In the Aurora Investment Trust plc Annual Financial Report announcement released earlier this morning (RNS No: 9807W), the dates in a table showing the Phoenix UK Fund track record had become misaligned with the associated data when the table was reproduced in the announcement.  This misalignment has been corrected in the below corrected version of the announcement.  There are no other changes to the announcement.

Aurora Investment Trust PLC

Annual Report for the year ended 31 December 2022

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Strategic Report

Financial and Performance Highlights

Objective

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

Policy

Phoenix Asset Management Partners Limited ("Phoenix") was appointed as Investment Manager on 28 January 2016. Phoenix currently seeks to achieve the Company's Objective by investing, primarily, in a portfolio of UK listed equities.

The portfolio will remain relatively concentrated. The exact number of individual holdings will vary over time but typically the portfolio will consist of 15 to 20 holdings.

The Investment Policy of the Company can be found on page 7.

Benchmark

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

Dividend

The Board proposes to pay a final dividend of 2.97p per ordinary share (2021: 1.84p) to be paid on 4 July 2023 to shareholders who appear on the register as at 9 June 2023, with an ex-dividend date of 8 June 2023.

Annual General Meeting ("AGM")

The AGM of the Company will be held at 25 Southampton Buildings, London WC2A 1AL on 27 June 2023 at 2 p.m. There will be no Investment Manager presentation at the AGM. Instead, there will be a separate Investment Manager presentation and Q&A event at 4 p.m. on 10 October 2023 at the Queen Elizabeth II Centre, Broad Sanctuary, Westminster, London SW1P 3EE.

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Chair's Statement

This is my first statement as Chair of your Company, since I succeeded Lord Howard Flight on 28 June 2022. I would like to thank Lord Flight and The Honourable James Nelson for their service to the Company during their tenure, following their retirement at last year's AGM.

Performance

2022 was a difficult year, with concerns over inflation and the war in Ukraine causing significant market turbulence. The Company's Net Asset Value ("NAV") Total Return* for the year ended 31 December 2022, on a non-IFRS basis, was -17.4% (2021: +17.1%) and the share price total return* was -16.3% (2021: +13.5%). Over the same period the Company's benchmark FTSE All-Share Index (total return) increased by 0.3% (2021: 18.3%), predominantly due to the c.25% weighting in energy and mining stocks which performed strongly after the Russian invasion. The Mid Cap index is less exposed to those sectors, and saw a fall of 20% for the year.

The strongest contributor to the Company's performance was the inflation hedge put in place in 2021 and sold early in 2022, while the weakest contributor was Barratt Developments, where the proceeds from the inflation hedge were invested. We recognise that this was a disappointing performance for shareholders, but  concentrated portfolios of undervalued holdings are not immune to short or medium term market volatility. The Board remains confident that the investment approach followed by the Investment Manager will lead to long term outperformance for shareholders.

Your Investment Manager, Phoenix Asset Management Partners Limited ("Phoenix"), has provided a full description of the development and financial performance of the portfolio over the year in the Investment Manager's Review on pages 14 to 23.

The Investment Manager and Performance Fees

2022 was the seventh year of Phoenix's management of the Company's portfolio, which began in January 2016. Throughout that time, Phoenix continued to employ a focused and patient investment approach.

Phoenix receives no annual management fee, which is a unique aspect of the Company. Instead it is solely remunerated from an annual performance fee, equal to one third of the outperformance of the Company's NAV against its benchmark, the FTSE All-Share Index (total return).

The performance fee is paid by issuance of the Company's ordinary shares, which are subject to a fixed three-year clawback period. That means the issued shares will be returned by the Investment Manager in the event that any outperformance versus the index reverses on the third-year anniversary. If outperformance fully reverses, the Investment Manager will receive nothing.

In the years ending 2019, 2020 and 2021 the Investment Manager was awarded shares in settlement of a performance fee.

In 2022, instead of paying a performance fee, the Company clawed back 530,311 shares from Phoenix, which were delivered to the Company and held in Treasury at the year end, but cancelled shortly after on 9 January 2023.

Following this cancellation, the Company's issued share capital is now 76,078,460 ordinary shares of 25p, each carrying one voting right. The Company does not hold any ordinary shares in Treasury

*Alternative Performance Measure (see page 97)

Share Premium/Discount

During 2022 the Company saw the discount of its share price to the underlying NAV per share narrow from 7.6% at the end of 2021 to 4.4% at the end of 2022. On occasions during the year, the shares traded at a small premium.

Closing the discount is one of the Board's key objectives for 2023, and marketing activities are considered a key part of the strategy. Phoenix along with Liberum, the Company's broker, and Frostrow Capital as investor relations and marketing adviser continue to promote the Company proactively.

To assist with management of the discount and the liquidity of the Company's shares, resolutions to renew the Board's powers to issue and buy back shares are included in the Notice of Annual General Meeting beginning on page 100.

Growth of the Company

Growing the Company remains another key objective of the Board, with a medium-term target of £250 million. This objective was set back during the year, with the market capitalisation falling from £179 million in January 2022, to £148 million at the year end. The only shares issued in the year were issued to Phoenix in relation to the 2021 performance fee. Growing the company will only be possible with the Company's shares trading at a premium to NAV per share, and therefore the first objective is to close the discount.

Annual General Meeting ("AGM") and separate Investment Manager presentation event

Historically the AGM included a presentation from the Investment Manager, however this year the Board is instead introducing an Aurora Investor Event to be held at 4 p.m. on 10 October 2023 at the Queen Elizabeth II Centre, Broad Sanctuary, Westminster, London SW1P 3EE.. This event is intended to be of interest to both existing and prospective Aurora shareholders and will include multiple speakers from the Investment Manager. It is intended for this event to be recorded and made available afterwards on the Company's website.

This year's AGM will be held at the Company's registered office, 25 Southampton Buildings, London WC2A 1AL, on 27 June 2023 at 2 p.m. to consider the business set out in the Notice of Meeting on page ●s 101 and 102, and will not include an Investment Manager presentation.

With respect to the AGM, the Board strongly encourages shareholders to register their votes online in advance of the meeting by visiting www.signalshares.com and following the instructions on the site. Appointing a proxy online will not restrict shareholders from attending the meeting in person should they wish to do so and will ensure their votes are counted if they are not able to attend. Shareholders are invited to send any questions they may have to the Company Secretary by email to info@frostrow.com ahead of the meeting.

The Board

As mentioned above, Lord Flight and The Honourable James Nelson retired from the Board at the 2022 AGM. Two new non-executive Directors, Farah Buckley and Helen Vaughan, were appointed on 8 September 2022. Unfortunately it was necessary for Helen Vaughan to resign her appointment in February 2023 due to a conflict of interest that arose post appointment. In line with other investment companies of a similar size and taking into account the mix of skills and experience of the existing Board members, the Board has decided not to recruit a fifth member for the time being. Farah Buckley's biography is set out on page 36.

Following these changes, Farah Buckley serves as Chair of the Audit Committee and Lady Rachael Robathan chairs the Management Engagement Committee and the Nomination & Remuneration Committee.

David Stevenson now represents the Company on the Board of Castelnau Group Limited ("Castelnau"). This directorship is in the interest of the Company since it provides access to, and a deeper understanding of, the Company's investment in Castelnau. As a result, the Board continues to consider David Stevenson as independent.

Administration

2022 was a busy year administratively, with changes of Auditor (now BDO LLP), Administrator and Company Secretary (now Frostrow Capital LLP) and Depositary and Custodian (now Northern Trust Investor Services Ltd). The Board thanks our new service providers for a smooth transition. Further information is included in the Directors' Report.

Dividend

The Board is recommending a final dividend of 2.97p (2021: 1.84p) per ordinary share, to be paid on 4 July 2023 to shareholders who appear on the register as at 9 June 2023. The ex-dividend date is 8 June 2023. This dividend will be proposed at the forthcoming AGM to be held on 27 June 2023. The Company's dividend policy, which is to distribute substantially all net revenue proceeds, remains unchanged and can be found on page 7 of this Annual Report.

Outlook

Whilst Phoenix's approach was not rewarded in 2022, market turbulence provides opportunity. The portfolio was rotated into more attractive names, and in some cases, companies that had been patiently followed for over a decade. These times, whilst painful in the short run, are what provide foundations for a strong return in the long run. Performance from the beginning of 2023 to the end of March saw the NAV return +14.4% vs. the index +3.1%, demonstrating the potential for significant performance.

Lucy Walker
Chair
20 April 2023

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Investment policy and results

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

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

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

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

•    The Company's policy is not to invest more than 15% of its gross assets in any one underlying issuer (measured at the time of investment) including in respect of any indirect exposure through Castelnau Group Limited ("Castelnau");

•    The Company may from time to time invest in other UK listed investment companies, but the Company will not invest more than 10% in aggregate of the gross assets of the Company in other listed closed-ended investment funds; and

•    Save for Castelnau Group Limited, the Company will not invest in any other fund managed by the Investment Manager.

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

The Company does not currently intend to use gearing. However, if the Board did decide to utilise gearing the aggregate borrowings of the company would be restricted to 30% of the aggregate of the paid-up nominal capital plus the capital and revenue reserves.

Any material change to the investment policy of the Company will only be made with the approval of shareholders at a general meeting. In the event of a breach of the Company's investment policy, the Directors will announce through a Regulatory Information Service the actions which will be taken to rectify the breach.

Dividend Policy

The Company does not have a fixed dividend policy. However, the Board expects to distribute substantially all of the net revenue arising from the investment portfolio. Accordingly, the Company is expected to pay an annual dividend that may vary each year.

Borrowing Policy

The Company is not prohibited from incurring borrowings for working capital purposes, however the Board has no current intention to utilise borrowings. Whilst the use of borrowings should enhance the total return on the ordinary shares where the return on the Company's underlying assets is rising and exceeds the cost of borrowing, it will have the opposite effect where the underlying return is falling, further reducing the total return on the ordinary shares. As a result, the use of borrowings by the Company may increase the volatility of the NAV per Ordinary Share.

The Company has a policy not to invest more than 10% of its gross assets in other UK listed investment companies. As a consequence of its investments, the Company may therefore itself be indirectly exposed to gearing through the borrowings from time to time of these underlying investment companies.

