TIDMARR
RNS Number : 7004P
Aurora Investment Trust PLC
09 June 2015
ANNUAL FINANCIAL REPORT ANNOUNCEMENT
AURORA INVESTMENT TRUST PLC
YEAR ENDED 28 FEBRUARY 2015
STRATEGIC REPORT
OBJECTIVE
Capital appreciation through investments listed mainly on the
London Stock Exchange.
POLICY
To invest primarily in equities, but with some exposure also to
Fixed Interest. The portfolio comprises a mix of large, mid and
smaller capitalised stocks. A distinctive feature is an emphasis on
investments in companies with exposure to economies growing at a
faster rate than the UK.
BENCHMARK
Performance is benchmarked against that of the overall London
market
Five years
Year ended ended Since launch
28 February
28 February 2015 2015 (13/3/1997)
%% %
Net Asset Value per share (NAV)^ -10.64 -10.52 +75.26
Benchmark^ +2.12 +36.81 +73.66
--------------------------------- ---------------- ----------- ------------
^ capital-only return
* by reference to a starting value of 97.78p (net of launch expenses)
DIVIDEND
The Directors recommend an increased dividend of 3.85p per share
(2014: 3.80p) (18th consecutive annual increase).
CHAIRMAN'S STATEMENT
Once again events have transpired to nip in the bud what
appeared to be the turning point in the Company's fortunes. Slight
under-performance in the first half of the year was undermined by
the performance in the second half when the dramatic slump in the
price of oil and other forms of energy adversely affected holdings
that make up an important part of the Company's portfolio.
The result for the year as a whole was an underperformance of
12% relative to the Benchmark FTSE All-Share index. Unfortunately,
the good performance by the stocks in the portfolio with large
capitalisations was severely outweighed by that of the more
exciting smaller capitalisations, many of which have endured harsh
bear market conditions. It is to be hoped that their time is about
to arrive. It is encouraging that in the last three months the NAV
per share has recovered by an increase of 8.5% which compares very
favourably with the 0.95% rise in the FTSE All-Share Index.
Performance
Aurora (NAV per Share) Benchmark
% %
Since Launch 13/03/97 +75.26 +73.66
5 Years -10.52 +36.81
3 Years -20.23 +23.01
1 Year -10.64 +2.12
In recent months the focus of attention has been on the
timetable and extent of US interest rate increases and the effects
of the rise of the US Dollar. These factors have continued to
favour developed at the expense of emerging markets. China,
however, is performing as a developed market in this context, being
a beneficiary of falling commodity prices. The conditions likely to
lead to strong relative performance for the Company's investments
have also been deferred, despite their superior long-term
prospects.
The worldwide background for equities, although intermittently
threatened by regional political tensions (Syria, Ukraine etc.) has
been supported by strong cash flows and attractive yields in
comparison with those available from bonds. Further support has
been forthcoming from low rates of inflation and interest rates at
a time of a reasonably robust economic recovery in both the US and
UK. The Conservative victory in the General Election is construed
to be good for business. The Conservative victory also gives the
Government the opportunity for much needed economic and political
reforms.
Within the Eurozone, with the exception of Germany, there has
been little economic recovery. The consequence has been that youth
unemployment remains at unacceptably high levels and there are
growing worries over disinflation in the peripheral economies.
Recently, the ECB has belatedly embraced a programme of
Quantitative Easing in an attempt to address these issues, although
this is likely to be of little help to the real economies other
than via a weaker Euro.
Meanwhile China has continued to prove a conundrum for
investors. The attractions of its seemingly high but slowing
economic growth have been undermined by worries about the inherent
risks attached to the shadow banking system, possible excess
capital investment in certain areas and the overwhelming prevalence
of corporate governance issues. Nevertheless, led by the large
market capitalisations, the Chinese stock-market has been the best
performing of all the major stock-markets over the preceding twelve
month period. This wave of optimism did not, however, reach the
smaller capitalisations during the year under review.
Outlook
The anticipated eventual increase in US Dollar interest rates,
following a record period of exceptionally low rates, has to date
been greeted with equanimity in developed markets because the rise
is deferred and is expected to be very gradual; indeed, a number of
markets have recently reached new all-time peaks. Several emerging
markets, particularly those which link their currencies to the US
dollar, have suffered and performed poorly, despite their superior
economic performance. China, as already mentioned, has proved the
exception.
In view of the scale of the output gap which exists in most
economies, interest rates look set to remain relatively low for an
extended period. This is particularly relevant to the Eurozone
where there is the threat of deflation becoming entrenched.
Moreover the whole concept of the Eurozone is being threatened by
Greece's potential debt default and the likely shockwaves of such
an event.
At current levels of valuation most major stock markets are
anticipating a prolonged period of better economic and trading
conditions, which looks to be achievable. The UK recovery needs to
broaden out to demonstrate that it is not based solely on service
industries, government financed property price inflation and
excessive consumer borrowing, as in the past.
Currently the optimism permeating the Chinese stock-market is
starting to filter through to medium and smaller capitalisations in
the domestic market. The Chinese stocks quoted on the AIM market
remain at absurdly low levels, some of which are even trading at a
fraction of their holdings of net cash, as the result of prevailing
worries over perceived corporate governance issues. Hopefully, many
of these worries will abate and prove unfounded.
The Board believes that against this background there is
considerable scope for the performance of Aurora's current
portfolio to improve and reverse the disappointment of recent
periods which was exacerbated by the Company's 20% gearing.
Continuation
At last year's AGM shareholders approved the Company's
continuation for a further three years. The Board undertook to find
a resolution for the Company's future thereafter. I have since met
with ten interested parties. Most of the possible new arrangements
would appear to meet the objectives of the Board to provide an
attractive continuing vehicle and a cash alternative. We will start
to evaluate these next year.
Dividend
The Board has decided to propose a further (18th consecutive)
increase in the dividend from last year's level of 3.8p to 3.85p,
paid from the Company's revenue profit of GBP415,841.
AGM
I look forward to welcoming shareholders at the Company's AGM
which will be held at 12.00 noon on Friday 16 July 2015 at the
offices of Cavendish Administration Limited, 145-157 St John
Street, London EC1V 4RU.
Lord Flight
Chairman
9 June 2015
INVESTMENT MANAGER'S REVIEW AND OUTLOOK
Early one cold morning, a year ago, I engaged in conversation
with the BBC's attractive and capable, then current, economics
correspondent and asked her for her predictions for the coming
year. In a word 'Normalisation' was her quick reply. In one respect
she has been proved correct - China has, last year, re-emerged once
again (it lost its status in about 1820) as the world's most
powerful economy measured in parity of purchasing power terms.
In many other respects, the year has been marked by seismic and
unpredicted change. Not only has Hampshire and East Midlands
suffered from more powerful earthquakes than any caused by the
energy companies engaged in 'fracking' activities in the UK, but
the Swiss Franc and the price of oil, iron ore and copper have all
endured dramatic movements.
Two thirds of all European bonds now have negative yields, and
there is not a single issue in the UK gilt list priced below par
value (I think the phrase 'conservative recklessness' by
institutional managers is a highly appropriate criticism and, as
has been quipped a few times, these investments are no longer a
risk-free return, more a return-free risk). At the same time the
Nestle Company is now being paid to issue bonds - is this the first
case in history of successful alchemy? When will they pay me to eat
their chocolates I wonder? Moreover, an event unimaginable during
the lifetimes of a previous generation has occurred - War Loan has
been redeemed. Sadly the manager has not! At times I found the
market's trajectory as mysterious as that of the missing Malaysian
flight MH370.
The portfolio has suffered from a further severe
underperformance during the year on account of its high exposure to
Asia, materials and smaller companies. Would that I had benefited
from the same intuition in selecting stocks as Ms Philippa Langley,
who located the grave of King Richard III in a car park on her very
first visit to Leicester.
I feel highly frustrated because I have in the past correctly
forecast several macro-economic themes, namely the onset of
disinflation as early as the mid 1990's and the stupidity of the
construction of the Eurozone and how this would lead to areas of
high unemployment and little or slow growth leading to its eventual
breakup. My logical conclusion was that, at a time when organic
growth would become the scarcest of all commodities, the dynamism
of Asia would be re-rated by investors. How wrong I have been
proved. I under-estimated the lack of investor appetite for risk in
conjunction with the power of the regulator to cause fear in the
minds of the investment community and seek safety in preference to
'growth potential' acting with lemming style behaviour. I also
under estimated the propensity for Chinese companies to become
involved in scandals and the market's ability to tar both the good
and the bad with the same brush.
If the smaller capitalisations within the portfolio have fared
badly, the same is not true for the larger stocks. For most of the
year BTG was the largest holding in the portfolio. Its share price
continued to rise strongly for the first eleven months, spurred on
by a string of exciting announcements about its innovative new
medical products and treatments; this strength provided the
opportunity to take considerable profits.
