Aurora Investment Trust plc

Half Yearly Financial Report

For the six months ended 30 June 2021

Aurora
INVESTMENT TRUST

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	Page
Financial and Performance Highlights	1
Objective and Investment Policy	2
Investment Manager’s Review	4
Top Holdings	7
Sector Breakdown	8
Interim Management Report	9
Statement of Directors’ Responsibilities	11
Condensed Statement of Comprehensive Income	12
Condensed Statement of Financial Position	13
Condensed Statement of Changes in Equity	14
Cash Flow Statement	17
Notes to the Financial Statements	18
Alternative Performance Measures	24
Corporate Information	26

Half Yearly Financial Report

FINANCIAL AND PERFORMANCE HIGHLIGHTS

Performance

	At 30 June 2021 (unaudited)	At 30 June 2020 (unaudited)	At 31 December 2020 (audited)
Net Asset Value ('NAV') per Ordinary Share^{1}	230.90p	161.61p	213.39p
Ordinary Share price	232.00p	168.00p	207.00p
Premium/(discount)^{1}	0.5%	3.95%	(4.58)%
FTSE All-Share Index ('Benchmark')	7,852.35	6,465.24	7,068.59
Gearing (net)	Nil	Nil	Nil

The total returns in sterling for the period/year were as follows:

	Six months to 30 June 2021 (unaudited) %	Six months to 30 June 2020 (unaudited) %	Year to 31 December 2020 (audited) %
NAV total return per Ordinary Share^{1,2}	+6.69	(28.27)	(5.30)
Ordinary Share price total return^{1,2}	+12.30	(26.97)	(10.00)
FTSE All-Share Index ('Benchmark')	+11.07	(17.43)	(9.80)

Definitions of these Alternative Performance Measures ("APMs") together with how these have been calculated can be found on pages 24 to 25.
Including dividend reinvested.

Aurora Investment Trust plc

OBJECTIVE AND INVESTMENT POLICY

Investment Objective

Aurora Investment Trust plc's (the "Company") objective is to provide Shareholders with long-term returns through capital and income growth.

New Investment Policy

Proposed changes to the Investment Policy

At a General Meeting held on 28 September 2021 the following new investment policy was approved:

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

The maximum permitted investment in companies listed outside the UK at cost price is 20% of the Company's gross assets.
The maximum permitted investment in unlisted securities at cost price is 10% of the Company's gross assets.
There are no pre-defined maximum or minimum sector exposure levels but these sector exposures are reported to and monitored by the Board in order to ensure that adequate diversification is achieved.
The Company's policy is not to invest more than 15% of its gross assets in any one underlying issuer (measured at the time of investment) including in respect of any indirect exposure through Castelnau Group Limited.
The Company may from time to time invest in other UK listed investment companies, but the Company will not invest more than 10% in aggregate of the gross assets of the Company in other listed closed-ended investment funds.
Save for Castelnau Group Limited, the Company will not invest in any other fund managed by the Investment Manager.

While there is a comparable index for the purposes of measuring performance over material periods, no attention is paid to the composition of this index when constructing the portfolio and the composition of the portfolio is likely to vary substantially from that of the index. The portfolio will be relatively concentrated. The exact number of individual holdings will vary over time but typically the portfolio will consist of holdings in 15 to 20 companies. The Company may use derivatives and similar instruments for the purposes of capital preservation.

Half Yearly Financial Report

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.

Aurora Investment Trust plc

INVESTMENT MANAGER'S REVIEW

Performance

The NAV total return for the half year was 8.5% and the share price (incl. dividends) 12.3%. At the end of June, the share price was trading at a 0.5% premium to NAV. The FTSE All Share Index rose by 11.1% over the same period.

As at 27 September 2021, performance remained stable. The NAV total return for 2021 was 9.3% versus 13.7% for FTSE All Share. However, the share price weakened and moved to a discount to NAV.

In June 2021, it was pleasing that the Company issued new equity for the first time since June 2020, and we remain keen to grow the Company through both investment performance and new issuance.