Purpose and Key Performance Indicators ("KPI's")

The Company's purpose is encapsulated in its investment objective, which is to provide shareholders with long-term returns through capital and income growth by investing predominantly in a portfolio of UK listed companies. The Board measures the Company's success in attaining its objective by reference to KPIs as follows:

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

b.     The Company's Benchmark is the FTSE All-Share Index (total return), against which the NAV total return is compared. After achieving the goal of making absolute returns for shareholders, the next aim is to provide a better return from the portfolio than from the market as measured by the Benchmark;

c.      The Board seeks to ensure that the operating expenses of running the Company as a proportion of NAV (the Ongoing Charges Ratio) are kept to a minimum; and

d.     The discount/premium to NAV per share at which the Company's shares trade is also closely monitored in view of its effect on shareholder returns.

The Chair's Statement on pages 4 to 6 incorporates a review of the highlights during the year.

The Investment Management Review and Outlook on pages 14 to 23 gives details on investments made during the year and how performance has been achieved.

Performance (KPIs a and b)

The Company's performance in absolute terms and relative to the FTSE All-Share Index (total return) benchmark since Phoenix was appointed as Investment Manager in 2016 is shown below:

1 Alternative Performance Measures ("APMs").

Ongoing charges (KPI c)

Phoenix does not earn an ongoing annual management fee, but instead is paid an annual performance fee, only if the benchmark is outperformed, equal to one third of the outperformance of the Company's NAV against its FTSE All-Share Index (total return) benchmark.

The Board monitors the Company's other operating costs carefully. Based on the Company's average net assets for the year ended 31 December 2022, the Company's ongoing charges figure calculated in accordance with the Association of Investment Companies ("AIC") methodology was 0.45% (2021: 0.49%). Expenses are managed with the intention of keeping costs down and as the size of the Company grows the ongoing charge ratio should be expected to reduce.

Discount to NAV (KPI d)

The discount of the ordinary share price to the NAV per Ordinary Share is closely monitored by the Board. The ordinary share price closed at a 4.4% discount to the NAV per Ordinary Share as at 31 December 2022 (2021: 7.6% discount). During the year ended 31 December 2022, the Company's shares traded between a premium of 1.6% and a discount of 13.6% to NAV per share, with an average discount of 5.4%.

Revenue Result and Dividend

The Company's revenue income after tax for the year ended 31 December 2022 showed improvement towards pre-COVID levels, at £2,263,000 (2021: £1,413,000). The Board is recommending the payment of a final dividend of 2.97p per ordinary share (2021: 1.84p per ordinary share). This dividend, if approved by shareholders, will be paid on 4 July 2023 to shareholders on the register as at 9 June 2023; the ordinary shares will be marked ex-dividend on 8 June 2023. In accordance with International Financial Reporting Standards this dividend is not reflected in the financial statements for the year ended 31 December 2022.

Five Year Summary

Net Asset Value per Ordinary Share

The table below is a reconciliation between the NAV per Ordinary Share as at 31 December 2022 announced on the London Stock Exchange on 3 January 2023 and the NAV per Ordinary Share disclosed in these financial statements. The difference is principally the result of amortising the performance fees over the vesting period in accordance with IFRS 2 Share-based Payment in these financial statements, whereas the NAV as at 31 December 2022 published on 3 January 2023 treated the performance fees as earned on 31 December 2022, in accordance with the investment management agreement. The remaining reconciling balances related to adjustment of the unquoted investment valuation and expenses, due to timing lag.

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Top Holdings
as at 31 December 2022

* Average net cost including sales.

# Castelnau is a multi-sector financial holding company listed on the Specialist Fund Segment of the London Stock Exchange. Castelnau is also managed by Phoenix and its value is excluded from the Company's net assets when calculating performance fees earned by Phoenix to avoid double charging.

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Portfolio Analysis
as at 31 December 2022

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

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Statement from the Chief Investment Officer of the Investment Manager

2022 was the year that the clawback process did its work and reversed the performance fee earned in 2019. Although I imagine you appreciate the fairness of this act, I know you would have preferred that we delivered the performance instead. 2022 was a difficult year for our portfolio to outperform with outsized gains in the energy sector triggered by the war, but those effects will wear off in time and the extreme under valuation of the portfolio should result in the sort of outperformance that is deserving of performance fees.

Instead of a portfolio that trades at intrinsic value and a great run of recent performance that would lead you to think you had the right people looking after your money we instead have for you a portfolio trading at 40% of what we think it is worth and ask for your patience which we believe will be well rewarded in future performance.

The UK market seems to be getting incrementally cheaper with each wave of negativity that has hit since Brexit. History tells us that these effects are transitory even if they can persist for long periods of time. We had negative interest rates for so long that some thought they would be here forever, and the UK has been cheap for so long now that you hear some who think it is also going to be a permanent attribute.

We don't profess to make forecasts about the near term however we do expect fundamentals to reassert themselves in the long run and the wonderful value that we are accumulating in these times of cheapness will turn into the sort of excellent long- term returns that make this approach to investing so worthwhile.

Gary Channon
Chief Investment Officer
Phoenix Asset Management Partners
20 April 2023

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Investment Management Review and Outlook

During the year, the NAV per share fell by 17.4% and the share price by 16.3%. The FTSE All-Share Index rose by 0.3% over the same period. Since Phoenix began managing the Company's portfolio on 27 January 2016, to 31 December 2022 the Company's NAV per share total return was 43.2% versus 61.0% for the FTSE All-Share Index. Net assets at year-end were £158m (2021 £194m).

The underperformance in 2022 ensured that no performance fee was payable. As a reminder, if a performance fee is payable, it is paid by way of the issuance of ordinary shares, which are subject to a fixed three-year clawback period. If the outperformance versus the index reverses on the third-year anniversary, some or all the issued shares will be returned, and if outperformance fully reverses, Phoenix will receive nothing.

On 31 December 2022, a clawback test for the year ending 31 December 2019 was carried out and, due to underperformance in 2022, the clawback was triggered in full. The 530,311 shares awarded to Phoenix for the 2019 fee have been returned to the Company and the NAV per share increased by 1.66p as a result.

Following a review and dialogue with advisers, prompted by ourselves and the Board, we agreed that accounting for the clawback in the daily NAVs better represents the economic impact of the clawback and is more informative to investors.

The impact of the fully clawed back 2019 fee and the 2020 & 2021 fees, which would be clawed back if the underperformance as at 31 December 2022 continued, but which have yet to be subject to the final three-year clawback test, was to increase the NAV by 5.44p per share in total.

2023 has started positively as the market looks towards inflation, and therefore interest rates, falling. As of 28 February 2023, the NAV has risen 16.8% for the year, with the FTSE All-Share Index rising 6.1%.

Performance Review

From a performance perspective, 2022 was dominated by concerns over higher inflation and the impact of higher interest rates. The war in Ukraine was also a significant factor as it led to an increase in commodity prices, which added to the existing inflationary forces.

The first half of the year saw falls across the portfolio, with the NAV down 16.6% versus 4.6% for the benchmark at 30 June 2022.

The year ended slightly weaker with the portfolio down 17.4% whilst the Index recovered to end the year up 0.3%. Within the second half of the year, Q3 was weak as the NAV fell a further 9.7% before a 9.5% recovery in Q4.

It has been a tough year in which to beat the UK indices. The main UK indices have, unusually (from a global perspective), returned a positive performance in 2022, largely owing to the weighting in energy and miners, whose prices jumped in response to the elevated profit opportunity that followed Russia's invasion of Ukraine. Between them, those sectors make up c.25% of the market and they are up 42% and 23% respectively in 2022. We do not have any ownership in those areas.

The Mid Cap Index, which has a lower exposure to those sectors and is more domestically focused, fell 20% in the year.

The 17.4% decline in Aurora was after a positive 6.5% contribution from a hedge against inflation, through put options on a short sterling future contract, which was disclosed in detail in the Company's last annual report.. The biggest contributor to our decline was Barratt Developments where we re-invested the proceeds of that hedge, it was down 41% in 2022, which results in a -5.4% effect on the return. Castelnau Groupcontributed a -4.3% effect after it declined by 35%.

The other stocks to make negative contributions of over 2% were Randall & Quilter and easyJet, which were down 3% and 2.8% respectively.

Last year's biggest riser, Frasers Group, the Company's biggest holding, fell 8% in 2022 (having risen 71% in 2021). When combined with its large weight, this had a -1.5% effect on the Company for the year.

The best performer in the portfolio in 2022 was Netflix, rising 50% from when we purchased it and making a +1.3% contribution to the overall performance.

Activity Review

In the June 2022 monthly factsheet, we highlighted the valuation opportunities afforded by the fall in the NAV during the half year. This piece was titled "Christmas in Valueland".

Please refer to the June factsheet on our website for the full details, but it highlighted the counter intuitive thinking of value investors as bad fundamental news can often provide good investment opportunities. The essence of "Valueland" is the ability to buy the future for less, and it follows that the less you pay the higher the return you will enjoy in the future.

Those "Valueland" type opportunities persisted for much of the year and even after recent positive performance valuations remain at an historically attractive level.

We took advantage of the opportunity set and instigated 4 new holdings. We reported in detail during the year on two; AO World and Netflix, a third, Hotel Chocolat recently went over 3% and we will be formally introducing it in the next monthly factsheet. A fourth, Wayfair, remains below our 3% disclosure level and will be introduced when it exceeds that 3% threshold.

The investments in Netflix and Wayfair are outside our historic focus on UK listed equities, but if they sit within our circle of competence, they are investable, and the Company's mandate allows up to 20% of the portfolio to consist of non-UK holdings. Ryanair for example is another member of the portfolio from outside the UK. When we stray outside of the UK, it is to multinational businesses where we think we bring some initial knowledge and insight. Unilever is listed in the UK and Proctor & Gamble in the US, but the expertise required to understand one is highly applicable to the other.

The rationale behind the purchase of Netflix was also outlined in the June factsheet, and it is repeated below:

Rather than cover the story of Netflix, which you probably know and has been covered well elsewhere, including in founder Reed Hasting's book collaboration with Erin Meyer called "No Rules Rule", which is written up in the Phoenix Reading Room, we thought we should explain why we have invested in it.

Long-term holders will remember that we have owned media production broadcast businesses before, initially Carlton Communications and then, following its merger with Granada, ITV. At the time of that merger in 2003 the competition and media regulators decided that ITV would have too much power, and so restricted their ability to change their business and capped their prices and advertiser contracts at 2003 levels. This hobbled them in a changing world. They tried something called ITV Digital, which was a failure, but even in 2008 when this was reviewed by Ofcom, they were still thought to need restrictions. In that report streaming, though mentioned, was not expected to be significant. What they called Broadband TV, or internet TV, was held back because only two thirds of households had access to the internet at the time.

