Aurora Investment Trust PLC

LEI: 2138007OUWIZFMAGO575

Annual Report for the year ended 31 December 2023

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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 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 3.45p per ordinary share (2022: 2.97p) to be paid on 20 June 2024 to shareholders who appear on the register as at 10 May 2024, with an ex-dividend date of 9 May 2024.

Annual General Meeting ("AGM")

The AGM of the Company will be held at 25 Southampton Buildings, London WC2A 1AL on 12 June 2024 at 1 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 3.30 p.m. on 9 October 2024 at the Queen Elizabeth II Centre, Broad Sanctuary, Westminster, London SW1P 3EE.

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Chair's Statement

I am pleased to present the Aurora Investment Trust PLC annual report for the year ended 31 December 2023.

Performance

Performance for the year to 31 December 2023 was very positive, with a Net Asset Value (NAV) per share total return* of 36.3% (2022: -19.1%). The share price total return* was 28.5% (2022: -16.3%) compared to the Company's benchmark

FTSE All Share Index total return of 7.9% (2022: 0.3%).

The portfolio saw strong performance across the board with no notable detractors in the major holdings above a 3% weight. Top contributors were Barratt Developments which contributed 6.9% (+53% in the year), Frasers Group which contributed 6% (+29% in the year) and Hotel Chocolat which contributed 4% (after a bid by Mars at 175% premium).

Hotel Chocolat is a useful illustration of Phoenix's philosophy. They devote their attention to understanding a small number of businesses in depth and are patient waiting for them to reach the right price. In the case of Hotel Chocolat, they had monitored the business since its IPO in 2016 and only in 2022 did it reach a price which allowed Phoenix to invest. In late 2023 it was acquired by Mars at a price slightly higher than the intrinsic value estimated by Phoenix.

For further details on the portfolio and performance, see the Investment Manager's Review by Phoenix on pages 14 to 21.

*Alternative Performance Measure (see page 96)

The Investment Manager and Performance Fees

2023 was the eighth year of Phoenix's management of the Company's portfolio, since they took over in January 2016. Throughout that time, Phoenix has employed a focused and patient investment approach.

Phoenix uniquely receives no annual management fee. Instead, they are solely remunerated from an annual performance fee, equal to one third of any outperformance of the Company's NAV against its benchmark, the FTSE All Share Index (total return).

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

In the years ending 2019, 2020 and 2021 the Investment Manager was awarded shares in settlement of performance fees earned. The shares awarded for 2019 performance were clawed back in 2022, with 530,311 shares returned to the Company and cancelled. Following strong performance in 2023, the shares awarded for the 2020 performance were retained, with Phoenix earning a performance fee of £560,903 for 2022 and 2023. In accordance with the Investment Management Agreement, 80% of this fee was settled in January 2024 with 172,373 shares issued to Phoenix at 260.32p each, which was the prevailing published NAV per share at the time of issue. The remaining 20% will be settled following publication of this annual report.

Following this share issue, the Company's issued share capital is now 76,250,833 ordinary shares of 25p, each carrying one voting right. The Company does not hold any shares in Treasury.

Share Price Discount

The Board closely monitors the discount at which the Company's shares trade to NAV. During 2023 the discount widened from 4.4% at the end of 2022 to 10.0% at the end of 2023.

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

The Board is seeking to renew the power granted to it by shareholders to buy back shares at the forthcoming annual general meeting. The Board will also seek to renew its powers to issue new shares in order to be able to issue shares to investors should the shares return to a premium, as well as to enable the issue of shares to the Investment Manager in respect of performance fees earned.

Growth of the Company

Another key objective of the Board is growing the Company, with a medium-term target of £250 million. During the year the Company's market capitalisation increased from £149 million at 31 December 2022, to £188 million at 31 December 2023. Central to growing the Company to our target will be closing the discount, so this is the Board's first priority.

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

This year's AGM will be held at the Company's registered office, 25 Southampton Buildings, London WC2A 1AL, on 12 June 2024 at 1 p.m. to consider the business set out in the Notice of Meeting on pages 100 and 101 and, like last year, will not include an Investment Manager presentation. Last year the Board decided to hold a separate event in October instead of combining an Investment Manager presentation with the AGM. This presentation was well attended and the Board has decided to follow the same formula this year. Accordingly, a separate Investment Manager presentation event will be held at 3.30 p.m. on 9 October 2024 at the Queen Elizabeth II Centre, Broad Sanctuary, Westminster, London SW1P 3EE. This event is intended to be of interest to both existing and prospective Aurora shareholders and will include multiple speakers from the Investment Manager. It is intended for this event to be recorded and made available afterwards on the Company's website.

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

Dividend

The Board is recommending a final dividend of 3.45p (2022: 2.97p) per ordinary share, to be paid on 20 June 2024 to shareholders who appear on the register as at 10 May 2024. The ex-dividend date is 9 May 2024. This dividend will be proposed at the forthcoming AGM to be held on 12 June 2024. The Company's dividend policy, which is to distribute substantially all net revenue proceeds, remains unchanged and can be found on page 7 of this Annual Report.

Outlook

2023's performance was very welcome, but there remains significant value in the portfolio, with Phoenix estimating a discount to intrinsic value of 130%. The Company's shares, particularly trading on close to a 10% discount to NAV, offer an excellent opportunity to access Phoenix's differentiated strategy of investing in a concentrated portfolio of great, thoroughly researched businesses at attractive prices.

Lucy Walker
Chair
26 March 2024

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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 share.

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

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

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

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

b.     To make a relative total return for shareholders on a long-term basis, as measured against the Company's benchmark, the FTSE All-Share Index (total return);

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

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

These are alternative performance measures ("APMs"). The Financial Statements (on pages 71 to 94) set out the required statutory reporting measures of the Company's financial performance. However, the Board additionally assesses the Company's performance against these APMs, which are viewed as being particularly relevant for the Company. These APMs are widely used in reporting within the investment company sector and the Directors believe they enhance the comparability of information and assist investors in understanding the Company's performance. Further information on each of the KPI's is set out below. Definitions of the APMs and the basis of their calculation are set out on pages 95 and 96.

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

The Investment Management Review and Outlook on pages 14 to 21 gives details on investments made during the year and how performance has been achieved.

Performance (KPIs a and b)

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

The Directors regard the Company's share price total return to be the overall measure of performance over the long term, since it approximates the return in the hands of shareholders. It combines the change in the share price with the dividends paid to shareholders, which are added back as though reinvested at the ex-dividend date.

The Directors regard the Company's NAV per share total return to be a key indicator of the Investment Manager's performance. The NAV per share total return is the change in the Company's NAV per share with distributions to shareholders added back.

The Board monitors these against the Company's benchmark and peer investment companies.

