Aurora Investment Trust plc
Annual Report 31 December 2021
Company No. 03300814
Annual Report Contents 3
Financial and Performance Highlights 5
Chairmans Statement 6
Investment Policy and Results
Top Holdings
Portfolio Analysis
Statement from the CIO of the Investment Manager 15
Investment Management Review and Outlook
Phoenix UK Fund Track Record 20
Report under Section 172 of the Companies Act 2006
Other Strategic Report Information
Directors, Investment Manager and Advisers 31
Directors’ Report 32
Corporate Governance Statement
Directors’ Remuneration Report
Statement of Directors’ Responsibilities 55
Audit Committee Report
Independent Auditors Report
Statement of Comprehensive Income 73
Statement of Financial Position
Statement of Changes in Equity 75
Cash Flow Statement
Notes to the Financial Statements 78
Alternative Performance Measures
Glossary 101
Notice of Meeting 103
4 Annual Report Strategic Report
Strategic Report
4 Annual Report Strategic Report
Annual Report Strategic Report 5
Strategic Report
To provide Shareholders with long-term
returns through capital and income
growth by investing predominantly in
aportfolio of UK listed companies.
Phoenix Asset Management Partners
Limited (Phoenix) was appointed
Investment Manager on 28 January 2016.
Phoenix currently seeks to achieve the
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 9.
Performance is benchmarked against the
FTSE All-Share Index (total return),
representing the overall UK market.
The Board proposes to pay a final
dividend of 1.84p per Ordinary Share
(2020: 0.55p) to be paid on 1 July 2022 to
Shareholders who appear on the register
as at 10 June 2022, with an ex-dividend
date of 9 June 2022.
Annual General Meeting
The AGM of the Company will be held at
Chartered Accountants Hall,
OneMoorgate Place, London EC2R 6EA
on 28June 2022 at 2.00 pm. If you are
unable to attend in person you have the
option of attending via webinar, where
you will have the opportunity to hear a
presentation from the Investment
Manager and ask questions. Instructions
on how to attend the webinar can be
found on the Company’s website at
ews/regulatory/56/ and in the Notes to
the notice of AGM.
Financial and
The chart above shows the Company’s NAV performance (total return) compared to the FTSE All-Share Index
(total return) since Phoenix became the Investment Manager.
FTSE All-Share Index
Aurora Net asset value (NAV) per Ordinary Share
6 Annual Report Strategic Report
Performance Review
The Company’s daily published unaudited Net Asset Value (‘NAV’) for the year ended
December 2021 rose by 19.1% and the share price rose by 13.5% on a total return
basis, versus the benchmark, FTSE All-Share Index (total return) which increased by
18.3%. This was the third year in succession of outperformance versus the market.
The year was again dominated by COVID-19, and the stop-start nature of the
transition back to normality post the pandemic. There are significant elements of
the portfolio such as the low-cost airlines, which will benefit from a full return to
normality, which Phoenix expects to be a source of positive performance in the
fullness of time.
As announced on 3 September 2021 and as we have previously discussed,
Castelnau Group Limited (“Castelnau”) was listed on the Specialist Fund segment
of the London Stock Exchange in October 2021. As part of the transaction, the
Company acquired shares in Castelnau in exchange for a proportion of the Company’s
holding in Dignity PLC, Hornby PLC and Phoenix SG. Since listing Castelnau has
performed well. Further details of Castelnau’s performance can be found in
Castelnau’s fourth quarterly report of 2021 which can be found on their website at:
The major contributor to performance in 2021 was a hedge against rising inflation
using options on the short sterling future contract. In early 2021, Phoenix became
concerned at the potential impact of rapidly rising interest rates on intrinsic value
of the portfolio holdings. The hedge was implemented in the summer, and in the
fourth quarter of 2021, as concerns over inflation increased significantly, strong
performance was generated from the hedge.