The internet itself was underestimated because they said it didn't allow the same ability to target audiences the way broadcast TV did.

We sold our ITV and our WPP viewing that the world was changing fast in a way that undermined both those businesses. All this time later, ITV trades 40% below where we sold it and whenever we have reconsidered it as an investment, for example in 2018 when Carolyn McCall moved there from easyJet, the fear of Netflix has undermined its attractiveness. A show like The Crown would have been a natural for ITV before the emergence of Netflix.

Now, 43% of UK households subscribe to Netflix, streaming services are in 59% of households and Netflix dominates the Top 10 list of most enjoyed titles watched according to Kantar. ITV finally got together with the BBC, and in 2017 created something called BritBox to compete. Currently Netflix has 100 times more subscribers.

What has been playing out in the UK has been going on everywhere at different paces and in different ways. Streaming is a superior way of receiving media content. To young people who have grown up with it, the idea of scheduled linear timed broadcasting is quaint, anachronistic, and not the way they tend to consume media unless it's a live broadcast. Around 300 million households around the world now utilise a streaming service and we think over the next 10 years that could grow to a range of numbers averaging about 1 billion. Netflix, as the first and biggest, we expect to lose share as others get up and running, but they will have a smaller share of a much bigger market. Their growth trajectory will be different to newcomers because they have reached points of deep penetration in many markets. The pandemic has distorted numbers and made trends harder to discern, but it seems reasonable to assume that lockdown had a positive impact upon them and so the end of lockdown should be negative. They entered the lockdown with 167m subscribers and have emerged with 220m. Netflix is not just the UK's no.1; it is the World's. Whilst many focus on Netflix versus Disney, we think the real pain points will be with the likes of ITV and their ilk around the world.

Netflix has built this business whilst charging for it. ITV is free. ITV doesn't have churn numbers because it is free, and advertisers pay for it. This dynamic gives Netflix a great opportunity to vary its business model to reduce subscription price as a point of friction. Netflix is already the streaming service that consumers say is their favourite and would be the last one they cancel. As Netflix experiments with the advertiser funded model that has served Google, YouTube, Facebook and most of the world's commercial broadcasters well, we believe it will increase its competitive advantage.

Netflix has a founder led culture that is always adapting and evolving, using trial and error combined with a good understanding of data to develop. We see this in many successful businesses and so when we consider the management team and culture at Netflix, we think it will outcompete its rivals.

There are many scenarios you can model at Netflix. Our base one gives a value of well over $500, and our downside stress test comes out around $200. We have now invested 3% of the portfolio at an average price of $211.49 and, given that it represents a new area for us, we will restrict ourselves there until we believe we have developed our expertise further. In the past, that cap has taken years not months to lift.

In January 2023, Phoenix Asset Management Partners, through Castelnau Group Limited, launched an offer for Dignity PLCin conjunction with Sir Peter Wood. For full details of that Offer, please refer to the Castelnau Group website www.castelnaugroup.com.

Outlook

In the year-end factsheet for the Company published in January 2023, Gary Channon, Phoenix CIO, outlined some thoughts to shareholders on inflation and the general outlook for the year ahead. It is repeated below, as those thoughts remain relevant today:

Inflation

Given the significant contribution of the inflation hedge to our recent performance, it is worth commenting on our current thoughts and why we were happy to take it off and not extend it.

There seems to be some general misunderstanding as to whether inflation is controllable or not, which at times draws upon the 1970s as an example. However, it is important when considering that period to understand that the prevailing view of politicians and policy makers at the time was that inflation could not be controlled with interest rates or money supply. The way in which governments sought to control inflation was through government intervention in prices and wages.

In the UK we had the National Board for Prices and Incomes, which was set up in 1965 and through which the government attempted to impose controls on prices and wages through direct legal constraint and coercion. Periods of wage freezes were imposed, where no businesses could raise pay, followed by mandated pay rise levels set by the government. This even extended to dividends. All these measures seem unworkable today and they were even then. Much mental and legal resource was spent trying to operate around them and huge misallocations of capital were caused by those distortions, but their ultimate undoing was that they failed to work. Inflation took off and labour represented by unions went on strike bringing the UK to a standstill. (Plus ça change, plus c'est la même chose!)

Some lessons of history are learned because they result in a change that works, and so it was with inflation. We learned that inflation could be controlled by the setting of interest rates and paying attention to the money supply and that, even better, if you gave this as a mandate to an independent central bank, then it would gain real credibility in the pricing of long-term obligations from the government.

The lesson of history that you cannot control inflation by imposing below market wage settlements looks like it is about to be relearned in the UK.

We were worried about inflation in 2021, because we saw the huge growth in money supply caused by the pandemic interventions, which were funded by effectively printing money. Because "quantitative easing", as it became known, worked so well in the Global Financial Crisis of 2008, it was assumed not to cause inflation. But the big difference then was that the money printing occurred as the banking system shrank and the overall effect on money supply was minimal. With COVID-19 there was no offsetting shrinkage. To make matters worse, the interruption to the world trading system that COVID-19 caused meant that supply could not respond to all the extra money in the system and so price rises were the inevitable outcome.

To throw fuel to the fire, the invasion of Ukraine, accompanied by a restriction on the supply of Russian energy, caused a surge in oil and gas prices which quickly feeds into all prices.

The key central banks all have a clear policy objective of controlling inflation, and this hiccup has undermined their credibility, which they are acting quickly to regain. They have the tools and there is no reason not to expect them to succeed. Money supply has already stopped rising and has even been declining in the US for the first time in decades. It is a reasonable assumption that long term inflation will be around the goals set for central banks (UK is 2.0%), and that in focusing on restoring their credibility they will tend towards undershooting that level.

2023 will be the year of transition and given the unsustainably elevated level of energy prices (i.e. they are at such a high level that the excess profits incentivise increased supply, whereas elevated prices reduce demand and incentivise alternatives), it is highly possible that inflation could be negative before the year is out.

Once central banks can see the trajectory is on target, we will see where peak interest rates are, and also whether a greater recession is needed, albeit that is the ultimate effect of raising rates to restrain inflationary pressures.

Outlook

You know us better than to expect a forecast for 2023, but we do want to share a thinking framework for someone with, or thinking of, making a long-term investment in equities and then in particular with our investment philosophy.

For all the talk about inflation, interest rates and wars, the most important factor for considering an investment in equities is the underlying economic miracle engine that has been running now for some 300 years. Whatever you call it, industrialisation, or capitalism, starting in the UK a force has been at work that has raised the productive output of the world at a rate faster than population growth. In the previous 1000 years this did not happen.

The effects of this machine can be seen in the world GDP figures adjusted for inflation. The first column of GDP data in the table below shows the figures adjusted for inflation, but when we are thinking about where corporate profits come from, it is actual dollars which the next column shows. Corporate profits have averaged between 8% and 10% of GDP over that period and so the final column is an estimate of their size using a 9% estimate.

The forces of that progress are identifiable and measurable. The number of people involved and the output per person are the two simple factors of the output result. Innovations in ways of working and innovation in the technologies involved, combined with trade, drove that output. But by far the biggest absolute driver has been the increase in the number of people joining the system. Even without any innovation, newly industrialising countries can just adopt methods and technologies already discovered.

Source: World Bank national accounts data, and OECD National Accounts data files, Phoenix

The effects of this machine can be seen in the world GDP figures adjusted for inflation. The first column of GDP data in the table below shows the figures adjusted:

Throughout those decades interest rates went up and down, inflation came and went and so did wars, but none of it derailed this relentless machine.

Increasing output at a rate faster than population growth raises the standard of living and that has also happened at a relentless pace. The best way to show it is with the GDP per capita, see table below:

World GDP per Capita

Source: World Bank national accounts data, and OECD National Accounts data files

As citizens get wealthier they consume differently, and the business opportunities to satisfy that consumption grows. This is the basis of the economic system in which we participate, from which our businesses derive their profits and therefore, ultimately where the returns and values of our businesses come from.

This is the strong and compelling case for equities over the long term, as a participator in that great wealth generating machine and as a protection against any inflation that accompanies that progress.

World GDP had just passed $30 trillion when we started Phoenix in 1998 and it most likely will have passed $100 trillion now. The pool of corporate profits has more than tripled in that period and a holder of one of the world indices would have achieved something similar to that on their investment.

The Case for the Value Investing Approach

If the index-based approach can give such good returns for the long-term investor, then why contemplate a value-based approach?

There are two key edges that a value-based approach has over a pure index tracking one, which should mean that all value managers can outperform the index, even after fees, if they do them.

1.   Avoid bubbles of over valuation

2.   Take advantage of troughs of under valuation

Both go against basic human instincts and are the primary reason why the average investor underperforms.

Avoiding bubbles. As we have discussed previously, markets have in the past few years become dominated by a euphoric interest in technology related businesses. Many of them look like great businesses and are highly profitable, but in a run reminiscent of the Go-Go Years rally of the 1960s, which focused on the Nifty Fifty of forever stocks, the valuation put on businesses with great prospects reached highly elevated levels.

A value-based approach keeps you out of such manias and protects you from the fallout seen already in 2022. We had none of those in the portfolio.

Buying Value in a Trough. As we have discussed previously, the layers of negative forces prevailing in the stock market, especially in the UK, have created significant undervaluation opportunities. It has been our focus to make the most of this opportunity. Although straightforward in principle, buying cheap but declining and out of favour stocks is always uncomfortable when you are doing it, because they usually keep declining and looking like mistakes.

We save ourselves from the human side of that by sticking to our approach, making rational value-based judgements, in the knowledge that, in the long run, it is the underlying cash generation of a business that ends up determining its value and long-term investment returns. We pay no attention to timing but if we invest in undervalued securities, that are themselves making high returns on the capital retained within them, then time works for us. Value builds and, ultimately, returns follow.

The result of applying that edge, since we started in 1998, is that we had a 12-fold return whilst those world indices and profit pool tripled.

UK House Prices

Given our large exposure to UK housebuilding, and that this is again a much-discussed topic, we thought we should say something on house prices.

Those familiar with our investment rationale will know that the movement in house prices does not matter much for value and, counter-intuitively, the outcome that produces the most cash for shareholders is one of continual house price decline. The reason being that declining prices, in essence, release capital currently tied up in land, because the replacement cost of land falls as house prices fall. Because the cost of building houses does not decline, land prices always take a disproportionate hit which releases a lot of capital. (e.g. in 2009 a 9% fall in house prices was accompanied by a 40% fall in land prices).