The Company's performance under both of these total return measures was strong in 2023.

Ongoing charges (KPI c)

Ongoing charges represent the costs that shareholders can reasonably expect the Company to pay from one year to the next under normal circumstances, excluding performance fees and taxation.

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

The Board monitors the Company's other operating costs carefully and aims to maintain a sensible balance between good quality services and costs. Based on the Company's average net assets for the year ended 31 December 2023, the Company's ongoing charges figure calculated in accordance with the Association of Investment Companies ("AIC") methodology was 0.45% (2022: 0.45%). As the size of the Company grows the ongoing charge figure, is expected to reduce.

Premium/Discount to NAV (KPI d)

The discount of the price at which the Company's shares trade to the NAV per share is considered a key indicator of performance as it impacts the share price total return and can provide an indication of how investors view the Company's performance and its investment objective. Accordingly, it is closely monitored by the Board as discussed in the Chair's Statement on page 5. The share price closed at a 10.0% discount to the NAV per share as at 31 December 2023 (2022: 4.4% discount). During the course of the year, based on the daily published NAVs per share (which are not adjusted to comply with IFRS 2 (see pages 10 and 60), the Company's shares traded at a discount of between 5.0% and 14.1%, with an average discount of 10.4% (2022: the Company's shares traded between a premium of 1.6% and a discount of 13.6% to NAV per share, with an average discount of 5.4%). Discount is further discussed on pages 5 and 38.

Revenue Result and Dividend

The Company's revenue after tax for the year ended 31 December 2023 was £2,661,000 (2022: £2,263,000). The Board is recommending the payment of a final dividend of 3.45p per share (2022: 2.97p per share). This dividend, if approved by shareholders, will be paid on 20 June 2024 to shareholders on the register as at 10 May 2024; the shares will be marked ex-dividend on 9 May 2024. In accordance with IFRS, this dividend is not reflected in the financial statements for the year ended 31 December 2023.

Our registrar, Link Group ("Link"), administers a Dividend Re-Investment Plan ("DRIP") on behalf of the Company whereby direct shareholders resident in the United Kingdom can choose for Link to apply their cash dividend to buy further shares in the market. The last date by which shareholders may elect for the DRIP to be applied for their 2023 dividend is 30 May 2023. Details about the DRIP, including the terms and conditions and how to join or exit the DRIP are available at www.signalshares.com or by calling Link on +44 (0)371 664 0300. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open between 9:00am and 5:30pm, Monday to Friday, excluding public holidays in England and Wales.

Five Year Summary

Net Asset Value per Ordinary Share

The table below is a reconciliation between the NAV per share as at 31 December 2023 announced on the London Stock Exchange on 2 January 2024 and the NAV per share disclosed in these financial statements. The difference is principally the result of amortising performance fees over the vesting period in accordance with IFRS 2 - Share-based Payment, in these financial statements, whereas the NAV per share as at 31 December 2023 published on 2 January 2024 treated the performance fees as earned on 31 December 2023, in accordance with the investment management agreement. The remaining reconciling balances relate to adjustment of the unquoted investment valuation and expenses, due to timing lag.

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Top Holdings
as at 31 December 2023

* 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 2023

* 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

A portfolio of undervalued businesses that are compounding their retained capital at high rates is something that time works wonders for. If intrinsic value keeps growing without an accompanying rise in share prices, the invisible elastic that connects them becomes stretched. That's where we were when we wrote at the end of 2022, and in 2023 that force finally resulted in the price of the Company's portfolio holdings performing ahead of the growth in intrinsic value. That said, the elastic remains very stretched, with 130% upside in our view, and there is a cheap market for us to keep adding future value through.

There are some emerging signs to suggest the persistent and increasing relative undervaluation of the UK has reached its zenith. We will make the most of the cheapness while it lasts, but no matter what the market conditions there are always industries and companies having short-term problems that create opportunities for the prepared and patient investor. Our approach has delivered long-term outperformance in all types of markets because ultimately it's about investing in a business-like way, backing businesses we can understand and monitor, with superior and enduring economics, available at attractive prices and run by those we trust to look after our capital and deploy it intelligently whilst reporting to us honestly.

It is an approach full of variance and rich in lessons for continuous improvement when things do not go as expected. We have always strived to be a learning organisation and so we mine those lessons to improve our approach. As a result I believe we are a much better manager of your money today than we were 25 years ago even with the growth in assets.

Gary Channon
Chief Investment Officer
Phoenix Asset Management Partners
26 March 2024

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Investment Management Review and Outlook

Over the year to 31 December 2023 the NAV per share total return was 36.3% and the share price total return was 28.5%. The FTSE All-Share total return was 7.9% over the same period. Since Phoenix began managing Aurora Investment Trust PLC on 27 January 2016, the Company's NAV per share has risen 93.7% versus 73.9% for the FTSE All-Share index. Net assets at year-end were £208.7 million (2022: £154.8 million).

The strong performance in 2023 recovered the underperformance in 2022 and a new high-water mark was reached for performance versus the FTSE All-Share index. This resulted in a performance fee being earned at the end of the year. This fee was circa £561,000, or 0.2% of NAV.

As a reminder, if a performance fee is payable, it is paid by way of the issuance of Ordinary Shares, which are subject to a fixed three-year clawback period. If the outperformance versus the index reverses on the third-year anniversary, some or all the issued shares will be returned. If outperformance fully reverses, Phoenix will receive nothing.

On 31 December 2023, a clawback test for the year ended 31 December 2020 was carried out, and the performance fee awarded at the end of 2020 was not clawed back since outperformance had continued for the three-year clawback period.

Performance for 2024 to date has been benign. As of 29 February, the NAV had fallen 1.9% for the year-to-date, versus a 1.1% fall for the FTSE All-Share index.

Performance Review

From a performance perspective, 2023 was influenced by expectations of lower interest rates as inflation was brought under control.

The first half of the year saw positive price performances across the portfolio. On 30 June 2023 the NAV per share total return for the period was 12.4%, versus 2.5% for the benchmark.

Individual stock moves of note at the half year included AO World and Netflix, up 52% and 49% respectively. The portfolio's low-cost airline holdings, easyJet and Ryanair, also benefitted from the ongoing recovery in travel to end the half year up 49% and 41%.

The second half of the year saw further positive price action taking the NAV per share total return generated for the year to 36.3%, versus 7.9% for the FTSE All-Share index.

The biggest contribution to the full year performance was Barratt Developments, which contributed 6.9% to the NAV rise following a 53% share price rise during the year.

Frasers Group was the largest holding at the year end. It contributed 6% to the NAV

rise following a 28% increase in its share price.