The outperformance in 2021 ensured that the Company has again added to
previous NAV returns in excess of its benchmark. Since Phoenix took over the
management of the Company in January 2016, the Company’s NAV and share
price have grown by 75.9% and 66.1% respectively to 31 December 2021, versus
a benchmark rise of 59.2%.
One of the unique features of the Investment Management Agreement with
Phoenix, and one that creates significant shareholder alignment, is that Phoenix
earns no management fee other than an annual performance fee, equal to
one-third of NAV per share total return in excess of the FTSE All-Share Index (total
In 2021 a performance fee was earned by Phoenix. This fee was received in shares
in the Company, which Phoenix cannot sell for three years, and there is a clawback
mechanism in place through which, if the outperformance which earned the shares
were to disappear on the third anniversary of their award, the shares would either
be cancelled or, in limited circumstances and following consultation with Phoenix,
the Company would have the discretion to either (i) reduce the number of shares
that are clawed back or (ii) extend the lock-in period for up to a further two years.
Lord Flight
April 2022
Annual Report Strategic Report 7
Strategic Report
The Company’s share price rose by 13.5% over the year ended 31 December 2021.
In the first half of 2021, NAV and share price traded around parity with share
issuance occurring in June, but in the second half of the year the Company’s share
price fell to a discount to NAV. During the year ended 31 December 2021, the
Company’s shares traded between a premium of 4.3% and discount of 11.4% to
NAV, with an average discount of 3.2%. As at 31 December 2021, the discount to
NAV was 7.6%. The Board, along with its advisors and the investment manager,
monitor any discount closely. As at the end of March 2022 the Company’s shares
were trading at a slight premium of 0.15%. The Board will consider buying back
shares in the Company if a discount becomes persistent. Phoenix took the
opportunity to purchase £5 million of shares in the Company when the NAV traded
at a discount and continues to promote the Company proactively together with
Liberum, the Company’s broker and with Frostrow Capital, its distribution advisor.
The Investment Manager
2021 was the sixth year of Phoenix’s management of the Company’s portfolio, which
began with their appointment as Investment Manager in January 2016, and it is
positive that 2021 brought continued outperformance versus the FTSE All-Share index
(total return).
Phoenix again employed a focused, patient investment approach during another
year of significant market stress. The implementation of the hedge against inflation
was effective in preserving value in the underlying equity portfolio.
Growth of the Company
Growing the Company remains a key objective of the Board. Market capitalisation rose
from £162 million in January 2021, to finish the year at £179 million. This rise,
however, came almost solely from share price appreciation and not from new share
The Board, along with Phoenix, is committed to broadening the profile of the
Company and has agreed a programme of activity with Frostrow Capital and Liberum,
the Company’s distributor adviser and broker, which will include an increased number
of investor meetings, conference presentations and engagement with platform
It remains an objective of both the Board and the Investment Manager to increase
the size of Aurora to £250 million over the course of the next two to three years.
Annual General Meeting (“AGM”)
The AGM of the Company will be held at Chartered Accountants Hall, One Moorgate
Place, London EC2R 6EA on 28 June 2022 at 2.00 pm. If you are unable to attend in
person you have the option of attending via webinar, where you will have the
opportunity to hear a presentation from the Investment Manager and ask questions.
Instructions on how to attend the webinar can be found on the Company’s website at and in the Notes to the
notice of AGM.
Continuation Vote
In accordance with the articles, the Company will hold a continuation vote at the next
AGM on 28 June 2022. This provides an opportunity for the Company’s shareholders
to vote, once every three years, on whether the Company should continue to operate,
or otherwise be wound-up and cash returned to shareholders. Taking account of the
Company’s track record over the past three years the Board strongly recommends that
shareholders vote in favour of the Company’s continuation.