We restate that reasoning so it is clear that we don't have an endowment bias (i.e. the cognitive bias you get when you already own something to favour thinking that supports that ownership) that leads us towards optimistic house price expectations.

Ultimately, we think house prices reflect the forces of supply and demand. Rising mortgage rates have an impact on the area of demand that comes from buyers of a house with a mortgage, but demand occupancy is a function of the supply of households and most households are not formed with a mortgaged purchase; they start as a rental decision. A shortage of supply of housing means that occupancy of property is high and that landlords can expect a tenant. Higher rates mean that landlords will either have to raise rents or lower the price at which they are willing to buy properties. In 2022 private rents rose 11% in the UK and 15% in London. Like higher energy prices, they end up taking up a larger proportion of household budgets and for some it will mean that a household does not get formed, e.g. young people will continue to live at home longer.

More likely is a period of adjustment to new mortgage rates and rental prices, a decline in prices from lower expectations of value by agents, sellers and buyers, before the forces of supply and demand assert themselves to leave residential property in the UK still expensive.

We have used many methods to estimate the level of undersupply of housing in the UK and the best approximate figure we have is around 5% or 1.5 million homes, not evenly distributed and most extreme in London. The latest changes and government backdowns on planning policy show that there is no likely path in the medium term to fix this. Even the political will, that we have seen from both parties in the past 20 years to raise housing output, it has not overcome the underlying local resistance to new housing.

China

Given the way we view the world, the most significant recent news has been the re-opening of the Chinese economy from COVID-19. In the short run, it will help alleviate inflationary pressures, but in the long term, the forces we talked about earlier are what matters. China aspires to have an economy like the US, but even if it managed to raise its GDP per capita to the level of the UK, that alone would add $47 trillion to the $100 trillion world economy. However, China's relationship with the US and Europe (including the UK) has changed; there is a wariness about China's intentions, and this is causing restrictions to trade in crucial areas like semiconductors. Military and political rivalries are concerning, but a student of history cannot help but notice how much innovation and economic progress has been made in the competition for power between nations (see Paul Kennedy's 1987 book The Rise and Fall of Great Powers for a great illustration of this over 500 years). There is no military victory route available and so the best way for China (and India) to build their power to match the size of their nations, is economic progress towards conversion with the West, and in doing so the standard of living of the whole world will rise substantially. And as previously said, the best way for a long-term saver to participate in that is by owning commercial enterprises.

Conclusion

All that grandiose macro context does not help you pick stocks. Companies succeed and fail in much more dramatic fashion than countries. We have a portfolio of strong businesses, and so in tough times they get relatively stronger and that shows when conditions improve. We see that happening across the portfolio, where companies with strong management teams are outcompeting their competitors and creating great long term future value. Unfortunately, our external scorecard is based upon the value that the market puts on those businesses, and currently that is low. We believe we have added considerable long-term value to the portfolio in this period and that will start showing up in returns in the coming years.

Steve Tatters Director
Phoenix Asset Management Partners
20 April 2023

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Phoenix UK Fund Track Record*

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

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

* Whilst the investment strategy is the same in all material respects, the portfolio holdings will not necessarily be the same and investors in the Company will have no exposure to the investment performance of the Phoenix UK Fund. For illustrative purposes only, not a recommendation to buy or sell shares in the Fund.

Past performance is not a reliable indicator of future performance.

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Report under Section 172 of the Companies Act 2006

Directors' duty to promote the success of the Company

Section 172 of the Companies Act 2006 requires the Directors to seek to promote the success of the company for the benefit of its members as a whole, having regard to the likely consequences of any decision in the long term, the need to foster the company's business relationships with suppliers and others, the impact of the company's operations on the community and the environment, the desirability of the company maintaining a reputation for high standards of business conduct, and the need to act fairly as between members of the company.

The Board seeks to understand the views of the Company's shareholders and their interests, and those of its other key stakeholders, and to consider these, together with the other matters set out in section 172, in Board discussions and decision-making.

The Board keeps engagement mechanisms under review so that they remain effective and in fulfilling their duties the Directors carefully consider the likely consequences of their actions over the long-term.

The following describes how the Directors have had regard to the views of the Company's stakeholders in their decision-making.

Shareholders

The Investment Manager regularly meets the largest shareholders and beneficial owners and reports back to the Board on those meetings. Liberum Capital Limited ("Liberum"), the Company's corporate broker, and Frostrow Capital LLP ("Frostrow"), in its capacity as the Company's investor relations & marketing adviser, also meet with investors and seek to understand their views, which they relay to the Board.

Additionally, the Company Chair is available to meet with investors on request. Through these interactions and other communications the Board and the Investment Manager seek to promote a supportive investor base of long-term investors.

The Board communicates with investors twice a year via the Annual Report and Half-yearly Report and more frequently via the Company's website which hosts various information, including news reports, video presentations by the Investment

Manager and monthly factsheets. Additionally, the NAV per share is announced daily via a regulatory information service.

The Company encourages all shareholders to attend the Company's AGM, at which the Directors are available in person to meet with shareholders and to answer their questions. Historically the AGM included a presentation from the Investment Manager, however, this year the Board is instead introducing a separate Investment Manager presentation and Q&A event at 4 p.m. on 10 October 2023 at the Queen Elizabeth II Centre, Broad Sanctuary, Westminster, London SW1P 3EE. This event is intended to be of interest to both existing and prospective Aurora shareholders and will include multiple speakers from the Investment Manager. It is intended for this event to be recorded and made available afterwards on the Company's website.

The Notice of Meeting on pages 101 and 102 sets out the business of the AGM and each resolution is explained in Explanatory Notes to the Resolutions, which follow the Notice, starting on page 107. Separate resolutions are proposed for each substantive issue. The Company Chair, and where relevant, each Committee Chair, welcomes engagement with the Company's shareholders (and the Company's other key stakeholders) on significant issues raised by them at the AGM or at other times.

Details of the votes cast on each resolution will be announced via a regulatory information service shortly after the AGM and published on the Company's website.

At each of its regular meetings the Board tracks shareholder changes and monitors the evolving shareholder profile. A list of the largest shareholders in the Company can be found on page 43.

Shareholders have generally been supportive through the year and nothing arose from the shareholder interactions requiring a substantive decision to be made. However, related to this topic, the Board has decided to participate in a retail focus group initiative aimed at further understanding retail shareholders.

Other stakeholders

As an externally managed investment company, the Company has no employees and all operational activities are outsourced to third party service providers. These include the Investment Manager, the Company Secretary and Administrator, the Registrar, the Depositary, the Custodian, lawyers and financial advisers. The Board has identified these service providers to be key stakeholders in the Company, together with its shareholders and investee companies. The Board is aware of the need to foster the Company's relationships with its key stakeholders through its stakeholder management activities.

As part of the Board and stakeholder evaluation processes that are undertaken annually, the Board reviews its engagement mechanisms to ensure they remain effective.

In fulfilling their duties, the Directors carefully consider the likely consequences, for stakeholders and otherwise, of their actions over the long term.

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

i.    the Company's investment objective and policy;

ii.   the main trends and factors likely to affect the future development, performance and financial position of the Company;

iii.  the Company's key performance indicators;

iv.  the Company's peers;

v.   the Company's overall strategy; and

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

The Investment Manager is the most fundamental service provider to the Company's long-term success, and the Board provides oversight and challenge to the Investment Manager at all Board meetings to ensure that the portfolio is managed in line with the Company's published investment policy.

A description of key service providers' roles together with the terms of their engagement can be found on pages 42 to 44. The Management Engagement Committee, on behalf of the Board, reviews the performance and terms of engagement of each of the Company's key service providers annually to ensure each remains competitive and to consider the quality of the services they provide.

Environmental, Social and Governance ('ESG') Matters

The Board expects good standards of business sustainability to be maintained, especially with respect to ESG, at the companies in which the Company invests and satisfies itself that the Investment Manager consistently and proactively engages with them on this basis.

All shareholdings are voted at listed company meetings worldwide where practicable in accordance with the Investment Manager's own corporate governance policies.

Further details of the Investment Manager's approach to ESG within its investment framework can be found on its website at www.phoenixassetmanagement.com.

Monitoring of Key Decisions and the outcome of those decisions

The Board meets at least quarterly and at such other times as deemed appropriate. During these meetings, the Board considers reports from the Investment Manager on the Company's portfolio, its investment activity and sector diversification. In addition, the Investment Manager provides an overview of engagement with the investee companies and with potential investee companies. The Board debates the Company's portfolio and notable acquisitions or disposals at each of its meetings and challenges stock selection where deemed appropriate. In between meetings, the Investment Manager and Board maintain contact through which they consider investment ideas, market outlook, any strategies under consideration for adjusting the Company's portfolio in line with the Company's investment policy and other initiatives.

The Board receives reports from Frostrow, in its capacities as Company Secretary, Administrator and Investor Relations & Marketing Adviser, respectively on the latest governance, legal and investment trust sector issues, the Company's management accounts and, together with Liberum, the Company's corporate stockbroker, on the Company's shareholder base, including changes thereto. The Depositary also provides oversight reports and Liberum also reports on performance relative to the Company's peers and the market liquidity of the Company's shares. Contact with shareholders by the Investment Manager, Frostrow and Liberum is also relayed to the Board who consider these discussions at their quarterly meetings.

As mentioned above, the Board decided to participate in a retail focus group initiative aimed at further understanding retail shareholders. During the year, the Board reviewed the performance and terms of engagement of each of its key service providers, which included a review of their control reports and policies, such as whistleblowing, anti-bribery, anti-money laundering and corruption, cyber security, data protection policies and each entity's business continuity arrangements to ensure they were in place and were adequate. This was a particularly active area of consideration in the year and decisions were taken, and have been implemented, to change the Company Secretary and Administrator, to Frostrow, the Depositary and Custodian, to Northern Trust, and the Auditor, to BDO.

In accordance with the Company's Investment Management Agreement, the Board agreed during the year to issue shares to the Investment Manager in respect of the performance fee earned for the year to 31 December 2021.

As part of the Board's succession plan, the Board worked with independent search consultant Trust Associates, to search for and appoint two new Board members to replace Lord Flight and the Honourable James Nelson who stepped down from the Board at the Company's AGM on 28 June 2022.