In November, Hotel Chocolat received a bid approach from Mars at a 175% premium to the prevailing share price. The share price was up 138% over the year as a whole and contributed 4% to the NAV.

After the bid, we wrote to investors with a reminder of our investment premise, which we believe was a vindication of our approach and an example of the under valuation of companies within the UK market. We continue to believe that today.

An excerpt from that investment premise is below. In it we outlined our intrinsic value for the company at £3.50 per share. The bid from Mars was £3.75. It also highlights the patience in our approach as we were aware of the company prior to its float but were unable to invest at that time due to price. However, our ongoing monitoring allowed us to act quickly when subsequent price falls gave us that opportunity.

"Hotel Chocolat listed on the London Stock Exchange in 2016, with both founders retaining a significant stake in the business. As of December 31st, 2022, they each own 27.1% of the company. We have known both Angus and Peter for a long time and hold them in high regard.

We believe that the key moat for the business is its strong brand and resulting customer loyalty, which it has cultivated through a combination of innovation, creativity, disciplined pricing, and direct distribution. In so doing, it has also avoided the pitfalls that led to the downfall of one of its competitors, Thorntons.

One of the company's great recent innovations has been the Velvetiser hot chocolate machine, which is increasingly becoming a staple household appliance and has formed the foundations of an effective subscription model. As a product, it creates loyal, repeat-customers who repurchase the chocolate sachets. The repeat purchases and subscription service also provide the company with a steady revenue stream in an industry where consumer purchases are usually very seasonal (Christmas, Easter and Valentine's Day are the main chocolate-shopping opportunities).

The differentiated taste of Hotel Chocolat's chocolate, stems from its "More Cacao, Less Sugar" mantra. Cacao is around five times more expensive than sugar, but the company is committed to cacao always being the number-one ingredient in its chocolate, even in milk and white varieties. This differentiates the product from those of many of the Group's competitors, in which sugar is frequently the primary ingredient. The high-cacao content within Hotel Chocolat's chocolate, also enables them to justify a higher price-point and enables them a higher degree of price-elasticity as their consumer is likely to be more driven by quality than price.

The company navigated the challenges of Covid admirably, succeeding in not only switching from being a primarily store-based to an online business during the lockdowns, but managing to grow sales by 21% between FY20 and FY21.

We have long admired Hotel Chocolat, so much so that at the time of the IPO we were considering investing in the business. Although this didn't happen because the price was above our limit, we continued to keep a close eye on the company. Last year, following the announcement of the closure of the Japanese and US businesses, Hotel Chocolat's share price dropped, opening an opportunity for us to invest. This is a company built on experimentation and innovation and it is inevitable that not every experiment will lead to success. However, we believe that the market had overreacted, that the underlying strength of the UK business remained, and that the doors to overseas expansion had not permanently closed. Indeed, earlier this year Hotel Chocolat announced that it had found a new partner for its Japanese joint venture.

In some ways, the shock of the drop has had a positive cathartic effect, with the business rationalising and cutting back on areas into which it had perhaps strayed too far (such as coffee machines & pods and beauty products). At the same time, we believe they haven't lost the innovative skill upon which their hitherto success has been built, and which will enable it to continue to grow in the future.

We have modelled out a range of potential scenarios to determine Hotel Chocolat's intrinsic value. A central scenario values the UK business alone at £3.50 per share. The bottom of that IV range is around £2.00 a share. We invested at £1.35, which, based on the central case, would result in an upside to IV of c. 160%."

The portfolio's low-cost airline holdings continued to perform strongly in the second half of the year. easyJet ended the year up 57.1%, with Ryanair up 56.2%. Both contributed circa 3% to NAV.

Other share price moves of note, but with a lower impact on NAV due to their weight, included AO World up 89.1%, Netflix up 65.1%, RHI Magnesita up 64% and Bellway up 42.9%.

There were no fallers of note in the major holdings above a 3% weight.

Activity Review

The year was one of modest investment activity, which reflected our confidence in the portfolio.

One material change of note during the first half was a 5% increase in the Castelnau holding following its bid for Dignity PLC.

We wrote about Dignity PLC in the interim report published in July 2023. We highlighted the potential upside, the downside protection from the value embedded in the crematoria business and freehold estate alongside the potential growth from an expansion in the funeral plan market.

The transformation at Dignity is now underway and all of the elements of the original investment thesis hold true today.

The increase in the Castelnau holding was partially funded by a reduction in easyJet and this was followed by a further reduction in the second half.

In Q4 we made a modest increase to the Lloyds holding and we sold some Hotel Chocolat rather than wait for the bid to close.

At the very end of year we began to add a new holding. The price moved away from our target, but we hope to provide an update on it in the future if we establish a material holding.

Outlook

As outlined above, our low activity level in 2023 was a reflection of our confidence in the portfolio. We entered 2024 with a portfolio that we believe is cheap despite a 2023 return that has taken the NAV to an all-time high. The upside to intrinsic value is 130%, which is attractive in historical terms.

In his year end message to investors, Gary Channon wrote:

"We expect to continue to be able to deliver you long-term investment returns that significantly exceed those of the market and most of our peers.

Our edge remains the ability to focus effort, think clearly, do nothing for long periods of time, act occasionally when it makes sense and with a longer time horizon than most market participants.

That ability is because of the investors we work for, and we thank you for that"

In the same year end message, Gary wrote a thought piece on the potential impact of generative AI on the economy and the whole world of business. He compares it to our experience of the rise of the internet. It is reproduced below and it remains topical

today.

"During 2023 we passed the 25th anniversary of the launch of Phoenix. It has been an extremely interesting period in which to invest and is bookended by two profound technological innovations, the world wide web (often just called the internet) and generative AI. Looking at how the first shaped business and investing over the past 25 years has some useful lessons for how to think about the latter. There has also been a further form of innovation in business management not often discussed which we think, when combined with generative AI makes, in our opinion, what is about to come quite different from the past.

The first websites emerged in the mid-1990s. Yahoo and Amazon launched, and then Google launched in the same year of Phoenix's founding in 1998. Phoenix started in the later stages of a stock market bubble in the shares of technology, media and telecoms (TMT) companies. That bubble peaked in early 2000 but only after having sucked in huge amounts of capital that funded the foundational infrastructure for the internet and mobile telephony. Investors in it did terribly but society benefited. When investors are excited about an industry, it doesn't need profits to grow and invest, it can just raise more and more capital.

Our approach to investing led us to see more threat than opportunity. Fast innovation makes forecasting the future with a degree of confidence difficult. The disruptive nature of the rise of ecommerce meant that it wasn't enough to just handicap those estimates (i.e. by requiring a higher return) because we weren't talking about differing growth rates. It was more like Schumpeter's creative destruction which would see businesses made worthless. We don't invest where there is a reasonable risk of permanently losing money.