In an era of increasing competitiveness, with margins under
pressure even in obvious renaissance industries such as UK motor
manufacturing, I found it difficult to find enthusiasm for new
holdings on account of the absence of the key ingredient of strong
relative pricing power. Once again I resorted to my old favourite,
the housebuilding sector, to which the government has introduced a
variety of new initiatives to stimulate the economy and help the
young onto the housing ladder. As a result, the figure for newly
constructed homes rose to 125,000. Although this represents an
uplift relative to the previous year, when viewed in comparison
with the figure for net immigration of 290,000 it is derisory; no
wonder the housing shortage persists and house prices look set to
continue to rise for many years to come.
Not only was an addition made to the existing holding of
Persimmon, but new holdings were taken in Berkeley Group and one
initiated in Barratt Developments. Both the prolific dividends
received from these holdings and also the share price performances
have exceeded my highest expectations.
The holding in Ashtead, the UK quoted but US based (currently
with the second largest market share in the USA) plant hire company
continues to thrive. Its profits growth, which arises from a
combination of infill acquisition, superior purchasing power and
structural change in the construction industry, has been propelled
upwards. Importantly, the prospect of a continuation of these
favourable conditions look set for several more years in view of
the high probability of an extended cycle. Eventually, however,
when the inevitable slowdown occurs, it has the ability to generate
huge amounts of surplus cash. In common with BTG, this stock is
predominantly a US $ earner, and thus a beneficiary of any sterling
weakness/dollar strength.
Aberdeen Asset Management's share price has suffered from an
extended period of fund outflows, such is the lack of appetite for
investing in Asia currently, with the sole exception of Prudential
whose share price prospered. Hopefully these flows will soon
reverse when investors see new highs in the Chinese, Hong Kong and
Indian markets appearing; so far this calendar year they have at
long last outperformed Developed markets by a considerable
margin.
Gresham Computing Plc, which is involved in the provision of
real-time financial transaction control software packages,
unfortunately had to issue a profits warning in the autumn, which
seriously knocked the share price; this was necessary due to the
length of time new customers took to adopt the systems and for a
revenue stream to start to flow. The company, however, is brimming
with confidence. Already this calendar year it has been able to
announce a series of newly won customers from a variety of sectors,
but also has been able to expand the size of existing contracts, on
account of the quality of its service. The immediate future
potential is enormous at a time of ever increasing regulation.
Igas Energy, a company which is producing one million barrels of
oil per year from conventional wells onshore within the UK, has
seen its share price collapse on the back of the dramatic fall in
the oil price, which few predicted. During the past year it has
increased its acreage of licences through the purchase of Dart
Energy and in all probability in the most recent licensing round,
where awards are still to be announced. Moreover it has drilled
several test bores in the exciting Bowland shale region in the
North West. The initial results have been indicated to be extremely
positive, although they are still undergoing further analysis.
Recently the company has done a significant "farm-out" deal with
Ineos (in addition to those done previously with Total) to help
fund a major drilling programme. Overall, it has $285 million of
funding available for this purpose. The recent win by the
Conservative Party should greatly facilitate this programme as well
as foster improved sentiment towards the company. As reported by
the British Geological Society, the reserve potential is
enormous.
The mining stocks in the portfolio have all performed badly
during the year on account of falling commodity prices. I had
wrongly assumed that these would have remained firmer as the
rapidly growing nations continue to devour huge quantities of
commodities to facilitate their continuing growth, even if the more
modest demand from Europe has stagnated. It is now evident that the
new sources of supply had been under estimated and at the same time
a degree of destocking by China has occurred; iron ore is the
obvious example.
Medusa Mining's share price suffered badly last year not only
from a lacklustre gold price but also from operational difficulties
during the installation of a new and larger crushing mill; in
addition there were other management failures. New management,
however, has since been appointed. In consequence, the outlook is
greatly improved as production now appears to be on course to
double and costs reduce as the problems are gradually being
surmounted. Importantly, there is a long visible future life for
this low cost mine as well as the high probability of a second mine
being commenced at a later date. Confidence in the shares should
therefore return soon, provided that the production continues to
expand as planned.
BSD Crown (formerly Emblaze) had mixed results from its court
case against Apple Inc. for unpaid royalties. The jury in Apple's
home town confirmed that there was a valid patent in place but,
rather curiously decided that Apple had not infringed this patent,
and so awarded no royalties. This news obviously was most
disappointing for loyal shareholders.
The company is now waiting to hear whether or not it can appeal
to a higher court. At a later date, it intends to bring a similar
case against Microsoft (which the company considers to be a softer
target).
Asian Citrus suffered from a third year of horrendous weather.
Severe frosts and a typhoon severely damaged one orange grove,
where many of the trees are now suffering from disease; the high
winds also destroyed all the newly planted banana trees. Not only
will the production be at a lower level for the next two years but
also the cost of replanting, combined with additional manure,
sprays and labour costs, will be heavy. Accordingly, it is highly
probable that the group may, during this difficult period, incur a
loss. Not surprisingly many investors have dumped their holdings
after such a string of bad news from this unlucky company, leaving
the share price at a miserably low fraction of the value of the
holding of net cash alone, thus making the company vulnerable to
any takeover attempt, possibly by a foreign (Brazilian) buyer. I,
however, remain resolutely confident that the plantations are being
well managed in exceptionally difficult circumstances.
Overall, in the longer term, the orange groves have the
potential to more than triple production as the trees mature,
moreover the fruit juice division, which has nearly doubled in size
to 100,000 tonnes p.a., should soon be operating at full capacity.
Hopefully, it will not take too long before the company once more
is spinning off prodigious amounts of cash and thereafter returns
to favour amongst investors - the company is after all well
positioned to benefit from the inevitable consumer boom, which the
Chinese government is planning to engineer as it re-orientates the
economy away from being investment led.
The share price of West China Cement has performed strongly in
recent months as a result of reductions in interest rates and
having been awarded a steady stream of contracts (high speed rail
and other infrastructure projects). The company is, however, still
suffering in the more competitive (lowland) half of its operating
area from excess capacity problems and depressed cement prices. It
is to be hoped that there are further stimulatory measures taken by
the government, which ameliorate the situation in terms of both
volume and pricing.
Unfortunately Naibu, a Chinese manufacturer and retailer of
sports shoes and clothing in tier 3 cities, which appeared
attractive on account of its high dividend yield, strong balance
sheet and attractive valuation, has encountered a governance
problem when the chief executive ceased to communicate with the
non-executive directors. The latter have wisely and appropriately
suspended the shares and an investigation is in progress. The
Company's holding has been valued at zero until there is an
announcement.
Sirius Minerals, which is proposing to exploit a massive deposit
in North Yorkshire of polyhalite (type of potash), is a small, new
entrant to the portfolio. The investment was made, supposedly on a
very short term basis, on the grounds that planning permission to
commence mining operations was projected to be granted at the turn
of the year; whereas it has now been postponed until the summer. In
addition to the considerable benefit to the nation's balance of
payments that full development of the project will bring, the
economic impact on this area of high unemployment is important.
Since the transport arrangements have been revised to minimise the
environmental impact, there is increased confidence that the
members on the North York Moors committee will look favourably on
this scheme of significant national importance.
Outlook
Led by the US economy the world-wide economic recovery
continues. Whilst the rate of US unemployment continues to fall
from month to month the level of wages has not yet started to rise.
Moreover manufacturing industry continues to fluctuate. In that
light, the Federal Reserve Board views the economy to be in
possession of plenty of spare capacity and remaining fragile.
Although commentators opine frequently about the date of an
impending rate rise, somehow that date keeps being delayed.
A major boost to the US economy is emanating from the huge fall
in the price of shale gas, resulting from the success of the
fracking industry; this provides the US with a major advantage over
the Far East competition where the price is three times higher.
On-shoring of the chemicals industry is accordingly occurring. A
further notable feature is the construction of seaboard export
terminals for LNG with the intention of flooding Europe with cheap
gas, thus making this continent less dependent on exports from
Russia.
In the Eurozone the outlook is much less healthy having been
adversely affected, inter alia, by sanctions against Russia. Only
Germany is prospering as a direct result of the weakness of the
euro which has aided its export trade. France and Italy are faring
less well. Greece is tottering on the brink of defaulting on its
debts while other peripheral countries are stagnating and suffering
from actual deflation. Signor Draghi has finally resorted, albeit
far too late, to the implementation of Q.E, which is starting to
have some effect on the markets. My suggestion is that he
immediately gives a consultancy to Robert Mugabe to help combat the
serious threat of deflation before it takes hold too strongly!
In Asia the various economies continue to expand, albeit not at
the rip-roaring pace prevalent prior to the financial crash. The
Japanese stock-market, aided by stimulatory measures, is achieving
new (but not all-time) highs accompanied by Hong Kong, India and
other markets.