Other decisions included recommending the payment of a final dividend in respect of the year ended 31 December 2021, which was paid on 1 July 2022, in accordance with the Company's dividend policy to distribute substantially all the Company's revenue to shareholders by way of a dividend. It was also paid to satisfy the investment trust status requirement that no less than 15% of the Company's qualifying revenue must be retained each year.

Boardroom Diversity

The Board supports the principle of Boardroom diversity, and the Board currently comprises four non-executive Directors of which three are female and one male. One Director is from a minority ethnic background. The Board considers its composition, including the balance of skills, knowledge, diversity (including gender and ethnicity) and experience, amongst other factors on an annual basis and when appointing new Directors. The Board has considered the requirements under the FCA's Listing Rule 9.8.6R (10) in relation to target reporting, and has provided full details in the Corporate Governance Statement section on page 47. Summary biographical details of the Directors are set out on pages 35 and 36.

Stewardship code

The Board and the Investment Manager support and have a strong commitment to the FRC's UK Stewardship Code, the latest version of which was effective from 1 January 2020. It is endorsed by the AIC and sets out principles of effective stewardship by institutional investors. Whilst the Investment Manager is not a formal signatory to the Stewardship Code, it has chosen to adhere to the 12 principles as closely as possible. Further details of the Investment Manager's approach to the Stewardship code can be found on the Investment Manager's website at www.phoenixassetmanagement.com.

Modern slavery disclosure

Due to the nature of the Company's business, being a company that does not have employees and does not offer goods or services to consumers, the Board considers that the Company falls outside of the scope of the Modern Slavery Act 2015 and is not required to issue a slavery and human trafficking statement. The Board considers the Company's supply chains, dealing predominately with professional advisers and service providers in the financial service industry, to be low risk in this matter.

Anti-bribery and corruption

It is the Company's policy to conduct all of its business in an honest and ethical manner. The Company takes a zero-tolerance approach to bribery and corruption and is committed to acting professionally, fairly and with integrity in all its business dealings and relationships wherever it operates. The Company's policy and the procedures that implement it are designed to support that commitment. The Board has made enquiries of its third-party service providers to ensure they have procedures and policies in place.

Criminal Finances Act 2017

The Company maintains a zero-tolerance policy towards the provision of illegal services, including the facilitation of tax evasion. The Company has received assurances from the Company's main service providers and suppliers that they maintain a zero-tolerance policy towards the provision of illegal services, including the facilitation of tax evasion.

Other Strategic Report Information

Principal Risks and Risk Management

The Board is responsible for the identification, evaluation and management of the risks facing the Company. Risk is a key element of all the Board's deliberations. Additionally, the Board has delegated to the Audit Committee the formal regular review of these risks, together with their mitigation and the discerning of emerging risks, on its behalf. This process accords with the UK Corporate Governance Code and the FRC's Guidance on Risk Management, Internal Control and Related Financial and Business Reporting.

The Audit Committee and the Board has carried out a robust assessment of the emerging and principal risks facing the Company, including those that would threaten its business model, future performance, solvency and liquidity.

The Board's policy on risk management has not materially changed during the course of the reporting period and up to the date of this report. In particular, the Board undertakes a review of the performance of the Company and scrutinises and challenges notable transactions at each quarterly Board meeting.

The Audit Committee maintains a framework of the key risks and the policies and processes in place to monitor, manage and mitigate them where possible. This risk map is reviewed regularly by the Audit Committee, as set out in the Audit Committee Report starting on page 60.

The Audit Committee and the Board consider that the risks summarised below are the principal risks currently facing the Company. It is not an exhaustive list of all risks faced by the Company.

Principal Risks and Uncertainties

Geopolitical and economic risks

The Company and its portfolio are at risk from changes in economic and market conditions such as from rising interest rates; high inflation; recession; local and global politics; and disruptive local and global events. These can disrupt trade and supply chains and cause increased market volatility, which could substantially and adversely affect the Company's prospects and the market prices of its investments. Rising interest rates, high inflation and the threat of recession are all contemporary areas of concern, together with the war in Ukraine and the related sanctions that have been imposed.

The opportunity for the Board to mitigate such macro risks is somewhat limited. The Board and the Investment Manager monitor and discuss the macroeconomic environment at each Board meeting, along with potential impacts. The Investment Manager also provides a detailed update on the investments at each meeting, including, inter alia, developments in relation to the macro environment and trends. Mitigating factors include the experience and expertise of the Investment Manager, that the Company's portfolio, although concentrated, is diversified across a range of sectors, and that the Company has no leverage and a net cash balance. The sanctions in relation to the war in Ukraine are not expected to have any direct impact on the Company, but the Board will continue to monitor developments closely.

Investment objective and strategy

The Company's investment objective is to provide shareholders with long-term returns through capital and income growth by investing predominantly in a portfolio of UK

listed companies. It is not assured that the objective will be met or that it will continue to meet investors' needs. Poor performance or the investment objective losing its attractiveness to shareholders could result in reputational damage and a widening discount.

The Board reviews performance at every Board meeting and challenges the Investment Manager on stock selection and diversification.

The Board also seeks to understand shareholder sentiment with respect to the investment objective and the strategy being followed with the help of the Company's Investment Manager, corporate broker and investor relations & marketing adviser.

Shareholders are provided with an opportunity to vote on the Company's continuation every three years. The continuation vote provides a gauge of the attractiveness of the Company to its shareholders. The most recent continuation vote took place at the Company's AGM on 28 June 2022 and was successfully passed with overwhelming support from shareholders (100% voted in favour).

Risks related to the Investment Manager

The Company's success is closely dependent on the performance of the Investment Manager. In addition to the performance of the portfolio, the Company is also exposed to any potential loss of key personnel from, and the reputation of, the Investment Manager.

The Investment Manager has a well-defined investment strategy, a proven process and an extensive track record. The performance and the terms of engagement of the Investment Manager are reviewed annually by the Management Engagement Committee on behalf of the Board, in addition to the Board's ongoing communications, monitoring and challenge. The Investment Manager also reports regularly to the Board on personnel changes and other developments.

Service Provider Transition Risk

Although this has abated somewhat since the dates of the transitions, during the course of the year the Board recognised the risks posed by the transition of a number of the Company's service providers: Auditor; Company Secretary and Administrator; Depositary and Custodian.

Care was taken to minimise the risk through hand-over protocols, communication and parallel running where possible. The Board continues to monitor the new providers and plans to conduct a 360º review of all the providers and their interaction later in the year.

Operational Risks

Also related to the service provider transition, operational risks are considered to be at a heightened level until the new providers have been in place sufficiently long to prove themselves. These incorporate, amongst other things, the potential for errors or irregularities in published information, cyber risks, business continuity risks, and regulatory risks.

The Audit Committee has received internal controls reports from the relevant service providers, where available, and has satisfied itself that adequate controls and procedures are in place to limit any impact on the Company's operations, particularly with regard to a financial loss. It has also satisfied itself that they have appropriate business continuity plans in place. The performance of service providers is reviewed annually by the Management Engagement Committee. Each service provider's contract defines their duties and responsibilities and has safeguards in place including provisions for termination in the event of a breach or under certain circumstances.

Discount risk

The Board specifically recognises the risk that the price of the Company's shares may not reflect their underlying net asset value, which could compromise shareholders' returns.

The Board, along with its advisers and the Investment Manager, monitors any discount closely and seeks to enhance share price performance through effective marketing.

The Board also seeks authority from shareholders each year to buy back shares and will consider doing so if a discount becomes excessive and persistent.

ESG

The Board recognises the risks posed by environmental, social and governance ("ESG") factors, particularly with respect to portfolio risks and potential reputational risk should the Company not meet investor expectations in relation to ESG. Investment companies are currently exempt from reporting under the Task Force on Climate-Related Financial Disclosures ("TCFD") and the Company has not voluntarily adopted the requirements, but considers ESG factors that might affect portfolio companies to be an emerging risk area for the Company. The Board and Investment Manager also recognise the potential opportunity afforded by attention to the wider climate change agenda. ESG risk assessment is embedded in the Investment Manager's due diligence and decision-making process when investing in new companies and monitored thereafter.

Financial Risks

The Company is exposed to liquidity risk and credit risk arising from the use of counterparties. If a counterparty were to fail it could adversely affect the Company through either delay in settlement or loss of assets. The most significant counterparty to which the Company is exposed is the Depositary, which is responsible for the safekeeping of the Company's custodial assets.

Further details on the Company's financial risks are included in Note 12 to the financial statements starting on page 92.

The Board reviews the services provided by the Depositary and the internal controls report of the Custodian to ensure that the security of the Company's custodial assets is maintained. The Investment Manager is responsible for undertaking reviews of the credit worthiness of the counterparties that it uses.

Viability Statement

In accordance with the UK Corporate Governance Code, the Directors have carefully assessed the Company's position and prospects as well as the principal risks and have formed a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five financial years to 31 December 2027.

The Board has chosen a five-year horizon in view of the long-term nature and outlook adopted by the Investment Manager when making investment decisions.

After making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence and meet its liabilities as they fall due for at least five years to 31 December 2027. A continuation vote, as required by the Company's Articles, was held on 28 June 2022 and passed with overwhelming support from shareholders. The next vote is expected to take place at the Company's AGM in 2025. The Board and the Company's advisers will continue to work closely with shareholders and are confident that the next vote will successfully pass.

In reaching this conclusion, the Directors have considered each of the principal risks and uncertainties set out above as well as the following assumptions in assessing the Company's viability:

•       there will continue to be demand for investment trusts;

•     the Board and Investment Manager will continue to adopt a long-term view when making investments;

•       the Company invests principally in the securities of UK listed companies to which investors will wish to continue to have exposure; and

•       regulation will not increase to a level that makes running the Company uneconomical.

Factors including high inflation, the conflict in Ukraine and any tail risks from the Covid-19 pandemic were also incorporated into the key assumptions. As part of this process the Board considered the impact of severe but plausible scenarios, including the impact of significant market movements, on the Company's liquidity and solvency, its income and expenses profile and the non-utilisation of gearing as an instrument as permitted by the Company's investment policy. A significant proportion of the Company's investments comprise readily realisable securities which could, if necessary, be sold to meet the Company's cash requirements.

The Company's plan to expand by the issue of new share capital is kept under close and ongoing review by the Board. Portfolio changes and market developments are also discussed at quarterly Board meetings.

The internal control framework of the Company is subject to formal review on at least an annual basis. The Audit Committee considered the operational resilience of the Company's service providers, and thereby the operational viability of the Company. The Committee is reassured that all key service providers were operating effectively and to their normal high service standards.