We weren't averse to looking for opportunity, but our experiences demonstrate the difficulty from an investment perspective. For example, we believed in 2001 that smartphones would be 'a thing', and this was when that was not the consensus view. We were invested in the company that provided the operating system for all the upcoming smartphones, used by all the leading makers of the day; Nokia, Motorola, Ericsson, Sony, etc. but there you see the problem. Smartphones did become a big thing but none of the leading mobile phone manufacturers survived and even before that Psion sold the business with the operating system in (Symbian). In investing that is called getting it wrong!

The internet has profoundly changed business but interestingly it has happened at the pace of consumer behaviour changes not at the pace the technology could handle. The rise of e-commerce has transformed retail, but it has varied depending on the consumer. Food shopping is often cited as one of the least favourite shopping experiences by consumers and yet it was very slow to shift online. It had only reached a 7% penetration rate in the UK before Covid and then as soon as Covid passed it fell back and is today only 10%.

The UK has the highest penetration of online retail in the world, it currently sits at 27% of all retail sales, and that has dramatically changed the competitive landscape, creating winners and losers. The winners in most sectors have been the incumbent operators who were able to adapt their business models. Amazon was more the exception than the rule because it turns out that supply chain and logistics are critical and physical stores can be an advantage. For example, only 1 of the top 10 fashion retailers is a pure online player (ASOS).

The emergence of online searching and social media radically transformed advertising as a more targeted and measurable means of reaching customers. This caused ad spending to switch away from traditional media and completely reshaped the advertising industry, which is now dominated by Google, Meta (Facebook), Amazon, Alibaba and ByteDance (TikTok). This happened at the pace at which consumers moved online, which was quicker than their adoption of ecommerce. The internet and then social media have become the way consumers often begin their journey towards an act of consumption, and therefore, the gatekeepers to those audiences have built highly valuable franchises.

Investment discussion is dominated by the sort of macro factors that are largely cyclical and cause oscillations in economic progress. This is very relevant to the near term but becomes much less important as your time horizon increases to the point of irrelevance over the very long term. It doesn't matter how many business cycles we've had in the UK over the past 25 years or even when they happened. We know they will keep happening. What is much more important for investors are secular trends, i.e. those changes that occur over the long term that are not cyclical in nature. The most important ones during our history of investing have been those related to the rise of the internet and the changes that had on commerce.

There has, however, been another innovation that hasn't attracted much attention or discussion, but which could cause even bigger changes in the coming decade, when combined with what might be coming with AI. The "innovation" is a new way of doing business, a culture, that gives a big competitive advantage versus the traditional way. Because this new way of working emerged in what were mainly technology companies it was easy to miss, their success has been attributed to the specifics of what they did rather than explained by a way of operating, a culture-based edge. It took us 2 decades to figure it out and pretty much all we do is watch businesses.

There are a few key ingredients to this new way of working that are key: they develop through trial and error, they empower deep into the organisation which devolves and multiplies decision making, they execute at speed by breaking projects into small releasable iterations, they use data and science to make decisions and they foster a culture in which this can happen.

The two most studied companies at Phoenix in the past 25 years have probably been Amazon and Google because they touch just about every area of commerce. Following what they do and trying to interpret it misses the point though, they have evolved not through grand strategy from the top but as a result of the interaction between innovation through trial and error and the results of those iterations.

At the heart of this new model is a better understanding of human motivation which originally came from Maslow. When you are trying to get the best out of people who are doing complex, creative and innovative tasks then the traditional management tools of reward and punishment, carrot and stick, do not work; what works, in the words of Daniel Pink, who has written well on the subject, is Autonomy, Mastery and Purpose. (He summarises his work well in a TED Talk called The Puzzle of Motivation. His book on the topic is Drive: The Surprising Truth About What Motivates Us). The businesses that have developed this new way of working have built cultures that tap into this.

It's not easy to do and has been a continually evolving affair but it links a whole group of companies, with a North California connection whose combined market capitalisation is now greater than that of all the stock markets in Europe. These companies, although defending their intellectual property, have been very open about this aspect of their business. The Netflix culture deck was shared with the world in 2009 and has been downloaded millions of times and has influenced lots of businesses. Google has shared lots of its practices and its whole OKR (objective and key results) framework and toolkits openly which again have influenced many other businesses. Amazon also has been open about the way it operates and innovates. The closer you get to this topic the more you see how the cross influences have occurred. Andrew McAfee, a professor previously at Harvard and now at MIT Sloan, has spent his career around these businesses and has written a very good book on the subject called The Geek Way.

All of those companies talk about culture as something they have to keep working hard to maintain. Microsoft turned into a hierarchical bureaucracy, stagnated and was overtaken by its competitors and was missing out on innovation until Satya Nadella took over as CEO in 2014. The company's value had not changed in the previous 16 years since Phoenix launched but it has increased 10-fold since he took over. What did he do? He changed the culture, tapping into all the best of what he saw amongst their competitors. He embraced empowerment and a goal-driven approach to leadership (like OKRs as used by Google) rather than decision by what are referred to in these new companies as HiPPOs (Highest Paid Person's Opinion). He started by teaching and fostering empathy, an understanding of human beings and from the top he changed the culture at Microsoft in what has to be one of the biggest and probably most valuable cultural transformations in corporate history.

It may be no accident that Microsoft has gone from an innovation laggard to being the owner of OpenAI and at the cutting edge of the generative AI revolution.

As we take the lessons from investing in the past 25 years and apply them to thinking about how AI will impact the future, one of the biggest differences we see is that whereas the changes brought about by the internet were very influenced by the pace of consumer adoption, a lot of the benefits of AI are internal to businesses and can therefore be deployed at the pace businesses can handle. Change therefore is likely to be quicker and more impactful, both positive and negative.

Much has been written about the seeming lack of productivity growth that has followed from the internet and we have written on this before. We believe it is due to the nature of change, and the measurement of productivity which is generally GDP per person. Ecommerce takes an activity that was not part of GDP, like going to the shop to buy something, and replaces it with something that is, a low paid delivery driver brings your shopping or meal to you for a small cost. This adds lots of low value, low productivity output and doesn't measure the big quality of life improvement. In our 25 years the number of people in logistics in the UK has trebled at a time when the total workforce has grown 28% (ONS Labour force data). This growth has exceeded that in computer programming or information services. In fact, the only category with higher growth has been what the ONS calls activities at Head Office and Management Consultancy. Lots of the other benefits of the internet are quality of life, greater information and knowledge and do not show up in productivity data.