During the last six months the Chinese government has not only
relaxed the reserve ratio requirements to boost the economy, but
has reduced the official rate of interest no less than three times.
It is therefore not surprising that the Chinese stock-market should
perform so well (indeed at a time of falling property prices)
against such a background, in fact more strongly than any other
major stock-market. Individuals are opening new accounts with
stockbrokers in record numbers having found an alternative outlet
to residential property for their savings. Hopefully, this
enthusiasm will feed through into the smaller capitalisations, to
which the portfolio is exposed and where the valuations are
derisory.
Rarely in history has the outlook for the British economy
changed so dramatically in the space of one minute, as it did at
22.01pm on 7th May on publication of the exit poll following the
general election. Prior to that moment a government hostile to
business had been universally predicted to take office. In
consequence of Mr Cameron having gained an overall, if slim,
majority there is now no longer the necessity for weeks of
horse-trading between the parties, in order to form a government,
which would have introduced much uncertainty.
There will also occur less state intervention and less
regulation and a lower degree of fear of rising taxation than if
the opposition had been victorious. The UK economy should therefore
regain momentum in the coming months, as investment programmes are
reinstated and consumer confidence continues to rise against a
background of record numbers employed, and falling unemployment,
despite wages not rising.
Furthermore, as appetite for risk-taking slowly and inevitably
increases, investor sentiment is likely to improve, which should
benefit at long last the holdings in the portfolio with the most
exciting prospects. Needless to say they are the smaller companies,
which hitherto have been deemed too illiquid, under-analysed and
too risky for the average investor, who has ignored them.
I very much hope and indeed expect much of this potential to be
realised over the coming twelve months after such a long delay.
James Barstow
Mars Asset Management Limited
9 June 2015
INVESTMENT POLICY AND PERFORMANCE
This report deals with the results of Aurora Investment Trust
plc and its subsidiary ("the Group").
Investment Policy
The Company's objectives are pursued through investments in
securities, the majority of which are listed on the London Stock
Exchange, predominantly comprising equities but allowing exposure
to fixed interest and equity related securities. The portfolio
comprises a mix of large, mid and smaller capitalised stocks. A
distinctive feature is an emphasis on investments in companies with
exposure to economies growing at a faster rate than the UK.
In pursuing this policy, the Investment Manager takes into
account the following considerations:
Distribution of the portfolio relative to the benchmark
An element of risk is inherent in investment undertaken on a
selective basis. The Company seeks to mitigate the degree of risk
by investing in securities in substantial organisations, normally
listed and traded on the London Stock Exchange, and by spreading
its investments across a range of such securities.
The benchmark is the FTSE All-Share Index, which is an index of
over 700 of the largest capitalised stocks quoted on the London
market. This Index is not only representative of the UK economy but
also includes a significant degree of international exposure,
because the London Stock Exchange has become the stock market of
choice for many of the emerging world's largest companies and,
furthermore, many of the largest stocks are multinational companies
with the majority of their revenues derived outside the UK.
Therefore, the Investment Manager can achieve the aim of exposure
to fast-growing economies while investing selectively in stocks
quoted on the London market. However, the Investment Manager makes
no attempt to replicate the benchmark and the weightings of the
portfolio to particular sectors may differ significantly from those
of the benchmark.
A performance fee is payable to the Investment Manager only if
the benchmark is beaten and a NAV is achieved that is greater than
the NAV at the time when the previous performance fee was paid.
Risk diversification
At 28 February 2015 the Company and its subsidiary held 43
stocks, spread across 9 main sectors.
The Board does not believe that it should normally or
continuously impose prescriptive limits on the Investment Manager
regarding the geographic breakdown or distribution by sector of the
portfolio. However, these matters are a subject of repeated
discussion between the Board and the Investment Manager and from
time to time particular informal limits are agreed between
them.
Gearing Policy
Borrowings are limited by the articles to a maximum of 30% of
NAV and by the Company's bank covenant to 25% of NAV. The Board has
adopted a policy whereby under normal circumstances borrowings are
to be kept to within approximately 20% of the Company's NAV, but
with the flexibility to rise for limited periods. This flexibility
is considered desirable to avoid the possibility of forced sales in
adverse market conditions.
The Board keeps the level of gearing and the extent, if any, of
borrowing in foreign currencies under close review.
Hedging
The Company does not use derivatives to hedge market or currency
exposure.
Objectives and key performance indicators (KPIs)
The Company's principal investment objective is to achieve
capital growth. The Company's ability to attain its objectives is
measured by reference to KPIs as follows:
(a) The Company seeks to achieve a positive total return over
the long-term. To measure its success, the Board compares
shareholders' returns from owning the shares (share price
appreciation and dividends) over one and five years and since
launch to the return on an appropriate gilt-edged security (without
reinvestment of dividends or interest). The Board considers
long-term performance to be of greater importance than short-term
and that the five-year comparison is the Company's Primary KPI.
(b) The Company's Benchmark is the FTSE All-Share Index, against
which the Net Asset Value (NAV) return (capital only) is compared.
After achieving the goal of making absolute returns for
shareholders, the next aim is to provide a better return from the
portfolio than from the market as measured by the Benchmark.
(c) The Company also seeks to outperform other companies that it
considers to be its Peer Group. The Company's one and five year
returns are therefore compared with those of the AIC UK Growth
Sector Weighted Average.
(d) The Company seeks to ensure that the operating expenses of
the Company as a proportion of NAV (the ongoing Charges Ratio) are
reasonable.
The Board has also sought to achieve a dividend rising in line
with inflation, although this is not defined as a KPI.
Performance
The Investment Manager is Mars Asset Management Limited (Mars),
which is regulated by the FCA. The main fund manager is James
Barstow (managing director of Mars). Mr Barstow reports in detail
upon the Company's activities in his Report.
The Company's performance relative to the KPIs described above
was as follows:
(a) Performance of share price vs. gilt edged security
Five
Year years
ended ended Since
28 February 28 February launch
2015 2015 (1997)
Share price and
dividends (8.85%) +3.79% +101.48%
Treasury 8% stock
2015 and interest +0.65% +15.12% +138.79%
The Company has not achieved this KPI in any of the periods.
(b) Performance of NAV vs. Benchmark
Five
Year years
ended ended Since
28 February 28 February launch
2015 2015 (1997)
Net Asset Value
per share (10.64%) (10.52%) +75.26%*
Benchmark +2.12% +36.81% +73.66%
All NAV figures are for capital-only performance
*by reference to a starting value of 97.78p (net of launch
expenses).
The Company has achieved this KPI since launch, but not over one
or five years.
(c) Performance vs. Peer Group
Five years
Year ended ended
28 February 28 February
2015 2015
Net Asset Value per
share (10.64%) (10.52%)
AIC UK Growth Sector
Weighted
Average (3.9%) +102.7%
The Company has not achieved this KPI over one or five
years.
(d) Ongoing Charges Ratio
Year ended Year ended
28 February 28 February
2015 2014
Ongoing Charges
Ratio 2.25% 2.18%
The ratio is calculated excluding finance costs but including
operating expenses charged to capital and applied to the average
NAV of the year. Expenses of a type not expected to recur under
normal circumstances are excluded from the calculation.
Increase in dividend
The Company has succeeded in achieving a steady increase in the
level of dividend paid over the past 17 years. Another modest
increase is proposed in respect of the year ended 28 February 2015.
The directors are recommending a dividend of 3.85p per share (2014:
3.80p per share).
Revenue result and dividend
The Group's revenue profit after tax for the period amounted to
GBP78,553 (2014: profit GBP1,208,986). The Company made a revenue
profit after tax of GBP415,841 (2014: GBP374,209).
At the Annual General Meeting on 16 July 2015, a resolution will
be proposed to approve a final dividend of 3.85p (2014: 3.80p) per
ordinary share, absorbing GBP400,287 (2014: GBP395,088). The final
dividend will be paid on 27 July 2015 to shareholders on the
register at 19 June 2015; the ordinary shares will go ex-dividend
on 18 June 2015. In accordance with International Financial
Reporting Standards this dividend is not reflected in the financial
statements for the year ended 28 February 2015.
Risk analysis
The Board considers that the principal risks faced by the
shareholders of the Company fall into two categories:
External Risks
Poor performance in the UK and/or world economies; poor
corporate profits and dividends.
Poor stock market performance caused by market-specific factors,
such as rising interest rates, the unwinding of "bubbles" or
disinvestment by institutions, superimposed on general economic
factors, or caused by shocks, wars, disease etc. The Board does not
consider, however, that short-term volatility represents a risk
that the Company seeks to avoid, since it regards long-term
performance to be of primary importance.
Internal Risks
Poor asset management, which may include poor stock selection,
excessive concentration of the portfolio, mistakes regarding
currency movements, speculation in shares of companies without
sound or established businesses and speculation in derivatives.
Poor control of borrowing, including borrowing at excessive
rates of interest relative to likely returns and borrowing
excessive amounts leading to the breach of covenants and possible
enforced sales of assets at disadvantageous prices.
