reflect the activities of an investment trust company and in
accordance with guidance issued by the AIC, supplementary information which
analyses the Income Statement between items of a revenue and capital nature has
been prepared alongside the Income Statement.
The functional currency of the Company is Sterling because this is the currency of the
primary economic environment in which the Company operates. The financial
statements are presented in Sterling rounded to the nearest thousand, except where
otherwise indicated.
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 12 months from the date
of approval of this Annual Report.
In reaching this conclusion, the Directors have considered the liquidity of the
Company’s portfolio of investments as well as its latest financial positions and forecast
on income and expenses.
As at 31 December 2023, the Company held £6,248,000 (2022: £5,348,000) in cash,
£200,733,000 (2022: £146,356,000) in quoted investments and £1,476,000 (2022:
£2,871,000) in an unquoted investment. The total ongoing operating expenses for the
year ended 31 December 2023 were £817,000 (2022: £777,000). It is estimated that
31.2% of the Company’s latest portfolio could be liquidated in a non-market impacting
way within 7 days, using 25% of historic three-month average daily volume. This
approach is considered conservative as it does not include the Company’s ability to
access liquidity through block trades.
Notes to the
Financial
Statements
Annual Report Financial Statements continued 77
Financial Statements
The management has assessed the Company’s going concern status under stress
scenarios, which incorporated key assumptions such as significant falls in the
Company’s investment portfolio and investment income. These scenario tests
encompassed possible impacts from factors such as the existing and potential further
risks arising from the conflicts in the Middle East and Ukraine, and any tail risks from
Brexit. A prolonged and deep market decline could lead to falling investment values or
interruptions to cash flow, however the Company currently has more than sufficient
liquidity to meet any liabilities when they fall due in the foreseeable future. The Board
is keeping the development of external risk factors under close scrutiny and does not
believe that these will any impact on the Company’s going concern status.
At the date of approval of this Annual Report, based on the aggregate of investments
and cash held, the Board notes that the Company’s cash balance and investments
held are well in excess of the estimated level of liabilities, and the Company has
substantial operating expenses cover.
Segmental reporting
The Directors are of the opinion that the Company is engaged in a single segment
being an investment business in accordance with its Investment Objective and Policy.
Material 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
at fair value of investments and measurement of performance fees awarded.
b. Adoption of new IFRS standards
In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice Statement
2 Making Materiality Judgements, applicable for annual periods beginning on or after
1January 2023. The latest amendments require reporting entities to disclose material,
instead of significant, accounting policies from the effective accounting period
onwards. In light of the amendments, the Company has performed a full review of the
existing disclosure of accounting policies in its annual report and removed the
following policies:
• Share-based Payment
• Taxation
• Cash
• Dividends Payable
There have been no changes to the removed accounting policies and the full policy
details are available in the Company’s annual report and financial statements for the
year ended 31 December 2022.
The Company has also adopted, with no material impact, the amendments to IAS 8
definition of accounting estimates and amendments to IAS 12 Deferred Tax related to
Assets and Liabilities arising from a Single Transaction, which became effective from
1January 2023.
Notes to the
Financial
Statements
Continued
78 Annual Report Financial Statements continued
Notes to the
Financial
Statements
Continued
1. Reporting entity continued
c. Investments
Investments are measured at fair value through profit or loss. Gains or losses on
investments and transaction costs on acquisition or disposal of investments are
included in the Income Statement as a capital item.
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.
Unquoted investments are measured at fair value in accordance with the International
Private Equity and Venture Capital valuation guidelines and IFRS 9. Valuation is
provided by the underlying investment manager and 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.
d. Income from Investments
Special Dividends are assessed on their individual merits and are credited to the
capital column of the Income Statement if the substance of the payment is a return of
capital. All other investment income is taken to the revenue column of the Income
Statement.
e. Share Capital and Reserves
The share capital represents the nominal value of equity shares.
The share premium account represents the accumulated premium paid for shares
issued above their nominal value less issue expenses. This reserve is not distributable.
The capital redemption reserve arises when shares are bought back by the Company or
returned by the Investment Manager under the performance fee clawback arrangement,
and subsequently cancelled, at which point an amount equal to the par value of the
shares is transferred from share capital to this reserve. This reserve is not distributable.
Other reserve represents the restricted shares issued in settlement of performance
fees that are still a the lock-in period. This reserve is not distributable.
Share-based payment reserve represents the cumulative share-based payment
expenses in relation to performance fees earned. Upon vesting, the relevant
share-based payment reserve balance will be transferred to the realised capital
reserve. This reserve is not distributable.
The capital reserve represents realised and unrealised capital and exchange gains and
losses on the disposal and revaluation of investments and of foreign currency items.
Inaddition, performance fee costs are allocated to the capital reserve. The amount
within the capital reserve less unrealised gains (those on investments not readily
convertible to cash) is available for distribution. The realised gains within the capital
reserve amounted to £43,101,000 as at 31 December 2023 (2022: £42,863,000). The
Company has no intention to make distributions out of its capital reserve.
Annual Report Financial Statements continued 79
Financial Statements
The revenue reserve represents the surplus of accumulated revenue profits being the
excess of income derived from holding investments less the costs associated with
running the Company. This reserve may be distributed by way of dividends, to the
extent realised.
f. Expenses
All expenses are charged through the revenue column of the Income Statement
except the following:
• expenses that are incidental to the acquisition or disposal of an investment are
charged to the capital column of the Income Statement; and
• expenses are charged to the capital column of the Income Statement where
aconnection with the maintenance or enhancement of the value of the
investments can be demonstrated. In this respect the performance fees have been
charged to the Income Statement in line with the Board’s expected long-term
returns, in the form of capital gains, from the Company’s portfolio.
g. Critical 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 is calculated on the Company’s NAV outperformance against its
benchmark. Performance fees, if earned, are settled by the issue of shares in the
Company, which are subject to a fixed three-year clawback period. If the
outperformance versus the index reverses on the third-year anniversary the Company
is entitled to recover and cancel the shares.
In measuring the performance fee, the Board has made judgements in relation to the
service period, which it considers to be the current year of service plus the further
three year period clawback period. The Board has made the judgement that the
performance fee contains a non-market based performance condition since the hurdle
is based on the outperformance of the Company’s NAV against its benchmark.
However, as the performance fee is calculated as a fixed amount which is settled by
avariable number of shares, the cumulative charge over the vesting 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 a lower amount 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 anon-market based performance condition.
Notes to the
Financial
Statements
Continued
80 Annual Report Financial Statements continued
Notes to the
Financial
Statements
Continued
1. Reporting entity continued
The performance fee is recognised on a straight line basis in the Income Statement
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
a clawback may occur at the end of the performance period. Clawbacks are adjusted
based on the management’s expectation in terms of the number of restricted shares
that will ultimately vest at each reporting date, and if applicable, credited back to the
Income Statement.