Significant share price moves of note in the half year include Dignity up 35%, Frasers up 33% and Lloyds up 30%. Frasers and Lloyds have recently reported results, which highlight their recovery from COVID-19 pandemic-related disruption and being well placed to prosper going forward.

Dignity's share price rise came largely after their AGM in late June 2021 at which Gary Channon presented Phoenix's strategic vision for the business. Later in this report we refer to the AGM presentation and encourage you to read it.

The only significant faller of note was Hornby, which fell 25%. In their full year results the Company reported an increase in sales and a return to profitability.

From a contribution perspective, Frasers contributed 50% of the NAV rise in the first half year with Lloyds and Dignity also significant contributors.

Portfolio Review

The first six months of the year have not seen significant investment activity as we remain comfortable with the portfolio and its prospects as the world returns to some normality.

One change of note in the first quarter was the sale of the entire holding in Redrow. It is a business in transition following the retirement of its Founder. It has made some mis-steps and has a land bank with several sites which take a long time to build. We expect continued environmental and building changes, which will increase the cost of building. This will affect the existing housebuilder land banks. We prefer the short and faster turning land banks of Barratt Developments and Bellway, which are less exposed to those risks.

On page 20 of the 2020 Annual Report, we reported on a plan to put in place a hedge against potential negative equity market movements in response to higher interest rates as result of increasing inflation. The report is below:

Half Yearly Financial Report

"In late 2020 and into the New Year we became concerned about the potential for higher inflation and the possibility of unexpected interest rate rises if higher inflation was not managed carefully by central banks. It is our belief that an unexpected series of interest rate rises could have a significant negative effect on equity values. Due to the ongoing COVID-19 pandemic, equity index protection remains expensive, therefore, we have investigated the use of options on short sterling futures as a means of effectively hedging at a reasonable cost. At the time of writing the hedge is not yet in place as the price moved during the time it took to determine the regulatory leverage treatment, but it is our intention to spend, at an appropriate price, no more than 1% of NAV, which would pay out circa one-third of the value of the portfolio if interest rates were 2% in September 2022. We would be buying protection, therefore the value at risk would be the money spent on the option and no more. Regulatory leverage calculations require us to report on the underlying nominal value when calculating leverage which can be much higher, but it bears no relationship to the actual risk of loss."

In July we began to execute the hedge at the price we wanted to pay, and the hedge is now in place.

In the half year we were successful in a General Meeting Vote we requisitioned at Dignity to replace the existing Executive Chairman with Gary Channon. The potential at the company is significant. At the Dignity AGM in June, Gary set out the analysis and strategy that we believe will lead to that potential being realised, and, rather than summarising it here, we would encourage you to look at the slides available on Dignity's corporate website. If you have the time, we would also encourage you to watch the replay of the presentation that accompanies it.

In early September, easyJet announced a rights issue in which we have participated. Whilst we did model the need for an equity fundraise, we believe the size of the raise was unnecessarily large.

Outlook

In the Company's June 2021 monthly factsheet, Gary Channon reported on the outlook for the portfolio and the sentiments expressed remain true today. It is outlined below:

Unlocking has been slowed by the latest variants of the virus, but the effectiveness of the vaccines means that this is gratification postponed, not cancelled. Economic activity is surging back to life, and we expect our portfolio of companies to be beneficiaries We expect a bumper period ahead.

As support packages unwind, we expect there to be some capital needs that may throw up interesting opportunities for us to act. Currently we find the most valuable activity we can do with the portfolio is the most undervalued and underrated of all, which is to do nothing. We would have done a lot better over the past 23 years if we had been better at doing nothing.

Aurora Investment Trust plc

Upside to intrinsic value is our key metric when we consider valuation. At the time of writing in late-September it stands at 80%, which highlights the potential in the portfolio.

Castelnau Group

In the same June 2021 factsheet, we announced that the Castelnau Group vehicle would be listed in the near future, and it was our intention, with the Board's agreement, that Aurora participate. The Board agreed but the participation required a shareholder vote because the Company is presently unable to hold a fund which Phoenix manages. The General Meeting was held on 28 September 2021 at which shareholders approved all resolutions proposed, including an amendment to the Company's Investment Policy and authorising the Company to participate.