Poor governance, compliance or administration, including
particularly the risk of loss of investment trust status.
All these and other risks can result in shareholders not making
acceptable returns from their investment in the Company.
Risk controls
External risks
Information on the mitigation of risk by diversification and by
control of gearing and hedging is given in the Investment Policy
section.
Further details concerning currency risks, liquidity risks and
interest rate risks are given in note 19.
Internal risks
The control of risks related to governance, compliance and
administration is dealt with in the report on Corporate
Governance.
Social, ethical, human rights and environmental matters
Being an investment company, with no staff, premises,
manufacturing or other operations of its own, the Company does not
have any direct influence on social, ethical, human rights and
environmental matters. The Company has no greenhouse gas emissions
to report from its operations, nor any responsibility for emission
producing sources. However, the Investment Manager bears in mind
such matters when choosing investments and aims to avoid investment
into companies that are found to perform badly in those areas.
Boardroom diversity
The Company has no employees other than the Directors. At 28
February 2015 the Company had four directors, all of whom were
male. The Company's policy is that the Board should have a broad
range of skills; while keeping this in mind, consideration is given
to the recommendations of the AIC Code and other guidance on
boardroom diversity.
Five year summary
The following data are all expressed as pence per share. They
are shown both as previously published and as adjusted by adding
back the final dividend for each year.
NAV Dividend in Share price
respect of
Year per share year (mid market)
2011 269.24 3.50 246.00
2012 214.84 3.55 175.75
2013 186.13 3.75 152.75
2014 191.78 3.80 166.00
2015 171.37 3.85 147.50
(At 18 May 2015 the NAV per share
was 185.99p.)
Outlook
The outlook for Aurora is discussed in the Chairman's Statement
and the Manager's Review and Outlook.
TOP TEN HOLDINGS - CONSOLIDATED
At 28 February 2015
All holdings are of ordinary shares, unless otherwise stated
Percentage
By valuation of
GBP'000 Portfolio
Persimmon 2,469,600 11.41
BTG 2,199,650 10.17
Ashtead Group 1,783,500 8.25
Berkeley Group 1,438,800 6.65
Aberdeen Asset Management 1,405,800 6.50
Royal Dutch Petroleum 1,323,300 6.12
Lloyds Bank 11.75%
PIBS 990,000 4.58
West China Cement 960,238 4.44
Gresham Computing 858,000 3.97
Prudential 814,500 3.77
14,243,388 65.86
Other holdings 7,385,085 34.14
Total investments
- consolidated 21,628,473 100.00
-------------------------- ------------ ----------
PORTFOLIO ANALYSIS
At 28 February 2015
Percentage
of
Portfolio
Information Technology
Services 6.47
Resources 15.48
General Industries 35.15
Consumer Goods 15.94
Cyclical Services 1.45
Pharmaceuticals 3.21
Financial Services 15.08
Fixed Interest 6.90
Transport 0.32
100.00
----------------------- ----------
ANALYSIS OF INVESTMENTS BY SECTOR - CONSOLIDATED BY MARKET
VALUE
At 28 FEBRUARY 2015
All holdings are of ordinary shares, unless otherwise
indicated
Company Subsidiary Total Percentage
Investments Investments Value of
Company GBP'000 GBP'000 GBP'000 Portfolio
Fixed income Amlin 6.5% Bond 502 - 502 2.32
Lloyds Bank 11.75% PIBS 990 - 990 4.58
1,492 - 1,492 6.90
Banks, Retail HSBC Holdings 409 - 409 1.89
Financial Services Charlemagne Capital 171 - 171 0.79
Aberdeen Asset Management 1,406 - 1,406 6.50
Hargreaves Lansdown 23 - 23 0.10
Jupiter Fund 41 - 41 0.19
1,641 1,641 7.58
Information Technology Gresham Computing 858 - 858 3.97
Services
B.S.D. Crown Limited 470 70 540 2.50
1,328 70 1,398 6.47
Insurance Amlin 397 - 397 1.83
Prudential 814 - 814 3.77
1,211 1,211 5.60
Mining Anglo Pacific 138 - 138 0.64
Antofagasta 345 - 345 1.60
Coal of Africa - 15 15 0.07
GCM Resources 198 10 208 0.97
Sirius Minerals 40 276 316 1.46
Medusa Mining Ltd 121 - 121 0.56
Rio Tinto 479 - 479 2.21
Glencore Xstrata 241 - 241 1.11
1,562 301 1,863 8.62
-------------------------------------------------- ----------- ----------- ------- ----------
Non-Cyclical
-------------------------- ----------- ----------- ------- ----------
Asian Citrus 439 - 439 2.03
-------------------------------------------------- ----------- ----------- ------- ----------
Consumer Goods
-------------------------- ----------- ----------- ------- ----------
BTG 2,200 - 2,200 10.17
-------------------------------------------------- ----------- ----------- ------- ----------
Purecircle Ltd 810 - 810 3.74
-------------------------------------------------- ----------- ----------- ------- ----------
Naibu Global 0 - 0 0.00
-------------------------------------------------- ----------- ----------- ------- ----------
3,449 3,449 15.94
-------------------------------------------------- ----------- ----------- ------- ----------
Pharmaceutical
-------------------------- ----------- ----------- ------- ----------
Glaxosmithkline 693 - 693 3.21
-------------------------------------------------- ----------- ----------- ------- ----------
Oil Exploration
&
-------------------------- ----------- ----------- ------- ----------
Petro Matad 28 - 28 0.13
-------------------------------------------------- ----------- ----------- ------- ----------
Production
-------------------------- ----------- ----------- ------- ----------
Premier Oil 135 - 135 0.62
-------------------------------------------------- ----------- ----------- ------- ----------
Royal Dutch Petroleum
'B' 1,323 - 1,323 6.12
-------------------------------------------------- ----------- ----------- ------- ----------
IGAS Energy 189 14 203 0.94
-------------------------------------------------- ----------- ----------- ------- ----------
1,675 14 1,689 7.81
-------------------------------------------------- ----------- ----------- ------- ----------
General Industrials
-------------------------- ----------- ----------- ------- ----------
Aggreko 597 - 597 2.76
-------------------------------------------------- ----------- ----------- ------- ----------
Transport
-------------------------- ----------- ----------- ------- ----------
China Chaintek 70 - 70 0.33
-------------------------------------------------- ----------- ----------- ------- ----------
Oil, Integrated
-------------------------- ----------- ----------- ------- ----------
BG Group 48 - 48 0.22
-------------------------------------------------- ----------- ----------- ------- ----------
Cyclical Services
-------------------------- ----------- ----------- ------- ----------
Ceres Power Holdings 258 - 258 1.19
-------------------------------------------------- ----------- ----------- ------- ----------
China New Energy 12 - 12 0.06
-------------------------------------------------- ----------- ----------- ------- ----------
Atlantis Resources 42 42 0.19
-------------------------------------------------- ----------- ----------- ------- ----------
312 - 312 1.44
-------------------------------------------------- ----------- ----------- ------- ----------
Basic Industries
-------------------------- ----------- ----------- ------- ----------
West China Cement 960 - 960 4.44
-------------------------------------------------- ----------- ----------- ------- ----------
Construction &
-------------------------- ----------- ----------- ------- ----------
Engineering Persimmon 2,470 - 2,470 11.41
-------------------------- ----------- ----------- ------- ----------
Barratt Development 103 - 103 0.48
-------------------------------------------------- ----------- ----------- ------- ----------
Berkeley Group 1,439 - 1,439 6.65
-------------------------------------------------- ----------- ----------- ------- ----------
4,012 - 4,012 18.54
-------------------------------------------------- ----------- ----------- ------- ----------
Support Services
-------------------------- ----------- ----------- ------- ----------
Ashtead Group 1,784 - 1,784 8.25
-------------------------------------------------- ----------- ----------- ------- ----------
Total Portfolio 21,243 385 21,628 100.00
-------------------------------------------------- ----------- ----------- ------- ----------
ANALYSIS BY TYPE, MARKET & CURRENCY - BY MARKET VALUE
GBP'000
Ordinary shares 20,136
Fixed interest securities 1,492
21,628
UK listed securities 18,436
Hong Kong listed security 960
AIM securities 2,232
21,628
Denominated in sterling 20,668
Denominated in Hong Kong
$ 960
21,628
-------------------------- -------
This Strategic Report was approved by the Board on 9 June
2015.
For and on behalf of the Board
Lord Flight
Chairman
9 June 2015
STATEMENT OF DIRECTORS' RESPONSIBILITIES FOR THE ANNUAL
REPORT
The Directors are responsible for preparing the Strategic
Report, the Directors' Report, the Remuneration Reports and the
financial statements in accordance with applicable law and
regulations.