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. 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 service period.
The Investment Manager earned a performance fee of £221,195 in 2021 and this was
settled by an issuance of 89,096 shares. As at 31 December 2023, the Company
estimates that all shares issued in relation to 2021 will vest on 31 December 2024
when the clawback period ends. An IFRS 2 expense of £166,000, based on a service
period of four years, has been charged and is shown in the capital column of the
Income Statement.
No performance fee was earned during 2022 and the fee assessment period was
extended to 2023. Over the combined period, the Investment Manager earned
performance fees of £560,903, 80% of which was settled on 17 January 2024 by an
issuance of 172,373 new ordinary shares at 260.32p per share, and the remaining
20% will be settled upon approval of this annual report. The service period for fees
earned during 2022 and 2023 is considered to be five years. As at 31 December 2023,
based on estimates produced by the Company’s in-house assessment model, it is
expected that no shares issued in relation to 2023 will ultimately vest at the end of the
clawback period on 31 December 2026, and therefore no IFRS 2 expenses have been
charged in the Income Statement.
Valuation of Unquoted Investments
The Company has an investment in Phoenix SG Limited (“Phoenix SG”), which is
unquoted and classified as a Level 3 investment under the fair value hierarchy. Its fair
value as at 31 December 2023 is £1,476,000 or 0.7% of NAV (2022: £2,871,000 or
1.9% of NAV).
Phoenix SG is valued in accordance with the Company’s accounting policy set out in
1c, using the reported NAV provided by the investment’s underlying fund manager.
Inmaking the judgment that this valuation method is appropriate, the Board has
considered additional information, including an independent valuation review report
produced by Kroll Advisory Ltd, and published financial statements. Whilst the Board
considers the methodologies and assumptions adopted in the valuation of unquoted
investments to be supportable, reasonable and robust, because of the inherent
uncertainty of valuation, the values used may differ significantly from the values that
would have been used had a ready market for the investment existed.
A 10% reduction of the unquoted valuation would have a negative impact of £147,600
(2022: £287,000) on the Company’s NAV as at 31 December 2023 and a 10% increase
of the unquoted valuation would have the exact opposite impact.
Annual Report Financial Statements continued 81
Financial Statements
2. Investments held at Fair Value Through Profit or Loss
Year to Year to
31 December 31 December
2023 2022
£’000 £’000
Listed securities 200,733 146,356
Unquoted securities 1,476 2,871
Total non-current investments held at fair value
through profit or loss
202,209 149,227
Movements during the year:
Opening balance of investments, at cost 170,415 137,996
Additions, at cost 11,503 47,454
Disposals – proceeds received or receivable* (12,056) (44,454)
– realised profits 283 29,419
– at cost (11,773) (15,035)
Cost of investments held at fair value through profit
or loss at 31 December
170,145 170,415
Revaluation of investments to market value:
Opening balance (21,188) 48,641
Unrealised gains/(losses) 53,252 (69,829)
Balance at 31 December 32,064 (21,188)
Market value of non-current investments held at fair
value through profit or loss at 31 December
202,209 149,227
* 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.
Notes to the
Financial
Statements
Continued
82 Annual Report Financial Statements continued
Notes to the
Financial
Statements
Continued
2. Investments held at Fair Value Through Profit or Loss continued
Gains/(losses) on investments
Year to Year to
31 December 31 December
2023 2022
£’000 £’000
Realised gains on disposal of investments 283 29,419
Movement in unrealised gains/(losses) on investments held 53,252 (69,829)
Total gains/(losses) on investments 53,535 (40,410)
Realised gains in the year to 31 December 2022 include gains of £31,433,000 from
the sale of put options on a short sterling future contract as a hedge against inflation in
February 2022.
Transaction costs on investment purchases and sales for the year ended 31 December
2023 are disclosed in the following table.
Transaction costs
Year to Year to
31 December 31 December
2023 2022
£’000 £’000
Transaction costs on purchases of investments 16 145
Transaction costs on sales of investments 9 38
Total transaction costs included in gains or losses on
investments at fair value through profit or loss
25 183
3. Income
Year to Year to
31 December 31 December
2023 2022
£’000 £’000
Income from investments:
UK dividends 3,017 2,762
Overseas dividends 370 332
Other income:
Deposit interest 72 23
Total income 3,459 3,117
Annual Report Financial Statements continued 83
Financial Statements
4. Investment Management Performance Fees and Other Expenses
Year ended 31 December 2023 Year ended 31 December 2022
Revenue* Capital Total Revenue* Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Investment management
performance fee
charge/(clawback)
– 2,824 2,824 – (2,746) (2,746)
Administration fees** 279 – 279 187 – 187
Depositary and Custody fees 64 – 64 60 – 60
Registrar’s fees 36 – 36 43 – 43
Directors’ fees 139 – 139 136 – 136
Audit fees*** 68 – 68 64 – 64
Printing 19 – 19 18 – 18
Broker’s fees 48 – 48 48 – 48
Professional fees 34 – 34 47 – 47
Public relation fees** – – – 71 – 71
Consultancy fees 14 – 14 32 – 32
Miscellaneous expenses 48 – 48 71 – 71
Total other expenses 749 2,824 3,573 777 (2,746) (1,969)
* All expenses include any relevant irrecoverable VAT.
** Frostrow Capital LLP was appointed on 28 September 2022 to provide the Company with administration
and Company Secretary services, as well as serve as the Company’s investor relations and marketing
adviser. Public relation fees disclosed separately in the prior year are now included as part of the
administration fees. Refer to page 40 for further details of the fee arrangement.
*** The amounts excluding VAT paid or accrued for the audit of the Company are £57,000 (2022: £53,000).
Investment Management Performance Fees
The Company’s Investment Manager does not earn an ongoing annual management
fee, but will be paid a performance fee equal to one third of any outperformance of the
Company’s NAV per 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 or, if applicable, extended performance 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 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 new shares. Such shares are issued at
the NAV per share prevailing at the date of issue, so that the then current value of the
shares equates in terms of NAV to the performance fees calculated at the end of the
relevant financial period.
Notes to the
Financial
Statements
Continued
84 Annual Report Financial Statements continued
Notes to the
Financial
Statements
Continued
4. Investment Management Performance Fees and Other Expenses
continued
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.
Performance fees are calculated annually and, if earned, settled by way of share
issuance by the Company, 80% is settled shortly after the year end date and the
remaining 20% issettled upon approval of the Company’s Annual Report. Shares
issued to the Investment Manager are subject to a 3-year clawback period, during
which the Investment Manager is not entitled to sell, pledge or transfer the shares,
but is entitled to dividends and voting rights. If the Company’s NAV underperforms its
benchmark index on a total return basis over the clawback period, shares issued to the
Investment Manager will be proportionally or entirely clawed back and cancelled by
the Company.