The Castelnau Group Prospectus was published on 23 September 2021 and trading will begin on 18 October 2021. As outlined in previous communication, the Company will exchange shares in Dignity PLC, Hornby and Phoenix Stanley Gibbons for shares in Castelnau Group. The initial weight of Castelnau Group in the Company's portfolio will be 15%.

Steve Tatters
Phoenix Asset Management Partners Ltd
29 September 2021

Half Yearly Financial Report

Top holdings

As at 30 June 2021

Company	Sector	Holding in Company	Amount	Percentage of net assets
			£'000	%
Frasers Group Plc	Retail	5,114,011	30,812	17.4
EasyJet Plc	Leisure	1,928,363	17,255	9.8
Barratt Developments Plc	Construction	2,474,612	17,204	9.7
Ryanair Holdings Plc	Leisure	928,600	12,652	7.2
Dignity Plc	Retail	1,980,558	17,013	9.6
Hornby Plc	Leisure	23,624,991	10,866	6.1
Bellway Plc	Construction	336,040	10,884	6.2
Randall & Quilter Investment	Insurance	6,220,225	9,952	5.6
Lloyds Banking Group	Financial	19,618,000	9,159	5.2
Phoenix SG Ltd*	Financial	3,277	8,259	4.7
GlaxoSmithKline Plc	Pharmaceuticals	499,427	7,089	4.0
Vesuvius Plc	Industrials	1,236,834	6,524	3.7
Other holdings (less than 3%)	n/a	n/a	8,445	5.0
Total holdings			166,114	93.9
Other current assets and liabilities			10,571	6.1
Net assets			176,685	100.0

Comprises the assets which make up the investment in Stanley Gibbons plc.

Aurora Investment Trust plc

Sector Breakdown

As at 30 June 2021

SECTOR	Percentage of net assets %
Leisure	23.1
Retail	27.0
Construction	15.9
Financial	13.1
Insurance	5.6
Industrials	3.8
Pharmaceuticals	4.0
Food & Beverage	1.4
Other current assets and liabilities	6.1
Total	100.0

Half Yearly Financial Report

INTERIM MANAGEMENT REPORT

The Directors are required to provide an Interim Management Report in accordance with the Financial Conduct Authority's ("FCA") Disclosure Guidance and Transparency Rules ("DTR"). The Directors consider that the Investment Manager's Review on pages 4 to 6 of this Half Yearly Financial Report provide details of the important events which have occurred during the period and their impact on the financial statements. The following statement on the Principal Risks and Uncertainties, the Related Party Transactions, the Statement of Directors' Responsibilities and the Investment Manager's Review together constitute the Interim Management Report of the Company for the six months ended 30 June 2020. The outlook for the Company for the remaining six months of the year ending 31 December 2020 is discussed in the Investment Manager's Review.

Details of the investments held at the period end and the structure of the portfolio at the period end are provided on pages 7 and 8.

Principal Risks and Uncertainties

The principal risks and uncertainties of the Company are detailed on pages 27 to 29 of the Company's most recent Annual Report for the year ended 31 December 2020 which can be found on the Company's website at www.aurorainvestmenttrust.com. The principal risks and uncertainties facing the Company remain unchanged from those disclosed in the Annual Report for the year ended 31 December 2020 and the Board are of the opinion that they will continue to remain unchanged for the forthcoming six month period.

The principal risks and uncertainties facing the Company are as follows:

Brexit;
Portfolio Risk: including poor stock selection, poor use of gearing, illiquid stock and a concentrated portfolio;
The COVID-19 pandemic which continues to impact the Company;
Operational Risks; and
Corporate governance and regulatory risks.

Related Party Transactions

The Company's Investment Manager is Phoenix Asset Management Partners Limited, ('Phoenix' or the 'Investment Manager'). Phoenix is considered a related party in accordance with the Listing Rules. Phoenix does not earn an ongoing annual management fee. It will be paid an annual performance fee equal to one third of the outperformance of the Company's net asset value 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. Details of the investment management arrangements are shown in Note 5 on page 21 of these accounts.

The Board are also considered related parties. Further details of the Board's remuneration and shareholdings can be found on page 54 of the Company's Annual Report.