8 Annual Report Strategic Report
The Board
After 10 years serving together on the Board of Aurora, James Nelson and I will be
retiring at the forthcoming AGM. It has been a great pleasure for me to have served
the Company and played a part in its development over these years. On behalf of the
Board, I thank James Nelson for his particular support and contribution over these
At the AGM, Lucy Walker will be taking over from me as Chair of Aurora. I know
the Board will be in capable hands and I wish Lucy every success for the future. I trust
she will enjoy the role as much as I have done.
The Board continues its search for additional Board members and will update the
market in due course.
Aggregate Directors’ Fees
At the forthcoming AGM an ordinary resolution will be put to shareholder vote to
increase the maximum aggregate Directors’ fees from £200,000 to £250,000. This
willallow greater flexibility to retain and attract Board members with suitable skills
andexperience by offering competitive remuneration.
The Board proposes to pay a final dividend of 1.84p (2020: 0.55p) per Ordinary Share,
to be paid on 1 July 2022 to Shareholders who appear on the register as at 10 June
2022. The ex-dividend date is 9 June 2022. This dividend will be proposed at the
forthcoming AGM to be held on 28 June 2022. The Company’s dividend policy, which
is to distribute substantially all net revenue proceeds, remains unchanged and can be
found on page 9 of this Annual Report.
Outlook and Reflection
Since the year end the world has been shocked by Russia’s invasion of Ukraine.
Thishas further exacerbated inflation as utility bills look set to rise even higher than
initially expected and concern increases that the conflict will continue. This has
impacted stock markets around the world. However, since the year end, the
Company’s performance has been strong, due to the significant gains achieved from
its hedge against rising interest rates discussed above. This hedge has now been fully
realised. We continue to believe that the Company will maintain its relative
outperformance over the longer term.
As this is the last time I shall be writing to you, I bid you farewell. It has been a
privilege to serve as Chairman. In the years that James and I have served the Board
we have seen many changes, one of the most significant has been the appointment of
Phoenix Asset Management as the Company’s Investment Manager in 2016. Since
then, the Company has performed well and we both feel we will be leaving the
Company in capable hands with Lucy at the helm and Phoenix Asset Management
making impressive returns on behalf of the Company’s shareholders.
Lord Flight
29 April 2022
Annual Report Strategic Report 9
Strategic Report
At a General Meeting held on 28 September 2021 the following new investment
policy was approved:
The Company seeks to achieve its investment objective by investing predominantly
in a portfolio of UK listed companies. The Company may from time to time also invest
in companies listed outside the UK and unlisted securities. The investment policy is
subject to the following restrictions, all of which are at the time of investment:
The maximum permitted investment in companies listed outside the UK at cost
price is 20% of the Company’s gross assets.
The maximum permitted investment in unlisted securities at cost price is 10% of
the Company’s gross assets.
There are no pre-defined maximum or minimum sector exposure levels but these
sector exposures are reported to and monitored by the Board in order to ensure
that adequate diversification is achieved.
The Company’s policy is not to invest more than 15% of its gross assets in any one
underlying issuer (measured at the time of investment) including in respect of any
indirect exposure through Castelnau Group Limited.
The Company may from time to time invest in other UK listed investment
companies, but the Company will not invest more than 10% in aggregate of the
gross assets of the Company in other listed closed-ended investment funds.
Save for Castelnau Group Limited, the Company will not invest in any other fund
managed by the Investment Manager.
While there is a comparable index for the purposes of measuring performance
over material periods, no attention is paid to the composition of this index when
constructing the portfolio and the composition of the portfolio is likely to vary
substantially from that of the index. The portfolio will be relatively concentrated. The
exact number of individual holdings will vary over time but typically the portfolio will
consist of holdings in 15 to 20 companies. The Company may use derivatives and
similar instruments for the purposes of capital preservation.
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
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 investment policy does not include any fixed dividend policy. But the Board will
distribute substantially all of the net revenue arising from the investment portfolio.