Outlook

The outlook for the Company is discussed in the Chairman's Statement on page 6, and the Investment Manager's Review on pages 17 to 23.

This Strategic Report was approved by the Board on 20 April 2023.

Farah Buckley

Director

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Statement of Directors' Responsibilities for the Annual Report

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the financial statements in accordance with UK-adopted International Accounting Standards and in accordance with those parts of the Companies Act 2006 that apply to those companies reporting under UK-adopted International Accounting Standards.

Under company law, Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the financial statements, the Directors are required to:

•      select suitable accounting policies and then apply them consistently;

•      state whether applicable UK-adopted International Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;

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

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

Under applicable law and regulations, the Directors are responsible for preparing a Strategic Report, a Directors' Report, a Corporate Governance Statement and a

Directors' Remuneration Report which comply with that law and those regulations.

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

The Directors have delegated responsibility to the Investment Manager for the maintenance and integrity of the Company's page of the Investment Manager's website.

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

Directors' confirmations

The Directors consider that the Annual Report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy. Each of the Directors, whose names and functions are listed on pages 35 and 36 confirm that, to the best of their knowledge:

•       the Company's financial statements, which have been prepared in accordance with UK-adopted international accounting standards and in accordance with those parts of the Companies Act 2006 that apply to those companies reporting under UK-adopted international accounting standards, give a true and fair view of the assets, liabilities, financial position and loss of the Company; and

•       the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

For and on behalf of the Board
Farah Buckley
Director
20 April 2023

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Financial Statements

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Income Statement

The total column represents the Income Statement of the Company, prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the United Kingdom.

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

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period.

The Company does not have any other comprehensive income. Therefore, no separate Statement of Comprehensive Income has been presented.

The notes on pages 78 to 96 form part of these accounts.

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Statement of Financial Position

Approved by the Board of Directors on 20 April 2023 and signed on its behalf by:

Farah Buckley

Company no. 03300814

The notes on pages 78 to 96 form part of these accounts.

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Statement of Changes in Equity
Year to 31 December 2022

The notes on pages 78 to 96 form part of these accounts.

Statement of Changes in Equity
Year to 31 December 2021

The notes on pages 78 to 96 form part of these accounts.

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Cash Flow Statement

* Restatement of presentation only. Refer to Note 1L for further details.

The notes on pages 78 to 96 form part of these accounts.

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Notes to the Financial Statements

1.         Reporting entity

Aurora Investment Trust plc is a closed-ended investment company, registered in England and Wales on 10 January 1997 with Company number 03300814. The Company's registered office is 25 Southampton Buildings, London WC2A 1AL.

Details of the Directors, Investment Manager and Advisers can be found on pages 35 to 37.

Basis of Accounting

The financial statements of the Company have been prepared in accordance with UK-adopted International Accounting Standards and the applicable legal requirements of the Companies Act 2006.

The annual financial statements have also been prepared in accordance with the AIC SORP for the financial statements of investment trust companies and venture capital trusts, except to any extent where it is not consistent with the requirements of IFRS.

In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been prepared alongside the Income Statement.

The functional currency of the Company is Sterling because this is the currency of the primary economic environment in which the Company operates. The financial statements are presented in Sterling rounded to the nearest thousand, except where otherwise indicated.

Going concern

The financial statements have been prepared on a going concern basis. The Directors have a reasonable expectation, after making enquiries, that the Company has adequate resources to continue in existence for at least twelve months from the date of approval of this Annual Report.

In reaching this conclusion, the Directors have considered the liquidity of the Company's portfolio of investments as well as its latest financial positions and forecast on income and expenses.

As at 31 December 2022, the Company held £5,348,000 (2021: £7,664,000) in cash, £146,356,000 (2021: £183,237,000) in quoted investments and £2,871,000 (2021: £3,400,000) in an unquoted investment. The total operating expenses for the year ended 31 December 2022 were £777,000 (2021: £862,000). It is estimated that 32.2% of the Company's latest portfolio could be liquidated in a non-market impacting way within 7 days, using 25% of historic three-month average daily volume. This approach is considered conservative as it does not include the Company's ability to access liquidity through block trades.

The management has assessed the Company's going concern status under stress scenarios, which incorporated key assumptions such as significant falls in the Company's investment portfolio and investment income. The scenario tests also factored in high inflation, existing and potential further risks arising from the conflict in Ukraine, and any tail risks from the COVID-19 pandemic as well as Brexit. A prolonged and deep market decline could lead to falling investment values or interruptions to cash flow, however the Company currently has more than sufficient liquidity to meet any liabilities when they fall due in the foreseeable future. The Board is keeping the development of external risk factors under close scrutiny and does not believe that these will any impact on the Company's going concern status.

At the date of approval of this Annual Report, based on the aggregate of investments and cash held, the Board notes that the Company's cash balance and investments held are well in excess of the estimated level of liabilities, and the Company has substantial operating expenses cover.

Segmental reporting

The Directors are of the opinion that the Company is engaged in a single segment being an investment business in accordance with its Investment Objective and Policy

Significant accounting policies

The accounting policies adopted are described below:

a.   Accounting Convention

The accounts are prepared under the historical cost basis, except for the measurement at fair value of investments and measurement of performance fees awarded.

b.   Adoption of new IFRS standards

New standards, interpretations and amendments adopted from 1 January 2022

A number of new standards and amendments to standards are effective for the annual periods beginning after 1 January 2022. None of these had a significant effect on the measurement of the amounts recognised in the financial statements of the Company.

New standards and amendments issued but not yet effective

The relevant new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company's financial statements are disclosed below. These standards are not expected to have a material impact on the entity in future reporting periods and on foreseeable future transactions.

Amendments to IAS 1: Classification of Liabilities as Current or Non-current

In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to specify the requirements for classifying liabilities as current or non-current. The amendments are effective for annual reporting periods beginning on or after 1 January 2023.

Definition of Accounting Estimates - Amendments to IAS 8

In February 2021, the IASB issued amendments to IAS 8, in which it introduces a definition of 'accounting estimates'. The amendments are effective for annual reporting periods beginning on or after 1 January 2023.

Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice Statement 2

In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality Judgements. The amendments to IAS 1 are applicable for annual periods beginning on or after 1 January 2024.

c.   Investments

Investments held at fair value through profit or loss are initially recognised at fair value, being the consideration given excluding transaction or other dealing costs associated with the investment. After initial recognition, investments are measured at fair value through profit or loss. Gains or losses on investments measured at fair value through profit or loss are included in the Statement of Comprehensive Income as a capital item and transaction costs on acquisition or disposal of investments are also included in the capital column of the Statement of Comprehensive Income. For investments that are actively traded in organised financial markets, fair value is determined by reference to stock exchange quoted market bid prices at the close of business on the year-end date. All purchases and sales of investments are recognised on the trade date, i.e. the date that the Company commits to purchase or sell an asset.

Unquoted investments are measured at fair value, which is determined by the Directors in accordance with the International Private Equity and Venture Capital valuation guidelines and IFRS 9. Valuation reports provided by the Investment Manager of the unquoted investments are used to calculate the fair value where there is evidence that the valuation is derived using fair value principles that are consistent with the Company's accounting policies and valuation methods. Such valuation reports may be adjusted to take account of changes or events to the reporting date, or other facts and circumstances which might impact the underlying value.

d.   Income from Investments

Investment income from the Company's investment portfolio is accounted for on the basis of ex-dividend dates. Income from fixed interest shares and securities is accounted for on an accruals basis using the effective interest method. Special Dividends are assessed on their individual merits and are credited to the capital column of the Statement of Comprehensive Income if the substance of the payment is a return of capital; with this exception all investment income is taken to the revenue column of the Statement of Comprehensive Income.

e.   Share Capital and Reserves

The share capital represents the nominal value of equity shares.

The share premium account represents the accumulated premium paid for shares issued above their nominal value less issue expenses.

The capital redemption reserve arises when shares are bought back by the Company or returned by the Investment Manager under the performance fee clawback arrangement, and subsequently cancelled, at which point an amount equal to the par value of the shares is transferred from share capital to this reserve. This reserve is not distributable.

Other reserve represents the combination of the share-based payment expenses in relation to performance fees, and the restricted shares issued in settlement of performance fees that are still within the lock-in period.

The capital reserve represents realised and unrealised capital and exchange gains and losses on the disposal and revaluation of investments and of foreign currency items. In addition, performance fee costs are allocated to the capital reserve. The amount within the capital reserve less unrealised gains (those on investments not readily convertible to cash) is available for distribution. The realised gains within the capital reserve amounted to £42,863,000 as at 31 December 2022 (2021: £15,234,000). The Company has no intention to make distributions out of its capital reserve.

The revenue reserve represents the surplus of accumulated revenue profits being the excess of income derived from holding investments less the costs associated with running the Company. This reserve may be distributed by way of dividends, if positive.

f.    Expenses

All expenses are accounted for on an accruals basis and charged through the revenue column of the Income Statement except the following:

•    expenses that are incidental to the acquisition or disposal of an investment are charged to the capital column of the Income Statement; and

•    expenses are charged to the capital column of the Income Statement where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect the performance fees have been charged to the Income Statement in line with the Board's expected long-term returns, in the form of capital gains, from the Company's portfolio.

g.   Share-based Payment

The Company's Investment Manager does not receive an on-going investment management fee and instead receives a performance fee if performance criteria are satisfied. The performance fee is settled by issuance of the Company's Ordinary Shares and therefore recognised as an equity settled share-based payment in accordance with IFRS 2.

The cost of share-based payments is recognised as an expense in the capital column of the Income Statement with a corresponding increase in equity reserve (Other Reserve). The share-based payment expenses are recognised over the period in which vesting conditions are fulfilled. No expense is recognised for awards that do not ultimately vest. Awards where vesting is conditional upon a market or non-vesting condition are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.

h.   Taxation

Current income tax assets and/or liabilities comprise those claims from or obligations to fiscal authorities relating to the current or prior reporting period that are unpaid at the year end date.

Deferred income taxes are calculated using the liability method on temporary timing differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. In addition, tax losses available to be carried forward as well as other income tax credits are assessed for recognition as deferred tax assets. Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply at their respective period of realisation, provided they are enacted or substantively enacted at the year end date.

Deferred tax liabilities are always provided for in full. Deferred tax assets are recognised to the extent that it is probable that they will be able to be offset against future taxable income.