Company law in the United Kingdom requires the directors to
prepare financial statements for each financial year. Under that
law the directors have to prepare the Group financial statements in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union and Article 4 of the IAS
Regulation and have elected to prepare the Company financial
statements under IFRS as adopted by the European Union. Under
company law the directors must not approve the accounts unless they
are satisfied that they give a true and fair view of the state of
affairs and profit or loss of the Company and Group for that
period. In preparing these financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates which are reasonable and prudent;
-- state whether applicable IFRSs have been followed, subject to
any material departures disclosed and explained in the financial
statements;
-- prepare the financial statements on the going concern basis,
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements and the Remuneration Report comply with
the Companies Act 2006 and Article 4 of the IAS Regulation. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the website
used by the Company.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Disclosure of information to auditor
The Directors confirm that:
-- so far as each Director is aware, there is no relevant audit
information of which the Company's auditor is unaware; and
-- the Directors have taken all the steps that they ought to
have taken as directors to make themselves aware of any relevant
audit information and to establish that the auditors are aware of
that information.
Statement under the Disclosure and Transparency Rules 4.1.12
The Directors confirm that to the best of their knowledge and
belief;
(a) This annual report includes a fair review of the development
and performance of the business and the position of the Company and
the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties that they face;
(b) the financial statements, prepared in accordance with
International Financial Reporting Standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the issuer and the undertakings included in the
consolidation taken as a whole; and
Having taken advice from the Audit Committee, the Directors
consider that the annual report and financial statements taken as a
whole are fair, balanced and understandable and provide the
information necessary for shareholders to assess the Company's
performance, business model and strategy.
For and on behalf of the Board
Lord Flight
Chairman
9 June 2015
FINANCIALS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 28 February
2015 2015 2014
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Losses on investments designated
at fair value
through profit or loss - (1,626) (1,626) - (49) (49)
(Losses)/gains of trading subsidiary
at fair value
through profit or loss (295) - (295) 906 - 906
Investment income 2 804 - 804 726 - 726
Total income 509 (1,626) (1,117) 1,632 (49) 1,583
Investment management fees 3 (85) (85) (170) (85) (85) (170)
Other expenses 3 (249) - (249) (243) - (243)
Profit/(loss) before finance costs
and tax 175 (1,711) (1,536) 1,304 (134) 1,170
Finance costs 6 (95) (95) (190) (98) (98) (196)
Profit/(loss) before tax 80 (1,806) (1,726) 1,206 (232) 974
Tax 7 (1) - (1) 3 - 3
Profit/(loss) and total comprehensive
income for the year 79 (1,806) (1,727) 1,209 (232) 977
Earnings per share 9 0.76p (17.37p) (16.61p) 11.63p (2.23p) 9.40p
The revenue and capital columns, including the revenue and
capital earnings per share data, are supplementary information
prepared under guidance published by the AIC. As permitted by S408
of the Companies Act 2006, the Company has not presented its own
Statement of Comprehensive Income. The amount of the Company's loss
for the financial year was GBP1,727,507 (2014: profit
GBP977,076).
All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued
during the period. All revenue is attributable to the equity
holders of the parent company. There are no minority interests.
The Board recommends a final dividend of 3.85p per share
(GBP400,287) out of the Company's revenue profit for the financial
year of GBP415,841.
CONSOLIDATED BALANCE SHEET
At 28 February 2015 2015 2014
Notes GBP'000 GBP'000
Non-current assets
Investments designated at fair value through
profit or loss 10 21,243 23,892
Current assets
Investments designated at fair value through
profit or loss (held by subsidiary) 385 170
Sales for future settlement - 180
Other receivables 112 84
Cash and cash equivalents 150 140
647 574
Total assets 21,890 24,466
Current liabilities
Other payables 73 74
Bank loan and overdraft 4,000 4,453
4,073 4,527
Total assets less current liabilities 17,817 19,939
Equity
Called up share capital 12 3,598 3,598
Capital redemption reserve 179 179
Share premium account 10,997 10,997
Investment holding losses 14 (6,733) (6,867)
Other capital reserves 14 10,866 12,806
Revenue reserve (1,090) (774)
Total equity 17,817 19,939
Net assets per ordinary share 171.37p 191.78p
--------------------------------------------- ----- ------- -------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 28 February
2015 Capital Share Investment Other
Share redemption premium holding capital Revenue
capital reserve account losses reserves reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening equity 3,598 179 10,997 (6,867) 12,806 (774) 19,939
Total comprehensive
income/(loss)
for the year - - - 134 (1,940) 79 (1,727)
Dividends paid 8 - - - - - (395) (395)
Closing equity 3,598 179 10,997 (6,733) 10,866 (1,090) 17,817
-------------------------------- ----- ------- ---------- ------- ---------- -------- ------- ------------
For the year ended 28 February
2014 Capital Share Investment Other
Share redemption premium holding capital Revenue
capital reserve account losses reserves reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening equity 3,598 179 10,997 (7,081) 13,251 (1,592) 19,352
Total comprehensive (loss)/income
for the year - - - 214 (445) 1,208 977
Dividends paid 8 - - - - - (390) (390)
Closing equity 3,598 179 10,997 (6,867) 12,806 (774) 19,939
---------------------------------- ----- ------- ---------- ------- ---------- -------- ------- ------------
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 28 February 2015 2015 2014
Notes GBP'000 GBP'000
Net cash flow from operating activities
Cash inflow from investment income and interest 785 757
Cash (outflow)/inflow from held for trading
current asset investments (510) 1,724
Cash (outflow) from management expenses (432) (424)
Payments to acquire non-current asset investments (6,468) (6,705)
Receipts on disposal of non-current asset
investments 7,671 4,947
Tax recovered - 3
Net cash flow from operating activities 16 1,046 302
Cash flows from financing activities
Dividends paid (395) (390)
(Decrease)/increase in bank borrowings (453) 300
Finance charges and interest paid (188) (192)
Net cash flow from financing activities (1,036) (282)
Increase in cash 10 20
Cash and cash equivalents at beginning of
year 140 120
Increase in cash 10 20
Cash and cash equivalents at end of year 150 140
COMPANY BALANCE SHEET
At 28 February 2015 2015 2014
Notes GBP'000 GBP'000
Non-current assets
Investments designated at fair value
through profit or loss 10 21,243 23,892
Investment in subsidiary 11 194 15
21,437 23,907
Current assets
Sales for future settlement - 180
Other receivables 308 239
Cash and cash equivalents 145 140
453 559
Total assets 21,890 24,466
Current liabilities
Other payables 73 74
Bank loan and overdraft 4,000 4,453
4,073 4,527
Total assets less current liabilities 17,817 19,939
Equity
Called up share capital 12 3,598 3,598
Capital redemption reserve 179 179
Share premium account 10,997 10,997
Investment holding losses 14 (8,505) (8,302)
Other capital reserves 14 10,866 12,806
Revenue reserve 682 661
Total equity 15 17,817 19,939
------------------------------------------------ ------------ ----------- -------
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 28 February
2015 Capital Share Investment Other
Share redemption premium holding capital Revenue
capital reserve account losses reserves reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening equity 3,598 179 10,997 (8,302) 12,806 661 19,939
Total comprehensive
income/(loss)
for the year - - - (203) (1,940) 416 (1,727)
Dividends paid 8 - - - - - (395) (395)
Closing equity 3,598 179 10,997 (8,505) 10,866 682 17,817
------------------------------ ----- ------- ---------- ------- ---------- -------- ------- ------------
For the year ended 28 February
2014 Capital Share Investment Other
Share redemption premium holding capital Revenue
capital reserve account losses reserves reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening equity 3,598 179 10,997 (9,350) 13,251 677 19,352
Total comprehensive income/(loss)
for the year - - - 1,048 (445) 374 977
Dividends paid 8 - - - - - (390) (390)
Closing equity 3,598 179 10,997 (8,302) 12,806 661 19,939
---------------------------------- ----- ------- ---------- ------- ---------- -------- ------- ------------
COMPANY CASH FLOW STATEMENT
For the year ended 28 February 2015 2015 2014
GBP'000 GBP'000
Net cash inflow from operating activities
Cash inflow from investment income and interest 785 755
Cash (outflow) from management expenses (432) (422)
Payments to acquire non-current asset investments (6,468) (6,705)
Receipts on disposal of non-current asset
investments 7,671 4,947
Tax (paid)/recovered - 3
Net cash inflow from operating activities 1,556 (1,422)
Cash flows from investing activities
(Increase)/decrease in loans advanced to subsidiary (515) 1,727
Cash flows from financing activities
Dividends paid (395) (390)
(Decrease)/increase in bank borrowings (453) 300
Finance charges and interest paid (188) (192)
Net cash flow from financing activities (1,036) (282)
Increase in cash 5 23
Cash and cash equivalents at beginning of
year 140 117
Increase in cash 5 23
Cash and cash equivalents at end of year 145 140
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting policies
Basis of Accounting
The financial statements of the Company and
the Group have been prepared in accordance
with International Financial Reporting Standards
(IFRS), which comprise standards and interpretations
approved by the IASB and International Accounting
Standards and Standing Interpretations Committee
interpretations approved by the IASC that
remain in effect, and to the extent that they
have been adopted by the European Union.