Share-based Payment
The performance fee arrangement is recognised as an equity settled share-based
payment under IFRS 2, and the related expenses are charged or credited in the
Income Statement on a straight-line basis over a vesting period of the performance
fee calculation period followed by 3 years of clawback period.
At the end of each reporting period, the Company reviews cumulative total returns
between the Company’s NAV and its benchmark index in relation to each performance
year in which a performance fee was earned and adjusts the cumulative charges of
share-based payment expenses accordingly.
A total share-based payment charge of £2,824,000 has been recognised in the
Company’s Income Statement for the year ended 31 December 2023.
Income
Fees Shares Vesting Statement
Performance earned issued period change
year (£) (Number of) (Years) Vesting status (£)
2020 2,658,275 1,290,932 4 Fully vested on 31 December 2023 2,658,275
2021 22,195 89,096 4 Vesting period ends on 31 December 2024 165,896
2022* – – n/a n/a n/a
2023 560,903 172,373** 5 Vesting period ends on 31 December 2026 –
* No performance fee was earned during 2022 and the fee assessment period was extended to 2023.
** 80% of the fees earned was settled on 17 January 2024 by an issuance of 172,373 new shares at 260.32p per share, and the remaining 20% will be settled
following publication of this annual report.
Annual Report Financial Statements continued 85
Financial Statements
Share-based Payment Sensitivity Analysis
Performance fee period to 31 December 31 December
2021 2022 and 2023
End date for clawback period 31 December 31 December
2024 2026
As at 31 December 2023 % %
Company cumulative NAV returns a 30.0 9.5
Cumulative index returns b 28.1 8.3
Overperformance (1+a)/(1+b)–1 1.5 1.1
Impact on the Company’s profit after tax for the year ended 31 December 2023, if the
Company’s overperformance changes by:
31 December 31 December
In relation to performance fee period 2021 2022 and 2023
Percentage £’000 £’000
–10% 166 –
–5% 166 –
–1% – (18)
+1% – 224
+5% – 224
+10% – 224
5. Taxation
Year to 31 December 2023 Year to 31 December 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Corporation tax – – – – – –
Overseas withholding tax 49 – 49 77 – 77
Tax charge in respect of the
current year
49 – 49 77 – 77
Notes to the
Financial
Statements
Continued
86 Annual Report Financial Statements continued
Notes to the
Financial
Statements
Continued
5. Taxation continued
Current taxation
The taxation charge for the year is different from the standard rate of corporation tax in
the UK of 23.5% (2022:19.0%). The differences are explained below:
Year to Year to
31 December 31 December
2023 2022
£’000 £’000
Total profit/(loss) before tax 53,421 (35,341)
Theoretical tax at UK corporation tax rate of 23.5%
(2022: 19.0%)
12,554 (6,715)
Effects of:
Capital (gains)/losses that are not taxable (12,581) 7,678
UK dividends which are not taxable (709) (525)
Overseas withholding tax 49 77
Overseas dividends that are not taxable (87) (63)
Excess management expenses 823 (375)
Tax charge in respect of the current year 49 77
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 £14,367,000 (2022: £12,385,000) in respect of excess unutilised
management expenses, equivalent to a potential tax saving of £3,592,000 (2022:
£3,096,000) at the prospective tax rate of 25% (2022: 25%) and £1,491,000 (2022:
£1,491,000) in respect of loan interest, equivalent to a potential tax saving of
£373,000 (2022: £373,000) at the prospective tax rate of 25% (2022: 25%).
These amounts could be utilised to the extent that the Company has sufficient future
taxable revenue. A deferred tax asset has not been recognised in respect of these
expenses.
Annual Report Financial Statements continued 87
Financial Statements
6. Ordinary Dividends
Year to Year to
31 December 31 December
2023 2022
£’000 £’000
Dividends reflected in the financial statements:
Final dividend paid for the year ended 31 December 2022
at 2.97p per share (2021: 1.84p)
2,260 1,409
Dividends not reflected in the financial statements:
Final dividend recommended by the Board for the year
ended 31 December 2023 at 3.45p per share (2022: 2.97p) 2,632* 2,263
* Based on the 76,078,460 shares in issuance as at 31 December 2023, 172,373 shares issued on
17January 2024 in settlement of 80% of the performance fees earned, and an estimated issuance of
42,000 shares to be issued in settlement of the remaining 20% performance fees earned.
7. Earnings Per Share
Earnings per share are based on the profit of £53,372,000 (2022: loss of £35,418,000)
attributable to the weighted average of 76,078,460 (2022: 76,592,940) ordinary shares
of 25p in issue during the year.
Supplementary information is provided as follows: revenue earnings per share are
based on the revenue income of £2,661,000 (2022: income of £2,263,000); capital
earnings per share are based on the net capital profit of £50,711,000 (2022: loss of
£37,681,000), attributable to the weighted average of 76,078,460 (2022: 76,592,940)
ordinary voting shares of25p. There is no difference between the weighted average
diluted and undiluted number of shares. There is no difference between basic and
diluted earnings per share as there are no dilutive instruments.
8. Share Capital and Reserves
At At
31 December 31 December
2023 2022
Allotted, called up and fully paid (Number) 76,078,460 76,608,771
Ordinary Shares of 25p (£’000) 19,019 19,152
At 31 December 2023, the Company had 76,078,460 ordinary shares in issue, with no
shares held in Treasury (2022: 76,608,771 shares in issue, of which 530,311 were held
in Treasury). The number of voting shares at 31 December 2023 was 76,078,460
(2022: 76,078,460, being the number of ordinary shares in issue less the number of
shares held in Treasury.
Notes to the
Financial
Statements
Continued
88 Annual Report Financial Statements continued
Notes to the
Financial
Statements
Continued
8. Share Capital and Reserves continued
Movement in share capital during the period
The Company did not issue or purchase any of its own shares during the year ended
31December 2023.
On 31 December 2022, the clawback period on restricted shares issued to the
Investment Manager in relation to the performance period ended 31 December 2019
ended. All of the 530,311 shares originally issued to the Investment Manager were
clawed back by the Company. These were held in Treasury as at 31 December 2022 and
subsequently cancelled on 9 January 2023.
Other Reserve
The other reserve balance represents the restricted shares issued in settlement of
performance fees that are still within a lock-in period.
The clawback period for the performance fee earned during the year ended 31 December
2020 ended on 31 December 2023. The Company’s cumulative NAV total return
outperformed that of the benchmark index over the vesting period. As a result, the
1,290,932 restricted shares originally issued in settlement of the £2,658,275 performance
fee earned have become unrestricted. As at 31 December 2023, the equivalent value
was transferred to realised capital reserve and the remaining balance in other reserve
represents shares issued in settlement of the performance fee for 2021.