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the Income Statement, except where they relate to items that are charged or credited directly to equity.

i.    Foreign Currency

The currency of the primary economic environment in which the Company operates (the functional currency) is pounds sterling ("sterling"), which is also the presentational currency of the Company.

Transactions involving currencies other than sterling are recorded at the exchange rate ruling on the transaction date. At each year end date, monetary items and non- monetary assets and liabilities denominated in foreign currencies are retranslated at the closing rates of exchange. Such exchange differences are included in the Income Statement 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.

j.    Cash and Cash Equivalents

Cash and Cash Equivalents comprise cash held at bank and are measured at amortised cost.

k.   Dividends Payable

Dividends payable to equity shareholders are recognised in the Statement of Changes in Equity when they are paid or have been approved by shareholders in the case of a final dividend. Interim dividends payable are recognised in the period in which they are paid.

l.    Critical Judgements, Estimations or Assumptions

The Directors have reviewed matters requiring judgements, estimations or assumptions. The preparation of the financial statements requires management to make judgements, estimations or assumptions that affect the amounts reported for assets and liabilities as at the year end date and the amounts reported for revenue and expenses during the year. However, the nature of the estimation means that actual outcomes could differ from those estimates.

Performance fees

The performance fee is calculated on Company's NAV outperformance against its benchmark. No performance fee is earned by the Investment Manager in the current financial year. The Company issued 89,096 ordinary shares during the year in settlement for fees earned in relation to the year ended 31 December 2021 (2021: 1,290,932 ordinary shares in relation to the year ended 31 December 2020). These issued ordinary shares are subject to a fixed three-year clawback period. If the outperformance versus the index reverses on the third-year anniversary, subject to the Board's discretion, the shares will be returned and cancelled by the Company.

In measuring the performance fee, the Board has made judgements in relation to the service period, which it considers to be four years (being the current year of service plus the further three year period which is the clawback period). The Board has made the judgement that the performance fee contains a non-market based performance condition as the hurdle is based on the outperformance of the Company's NAV against its benchmark.

However, as the performance fee is calculated as a fixed amount which is settled by a variable number of shares. The cumulative charge over the four year period will equate to either the amount calculated at the end of the first year where the performance of the Investment Manager remains on target, or a lower amount where it is considered that the clawback will take effect. This is as a result of the performance fee charge being adjusted during the service period, which is a requirement of IFRS 2 where there is a non-market based performance condition.

The performance fee is recognised on a straight line basis in the Income Statement and is based on the outcome of the performance fee calculation as stated in the Investment Management Agreement. This amount excludes the projection of whether the clawback may occur at the end of the performance period. Clawbacks are adjusted based on the management's expectation in terms of the number of restricted shares that will ultimately vest at each reporting date, and if applicable, credited back to the Income Statement.

The Board has considered it necessary to make certain judgements in relation to the recognition and measurement of the performance fee, which it considers are reasonable and supportable. However, it is acknowledged that if alternative judgements were made, for accounting purposes, the measurement of the performance fee charge to the income statement may be significantly different in timing within the four-year service period.

As at 31 December 2022, performance fees earned in financial years 2020 and 2021 are estimated to be in 100% clawback, resulting in reversal of £1,384,700 cumulatively charged in the Company's Income Statements for the years ended 31 December 2021 and 31 December 2020.

Cash Flow Statement (presentation for comparative period restated)

In preparing the Company's Cash Flow Statement for the year ended 31 December 2022, the Directors have made the judgment that purchases and sales of investments form part of the Company's investing activities, on the basis that these activities are intended for the achievement of longer-term shareholder returns, consistent with the Company's investment objective. 

The Company has re-assessed the previous classification of purchases and sales of investments as operating activities in the Company's Cash Flow Statement for the year ended 31 December 2021. After careful consideration, the Board has concluded on changing the accounting policy to better reflect the nature of investment activities and classify purchases and sales of investments as investing activities. As a result, the presentation of Cash flow Statement for the year ended 31 December 2021 has been restated with 'Payments to acquire non-current asset investments' and 'Receipts on disposal of non-current asset investments' being presented under investing activities instead of operating activities. This change has no impact on net assets or income in either the current or the prior year.

Valuation of Unquoted Investments

The Company has an investment in Phoenix SG Limited ("Phoenix SG"), which is unquoted and classified as a Level 3 investment under the fair value hierarchy. Its fair value as at 31 December 2022 is £2,871,000 or 1.9% of NAV (2021: £3,400,000 or 1.8% of NAV).

Phoenix SG is valued in accordance with the Company's accounting policy set out in 1c, using the reported NAV provided by the investment's underlying fund manager. In making the judgment that this valuation method is appropriate, the Board has considered additional information, including an independent valuation review report produced by Kroll Advisory Ltd, and published financial statements. Whilst the Board considers the methodologies and assumptions adopted in the valuation of unquoted investments to be supportable, reasonable and robust, because of the inherent uncertainty of valuation, the values used may differ significantly from the values that would have been used had a ready market for the investment existed.

A 10% reduction of the unquoted valuation would have a negative impact of £287,000 on the Company's NAV as at 31 December 2022 (2021: £340,000) and a 10% increase of the unquoted valuation would have the exact opposite impact.

2.         Investments held at Fair Value Through Profit or Loss

* These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments.

Realised gains on disposal of investments include £31,433,000 (2021: £nil) gains from the sale of the Company's put options on a short sterling future contract in February 2022. The options were purchased as a hedge against inflation and the details were disclosed in the Investment Management Review and Outlook section of the Company's Annual Report and Financial Statement for the year ended 31 December 2021.

Transaction costs on investment purchases and sales for the year ended 31 December 2022 are disclosed as shown in the following table.

3.         Income

4.         Investment Management Performance Fees and Other Expenses

* All expenses include any relevant irrecoverable VAT. The amounts excluding VAT paid or accrued for the audit of the Company are £53,000 (2021: £90,000). The year ended 31 December 2021 charge includes prior year's overrun costs of £25,000 excluding VAT.

Investment Management Performance Fees

The Company's Investment Manager does not earn an ongoing annual management fee, but will be paid an annual performance fee equal to one third of any outperformance of the Company's NAV per Ordinary Share total return (including dividends and adjusted for the impact of share buybacks and the issue of new shares) over the FTSE All-Share Index (total return) for each financial year.

The total annual performance fee is capped at 4% per annum of the NAV of the Company at the end of the relevant financial year, in the event that the NAV per Ordinary Share has increased in absolute terms over the period, and 2% in the event that the NAV per Ordinary Share has decreased in absolute terms over the period. Any outperformance that exceeds these caps will be carried forward and only paid if the Company outperforms, and the annual cap is not exceeded, in subsequent years.

The performance fee is subject to a high-water mark so that no fee will be payable in any following year until all underperformance of the Company's NAV since the last performance fee was paid has been made up.

Performance fees are settled by issuance of the Company's ordinary shares. Such ordinary shares are issued at the NAV per Ordinary Share on the date of issue, so that the then current value of the ordinary shares equates in terms of NAV to the performance fees calculated at the end of the first relevant financial period.

Any part of the performance fee that relates to the performance of Phoenix SG will be accrued but will not be paid until such time as the Company's investment in Phoenix SG has been realised or is capable of realisation. The position will be reviewed at that time by reference to the realised proceeds of sale or the fully realisable value of Phoenix SG as compared to the original cost of acquisition.

Performance fees are calculated annually and if earned, by way of share issuance by the Company, 80% is settled shortly after the year end date and the remaining 20% is settled upon approval of the Company's Annual Report. Shares issued to the Investment Manager are subject to a 3-year clawback period, during which the Investment Manager is not entitled to sell, pledge or transfer the shares, but is entitled to dividends and voting rights. If the Company's NAV underperforms its benchmark index on a total return basis, shares issued to the Investment Manager will be proportionally or entirely clawed back and cancelled by the Company.

Share-based Payment

The performance fee arrangement is recognised as an equity settled share-based payment under IFRS 2, and the related expenses are charged or credited in the Income Statement on a straight-line basis over a vesting period of 4 years (1 year of performance fee calculation period followed by 3 years of clawback period). At the end each reporting period, the Company reviews cumulative total returns between the Company's NAV and its benchmark index, in relation to each performance year in which a performance fee was earned and adjusts the cumulative charges of share-based payment expenses accordingly.

No performance fee has been earned during the performance year ended 31 December 2022.

The clawback period for the performance fee earned during the year ended 31 December 2019 ended on 31 December 2022. The Company's cumulative NAV total return underperformed that of the benchmark index over the vesting period. As a result, the full £1,361,000 performance fee earned during the year ended 31 December 2019 has been reversed and the 530,311 restricted shares originally issued in settlement of the performance fee earned were returned by the Investment Manager to the Company. These shares were placed in treasury as at 31 December 2022 and subsequently cancelled on 9 January 2023.

The clawback period for fees earned during the year ended 31 December 2020 and 31 December 2021 will end on 21 December 2023 and 31 December 2024, respectively. As at 31 December 2022, the Company's cumulative NAV total returns for both performance periods underperformed that of the benchmark index. As a result, expenses previously recognised in the Company's Income Statement (£720,000 during the year ended 31 December 2021 and £655,000 during the year ended 31 December 2020) have fully been reversed.

A total of £2,746,000 clawback credit has been recognised in the Company's Income Statement for the year ended 31 December 2022.

Share-based Payment Sensitivity Analysis

Impact on the Company's loss after tax for the year ended 31 December 2022, if the Company's underperformance improved by:

5.         Taxation

Current taxation

The taxation charge for the year is different from the standard rate of corporation tax in the UK of 19% (2021:19%). The differences are explained below:

Due to the Company's status as an investment trust and its intention to continue meeting the conditions required to maintain its status in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.

Deferred Tax

The Company has £12,385,000 (2021: £13,015,000) in respect of excess unutilised management expenses, equivalent to a potential tax saving of £3,096,000 (2021: £3,088,000) at the prospective tax rate of 25% (2021: 25%) and £1,491,000 (2021: £1,491,000) in respect of loan interest, equivalent to a potential tax saving of £373,000 (2021: £373,000) at the prospective tax rate of 25% (2021: 25%).

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

6.         Ordinary Dividends

7.         Earnings Per Share

Earnings per share are based on the loss of £35,418,000 (2021: profit of £30,728,000) attributable to the weighted average of 76,592,940 (2021: 76,253,921) ordinary shares of 25p in issue during the year.