Under IFRS, the AIC Statement of Recommended
Practice "Financial Statements of Investment
Trust Companies and Venture Capital Trusts"
issued in January 2009 has no formal status,
but the Group adheres to the guidance of the
SORP.
The accounting policies are unchanged from
those used in the last annual financial statements
except where otherwise stated. The particular
accounting policies adopted are described
below:
(a) Accounting Convention
The accounts are prepared under the historical
cost basis, except for the measurement of
fair value of investments.
(b) Basis of Consolidation
The Group accounts consolidate the accounts
of the Company and of its subsidiary AIT Trading
Limited ("AIT"), both drawn up to either 28
or 29 February each year. Under IFRS 10, subsidiaries
that provide services that relate to the investment
company's investment activities are required
to be consolidated. The directors' view is
that AIT Trading Limited provides services
to Aurora and as such it has been consolidated.
As permitted by S408 of the Companies Act
2006, the Company has not presented its own
Statement of Comprehensive Income. The amount
of the Company's loss for the financial year
was GBP1,727,507 (2014: profit GBP977,076).
(c) Investments
As the Company's business is investing in
financial assets with a view to profiting
from their total return in the form of increases
in fair value, investments are designated
as fair value through profit or loss on initial
recognition in accordance with IAS 39. At
this time, fair value is the consideration
given, excluding material transaction or other
dealing costs associated with the investment.
After initial recognition such investments
are valued at fair value. For quoted investments
this is established by reference to bid, or
last, market prices depending on the convention
of the exchange on which the investment is
quoted. Gains or losses are recognised in
the capital column of the Statement of Comprehensive
Income. All purchases and sales of investments
are accounted for on a trade date basis.
The investment of the Company in AIT is stated
at cost less impairment. AIT's own investments
are managed and performance evaluated on a
fair value basis and accordingly are designated
by AIT as "at fair value through profit or
loss". The AIT investments in quoted securities
are valued at all times in accordance with
current market values that represent fair
value; at the time of acquisition they are
valued on the basis of trade date accounting.
Securities of companies whose prices are quoted
on the London Stock Exchange are valued by
reference to the Official List of the London
Stock Exchange at their bid market prices
at the close of the period.
(d) Income from Investments
Investment income from ordinary shares is
accounted for on the basis of ex-dividend
dates. Income from fixed interest shares and
securities is accounted for on an accruals
basis using the effective interest method.
Special Dividends are assessed on their individual
merits and are credited to the capital column
of the Statement of Comprehensive Income if
the substance of the payment is a return of
capital; with this exception all investment
income is taken to the revenue column of the
Statement of Comprehensive Income. Income
from gilts and bank interest receivable is
accounted for on an accruals basis using the
effective yield.
(e) Capital Reserves
The Company is not precluded by its Articles
from making any distribution of capital profits
by way of dividend, but the Directors have
no current plans to do so. Profits and losses
on disposals of investments are taken to the
gains on disposal reserve. Revaluation movements
are taken to the investment holding reserve
via the capital column of the Statement of
Comprehensive Income.
(f) Investment Management Fees, Finance Costs
and Other Costs
Finance costs and monthly management fees
are allocated between capital and revenue
according to the Board's expected long-term
split of returns between capital gains and
income; one-half of these costs are charged
to gains on disposal via the capital column
of the Statement of Comprehensive Income.
Performance-related fees are charged to gains
on disposal via the capital column of the
Statement of Comprehensive Income. Other costs
are normally charged to revenue, unless there
is a compelling reason to charge to capital.
Tax relief in respect of costs allocated to
capital is credited to capital via the capital
column of the Statement of Comprehensive Income
on the marginal basis.
(g) Taxation
Current income tax assets and/or liabilities
comprise those obligations to, or claims from,
fiscal authorities relating to the current
or prior reporting period, that are unpaid
at the balance sheet date.
Deferred income taxes are calculated using
the liability method on temporary differences.
Deferred tax is generally provided on the
difference between the carrying amounts of
assets and liabilities and their tax bases.
In addition, tax losses available to be carried
forward as well as other income tax credits
are assessed for recognition as deferred tax
assets.
Deferred tax assets and liabilities are calculated,
without discounting, at tax rates that are
expected to apply at their respective period
of realisation, provided they are enacted
or substantively enacted at the balance sheet
date. Deferred tax liabilities are always
provided for in full. Deferred tax assets
are recognised to the extent that it is probable
that they will be able to be offset against
future taxable income.
Changes in deferred tax assets or liabilities
are recognised as a component of tax expense
in the income statement, except where they
relate to items that are charged or credited
directly to equity.
(h) Foreign currency
The currency of the primary economic environment
in which the Group companies operate (the
functional currency) is pounds sterling ("Sterling"),
which is also the presentational currency
of the Group. Transactions involving currencies
other than Sterling are recorded at the exchange
rate ruling on the transaction date. At each
balance sheet date, monetary items and non-monetary
assets and liabilities, which are fair valued
and which are denominated in foreign currencies,
are retranslated at the closing rates of exchange.
Such exchange differences are included in
the Statement of Comprehensive Income and
allocated to capital if of a capital nature
or to revenue if of a revenue nature. Exchange
differences allocated to capital are taken
to gains on disposal or investment holding
losses, as appropriate.
(i) Cash and cash equivalents
Cash and Cash Equivalents in the Cash Flow
Statement comprise cash held at bank.
(j) Dividends payable to equity shareholders
Dividends payable to equity shareholders are
recognised in the Statement of Changes in
Equity when they are paid, or have been approved
by shareholders in the case of a final dividend.
2. Income
2015 2014
GBP'000 GBP'000
Income from investments
Dividends from UK listed or quoted
investments 645 488
Income from overseas dividends 58 136
Income from listed fixed interest
securities 101 102
804 726
3. Investment management fees
and other expenses
2015 2014
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management fees
- monthly 85 85 170 85 85 170
- performance - - - - - -
85 85 170 85 85 170
Other expenses
Administration fees 72 - 72 72 - 72
Registrar's fees 16 - 16 13 - 13
Directors' fees 80 - 80 79 - 79
Auditors' fees - audit of the
Company
and of the consolidated financial
statements 23 - 23 26 - 26
- audit of the subsidiary 2 - 2 2 - 2
- audit-related assurance services 6 - 6 6 - 6
Miscellaneous expenses 50 - 50 45 - 45
Total other expenses 249 - 249 243 - 243
All expenses include any relevant irrecoverable VAT. The amounts
excluding VAT paid or accrued for the audit of the Company are
GBP21,000 (2014: GBP22,000) and for the audit of the subsidiary
GBP1,500 (2014: GBP1,500).
4. Directors' fees
The fees paid or accrued were GBP74,750 (2014: GBP74,750). There
were no other emoluments. The gross figures shown for directors'
fees in note 3 above include employers' National Insurance charges
or VAT, as appropriate. Full details of the fees of each director
are given in the Directors' Remuneration Report on page 27.
5. Transaction charges
2015 2014
Group GBP'000 GBP'000
Transaction costs on purchases
of investments 37 41
Transaction costs on sales of
investments 15 8
Total transaction costs included in gains or losses
on investments at fair value through profit or
loss 52 49
6. Finance costs
2015 2014
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Interest payable 55 55 110 55 55 110
Facility and arrangement fees
and other charges 40 40 80 43 43 86
95 95 190 98 98 196
7. Taxation
2015 2014
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Overseas tax 1 - 1 (3) - (3)
Tax charge in respect of the
current year 1 - 1 (3) - (3)
Current taxation
The current taxation charge for the year is different from the
standard rate of corporation tax in the UK (21.17%). The
differences are explained below:
2015 2014
GBP'000 GBP'000
Total (loss)/profit before tax (1,726) 974
Theoretical tax at UK corporation tax rate of
21.17% (2014: 23.08%) (365) 225
Effects of:
Capital losses that are not taxable 382 (53)
UK dividends which are not taxable (137) (114)
Overseas dividends that are not taxable (12) -
Increase/(decrease) in excess tax losses 168 (16)
Expenses charged to capital account for which
a deduction is claimed (38) (42)
Overseas tax written off as irrecoverable/(recovered) 1 (3)
Actual current tax 1 (3)
The Company is an investment trust and therefore
is not charged to tax on capital gains.
Factors that may affect future tax charges
The Company has tax losses of GBP7,923,090 (2014: GBP7,647,046)
in respect of management expenses and of GBP1,575,043 (2014:
GBP1,384,429) in respect of loan interest. Its subsidiary has
trading losses carried forward of GBP2,054,918 (2014: GBP1,759,319)
and GBP196,293 (2014: GBP154,626) in respect of loan interest.