Share-based Payment Reserve
The share-based payment reserve represents the cumulative share-based payment
expenses in relation to performance fees earned. The balance as at 31 December 2023
relates to cumulative expenses charged to the capital column of the Company’s Income
Statement for the performance fee earned in 2021. No expenses have been charged for
the combined performance period of 2022 and 2023 as no shares issued in settlement of
the fee earned during this period are expected to ultimately vest based on the estimates
produced by the Company’s in-house model. This is subject to review and change at the
Company’s future reporting dates. Further details can be found in Note 4 on page 84.
9. Net Assets Per Ordinary Share
The figure for Net Assets per Ordinary Share is based on Net Assets of £208,714,000
(2022: £154,778,000) divided by 76,078,460 voting ordinary shares in issue at
31December 2023 (2022: 76,078,460, being the number of ordinary shares in issue
less the number of shares held in Treasury (Note 8)).
Annual Report Financial Statements continued 89
Financial Statements
10. Reconciliation of Net Cash Flow from Operating Activities
Year to Year to
31 December 31 December
2023 2022
£’000 £’000
Profit/(loss) after tax 53,372 (35,418)
(Gains)/losses on investments (53,535) 40,427
Increase in other receivables (62) (88)
Increase/(decrease) in other payables 8 (49)
Investment management fee charge/(clawback) 2,824 (2,746)
Net cash inflow from operating activities 2,607 2,126
11. Transactions with Related Parties and Investment Manager
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 on pages 51 to 55 and in Note 4 on page 83. No fees payable to
the Directors were outstanding as at 31December 2023.
Phoenix Asset Management Partners Limited (“Phoenix”), the Company’s AIFM and
Investment Manager, and Castelnau Group Limited (“Castelnau”) are considered as
related parties under the Listing Rules. Details of transactions with Phoenix can be
found in Note 4 beginning on page 83.
Castelnau is a related party as the Company is a substantial shareholder under the
UKListing Rules. As at 31December 2023, the Company held 11.4% (2022: 13.3%) of
the issued share capital in Castelnau, there have been no transactions with Castelnau
duringthe year and there were no other balances outstanding with Castelnau as at
31December 2023.
Notes to the
Financial
Statements
Continued
90 Annual Report Financial Statements continued
Notes to the
Financial
Statements
Continued
12. Financial Instruments
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:
2023 2022
Non- Non-
Interest interest Interest interest
bearing bearing Total bearing bearing Total
£’000 £’000 £’000 £’000 £’000 £’000
Non-current equity investments
at fair value through profit or loss:
£ sterling denominated security
holdings
– 169,963 169,963 – 128,638 128,638
€ euro denominated security
holdings
– 15,349 15,349 – 10,060 10,060
$ usd denominated security
holdings
– 16,897 16,897 – 10,529 10,529
– 202,209 202,209 – 149,227 149,227
Cash at bank:
Floating rate – £ sterling 6,248 – 6,248 5,250 – 5,250
Floating rate – € euro – – – 98 – 98
6,248 – 6,248 5,348 – 5,348
Current assets:
Receivables – 372 372 – 310 310
6,248 202,581 208,829 5,348 149,537 154,885
Cash at bank of £6,248,000 (2022: £5,348,000) is held by the Company’s Depositary,
Northern Trust Investor Services Ltd.
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).
Annual Report Financial Statements continued 91
Financial Statements
Fair Value Hierarchy
Under IFRS 13 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 2023 2022
£’000 £’000
Level 1 200,733 146,356
Level 2 – –
Level 3 1,476 2,871
Total non-current investments held at ‘FVTPL’ 202,209 149,227
There were no transfers between levels during the year.
The movement on the Level 3 unquoted investments during the year is shown below:
Year to Year to
31 December 31 December
2023 2022
£’000 £’000
Opening balance 2,871 3,400
Disposals – –
Unrealised losses (1,395) (529)
Closing balance 1,476 2,871
Notes to the
Financial
Statements
Continued
92 Annual Report Financial Statements continued
Notes to the
Financial
Statements
Continued
12. Financial Instruments continued
Fair Value Hierarchy continued
The Level 3 unquoted investment balance represents the Company’s investment in
Phoenix SG Limited (“Phoenix SG”). The fair value estimate is based on the
attributable proportion of the reported net asset value of the Level 3 investment
derived from the fair value of the underlying investments. Valuation reports provided
by the fund manager are used to calculate 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 such as any issues being
highlighted or emphasised in Phoenix SG’s audited financial statements.
The total fair value attributable to the Company’s investment in Phoenix SG as of
31December 2023 is £1,476,000 (20221: £2,871,000). The Company held 9.04%
(2022: 9.4%) of the share capital of Phoenix SG.
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 IFRS 7, 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 2023 was invested predominantly in sterling
denominated securities and there was limited currency risk arising from the possibility
of afallin the value of sterling impacting upon the value of investments or income.
The Company had no foreign currency borrowings at 31 December 2023 or
31December 2022.
The Company does not hedge its currency exposures currently, but under its
investment policy and restrictions, derivative or similar financial instruments can be
employed if considered necessary for the purpose of capital preservation.
Annual Report Financial Statements continued 93
Financial Statements
Currency sensitivity
The table below shows the impact on the Company’s profit after taxation for the year
ended and net assets as at 31 December 2023, if sterling had strengthened/weakened
by 10% against Euro and USD.
2023 2022
£’000 £’000
Euro (1,395)/1,705 (923)/1,129
USD (1,536)/1,877 (957)/1,170
A (ii) Interest Rate Risk
The Company did not hold fixed interest securities at 31 December 2023 or
31December 2022.
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 2023 or 31 December 2022.
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 Board manages these risks through the use of investment limits and guidelines as
set out in the Company’s investment policy and restrictions, and monitors the risks
through regular financial and compliance reports provided by the Company’s key
service providers.
The effect on the portfolio of a 10.0% increase or decrease in market prices would
have resulted in an increase or decrease of £20,221,000 (2022: £14,923,000) in the
investments held at fair value through profit or loss at the period end, which is
equivalent to 9.7% (2022: 9.6%) 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, 31.2% (2022: 46.6%) of the portfolio could be liquidated in a non-market
impacting way within 7 days, based on 25% of average daily volume. This is
conservative as it does not include the ability to access liquidity through block trades.
Notes to the
Financial
Statements
Continued
94 Annual Report Financial Statements continued
12. Financial Instruments continued
C Credit Risk
The Company invests in quoted and unquoted equities in line with its investment
objective and policy. The Company’s investments are held by Northern Trust Investor
Services Ltd (“the Depositary”), which is a large and reputable international banking
institution. The Company’s normal practice is to remain fully invested at most times
and not to hold large quantities of cash. At 31 December 2023, cash at bank
comprised £6,248,000 (2022: £5,348,000) 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 commensurate with the level of risk.