Supplementary information is provided as follows: revenue earnings per share are based on the revenue profit of £2,263,000 (2021: profit of £1,413,000); capital earnings per share are based on the net capital loss of £37,681,000 (2021: profit of £29,315,000), attributable to the weighted average of 76,592,940 (2021: 76,253,921) ordinary voting shares of 25p. There is no difference between the weighted average Ordinary diluted and undiluted number of shares. There is no difference between basic and diluted earnings per share as there are no dilutive instruments.

8.            Share Capital and Reserves

At 31 December 2022, the Company had 76,608,771 (2021: 76,519,675) ordinary shares in issue. The number of voting shares at 31 December 2022 was 76,078,460, being the number of ordinary shares in issue less the number of shares held in treasury (2021: 76,519,675).

Movement on share capital during the period

On 7 February 2022, in settlement for 80% of the performance fees earned during the year ended 31 December 2021, a total of 69,738 restricted ordinary shares were issued to the Investment Manager at the prevailing NAV of 254.37p per share.

The remaining 20% of the performance fees earned were settled via a further issuance of 19,358 restricted ordinary shares at the prevailing NAV of 226.40p per share on 5 May 2022.

The total value of share issuances in relation to performance fees during the year ended 31 December 2022 was £221,000 (2021: £2,656,000). These issuances were non-cash transactions and therefore excluded from the cash flows from financing activities in the Company's Cash Flow Statement. 

The Company did not purchase any of its own shares during the year ended 31 December 2022 or 31 December 2021.

Treasury shares

On 31 December 2022, the clawback period on restricted shares issued to the Investment Manager in relation to the performance period ended 31 December 2019 ended. All of the 530,311 shares originally issued to the Investment Manager were returned to the Company and held in Treasury (2021: no shares were held in Treasury). These shares were subsequently cancelled on 9 January 2023 reducing the shares in issue to 76,078,460.

Other Reserve

The other reserve balance represents the combination of the cumulative share-based payment expenses in relation to performance fees, and the restricted shares issued in settlement of performance fees that are still within the lock-in period.

As at 31 December 2022, cumulative share-based payment expenses included in this reserve is £nil (2021: £1,385,000).

9.            Net Assets Per Ordinary Share

The figure for Net Assets per Ordinary Share is based on £154,778,000 (2021: £194,193,000) divided by 76,078,460 (2021: 76,519,675) voting ordinary shares in issue, being the number of ordinary shares in issue less the number of shares held in treasury (Note 8) at 31 December 2022.

10.          Reconciliation of Net Cash Flow from Operating Activities

11.          Transactions with Related Parties and Investment Manager

Details of the management, administration and secretarial contracts can be found in the Directors' Report.

There were no transactions with directors other than disclosed in the Directors' Remuneration Report and no fees payable to the Directors were outstanding as at 31 December 2022.

Phoenix Asset Management Partners Limited ("Phoenix"), the Company's AIFM and Investment Manager, and Castelnau Group Limited ("Castelnau") are considered as related parties under the Listing Rules. Details of transactions with Phoenix can be found in Note 4 beginning on page 86.

As at 31 December 2022, the Company held 13.3% (2021: 13.3%) of the issued share capital in Castelnau, there have been no transactions with Castelnau during the year and there were no other balances outstanding with Castelnau as at 31 December 2022.

12.          Financial Instruments

Investments are carried in the balance sheet at fair value. For other financial assets and financial liabilities, the balance sheet value is considered to be a reasonable approximation of fair value.

Financial assets

The Company's financial assets may include equity investments, fixed interest securities, short-term receivables and cash balances. The currency and cash-flow profile of those financial assets was:

Cash at bank of £5,348,000 (2021: £7,663,798) is held by the Company's Depositary, Northern Trust Investor Services Ltd.

Financial liabilities

The Company finances its investment activities through its ordinary share capital and reserves. It has discontinued the use of borrowing for such purposes. The Company's financial liabilities comprise short-term trade payables. Foreign currency balances are stated in the accounts in sterling at the exchange rate as at the Balance Sheet date.

There were no short-term trade payables (other than accrued expenses).

Fair Value Hierarchy

Under IFRS13 investment companies are required to disclose the fair value hierarchy that classifies financial instruments measured at fair value at one of three levels according to the relative reliability of the inputs used to estimate the fair values.

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.

There were no transfers between levels during the year.

The movement on the Level 3 unquoted investments during the year is shown below:

The Level 3 unquoted investment balance represents the Company's investment in Phoenix SG Limited ("Phoenix SG"). The fair value estimate is based on the attributable proportion of the reported net asset value of the Level 3 investment derived from the fair value of the underlying investments. Valuation reports provided by the fund manager are used to calculate fair value where there is evidence that the valuation is derived using fair value principles that are consistent with the Company's accounting policies and valuation methods. Such valuation reports may be adjusted to take account of changes or events to the reporting date, or other facts and circumstances which might impact the underlying value such as any issues being highlighted or emphasised in Phoenix SG's audited financial statements.

The total fair value attributable to the Company's investment in Phoenix SG as of 31 December 2022 is £2,871,000 (2021: £3,400,000). The Company held 9.4% (2021: 10.3%) of the share capital of Phoenix SG.

Risk Analysis

The general risk analysis undertaken by the Board and its overall policy approach to risk management are set out in the Strategic Report. Issues associated with portfolio distribution and concentration risk are discussed in the Investment Policy section of the Strategic Report. This note, which is incorporated in accordance with accounting standard IFRS7, examines in greater detail the identification, measurement and management of risks potentially affecting the value of financial instruments and how those risks potentially affect the performance and financial position of the Company. The risks concerned are categorised as follows:

a.   Potential Market Risks, which are principally:

      i.    Currency Risk

      ii.   Interest Rate Risk and

      iii.  Other Price Risk.

b.   Liquidity Risk

c.   Credit Risk

Each is considered in turn below:

A (i) Currency Risk

The portfolio as at 31 December 2022 was invested predominantly in sterling denominated securities and there was no material currency risk arising from the possibility of a fall in the value of sterling impacting upon the value of investments or income.

The Company had no foreign currency borrowings at 31 December 2022 or 31 December 2021.

Currency sensitivity

The following table shows the impact on the Company's profit after taxation for the year ended and net assets as at 31 December 2022, if sterling had strengthened/weakened by 10% against Euro and USD.

A (ii) Interest Rate Risk

The Company did not hold fixed interest securities at 31 December 2022 or 31 December 2021.

With the exception of cash, no interest rate risks arise in respect of any current asset. All cash held as a current asset is sterling denominated, earning interest at the bank's or custodian's variable interest rates.

The Company had no borrowings at 31 December 2022 or 31 December 2021.

A (iii) Other Price Risk

The principal price risk for the Company is the price volatility of shares that are owned by the Company. As described in the Investment Manager's Review, the Company spreads its investments across different sectors and geographies, but as shown by the Portfolio Analysis in the Business Review, the Company may maintain relatively strong concentrations in particular sectors selected by the Investment Manager.

The Board manages these risks through the use of investment limits and guidelines as set out in the Company's investment policy and restrictions, and monitors the risks through regular financial and compliance reports provided by the Company's key service providers.

The effect on the portfolio of a 10.0% increase or decrease in market prices would have resulted in an increase or decrease of £14,923,000 (2021: £18,664,000) in the investments held at fair value through profit or loss at the period end, which is equivalent to 9.6% (2021: 9.6%) in the net assets attributable to equity holders. This analysis assumes that all other variables remain constant.

B Liquidity Risk

Liquidity Risk is considered to be small, because most of the portfolio is invested in readily realisable securities. As a consequence, cash flow risks are also considered to be immaterial. The Investment Manager estimates that, under normal market conditions and without causing excessive disturbance to the prices of the securities concerned, 46.6% of the portfolio could be liquidated in a non-market impacting way within 7 days, based on 25% of average daily volume. This is conservative as it does not include the ability to access liquidity through block trades.

C Credit Risk

The Company invests in quoted and unquoted equities in line with its investment objective and policy. The Company's investments are held by Northern Trust Investor Services Ltd ("the Depositary"), which is a large and reputable international banking institution. The Company's normal practice is to remain fully invested at most times and not to hold large quantities of cash. At 31 December 2022, cash at bank comprised £5,348,000 (2021: £7,664,000) held by the Depository.

Credit Risk arising on transactions with brokers relates to transactions awaiting settlement. This risk is considered to be very low because transactions are almost always undertaken on a delivery versus payment basis with member firms of the London Stock Exchange.

D Capital management policies and procedures

The Company's capital management objectives are:

•      to ensure the Company's ability to continue as a going concern; and

•      to provide an adequate return to shareholders

by pursuing investment policies commensurate with the level of risk.

The Company considers its capital to be issued share capital and reserves, and monitors capital on the basis of the carrying amount of equity, less cash and cash equivalents as presented on the face of the statement of financial position.

The Company sets the amount of capital in proportion to its overall financing structure, i.e. equity and financial liabilities. The Company does not currently intend to use gearing, but as set out in its investment objective and policy, borrowings of up to 30% of the aggregate of the paid-up nominal capital plus the capital and revenue reserves are permitted.

The Company manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders (within the statutory limits applying to investment trusts), return capital to shareholders, issue new shares, or sell assets.

13.          Post Year End Events

On 31 December 2022, the clawback period on restricted shares issued to the Investment Manager in relation to the performance period ended 31 December 2019 ended. All of the 530,311 restricted shares originally issued to the Investment Manager were returned to the Company and held in Treasury. These shares were subsequently cancelled on 9 January 2023.

.

The figures and financial information for 2021 are extracted from the published Annual Report for the year ended 31 December 2021 and do not constitute the statutory accounts for that year. The Annual Report for the year ended 31 December 2021 has been delivered to the Registrar of Companies and included an Independent Auditor's Report which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

The figures and financial information for 2022 are extracted from the Annual Report and financial statements for the year ended 31 December 2022 and do not constitute the statutory accounts for the year. The Annual Report for the year ended 31 December 2022 includes an Independent Auditor's Report which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and financial statements have not yet been delivered to the Registrar of Companies.

The Annual Report will be posted to shareholders shortly. Copies may be obtained by writing to the Company Secretary, Frostrow Capital LLP at 25 Southampton Buildings, London WC2A 1AL, or from the Company's website - www.aurorainvestmenttrust.com - where up to date information on the Company, including daily NAVs, share prices and fact sheets, can also be found.

A copy of the Annual Report will be submitted to the National Storage Mechanism and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism

Frostrow Capital LLP
Company Secretary
020 3709 8733

20 April 2022