Accordingly, the Company is expected to continue to pay an annual dividend, but this
could be lower than the level of recent dividends and may vary each year.
policy and
10 Annual Report Strategic Report
Borrowing Policy
The Company is not prohibited from incurring borrowings for working capital purposes,
however the Board has no current intention to utilise borrowings. Whilst the use of
borrowings should enhance the total return on the Ordinary Shares where the return
on the Company’s underlying assets is rising and exceeds the cost of borrowing, it will
have the opposite effect where the underlying return is falling, further reducing the
total return on the Ordinary Shares. As a result, the use of borrowings by the
Company may increase the volatility of the NAV per Ordinary Share.
The Company has a policy not to invest more than 10% of its gross assets in other
UK listed investment companies. As a consequence of its investments, the Company
may therefore itself be indirectly exposed to gearing through the borrowings from
time to time of these other investment companies.
Objectives and Key Performance Indicators (KPIs)
The Company’s principal investment objective is to achieve capital and income growth.
The Board measures the Company’s success in attaining its objectives by reference to
KPIs as follows:
a. To make an absolute total return for Shareholders on a long-term basis.
b. The Company’s Benchmark is the FTSE All-Share Index (total return), against which
the NAV total return is compared. After achieving the goal of making absolute
returns for Shareholders, the next aim is to provide a better return from the
portfolio than from the market as measured by the Benchmark.
c. The Company seeks to ensure that the operating expenses of running the
Company as a proportion of NAV (the Ongoing Charges Ratio) are kept to the
minimum possible.
d. The discount/premium to NAV at which the Company’s Shares trade is also closely
monitored in order to maintain Shareholder value.
The Chairmans Statement on pages 6 to 8 incorporates a review of the highlights
during the year.
The Investment Manager’s Report on pages 17 to 19 gives details on investments
made during the year and how performance has been achieved.
The Investment Manager, Phoenix Asset Management Partners Limited (‘Phoenix’),
which is regulated by the FCA. The Chief Investment Officer of Phoenix is Gary
Channon. Phoenix reports in detail upon the Company’s activities in the Investment
Management Report and Outlook on pages 17 to 19.
Under the Investment Management Agreement, no regular management fees are
payable. A performance fee is payable to the Investment Manager only if the
benchmark is outperformed.
Annual Report Strategic Report 11
Strategic Report
The benchmark is the FTSE All-Share Index (total return). The Company’s
performance since Phoenix was appointed is shown below:
since Year to Year to
28 January 2016 31 December 31 December
to 31 December 2021 2021 2020
% % %
NAV per Ordinary Share (total return)
+75.9 +19.1 –5.3
Ordinary Share price (total return)
+66.1 +13.5 –10.0
Benchmark (total return) +59.2 +18.3 –9.8
The Ongoing Charge Ratio was as follows:
Year to Year to
31 December 31 December
2021 2020
% %
Ongoing Charge Ratio
0.49 0.45
These are Alternative Performance Measures (“APMs”).
Revenue Result and Dividend
The Company’s revenue profit after tax for the year amounted to £1,413,000 (2020:
£599,000). The Board is today proposing the payment of a final dividend of 1.84p per
Ordinary Share (2020: 0.55p per Ordinary Share). This dividend will be paid on 1 July
2022 to Shareholders on the register as at 10 June 2022; the Ordinary Shares will be
marked ex-dividend on 9 June 2022. In accordance with International Financial
Reporting Standards this dividend is not reflected in the financial statements for the
year ended 31 December 2021.
Discount to NAV
The discount of the Ordinary Share price to NAV per Ordinary Share is closely
monitored by the Board. The Ordinary Share price closed at a 7.6% discount to the
NAV per Ordinary Share as at 31 December 2021 (2020: 4.6%discount). During the
year ended 31 December 2021, the Company’s shares traded at between a premium
of 4.3% and discount of 11.4% to NAV, with an average discount of 3.2%.