The Company considers its capital to be issued share capital and reserves, and monitors
capital on the basis of the carrying amount of equity, less cash 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 does not currently intend to use
gearing, but as set out in its investment objective and policy, borrowings of up to 30%
of the aggregate of the paid-up nominal capital plus the capital and revenue reserves
are permitted.
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.
13. Post Year End Events
On 17 January 2024, the Company issued 172,373 shares to the Investment Manager
in settlement of 80% of the £560,903 performance fee earned by the Manager for the
2022 and 2023 performance assessment period. The remaining 20% will be settled via
further issuance of shares upon approval of the Annual Report and Financial
Statements for the year ended 31 December 2023. All shares issued in settlement of
performance fees are subject to a lock-in and clawback period of 3years. As disclosed
under the Investment Management Agreement section of the Directors’ Report on
page 39, if the Company’s cumulative returns underperform its benchmark over the
clawback period, all shares issued in relation to a particular performance year will be
clawed back and returned to the Company for cancellation.
Notes to the
Financial
Statements
Continued
Annual Report Financial Statements continued 95
Finance
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 follow:
Share price discount to NAV per share (APM)
The amount, expressed as a percentage, by which the share price is less that the NAV
per share.
As at As at
31 December 31 December
2023 2022
NAV per share a 274.34 203.45
Share price b 247.00 194.50
Discount (b÷a)-1 (10.0)% (4.4)%
Ongoing charges ratio (APM)
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. Charges relating to performance fees are excluded from the calculation.
As at As at
31 December 31 December
2023 2022
£’000 £’000
Average NAV a 181,978 173,184
Annual expenses b 749 777
Adjusting for non-recurring
(credits)/expenses
c (68) –
Annual ongoing expenses d=b-c 817 777
Ongoing charges figure d÷a 0.45% 0.45%
Non-recurring items relate to credits in respect of historic periods received by the
Company during the year and these credits are one-off in nature.
Alternative
Performance
Measures
(‘APMs’)
96 Annual Report Financial Statements continued
Alternative
Performance
Measures
(‘APMs’)
Continued
Total returns (APM)
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 on
the ex-dividend date.
31 December 2023 31 December 2022
NAV per Share NAV per Share
Year ended 31 December share price share price
Opening at 1 January a 203.45p 194.50p 253.78p 234.50p
Closing at 31 December b 274.34p 247.00p 203.45p 194.50p
Price movement c=(b÷a)–1 34.8% 27.0% (19.8)% (17.1)%
Impact of dividend reinvestment
(as a percentage of opening
balances)
d 1.5% 1.5% 0.7% 0.8%
Total return c+d 36.3% 28.5% (19.1)% (16.3)%
Annual Report Financial Statements continued 97
Finance
AIC Association of Investment Companies.
Alternative Investment An investment vehicle under UK AIFMD. (see below)
Fund or “AIF” and the Company is classified as an AIF.
Alternative Investment A directive agreed by the European Parliament and the
Fund Managers Council of the EU and transposed into UK legislation, the
Regulations UK AIFMD classifies certain investment vehicles, including
(“UK AIFMD”) investment companies, as Alternative Investment Funds
(“AIFs”) and requires them to appoint an Alternative
Investment Fund Manager (“AIFM”) and depositary to
manage and oversee the operations of the investment
vehicle. The Board of the Company retains responsibility for
strategy, operations and compliance and the Directors
retain a fiduciary duty to shareholders.
Annual General A meeting held once a year which shareholders can attend
Meeting or AGM and where they can vote on resolutions put forward at the
meeting and ask Directors questions about the company in
which they are invested.
Alternative See definitions of each APM on pages 95 and 96.
Performance
Measures (‘APMs’)
Articles The Company’s Articles of Association adopted on 10 June
2019.
Company Secretary or Frostrow Capital LLP.
Administrator
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 UK AIFMD. A depositary’s duties include,
interalia, safekeeping of the Company’s assets and cash
monitoring. Under UK 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 a purchaser of shares is not entitled to
receive adividend which has been declared and is due to
be paid toshareholders.
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
aparticular stock market or sector.
Investment company A company formed to invest in a diversified portfolio of
assets.
Investment Manager Phoenix Asset Management Partners Limited.
Glossary
98 Annual Report Financial Statements continued
Glossary
Continued
Investment Trust An investment company based in the UK which meets
certain tax conditions that enable it to be exempt from
UKcorporation tax on its capital gains. The Company is an
investment trust.
Leverage An alternative word for “Gearing”. Under UK 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 UK
AIFMD, leverage isbroadly 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 assets can be converted into cash at
short notice.
Net assets An investment company’s assets less its liabilities.
Net asset value The Company’s net assets divided by the number of shares
per share in issue (excluding any shares held in Treasury).
(NAV per share)
Portfolio A collection of different investments held in order to deliver
returns to shareholders and to spread risk.
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.
Treasury shares A company’s issued shares owned by itself which are
available to be sold by thecompany to raise funds.
Volatility A measure of how much a share moves up and down in
price over a period of time.
Annual Report Notice of Meeting continued 99
Notice of Meeting
Notice of Meeting
100 Annual Report Notice of Meeting continued
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
If you are in any doubt as to any matter referred to in this document or as to the
action you should take, you are recommended to seek your own financial advice
immediately from an independent financial adviser who is authorised under the
Financial Services and Markets Act 2000 (as amended) (“FSMA”) if you are in the
United Kingdom, or from another appropriately authorised independent financial
adviser if you are in a territory outside the United Kingdom.
If you have sold or otherwise transferred all of your ordinary shares, please send
this document at once to the purchaser or transferee or to the bank, stockbroker
or other agent through whom or by whom the sale or transfer was made, for
delivery to the purchaser or transferee. However, the distribution of this
document in jurisdictions other than the United Kingdom may be restricted by
law and therefore persons into whose possession this document comes should
inform themselves about and observe those restrictions. Any failure to comply
with any of those restrictions may constitute a violation of the securities laws of
any such jurisdiction.
Notice is hereby given that the Annual General Meeting of Aurora Investment
Trust plc will be held at 25 Southampton Buildings, London WC2A 1AL on
12June 2024 at 1 p.m.
The AGM is being called for the following purposes:
To consider, and if thought fit to pass, the following resolutions, of which resolutions 1
to 9 inclusive will be proposed as ordinary resolutions and resolutions 10 to 12 will be
proposed as special resolutions.
ORDINARY RESOLUTIONS
1. To receive the Annual Report for the year ended 31 December 2023, including the
financial statements and the Directors’ and Auditor’s reports thereon.