AI looks to be different, very different. Generative AI is going to be able to replace a lot of current roles in the workforce. For example, the UK has 800,000 call centre workers, most of those jobs are likely to be done more efficiently and cost effectively by tools utilising generative AI. The change will happen as pioneering companies figure out how to do it and the rest will then follow or go out of business. Paying attention to how management teams are thinking and acting on this is going to be very crucial work for us. Many of these improvements will not give a permanent competitive advantage and so the value is most likely to flow to consumers, but for businesses with strong economic moats and pricing power these improvements will flow to shareholders.

Whereas the rise of ecommerce required a judgement about consumer behaviour and adoption curves, AI doesn't. It requires a judgement about the willingness and capability of organisations to adopt innovations. This is where the cultural advantage discussed above comes into play. Those companies that are already set up to continuously improve through innovative trial and error have a distinct advantage.

In evolutionary biology, the rate at which a species evolves is impacted by how much mutation (or variation) there is and how quickly replication happens. Humans evolve at the pace we reproduce at, which is over 20 years, whereas for some bacteria it is minutes. We think this is a useful model for thinking about how competitive landscapes develop where those companies who are trying the newest things the fastest, evolve and adapt more quickly than those who are more traditional. The culture of the likes of Netflix, Google or Amazon is highly suited to tying lots of permutations of how AI can help their business and as they find things that work, they can execute quickly. Because they are not waiting on consumer adoption for the effects, then the pace at which they get ahead of competitors who are not set up in the same way is greater.

All the above is learnable and can be copied. Business management innovation is happening everywhere and what you want most in a business is that hunger and curiosity to keep learning and trying to improve. We just think it's going to be even more important in the future than it has been in the past.

In the past 25 years we have navigated a huge change in the way commerce happens and we've done it by applying the same investment philosophy, focusing on a small number of businesses we could understand well enough to value. We have devoted most of our time to monitoring these businesses, their customers and their competitive landscapes and using our findings to update our assessments and judgements.

We have also been continuously improving as we've learned by doing and analysing. We believe we are a much more competent organisation than we were 25 years ago, and we need to be because we are working with a bigger pool of capital (£1.5bn vs £6m). AI is improving our productivity too. For example, one of the monitoring programmes we have been running for Barratt Developments since 2008 which involves stripping their individual construction site websites periodically and comparing the change in order to estimate sales rates, used to take up a considerable amount of time for the analyst who did it but now one analyst has written a tool assisted by ChatGPT that runs it automatically. In this way we are able to capture more data, more frequently and with only minimal work from the analyst. By itself it is not an edge because anyone else could do the same but, combined with the way we work, it is.

We have a portfolio shaped by all of the above and believe that the businesses we are invested in are either set to benefit or at least not be hurt by what is coming. Frasers is an example of the former, a business built by trial and error, it is not the result of a grand vision by Mike Ashley of what a retailer should be but rather as the result of a way of operating that combines trial and error with analysis of the results, (the analytical team surrounding Mike were known as the "statos"). Trials, which include acquisitions, are also designed to have limited or protected downside, so failures don't hurt but are an accepted part of business, and successes are backed and multiplied. Applying AI should be a great advantage for Frasers but first they have to figure out the how. They have a culture and mindset that should lead them to do that. Barratt is an example of the latter, i.e. not likely to be hurt by AI. This is because the essence of the business is the ability to source and build on land to the UK regulatory standard at a price that makes sense at secondary market prices. AI may improve productivity in some areas but not in a way at the moment that seems to threaten to disrupt the competitive landscape."

Steve Tatters Director
Phoenix Asset Management Partners
26 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 and did engage with certain shareholders during the year. 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.

Shareholders may attend the Company's AGM, at which the Directors are available in person to meet with shareholders and to answer their questions. As was the case last year, the AGM will not include a presentation from the Investment Manager. Instead, a separate Investment Manager presentation and Q&A event will be held at 3.30 p.m. on 9 October 2024 at the Queen Elizabeth II Centre, Broad Sanctuary, Westminster, London SW1P 3EE. This event is intended to be of interest to both existing and prospective Aurora shareholders and will include multiple speakers from the Investment Manager. It is intended for this event to be recorded and made available afterwards on the Company's website.

The Notice of Meeting on pages 100 and 101 sets out the business of the AGM and each resolution is explained in Explanatory Notes to the Resolutions, which follow the Notice, starting on page 106. Separate resolutions are proposed for each substantive issue. The Company Chair, and where relevant, each Committee Chair, welcomes engagement with the Company's shareholders (and the Company's other key stakeholders) on significant issues raised by them at the AGM or at other times. Details of the votes cast on each resolution will be announced via a regulatory information service shortly after the AGM and published on the Company's website.

At each of its regular meetings the Board tracks shareholder changes and monitors the evolving shareholder profile. A list of the largest shareholders in the Company can be found on page 41.

Shareholder interactions in the year did not result in substantive actions being taken, although they did feature in Board discussions.

Other stakeholders

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

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

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

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

i.    the Company's investment objective and policy;

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

iii.  the Company's key performance indicators;

iv.  the Company's peers;

v.   the Company's overall strategy; and

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

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

A description of key service providers' roles together with the terms of their engagement can be found on pages 39 and 40. The Management Engagement Committee, on behalf of the Board, reviews the performance and terms of engagement of each of the Company's key service providers annually to ensure each remains competitive and to consider the quality of the services they provide.

Environmental, Social and Governance ('ESG') Matters

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

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

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

Monitoring of Key Decisions and the outcome of those decisions

The Board meets at least quarterly and at such other times as deemed appropriate. During these meetings, the Board considers reports from the Investment Manager on the Company's portfolio, investment activity and sector diversification. In addition, the Investment Manager provides an overview of engagement with the investee companies and with potential investee companies. The Board discusses the Company's portfolio and notable acquisitions or disposals at each of its meetings and challenges stock selection where deemed appropriate.

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

The retail focus group initiative embarked upon last year, aimed at further understanding retail shareholders, was completed and informed the Board with respect to its considerations of marketing and communications focus. During the year, in addition to regular interactions, the Management Engagement Committee on behalf of the Board reviewed the performance and terms of engagement of each of its key service providers, which included a review of their control reports and policies, such as whistleblowing, anti-bribery, anti-money laundering and corruption, cyber security, data protection policies and each entity's business continuity arrangements to ensure they were in place and were adequate. Additionally, service providers participated in a 360 degree review whereby they provided comments on their interactions with the Board and each other. As a result of these reviews it was concluded that the new service providers appointed in 2022 had bedded into their roles satisfactorily and the transition risk previously recognised was downgraded.

In relation to engagement with shareholders, the Board decided in 2023 to decouple the Investment Manager's presentation from the AGM and hold a separate Manager presentation event in October, where Directors were also available to interact. This event was well attended and seemed to be a successful formula for increasing engagement, so it is being repeated in 2024 as mentioned above.