These losses are available to offset future taxable revenue. A
deferred tax asset has not been recognised in respect of those
expenses and will be recoverable only to the extent that the
Company has sufficient future taxable revenue.
8. Ordinary dividends
2015 2014
GBP'000 GBP'000
Dividends reflected in
the financial statements:
Final dividend paid for
the year 2014 at 3.80p
(2013: 3.75p) 395 390
Dividends not reflected
in the financial statements:
Proposed final dividend
for the year 2015
at 3.85p (2014: 3.80p) 400 395
9. Earnings per share
Earnings per share are based on the loss of GBP1,727,507 (2014:
profit GBP977,076) attributable to the weighted average of
10,397,059 (2014: 10,397,059) ordinary shares of 25p in issue
during the year, excluding shares held in Treasury.
Supplementary information is provided as follows: revenue
earnings per share are based on the consolidated revenue profit of
GBP78,553 (2014: profit GBP1,208,986); capital earnings per share
are based on the net capital loss of GBP1,806,060 (2014: loss
GBP231,910), attributable to 10,397,059 (2014: 10,397,059) ordinary
voting shares of 25p.
10. Investments designated at fair value through profit or
loss
2015 2014
GBP'000 GBP'000
UK listed or quoted securities 20,283 23,121
Hong Kong listed security 960 771
Total non-current investments 21,243 23,892
Movements during the year:
Opening balance of investments,
at cost 30,759 29,013
Additions, at cost 6,456 6,705
Disposals - proceeds received
or receivable (7,479) (4,697)
- add realised losses/less
realised profits (1,760) (262)
- at cost (9,239) (4,959)
Cost of investments at
28 February 27,976 30,759
Revaluation of investments
to market value:
Opening balance (6,867) (7,081)
Increase in unrealised
appreciation
debited to investment holding
reserve 134 214
Balance at 28 February (6,733) (6,867)
Market value of non-current
investments
at 28 February 21,243 23,892
11. Subsidiary
The Company has an investment in AIT Trading Limited (AIT), a
wholly owned subsidiary registered in England and Wales, which
comprises two ordinary shares of GBP1 each. AIT undertakes
purchases of investments for re-sale in the shorter term, with the
objective of achieving a trading profit. The loss before tax of AIT
for the year was GBP337,289 (2013: profit GBP834,777). The net
deficit of AIT at the Balance Sheet date was GBP1,771,916 (2014:
net deficit GBP1,434,627). No dividend was paid from AIT to the
Company (2014: GBPnil).
During the year the Company provided a short-term loan to AIT to
finance its trading operations and charged interest to AIT at the
same rate as was charged by Coutts to the Company. At 28 February
2015 the amount outstanding, excluding interest, was GBP1,966,375
(2014: GBP1,450,375) together with GBP196,113 of interest (2014:
GBP154,446).
The Company makes an impairment provision when AIT is in a net
deficit position, of an amount equal to the net deficit.
2014 Movement 2015
GBP'000 GBP'000 GBP'000
Loan to AIT 1,450 516 1,966
Provision for
impairment (1,435) (337) (1,772)
Net investment 15 179 194
12. Share capital
At 28 February 2015 2014
Authorised:
Ordinary shares
of 25p Number 40,000,000 40,000,000
GBP'000 10,000 10,000
Allotted, issued
and fully paid:
Ordinary shares
of 25p Number 14,391,389 14,391,389
GBP'000 3,598 3,598
During the year ended 28 February 2015 the Company did not
purchase any of its own shares (2014: Nil). No shares were
cancelled during the year (2014: Nil). At 28 February 2015, the
Company had 14,391,389 shares in issue, of which 3,994,330 (2014:
3,994,330) are held in Treasury; the number of voting shares in
issue is 10,397,059 (2014: 10,397,059).
13. Total equity
Total Equity includes, in addition to Share Capital, the
following reserves:
Capital Redemption Reserve. When any shares are redeemed or
cancelled, a transfer must be made to this reserve in order to
maintain the level of capital that is not distributable.
Share Premium Account. When shares are issued at a premium to
their nominal value, the "capital profit" arising on their
allotment must be held in a Share Premium Account, which is not
distributable in the ordinary course and may be utilised only in
certain limited circumstances.
Capital profits arising from the Company's investment
transactions are held as Capital Reserves, subdivided between Gains
on Disposal for profits arising upon sales of investments and
Investment Holding gains/losses for portfolio revaluations. The
movements on this account are analysed in note 14 below.
The Company's Revenue Reserves are the net profits that have
arisen from the Company's revenue income in the form of dividends
and interest, less operating expenses and dividends paid out to the
Company's shareholders.
14. Capital reserves
2015 2014
GBP'000 GBP'000
Investment holding gains/(losses):
Opening balance (6,867) (7,081)
Revaluation of investments
- listed 134 214
Balance of investment
holding (losses)
account at 28 February (6,733) (6,867)
Other capital reserves:
Opening balance 12,806 13,251
Net losses on realisation
of investments (1,759) (262)
Expenses of capital management:
management fees (85) (85)
finance costs (95) (98)
Net expenses (180) (183)
Exchange differences (1) -
Balance of other capital
reserves at 28 February 10,866 12,806
Total capital reserve
at 28 February 4,133 5,939
The capital reserves of the Company are identical to those of
the Group, except that a provision is made when necessary against
the Company's investment holding account for any amount loaned to
AIT Trading Limited that is not covered by the subsidiary's net
assets. At 28 February 2015 such a provision was made of
GBP1,771,916 (2014: GBP1,434,630).
15. Net assets per ordinary share
The figure for net assets per ordinary share is based on
GBP17,816,748
(2014: GBP19,939,345) divided by 10,397,059(2014: 10,397,059)
voting ordinary shares in issue at 28 February 2015, excluding
shares held in Treasury.
16. Reconciliation of profit before finance costs and tax to net
cash inflow from operating activities
2015 2014
Group GBP'000 GBP'000
(Loss)/profit before finance
costs and tax (1,536) 1,170
Decrease/(increase) in
non-current investments 2,649 (1,960)
(Increase)/decrease in
current investments (215) 818
Decrease in sales for
future settlement 180 250
(Increase)/decrease in
other receivables (28) 24
(Decrease) in other payables (3) (3)
Taxation (paid)/recovered (1) 3
Net cash inflow from operating
activities 1,046 302
2015 2014
Company GBP'000 GBP'000
(Loss)/profit before finance
costs and tax (1,536) 1,170
Decrease/(increase) in
non-current investments 2,648 (1,960)
Increase/(decrease) in provision
for losses of subsidiary 337 (834)
Decrease in sales for
future settlement 180 250
(Increase)/decrease in
other receivables (69) (48)
(Decrease) in other payables (3) (3)
Taxation (paid)/recovered (1) 3
Net cash inflow from operating
activities 1,556 (1,422)
17. Related party transactions
Details of transactions with AIT Trading Limited are set out in
note 11.
Details of the management, administration and secretarial
contracts can be found in the Directors' Report. As disclosed in
that Report, Mr Barstow is a director both of the Company and of
the Investment Manager. Fees payable to the Investment Manager are
detailed in note 3. Other payables include accruals of a monthly
management fee of GBP13,437 (2014: GBP15,015) and an administration
fee of GBP6,000 (2014: GBP6,000). No performance fee was accrued
(2014: GBPNil). All figures include any appropriate VAT.
18. Financial assets/liabilities
Investments are carried in the balance sheet at fair value. For
other financial assets and financial liabilities, the balance sheet
value is considered to be a reasonable approximation of fair
value.
Financial assets - Group
The Group's financial assets comprise equity investments, fixed
interest securities, short-term receivables and cash balances. The
currency and cash-flow profile of those financial assets was:
2015 2014
Interest Non-interest Interest Non-interest
bearing bearing Total bearing bearing Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investments at fair value
through profit or loss:
- GBP sterling equities - 19,176 19,176 - 21,917 21,917
- Hong Kong $ equities - 960 960 - 771 771
- GBP fixed interest 1,492 - 1,492 1,374 - 1,374
1,492 20,136 21,628 1,374 22,688 24,062
Short-term trade receivables - - - - 180 180
Cash at bank:
Floating rate - GBP sterling - 150 150 - 140 140
- 150 150 - 320 320
Cash at bank includes GBP32,584 (2014: GBP83,930) held by the
Group's custodian, The Northern Trust Company.
Financial assets - Company
The Company's financial assets comprise equity investments,
fixed interest securities, short-term receivables and cash
balances. The currency and cash-flow profile of those financial
assets was:
2015 2014
Interest Non-interest Interest Non-interest
bearing bearing Total bearing bearing Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investments at fair value
through profit or loss:
- GBP sterling equities - 18,791 18,791 - 21,917 21,917
- Hong Kong $ equities - 960 960 - 771 771
- GBP fixed interest 1,492 - 1,492 1,374 - 1,374
1,492 19,751 21,243 1,374 22,688 24,062
Short-term trade receivables - - - - 180 180
Cash at bank:
Floating rate - GBP sterling - 145 145 - 140 140
- 145 145 - 320 320
Cash at bank includes GBP32,584 (2014: GBP83,548) held by the
Group's custodian, The Northern Trust Company.