2. To approve a final dividend of 3.45 pence per share in respect of the year ended
31December 2023.
3. To approve the Remuneration Policy Implementation Report for 2023.
4. To re-elect Lucy Walker as a Director of the Company.
5. To re-elect Lady Rachael Robathan as a Director of the Company.
6. To re-elect David Stevenson as a Director of the Company.
7. To re-elect Farah Buckley as a Director of the Company.
8. To re-appoint BDO as Auditor to the Company and to authorise the Audit
Committee to fix the Auditor’s remuneration.
9. THAT in substitution for any pre-existing power to allot or grant rights to subscribe
for or convert any securities into ordinary shares in the Company the Directors be
and are hereby generally and unconditionally authorised, pursuant to and in
accordance with section 551 of the Companies Act 2006 (the “Act”) to exercise all
powers of the Company to allot ordinary shares in the Company up to a maximum
of 20% of the issued share capital in the Company as at the date of passing this
resolution. This authority shall expire (unless previously varied, revoked or renewed
by the Company in general meeting) 15 months after the date of the passing of this
resolution or at the conclusion of the next Annual General Meeting of the Company
after the passing of this resolution, whichever should first occur, save that the
Company may before such expiry make an offer or enter into an agreement which
would or might require relevant securities to be allotted after such expiry and the
Directors may allot relevant securities in pursuance of such an offer or enter into an
agreement as if the authority conferred hereby had not expired.
Frostrow Capital LLP
Company Secretary
Registered Office:
25 Southampton Buildings
London WC2A 1AL
26 March 2024
Annual Report Notice of Meeting continued 101
Notice of Meeting
SPECIAL RESOLUTIONS
10. THAT, subject to the passing of resolution 9, and in addition to all existing powers,
the Directors be and are hereby empowered, pursuant to section 570 of the Act, to
allot equity securities (as defined in section 560 of the Act) for cash either pursuant
to the authority conferred by resolution 9 or by way of a sale of Treasury shares, as
if section 561 of the Act did not apply to any such allotment or sale, provided that
this power:
a. shall expire (unless previously varied, revoked or renewed by the Company in
general meeting) 15 months from the passing of this resolution, or at the
conclusion of the next Annual General Meeting of the Company after the passing
of this resolution, whichever is earlier, save that the Company may before such
expiry make an agreement which would or might require relevant securities to be
allotted after such expiry and the Directors may allot equity securities (including by
way of sale of Treasury shares) as if such expiry had not occurred; and
b. shall be limited to the allotment of equity securities up to a maximum of 20% of
the issued share capital of the Company as at the date of passing this resolution.
11. THAT, in substitution for any pre-existing authority that will have expired on the
date hereof, but without prejudice to the exercise of such authority prior to the
date hereof, the Company be and is hereby generally and unconditionally
authorised in accordance with section 701 of the Companies Act 2006 (“the Act”)
to make market purchases (within the meaning of section 693(4) of the Act) of
ordinary shares of 25p each in the capital of the Company (“ordinary shares”)
provided that:
a. the maximum aggregate number of ordinary shares hereby authorised to be
purchased shall be 14.99% of the issued share capital of the Company at the date
of passing this resolution;
b. the minimum price which may be paid for an ordinary share is 25p;
c. the maximum price which may be paid for an ordinary share is an amount equal to
105% of the average of the middle market quotations for an ordinary share taken
from the Daily Official List of the UK Listing Authority for the 5 business days
immediately preceding the day on which the ordinary share is purchased; and
d. unless varied, revoked or renewed the authority hereby conferred shall expire at
the conclusion of the Annual General Meeting of the Company in 2025 or, if earlier,
on the expiry of 15 months from the passing of this resolution, save that the
Company may at any time prior to such expiry, enter into a contract or contracts to
purchase ordinary shares under such authority which would or might be completed
or executed wholly or partly after the expiration of such authority and may make
apurchase of ordinary shares pursuant to any such contract or contracts as if the
authority conferred hereby had not expired.
12. THAT the period of notice required for general meetings of the Company (other
than Annual General Meetings) shall be not less than 14 days.
By order of the Board
For and on behalf of Frostrow Capital LLP
Company Secretary
25 Southampton Buildings
London WC2A 1AL
26 March 2024
102 Annual Report Notice of Meeting continued
Notes
1. Proxies
Members are entitled to appoint a proxy to exercise all or any of their rights to attend,
speak and vote on their behalf at the meeting. A member may appoint more than one
proxy provided that each proxy is appointed to exercise the rights attached to a
different share or shares held by that member. A proxy need not be a member of the
Company, but must attend the meeting for your votes to be counted. Appointing the
Chair of the AGM as your proxy will ensure that your votes are cast in accordance with
your wishes.
2. Voting by proxy
Hard copy forms of proxy have not been included with this notice. Members are
strongly urged to vote electronically, by logging onto www.signalshares.com and
following the instructions. However, you can request a hard copy proxy form directly
from our Registrar, Link Group, via telephone on +44 (0) 371 664 0300 or via email at:
shareholderenquiries@linkgroup.co.uk. To be valid, the form of proxy, together with the
power of attorney or other authority (if any) under which it is signed or a notarially
certified or office copy of the same, must be completed and returned to the office of
the Company’s registrar, Link Group, PXS 1, Central Square, 29 Wellington Street,
Leeds LS1 4DL, not later than 1 p.m. on 10June 2024. In the case of a member that
is a company, the instrument appointing a proxy must be executed under its seal or
signed on its behalf by a duly authorised officer or attorney or other person authorised
to sign. Any power of attorney or other authority under which the instrument is signed
(or a certified copy of it) must be included with the instrument.
Members who wish to change their proxy instructions should submit a new proxy
appointment using the methods set out above. Note that the cut-off time for receipt of
proxy appointments (see above) also applies in relation to amended instructions; any
amended proxy appointment received after the relevant cut-off time will be
disregarded. If a member submits more than one valid proxy appointment, the
appointment received last before the latest time for the receipt of proxies will take
precedence. CREST members may register votes by utilising the CREST electronic
proxy appointment service in accordance with the procedures set out below.
If you are an institutional investor you may be able to appoint a proxy electronically via
the Proxymity platform, a process which has been agreed by the Company and
approved by the Registrar. For further information regarding Proxymity, please go to
www.proxymity.io. Your proxy must be lodged by 1 p.m. on 10June 2024 in order to
be considered valid. Before you can appoint a proxy via this process, you will need to
have agreed to Proxymity’s associated terms and conditions. It is important that you
read these carefully as you will be bound by them and they will govern the electronic
appointment of your proxy.
Appointing a proxy will not prevent a member from attending the meeting and voting
in person.