Other decisions included recommending the payment of a final dividend in respect of the year ended 31 December 2022, which was paid on 4 July 2023, in accordance with the Company's dividend policy to distribute substantially all the Company's revenue to shareholders by way of a dividend. It was also paid to satisfy the investment trust status requirement that no less than 15% of the Company's qualifying revenue must be retained each year.

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 pages 44 and 45. Summary biographical details of the Directors are set out on pages 33 and 34.

Stewardship code

The Board and the Investment Manager support and have a strong commitment to the FRC's UK Stewardship Code, the latest version of which was effective from 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 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 58.

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

Principal Risks and Uncertainties

Geopolitical and economic risks

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

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

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.

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.

Operational Risks

Operational Risks incorporate, amongst other things, the potential for errors or irregularities in published information, cyber risks, business continuity risks, and regulatory risks.

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

ESG

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

Financial Risks

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

Further details on the Company's financial risks are included in Note 12 to the financial statements starting on page 90.

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

Viability Statement

In accordance with the UK Corporate Governance Code, the Directors have carefully assessed the Company's position and prospects as well as the principal risks and have formed a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five financial years to 31 December 2028.

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

After making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence and meet its liabilities as they fall due for at least five years to 31 December 2028. A continuation vote, as required by the Company's Articles, was held on 28 June 2022 and passed with overwhelming support from shareholders. The next vote is expected to take place at the Company's AGM in 2025. The Board and the Company's advisers will continue to work closely with shareholders and are confident that the next vote will successfully pass.

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

•       there will continue to be demand for investment trusts;

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

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

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

Factors including higher interest rates, inflation, and the conflicts in Ukraine and the Middle East were also incorporated into the key assumptions. As part of this process the Board considered the impact of severe but plausible scenarios, including the impact of significant market movements, on the Company's liquidity and solvency, its income and expenses profile and that (although not utilised) gearing is an instrument permitted by the Company's investment policy. A significant proportion of the Company's investments comprise readily realisable securities which could, if necessary, be sold to meet the Company's cash requirements. The financial considerations were based on the going concern assessment, discussed on pages 41 and 42, and extended to cover the five year period from the approval of this annual report.

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

The internal control framework of the Company is subject to formal review on at least an annual basis. The Audit Committee considered the operational resilience of the Company's service providers, and thereby the operational viability of the Company. The Committee is reassured that all key service providers have demonstrated they were able to operate effectively and to their normal high service standards during the period of COVID-19 disruption and the general continuation since then of less structured working arrangements than in the past.

Outlook

The outlook for the Company is discussed in the Chair's Statement on page 6, and the Investment Manager's Review on pages 16 to 21.

This Strategic Report was approved by the Board on 26 March 2024.

Lucy Walker

Chair of the Board of Directors

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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 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 33 and 34 confirm that, to the best of their knowledge:

•       the Company's financial statements, which have been prepared in accordance with UK-adopted international accounting standards and in accordance with those parts of the Companies Act 2006 that apply to those companies reporting under UK-adopted international accounting standards, give a true and fair view of the assets, liabilities, financial position and 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
Lucy Walker
Chair of the Board of Directors
26 March 2024

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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 76 to 94 form part of these accounts.

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Statement of Financial Position

Approved by the Board of Directors on 26 March 2024 and signed on its behalf by:

Lucy Walker
Chair of the Board

Company no. 03300814

The notes on pages 76 to 94 form part of these accounts.

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Statement of Changes in Equity
Year to 31 December 2023

The notes on pages 76 to 94 form part of these accounts.

Statement of Changes in Equity
Year to 31 December 2022

The notes on pages 76 to 94 form part of these accounts.

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Cash Flow Statement

The notes on pages 76 to 94 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 33 to 35.

Basis of Accounting

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

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

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

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

Going concern

The financial statements have been prepared on the going concern basis. The Directors have a reasonable expectation, after making enquiries, that the Company has adequate resources to continue in existence for at least 12 months from the date of approval of this Annual Report.

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

As at 31 December 2023, the Company held £6,248,000 (2022: £5,348,000) in cash, £200,733,000 (2022: £146,356,000) in quoted investments and £1,476,000 (2022: £2,871,000) in an unquoted investment. The total ongoing operating expenses for the year ended 31 December 2023 were £817,000 (2022: £777,000). It is estimated that 31.2% of the Company's latest portfolio could be liquidated in a non-market impacting way within 7 days, using 25% of historic three-month average daily volume. This approach is considered conservative as it does not include the Company's ability to access liquidity through block trades.

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

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

Segmental reporting

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

Material accounting policies

The accounting policies adopted are described below:

a.   Accounting Convention

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

b.   Adoption of new IFRS standards

In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality Judgements, applicable for annual periods beginning on or after 1 January 2023. The latest amendments require reporting entities to disclose material, instead of significant, accounting policies from the effective accounting period onwards. In light of the amendments, the Company has performed a full review of the existing disclosure of accounting policies in its annual report and removed the following policies:

•  Share-based Payment

•  Taxation

•  Cash

•  Dividends Payable

There have been no changes to the removed accounting policies and the full policy details are available in the Company's annual report and financial statements for the year ended 31 December 2022.

The Company has also adopted, with no material impact, the amendments to IAS 8 definition of accounting estimates estimates and amendments to IAS 12 Deferred Tax related to Assets and Liabilities arising from a Single Transaction, which became effective from 1 January 2023.

c.   Investments

Investments are measured at fair value through profit or loss. Gains or losses on investments and transaction costs on acquisition or disposal of investments are included in the Income Statement as a capital item.

For investments that are actively traded in organised financial markets, fair value is determined by reference to stock exchange quoted market bid prices at the close of business on the year-end date. All purchases and sales of investments are recognised on the trade date, i.e. the date that the Company commits to purchase or sell an asset.

Unquoted investments are measured at fair value in accordance with the International Private Equity and Venture Capital valuation guidelines and IFRS 9. Valuation is provided by the underlying investment manager and may be adjusted to take account of changes or events to the reporting date, or other facts and circumstances which might impact the underlying value.

d.   Income from Investments

Special Dividends are assessed on their individual merits and are credited to the capital column of the Income Statement if the substance of the payment is a return of capital. All other investment income is taken to the revenue column of the Income Statement.

e.   Share Capital and Reserves

The share capital represents the nominal value of equity shares.

The share premium account represents the accumulated premium paid for shares issued above their nominal value less issue expenses. This reserve is not distributable.

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

Other reserve represents the restricted shares issued in settlement of performance fees that are still a the lock-in period. This reserve is not distributable.

Share-based payment reserve represents the cumulative share-based payment expenses in relation to performance fees earned. Upon vesting, the relevant share-based payment reserve balance will be transferred to the realised capital reserve. This reserve is not distributable.