Financial liabilities - Company and Group
The Group finances its investment activities through the
Company's ordinary share capital, reserves and borrowing. The
Group's financial liabilities comprise its overdraft facility and
other short-term trade payables. Foreign currency balances are
stated in the accounts in sterling at the exchange rate as at the
Balance Sheet date.
The Company has borrowing facilities from its banker, Coutts
& Co, comprising a revolving credit of up to GBP5 million
(2014: GBP5 million) plus an overdraft facility of up to GBP2
million (or the equivalent in euros and/or US dollars in all
cases). Interest is charged at 2.25% over LIBOR in the case of the
loan and over Coutts' base rate in the case of the overdraft. The
facilities are secured upon the shares and securities of the
Company. They are repayable upon demand, but normally are reviewed
annually by the bank.
The currency and cash-flow profile of the financial liabilities
of the Group and of the Company was:
2015 2014
GBP'000 GBP'000
Interest bearing: Bank
overdraft:
Sterling 4,000 4,453
4,000 4,453
Non-interest bearing:
Short-term trade payables - -
4,000 4,453
19. Financial instruments - risk analysis
Company and Group
The general risk analysis undertaken by the Board and its
overall policy approach to risk management are set out in the
Strategic Report. Issues associated with portfolio distribution and
concentration risk are discussed in the Investment Policy section
of the Strategic Report. This note, which is incorporated in
accordance with accounting standard IFRS7, examines in greater
detail the identification, measurement and management of risks
potentially affecting the value of financial instruments and how
those risks potentially affect the performance and financial
position of the Company.
The risks concerned are categorised as follows:
A) Potential Market Risks, which are principally (i) Currency
Risk
(ii) Interest Rate Risk and (iii) Other Price Risk.
B) Liquidity Risk.
C) Credit Risk.
Each is considered in turn below:
A (i) Currency Risk
All the securities detailed in the Business Review are listed on
the London Stock Exchange or quoted on AIM, with the exception of
West China Cement, which was previously quoted on AIM but is now
listed on the Hong Kong Exchange; the Manager is not required to
sell this holding, but will not add to it since it ceased to be
quoted in London. Where the underlying currency or currency of
quotation is not sterling this is noted. The element of currency
risk on investments may be indirect and reflected in the effect of
underlying currency movements upon the London market price, whether
quoted in foreign currency or not.
Based on the portfolio as at 28 February 2015, there were no
investments denominated in Euros and consequently there was no
currency risk arising from the possibility of a fall in the value
of sterling against the Euro, impacting upon the value of
investments or income. West China Cement is denominated in Hong
Kong Dollars; a 10% rise in sterling against the Hong Kong Dollar
would result, all other factors remaining unchanged, in a fall of
GBP96,000 in the value of the portfolio.
The Company had no foreign currency borrowings at 28 February
2015 (2014: Nil) and no sensitivity analysis is presented for this
risk.
A (ii) Interest Rate Risk
The weighted average interest rate of the fixed rate financial
assets is 9.4% (2014: 9.43%) and the weighted average period for
which rates are fixed is indefinite (2014: indefinite). The list of
the Company's holdings in the Strategic Report includes details of
the split between equities and fixed interest securities.
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.
Interest is charged on the bank borrowing facilities at the
bank's variable interest rates as appropriate to the currency
concerned in the case of each balance. At 28 February 2015, the
Company's total borrowing was GBP4,000,000 (2014: GBP4,452,788):
all of which was borrowed in sterling, upon which the interest rate
at the year end was 2.75% (2014: 2.75%).
A 2% rise in LIBOR, applied to the sterling loan and overdraft
balance as at 28 February 2015, would decrease net income by
GBP80,000 on an annual basis.
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 Strategic Report, the Company may
maintain relatively strong concentrations in particular sectors
selected by the Investment Manager, such as the Resources
sector.
B Liquidity Risk
Liquidity Risk is considered to be small, because the portfolio
is invested in readily realisable securities. As a consequence,
cash flow risks are also considered to be small. The Investment
Manager estimates that, under normal market conditions and without
causing excessive disturbance to the prices of the securities
concerned, the majority of the portfolio could be realised within
seven days.
The Company's overdraft facility is repayable upon demand,
although normally renewed annually. The Directors believe that the
facility will be renewed in 2015. In view of the Company's ability
to sell investments, as stated above, the Company is able to reduce
or eliminate its borrowing, if necessary.
C Credit Risk
The Company invests in quoted equities and fixed interest
securities. The Company's investments are held by The Northern
Trust Company ("the Custodian"), which is a large international
bank with a high reputation. The Company's normal policy is to
remain fully invested at most times and not to hold very large
quantities of cash. At 28 February 2015, Group cash at bank
comprised GBP37,716 (2014: GBP83,930) held by the Custodian and
GBP112,426 held by Coutts & Co (2014: GBP56,213), also part of
a large international bank with a very high credit rating.
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.
Capital management policies and procedures
The Group's capital management objectives are:
- to ensure the Group's ability to continue as a going concern; and
- to provide an adequate return to shareholders
by pursuing investment policies commensurately with the level of
risk.
The Group monitors capital on the basis of the carrying amount
of equity, less cash and cash equivalents as presented on the face
of the statement of financial position.
The Group sets the amount of capital in proportion to its
overall financing structure, i.e. equity and financial liabilities.
The Group 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 Group 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 to reduce debt.
Since an overdraft was taken out in 1997, the Group has
consistently honoured its covenant obligations, among which the
principal capital ratio is described under Gearing Policy in the
Strategic Report.
20. 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
Valued using quoted prices
Level 1 in active markets for
identical assets
Valued by reference to valuation
Level 2 techniques using
observable inputs other than
quoted prices included
within Level 1
Valued by reference to valuation
Level 3 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.
Assessment of Hierarchy - Group
The valuation techniques used by the Group are explained in the
Accounting Policies Note 1(c). As at 28 February 2015, all
investments held by the Group, including all current investments
held for trading by the Company's subsidiary, are considered to
fall within Level 1:
2015 2014
GBP'000 GBP'000
Level 1 21,628 24,062
Level 2 - -
Level 3 - -
Assessment of Hierarchy - Company
The Company's subsidiary is held at cost less impairment and
therefore its valuation as an investment in the Company's balance
sheet does not fall within the fair value hierarchy:
2015 2014
GBP'000 GBP'000
Level 1 21,243 23,892
Level 2 - -
Level 3 - -
21. Standards, amendments and interpretations to existing
standards that are not yet effective and have not been adopted
early by the Group
At the date of authorisation of these financial statements,
certain new standards, amendments and interpretations to existing
standards have been published but are not yet effective, and have
not been adopted early by the Group.
The Directors anticipate that all of the pronouncements will be
adopted in the Group's accounting policies for the first period
beginning after the effective date of the pronouncement.
Information on new standards, amendments and interpretations that
are expected to be relevant to the Group's financial statements is
provided below. Certain other new standards and interpretations
have been issued but are not expected to have a material impact on
the Group's financial statements.
IFRS 9 Financial Instruments (effective from 1 January 2018)
This standard is not expected to have a material impact on the
Group's financial statements.
22. Financial information
This announcement does not constitute the Company's statutory
accounts. The financial information for 2015 is derived from the
statutory accounts for 2015, which will be delivered to the
registrar of companies following the Company's Annual General
Meeting. The statutory accounts for 2014 have been delivered to the
registrar of companies. The auditors reported on the 2014 and 2015
accounts; their reports were unqualified and did not include a
statement under Section 498(2) or (3) of the Companies Act
2006.
The annual report for the year ended 28 February 2015 was
approved on 9 June 2015. It will be posted to shareholders and will
be made available on the Investment Manager's website at
www.marsassetmanagement.co.uk
This announcement contains regulated information under the
Disclosure Rules and Transparency Rules of the FCA.
The annual report will be submitted to the National Storage
Mechanism and will shortly be available for inspection at
http://www.morningstar.co.uk/NSM
23. Annual general meeting
The Annual General Meeting will be held on 16 July 2015 at 12.00
noon at 145-157 St John Street, London EC1V 4RU.
9 June 2015
Secretary and registered office
Cavendish Administration Limited
145-157 St John Street
London
EC1V 4RU
Tel: 020 7490 4355
END
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FLMPTMBIMBIA
Aurora Investment (LSE:ARR)
Historical Stock Chart
From Aug 2024 to Sep 2024
Aurora Investment (LSE:ARR)
Historical Stock Chart
From Sep 2023 to Sep 2024