Annual Report Notice of Meeting continued 103
Notice of Meeting
3. Revoking instructions
In order to revoke a proxy instruction, members will need to inform the Company.
Members should send a signed hard copy notice clearly stating their intention to
revoke a proxy appointment to Link Group, PXS 1, Central Square, 29 Wellington
Street, Leeds LS1 4DL.
In the case of a member that is a company, the revocation notice must be executed
under its common seal or signed on its behalf by an officer of the company or an
attorney for the company. Any power of attorney or any other authority under which
the revocation notice is signed (or a duly certified copy of such power of attorney)
must be included with the revocation notice. If a member attempts to revoke their
proxy appointment but the revocation is received after the time for receipt of proxy
appointments then, subject to paragraph 2, the proxy appointment will remain valid.
4. Right to attend and vote
Pursuant to regulation 41 of the Uncertificated Securities Regulations 2001, the
Company specifies that in order to have the right to attend and vote at the meeting
(andalso for the purpose of determining how many votes a person entitled to attend
and vote may cast), a person must be entered on the register of members of the
Company at close of business on 10 June 2024 or, in the event of any adjournment, at
close of business on the date which is two business days before the day of the
adjourned meeting. Changes to entries on the register of members after this time shall
be disregarded in determining the rights of any person to attend or vote at the meeting.
5. Corporate members
Any corporation which is a shareholder can appoint one or more corporate
representatives who may exercise on its behalf all of its powers as a shareholder
provided that they do not do so in relation to the same shares.
6. Nominated persons
Any person to whom this notice is sent who is a person nominated under section 146
of the Companies Act 2006 to enjoy information rights (a “Nominated Person”) may
have a right, under an agreement between him/her and the member by whom he/ she
was nominated, to be appointed (or to have someone else appointed) as a proxy for
the meeting. If a Nominated Person has no such proxy appointment right or does not
wish to exercise it, he/she may have a right, under such an agreement, to give
instructions to the member as to the exercise of voting rights.
The statement of the above rights of the members in relation to the appointment of
proxies does not apply to Nominated Persons. Those rights can only be exercised by
shareholders of the Company.
7. Total number of shares and voting rights
As at 26 March 2024 (being the last practicable business day prior to the publication of
this notice) the Company’s issued share capital consists of 76,250,833 ordinary
shares, carrying one vote each. No shares are held in Treasury. The total available
voting rights in the Company as at that date are 76,250,833.
8. Website
Further information regarding the meeting which the Company is required by
section311A of the Companies Act 2006 to publish on a website in advance of the
meeting can be accessed at www.aurorainvestmenttrust.com.
104 Annual Report Notice of Meeting continued
9. Joint Shareholders
In the case of joint holders, the vote of the senior holder who tenders a vote whether
in person or by proxy shall be accepted to the exclusion of the votes of the other joint
holders and, for this purpose, seniority will be determined by the order in which the
names stand in the register of members of the Company in respect of the relevant
joint holding.
10. CREST Shareholders
Shareholders who hold their shares electronically may submit their votes through
CREST, by submitting the appropriate and authenticated CREST message so as to be
received by the Company’s registrar by not later than 48 hours before the start of the
meeting. Instructions on how to vote through CREST can be found by accessing the
following website: euroclear.com. Shareholders are advised that CREST and the
internet are the only methods by which completed proxies can be submitted
electronically.
If you are a CREST system user (including a CREST personal member) you can appoint
one or more proxies or give an instruction to a proxy by having an appropriate CREST
message transmitted. To appoint one or more proxies or to give an instruction to a
proxy (whether previously appointed or otherwise) via the CREST system, CREST
messages must be received by Link Group (ID number RA10) not later than 48hours
before the start of the meeting. For this purpose, the time of receipt will be taken to
be the time (as determined by the timestamp generated by the CREST system) from
which Link Group is able to retrieve the message. CREST personal members or other
CREST sponsored members should contact their CREST sponsor for assistance with
appointing proxies via CREST. For further information on CREST procedures,
limitations and system timings please refer to the CREST manual. The Company may
treat as invalid a proxy appointment sent by CREST in the circumstances set out in
Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.
11. Withheld votes and votes at discretion
A vote withheld is not a vote in law, which means that the vote will not be counted in
the calculation of votes for or against the resolutions. If no voting indication is given,
aproxy may vote or abstain from voting at their discretion. A proxy may vote (or
abstain from voting) as they think fit in relation to any other matter that is put before
the meeting.
12. Questions
Any member attending the AGM has the right to ask questions. The Company must
cause to be answered any such question relating to the business being dealt with at
the AGM but no such answer need be given if: (a) to do so would interfere unduly with
the preparation for the AGM or involve the disclosure of confidential information;
(b)the answer has already been given on a website in the form of an answer to a
question; or (c) it is undesirable in the interests of the Company or the good order of
the AGM that the question be answered.
Questions may be tendered ahead of the meeting, by email to: ARR@frostrow.com, or
by writing to the Company Secretary at the Company’s Registered address, which is
set out on page 35.
Annual Report Notice of Meeting continued 105
Notice of Meeting
13. Website statements from Shareholders
Under section 527 of the Companies Act 2006, members meeting the threshold
requirements set out in that section have the right to require the Company to publish
on a website a statement setting out any matter relating to:
(i) the audit of the Company’s accounts (including the Auditor’s report and the
conduct of the audit) that are laid before the meeting; or
(ii) any circumstance connected with an Auditor of the Company ceasing to hold
office since the previous meeting at which annual accounts and reports were
laid in accordance with section 437 of the Companies Act 2006.
The Company may not require the members requesting any such website publication
to pay its expenses in complying with sections 527 or 528 of the Companies
Act2006. Where the Company is required to place a statement on a website under
section 527 of the Companies Act 2006, it must forward the statement to the
Company’s Auditor not later than the time when it makes the statement available on
the website. The business which may be dealt with at the meeting includes any
statement that the Company has been required under section 527 of the Companies
Act 2006 to publish on a website.
14. Shareholder resolutions
Under sections 338 and 338A of the Companies Act 2006, members meeting the
threshold requirements in those sections have the right to require the Company:
(i) to give, to members of the Company entitled to receive notice of the meeting,
notice of a resolution which may properly be moved and is intended to be
moved at the meeting; and/or
(ii) to include in the business to be dealt with at the meeting any matter (other
than a proposed resolution) which may be properly included in the business.
A resolution may properly be moved or a matter may properly be included in the
business unless:
(a) (in the case of a resolution only) it would, if passed, be ineffective (whether by
reason of inconsistency with any enactment or the Company’s constitution or
otherwise);
(b) it is defamatory of any person; or
(c) it is frivolous or vexatious.