The capital reserve represents realised and unrealised capital and exchange gains and losses on the disposal and revaluation of investments and of foreign currency items. 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 £43,101,000 as at 31 December 2023 (2022: £42,863,000). The Company has no intention to make distributions out of its capital reserve.

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

f.    Expenses

All expenses are charged through the revenue column of the Income Statement except the following:

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

•    expenses are charged to the capital column of the Income Statement where 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.   Critical Judgements, Estimations or Assumptions

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

Performance fees

The performance fee is calculated on the Company's NAV outperformance against its benchmark. Performance fees, if earned, are settled by the issue of shares in the Company, which are subject to a fixed three-year clawback period. If the outperformance versus the index reverses on the third-year anniversary the Company is entitled to recover and cancel the shares.

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

However, as the performance fee is calculated as a fixed amount which is settled by a variable number of shares, the cumulative charge over the vesting period will equate to either the amount calculated at the end of the first year where the performance of the Investment Manager remains on target, or a lower amount where it is considered that the clawback will take effect. This is as a result of the performance fee charge being adjusted during the service period, which is a requirement of IFRS 2 where there is 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 a clawback may occur at the end of the performance period. Clawbacks are adjusted based on the management's expectation in terms of the number of restricted shares that will ultimately vest at each reporting date, and if applicable, credited back to the Income Statement.

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

The Investment Manager earned a performance fee of £221,195 in 2021 and this was settled by an issuance of 89,096 shares. As at 31 December 2023, the Company estimates that all shares issued in relation to 2021 will vest on 31 December 2024 when the clawback period ends. An IFRS 2 expense of £166,000, based on a service period of four years, has been charged and is shown in the capital column of the Income Statement.

No performance fee was earned during 2022 and the fee assessment period was extended to 2023. Over the combined period, the Investment Manager earned performance fees of £560,903, 80% of which was settled on 17 January 2024 by an issuance of 172,373 new ordinary shares at 260.32p per share, and the remaining 20% will be settled upon approval of this annual report. The service period for fees earned during 2022 and 2023 is considered to be five years. As at 31 December 2023, based on estimates produced by the Company's in-house assessment model, it is expected that no shares issued in relation to 2023 will ultimately vest at the end of the clawback period on 31 December 2026, and therefore no IFRS 2 expenses have been charged in the Income Statement.

Valuation of Unquoted Investments

The Company has an investment in Phoenix SG Limited ("Phoenix SG"), which is unquoted and classified as a Level 3 investment under the fair value hierarchy. Its fair value as at 31 December 2023 is £1,476,000 or 0.7% of NAV (2022: £2,871,000 or 1.9% of NAV).

Phoenix SG is valued in accordance with the Company's accounting policy set out in 1c, using the reported NAV provided by the investment's underlying fund manager. 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 £147,600 (2022: £287,000) on the Company's NAV as at 31 December 2023 and a 10% increase of the unquoted valuation would have the exact opposite impact.

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 in the year to 31 December 2022 include gains of £31,433,000 from the sale of put options on a short sterling future contract as a hedge against inflation in February 2022.

Transaction costs on investment purchases and sales for the year ended 31 December 2023 are disclosed in the following table.

3.         Income

4.         Investment Management Performance Fees and Other Expenses

* All expenses include any relevant irrecoverable VAT.

** Frostrow Capital LLP was appointed on 28 September 2022 to provide the Company with administration and Company Secretary services, as well as serve as the Company's investor relations and marketing adviser. Public relation fees disclosed separately in the prior year are now included as part of the administration fees. Refer to page 40 for further details of the fee arrangement.

*** The amounts excluding VAT paid or accrued for the audit of the Company are £57,000 (2022: £53,000).

Investment Management Performance Fees

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

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

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

Performance fees are settled by issuance of new shares. Such shares are issued at the NAV per share prevailing at the date of issue, so that the then current value of the shares equates in terms of NAV to the performance fees calculated at the end of the relevant financial period.

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

Performance fees are calculated annually and, if earned, settled by way of share issuance by the Company, 80% is settled shortly after the year end date and the remaining 20% 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 over the clawback period, shares issued to the Investment Manager will be proportionally or entirely clawed back and cancelled by the Company.

Share-based Payment

The performance fee arrangement is recognised as an equity settled share-based payment under IFRS 2, and the related expenses are charged or credited in the Income Statement on a straight-line basis over a vesting period of the performance fee calculation period followed by 3 years of clawback period.

At the end of each reporting period, the Company reviews cumulative total returns between the Company's NAV and its benchmark index in relation to each performance year in which a performance fee was earned and adjusts the cumulative charges of share-based payment expenses accordingly.

A total share-based payment charge of £2,824,000 has been recognised in the Company's Income Statement for the year ended 31 December 2023.

* No performance fee was earned during 2022 and the fee assessment period was extended to 2023.

** 80% of the fees earned was settled on 17 January 2024 by an issuance of 172,373 new shares at 260.32p per share, and the remaining 20% will be settled following publication of this annual report.

Share-based Payment Sensitivity Analysis

Impact on the Company's profit after tax for the year ended 31 December 2023, if the Company's overperformance changes by:

5.         Taxation

Current taxation

The taxation charge for the year is different from the standard rate of corporation tax in the UK of 23.5% (2022:19.0%). The differences are explained below:

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

Deferred Tax

The Company has £14,367,000 (2022: £12,385,000) in respect of excess unutilised management expenses, equivalent to a potential tax saving of £3,592,000 (2022: £3,096,000) at the prospective tax rate of 25% (2022: 25%) and £1,491,000 (2022: £1,491,000) in respect of loan interest, equivalent to a potential tax saving of £373,000 (2022: £373,000) at the prospective tax rate of 25% (2022: 25%).

These amounts could be utilised to the extent that the Company has sufficient future taxable revenue. A deferred tax asset has not been recognised in respect of these expenses.

6.         Ordinary Dividends

* Based on the 76,078,460 shares in issuance as at 31 December 2023, 172,373 shares issued on 17 January 2024 in settlement of 80% of the performance fees earned, and an estimated issuance of 42,000 shares to be issued in settlement of the remaining 20% performance fees earned.

7.         Earnings Per Share

Earnings per share are based on the profit of £53,372,000 (2022: loss of £35,418,000) attributable to the weighted average of 76,078,460 (2022: 76,592,940) ordinary shares of 25p in issue during the year.

Supplementary information is provided as follows: revenue earnings per share are based on the revenue income of £2,661,000 (2022: income of £2,263,000); capital earnings per share are based on the net capital profit of £50,711,000 (2022: loss of £37,681,000), attributable to the weighted average of 76,078,460 (2022: 76,592,940) ordinary voting shares of 25p. There is no difference between the weighted average diluted and undiluted number of shares. There is no difference between basic and diluted earnings per share as there are no dilutive instruments.