Aurora Investment Trust plc

At a General Meeting held on 28 September 2021 shareholders approved the transfer of certain of the Company's assets to Castelnau Group ('Castelnau'), a company managed by Phoenix, in exchange for shares in Castelnau. As a result of managing Castelnau, the Investment Manager may be paid a performance fee by Castelnau. As explained above, Phoenix is a related party of the Company and will benefit from the Company's transaction with Castelnau through the establishment of the new fund. Therefore, the transfer of assets by the Company to Castelnau in exchange for shares in Castelnau constitutes a related party transaction under LR11.1.7R.

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 document. In reaching this conclusion, the Directors have considered the liquidity of the Company's portfolio of investments as well as its cash position, income and expense flows. As at 30 June 2021, the Company held £10,605,000 (30 June 2020: £6,591,000) in cash, £152,787,000 (30 June 2020: £107,349,000) in quoted investments and £13,327,000 (30 June 2020: £7,601,000) in an unquoted investment. It is estimated that the majority of the portfolio could be realised in seven days under normal conditions. The total operating expenses for the six months to 30 June 2021 was £349,000 (30 June 2020: £299,000).

In light of the COVID-19 pandemic, the Directors have fully considered and assessed the Company's portfolio of investments. A prolonged and deep market decline could lead to falling values in the Company's investments or interruptions to cashflow. However, the Company currently has more than sufficient liquidity available to meet any future obligations.

The market and operational risks associated with the COVID-19 pandemic, and the ongoing economic impact of measures introduced to combat its spread are continually monitored by the Board. The Investment Manager, Administrator and other key service providers are providing regular updates on operational resilience, in light of the COVID-19 pandemic. The Board is satisfied that the key service providers have the ability to continue their operations efficiently in a remote or virtual working environment.

Change To The Board's Committees

Subsequent to the period end the Board agreed to change the names of two of their Committees. The Nomination Committee is now known as the Remuneration and Nomination Committee and the Remuneration and Management Engagement Committee is now known as the Management Engagement Committee.

For and on behalf of the Board of Directors

Lord Flight

Chairman

29 September 2021

Half Yearly Financial Report

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors confirm to the best of their knowledge that:

The condensed set of financial statements contained within the Half Yearly Financial Report have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting," gives a true and fair view of the assets, liabilities, financial position and profit and loss of the Company; and
The Interim Management Report includes a fair review of the information required by 4.2.7R and 4.2.8R of the FCA's DTR Rules.

The Half Yearly Financial Report was approved by the Board on 29 September 2021 and the above responsibility statement was signed on its behalf by:

Lord Flight
Chairman
29 September 2021

Aurora Investment Trust plc

CONDENSED STATEMENT OF COMPREHENSIVE INCOME

| Note | Six months to 30 June 2021
(unaudited) | | | Six months to 30 June 2020
(unaudited) | | |
| --- | --- | --- | --- | --- | --- | --- |
| | Revenue | Capital | Total | Revenue | Capital | Total |
| | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Gains/(losses) on investments | – | 13,314 | 13,314 | – | (43,590) | (43,590) |
| Losses on currency | – | (1) | (1) | – | (20) | (20) |
| 4 Income | 982 | – | 982 | 803 | – | 803 |
| Total income | 982 | 13,313 | 14,295 | 803 | (43,610) | (42,807) |
| 5 Investment management fees | – | (332) | (332) | – | – | – |
| Other expenses | (349) | – | (349) | (299) | – | (299) |
| Profit/(loss) before tax | 633 | 12,981 | 13,614 | 504 | (43,610) | (43,106) |
| Tax | (20) | – | (20) | – | – | – |
| Profit/(loss) and total
comprehensive income for the
period | 613 | 12,981 | 13,594 | 504 | (43,610) | (43,106) |
| 8 Earnings/(loss) per share –
Basic and diluted | 0.81p | 17.08p | 17.89p | 0.72p | (62.32p) | (61.60p) |

The revenue and capital columns, including the revenue and capital earnings per Ordinary Share data, are supplementary information prepared under guidance published by the AIC.

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. All revenue is attributable to the equity holders of the Company.