Such a request may be in hard copy form or in electronic form, and must identify the
resolution of which notice is to be given or the matter to be included in the business,
must be authorised by the person or persons making it, must be received by the
Company not later than 30 April 2024, being the date six clear weeks before the
meeting, and (in the case of a matter to be included in the business only) must be
accompanied by a statement setting out the grounds for the request.
106 Annual Report Notice of Meeting continued
Explanatory Notes to the Resolutions
Resolution 1 – To receive the Annual Report
The principal purpose for an annual general meeting is for members to formally
receive the Company’s annual report and financial statements. The Annual Report for
the year ended 31 December 2023, incorporating the financial statements and this
Notice of Meeting, will be presented at the AGM and shareholders will have the
opportunity to ask questions relating to it.
Resolution 2 – Dividend
The Board has recommended the payment of a final dividend to shareholders in
respect of the year ended 31 December 2023 of 3.45 pence per share in accordance
with the Company’s Dividend Policy and as required for maintaining investment trust
status. Itis necessary for shareholders to approve a final dividend before it is paid.
Resolution 3 – Remuneration Policy Implementation Report
It is mandatory for listed companies to put their report on the implementation of the
remuneration policy to an advisory shareholder vote every year. The Remuneration
Policy Implementation Report is set out on page 52 of this Annual Report.
Resolutions 4 to 7 – Re-election of Directors
Resolutions 4 to 7 deal with the re-election of the Directors. Biographies of each of
the Directors can be found on pages 33 and 34 of this Annual Report.
Specific reasons why (in the Board’s opinion) each Directors’ contribution is, and
continues to be, important to the Company’s long-term sustainable success are as
follows:
Lucy Walker
Lucy brings deep investment management experience, enabling her to engage with
the Investment Manager on portfolio and strategy, as well as a first-hand
understanding of the Company’s investor base.
Lady Rachael Robathan
Rachael has over 20 years’ experience as an investment manager as well as a broad
range of skills from her leadership of a major Local Authority and other Board roles.
David Stevenson
David has extensive fintech and financial services experience and as an investment
columnist for over 20 years has a deep understanding of the Company’s investor base.
He spends a vast amount of time talking to investors, both professional and private,
about funds and asset allocation. He is additionally a very experienced fund non-
executive director and chair.
Farah Buckley
Farah has over 20 years’ experience in financial services across audit, mergers and
acquisition and private equity. She has a deep understanding of investment
performance, ESG and technology which broadens and complements the other
Directors in their oversight of the investment activities of the Company, benefitting the
activities of the Board and the Company.
Annual Report Notice of Meeting continued 107
Notice of Meeting
Resolution 8 – Re-appointment of the Auditor and the determination of their
remuneration
Resolution 8 is for the re-appointment of BDO LLP as the Company’s independent
Auditor to hold office until the next AGM of the Company and also authorises the
AuditCommittee to set their remuneration. Following the implementation of the
Competition and Markets Authority order on Statutory Audit Services, only the
AuditCommittee may negotiate and agree the terms of the Auditor’s service agreement.
Resolutions 9 and 10 – Issue of Shares
Ordinary Resolution 9 in the Notice of Annual General Meeting is to renew the
authority to allot new ordinary shares up to an aggregate of 20% of the Company’s
existing issued share capital at the date of the Annual General Meeting. As at the date
of this annual report this amounted to 15,250,166 shares. This authority (if granted)
will expire on the date of the next Annual General Meeting or after a period of
15months from the date of the passing of the resolution, whichever is earlier. This
means that the authority will have to be renewed at the next Annual General Meeting
unless previously renewed.
When shares are to be allotted, Section 551 of the Companies Act 2006 (the “Act”)
provides that existing shareholders have pre-emption rights and that the new shares
must be offered first to such shareholders in proportion to their existing holding of
shares. However, shareholders can, by special resolution, authorise the Directors to
allot shares otherwise than by a pro rata issue to existing shareholders. Special
Resolution 10 will, if passed, give the Directors power to allot (and/or sell from
Treasury) for cash equity securities up to the equivalent of 20% of the Company’s
existing share capital, as if Section 551 of the Act does not apply. This is the same
nominal amount of share capital that the Directors are seeking the authority to allot
pursuant to Resolution 9. This authority will also expire on the date of the next Annual
General Meeting or after a period of 15 months, whichever is earlier. This authority will
not be used in connection with a rights issue by the Company.
The Directors intend to use the authority given by Resolutions 9 and 10 to allot shares
and disapply pre-emption rights only in circumstances where this will be clearly
beneficial to shareholders as a whole. The issue proceeds would be available for
investment in line with the Company’s investment policy. No issue of shares will be
made which would effectively alter the control of the Company without the prior
approval of shareholders in general meeting.
Resolution 11 – Share Repurchases
The principal aim of a share buy-back facility is to enhance shareholder value by
acquiring shares at a discount to net asset value, as and when the Directors consider
this to be appropriate. The purchase of shares when they are trading at a discount to
net asset value per share should result in an increase in the net asset value per share
for the remaining shareholders. This authority, if conferred, will only be exercised if to
do so would result in an increase in the net asset value per share for the remaining
shareholders and if it is considered to be in the best interests of shareholders
generally. Any purchase of shares will be made within guidelines established from
time to time by the Board.
Under the current Listing Rules, the maximum price that may be paid on the exercise
of this authority must not exceed the higher of (i) 105% of the average of the middle
market quotations for the shares over the five business days immediately preceding
the date of purchase and (ii) the higher of the last independent trade and the highest
current independent bid on the trading venue where the purchase is carried out. The
minimum price which may be paid is 25p per share.
Special Resolution 11 in the Notice of Annual General Meeting seeks to renew the
authority to purchase in the market a maximum of 14.99% of shares in issue
(amounting to 11,429,999 shares at the date of this Annual Report). The authority
(ifgranted) will expire on the date of the next Annual General Meeting or after a period
of 15months from the date of passing of the resolution, whichever is earlier. This
means in effect that the authority will have to be renewed at the next Annual General
Meeting or earlier if the authority has been exhausted.
Resolution 12 – General Meetings
Special Resolution 13 seeks shareholder approval for the Company to hold General
Meetings (other than the AGM) on 14 clear days’ notice, which is the minimum notice
period permitted by the Companies Act 2006. This is a routine resolution necessitated
by the EU Shareholder Rights Directive, which has been transcribed into UK law.
The Company will only use this shorter notice period where it is merited by the
purpose of the meeting and will endeavour to give at least 14 working days’ notice if
possible.
Recommendation
The Board considers that the resolutions relating to the above items are in the best
interests of shareholders as a whole. Accordingly, the Board unanimously
recommends to shareholders that they vote in favour of the above resolutions, as the
Directors intend to do in respect of their own beneficial holdings totalling
58,650shares.
108 Annual Report Notice of Meeting continued