8.            Share Capital and Reserves

At 31 December 2023, the Company had 76,078,460 ordinary shares in issue, with no shares held in Treasury (2022: 76,608,771 shares in issue, of which 530,311 were held in Treasury). The number of voting shares at 31 December 2023 was 76,078,460 (2022: 76,078,460, being the number of ordinary shares in issue less the number of shares held in Treasury.

Movement in share capital during the period

The Company did not issue or purchase any of its own shares during the year ended 31 December 2023.

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

Other Reserve

The other reserve balance represents the restricted shares issued in settlement of performance fees that are still within a lock-in period.

The clawback period for the performance fee earned during the year ended 31 December 2020 ended on 31 December 2023. The Company's cumulative NAV total return outperformed that of the benchmark index over the vesting period. As a result, the 1,290,932 restricted shares originally issued in settlement of the £2,658,275 performance fee earned have become unrestricted. As at 31 December 2023, the equivalent value was transferred to realised capital reserve and the remaining balance in other reserve represents shares issued in settlement of the performance fee for 2021.

Share-based Payment Reserve

The share-based payment reserve represents the cumulative share-based payment expenses in relation to performance fees earned. The balance as at 31 December 2023 relates to cumulative expenses charged to the capital column of the Company's Income Statement for the performance fee earned in 2021. No expenses have been charged for the combined performance period of 2022 and 2023 as no shares issued in settlement of the fee earned during this period are expected to ultimately vest based on the estimates produced by the Company's in-house model. This is subject to review and change at the Company's future reporting dates. Further details can be found in Note 4 on page 84.

9.            Net Assets Per Ordinary Share

The figure for Net Assets per Ordinary Share is based on Net Assets of £208,714,000 (2022: £154,778,000) divided by 76,078,460 voting ordinary shares in issue at 31 December 2023 (2022: 76,078,460, being the number of ordinary shares in issue less the number of shares held in Treasury (Note 8)).

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 on pages 51 to 55 and in Note 4 on page 83. No fees payable to the Directors were outstanding as at 31 December 2023.

Phoenix Asset Management Partners Limited ("Phoenix"), the Company's AIFM and Investment Manager, and Castelnau Group Limited ("Castelnau") are considered as related parties under the Listing Rules. Details of transactions with Phoenix can be found in Note 4 beginning on page 83.

Castelnau is a related party as the Company is a substantial shareholder under the UK Listing Rules. As at 31 December 2023, the Company held 11.4% (2022: 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 2023.

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 £6,248,000 (2022: £5,348,000) is held by the Company's Depositary, Northern Trust Investor Services Ltd.

Financial liabilities

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

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

Fair Value Hierarchy

Under IFRS 13 investment companies are required to disclose the fair value hierarchy that classifies financial instruments measured at fair value at one of three levels according to the relative reliability of the inputs used to estimate the fair values.

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 2023 is £1,476,000 (20221: £2,871,000). The Company held 9.04% (2022: 9.4%) of the share capital of Phoenix SG.

Risk Analysis

The general risk analysis undertaken by the Board and its overall policy approach to risk management are set out in the Strategic Report. Issues associated with portfolio distribution and concentration risk are discussed in the Investment Policy section of the Strategic Report. This note, which is incorporated in accordance with accounting standard 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 2023 was invested predominantly in sterling denominated securities and there was limited 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 2023 or 31 December 2022.

The Company does not hedge its currency exposures currently, but under its investment policy and restrictions, derivative or similar financial instruments can be employed if considered necessary for the purpose of capital preservation.

Currency sensitivity

The table below shows the impact on the Company's profit after taxation for the year ended and net assets as at 31 December 2023, if sterling had strengthened/weakened by 10% against Euro and USD.

A (ii) Interest Rate Risk

The Company did not hold fixed interest securities at 31 December 2023 or 31 December 2022.

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

The Company had no borrowings at 31 December 2023 or 31 December 2022.

A (iii) Other Price Risk

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

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

The effect on the portfolio of a 10.0% increase or decrease in market prices would have resulted in an increase or decrease of £20,221,000 (2022: £14,923,000) in the investments held at fair value through profit or loss at the period end, which is equivalent to 9.7% (2022: 9.6%) in the net assets attributable to equity holders. This analysis assumes that all other variables remain constant.

B Liquidity Risk

Liquidity Risk is considered to be small, because most of the portfolio is invested in readily realisable securities. As a consequence, cash flow risks are also considered to be immaterial. The Investment Manager estimates that, under normal market conditions and without causing excessive disturbance to the prices of the securities concerned, 31.2% (2022: 46.6%) of the portfolio could be liquidated in a non-market impacting way within 7 days, based on 25% of average daily volume. This is conservative as it does not include the ability to access liquidity through block trades.

C Credit Risk

The Company invests in quoted and unquoted equities in line with its investment objective and policy. The Company's investments are held by Northern Trust Investor Services Ltd ("the Depositary"), which is a large and reputable international banking institution. The Company's normal practice is to remain fully invested at most times and not to hold large quantities of cash. At 31 December 2023, cash at bank comprised £6,248,000 (2022: £5,348,000) held by the Depository. Credit Risk arising on transactions with brokers relates to transactions awaiting settlement. This risk is considered to be very low because transactions are almost always undertaken on a delivery versus payment basis with member firms of the London Stock Exchange.

D Capital management policies and procedures

The Company's capital management objectives are:

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

•      to provide an adequate return to shareholders

by pursuing investment policies commensurate with the level of risk.

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

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

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

13.          Post Year End Events

On 17 January 2024, the Company issued 172,373 shares to the Investment Manager in settlement of 80% of the £560,903 performance fee earned by the Manager for the 2022 and 2023 performance assessment period. The remaining 20% will be settled via further issuance of shares upon approval of the Annual Report and Financial Statements for the year ended 31 December 2023. All shares issued in settlement of performance fees are subject to a lock-in and clawback period of 3 years. As disclosed under the Investment Management Agreement section of the Directors' Report on page 39, if the Company's cumulative returns underperform its benchmark over the clawback period, all shares issued in relation to a particular performance year will be clawed back and returned to the Company for cancellation.

.

The figures and financial information for 2022 are extracted from the published Annual Report for the year ended 31 December 2022 and do not constitute the statutory accounts for that year. The Annual Report for the year ended 31 December 2022 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 2023 are extracted from the Annual Report and financial statements for the year ended 31 December 2023 and do not constitute the statutory accounts for the year. The Annual Report for the year ended 31 December 2023 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

26 March 2024