Control of the level of ongoing charges
The Board monitors the Company’s operating costs carefully. Based on the Company’s
average net assets for the year ended 31 December 2021, the Company’s ongoing
charges figure calculated in accordance with the Association of Investment
Companies (AIC) methodology was 0.49% (2020: 0.45%). As the size of the Company
grows, the Board will manage expenses with the intention of keeping costs down and
reducing the ongoing charge ratio accordingly.
12 Annual Report Strategic Report
Five Year Summary
The following data are all expressed as pence per Ordinary Share. NAV figures are all
calculated at bid prices.
Published Net Dividend per
Asset Value per Ordinary Share in Ordinary Share
Ordinary Share respective year price (mid-market)
Year (pence)
(pence) (pence)
Year ended 31 December 2017 205.72 2.75 208.00
Year ended 31 December 2018 182.24 4.00 183.00
Year ended 31 December 2019 232.07 4.50 237.00
Year ended 31 December 2020 213.39 0.55 207.00
Year ended 31 December 2021 253.49
1.84 234.50
This is an APM, calculation can be found on page 99.
Annual Report Strategic Report 13
Strategic Report
Date Average
Holding Percentage of first cost per Share Market
Company Sector in Company Valuation of net assets purchase share* price capitalisation
£’000 % £
Frasers Group plc Retail 5,114,011 39,429 20.3 Jan-16 3.07 £7.71 £3.9bn
Castelnau Group Limited Financial
24,563,184 25,300 13.0 Oct-21 1.00 £1.03 £194m
Barratt Developments plc Construction 3,242,412 24,253 12.5 Nov-18 5.03 £7.48 £7.6bn
easyJet Plc Leisure 3,565,368 19,823 10.2 Sep-16 6.90 £5.56 £4.2bn
Options – ICE 3Mth SONIA OPTSep22 Financial 47,000 19,388 10.0 Jul-21 0.03 £0.33 n/a
Ryanair Holdings plc Leisure 928,600 11,911 6.1 May-19 8.34 €15.25 €17.3bn
Lloyds Banking Group plc Financial 19,618,000 9,377 4.8 Jan-16 0.62 £0.48 £34.0bn
Randall & Quilter Investment
Holdings Limited Insurance 5,211,225 8,963 4.6 Jan-16 1.08 £1.72 £473m
Bellway plc Construction 232,440 7,754 4.0 Jan-16 20.39 £33.36 £4.1bn
RHI Magnesita N.V. Materials 225,320 7,449 3.8 Jan-20 34.65 £33.06 £1.6bn
Other holdings (less than 3%) n/a n/a 12,990 6.8 n/a n/a
Total holdings
186,637 96.1
Other current assets and
7,556 3.9
Net assets
194,193 100.0
* Average net cost including sales.
# Castelnau is a multi-sector financial holding company.
The Company held over 3% of the issued share capital of the following:
of share
Holding in capital of
Company Sector Company Company (%)
Castelnau Group Limited Financial 24,563,184 13.4 Castelnau Group Limited is also managed by Phoenix Asset
Management. The value of Castelnau Group Limited is excluded
from the Company’s net assets when calculating performance
fees earned by Phoenix Asset Management to avoid double
Top Holdings
as at 31 December 2021
14 Annual Report Strategic Report
Portfolio Analysis
as at 31 December 2021
Percentage of net
Sector Assets
Financial* 29.7
Retail 20.3
Leisure 17.9
Construction 17.6
Insurance 4.6
Materials 3.8
Food & Beverage 1. 0
Industrials 0.7
Pharmaceuticals 0.5
Other current assets and liabilities 3.9
Total 100.0
* Castelnau is included in Financial’s classification as it is a multi-sector financial holding company.
Other current assets
and liabilities
Food & Beverage
Annual Report Strategic Report 15
Strategic Report
Dear Shareholder,
Last year was one of gratification postponed for us, as the pandemic carried on and
lockdown restrictions further damaged a number of the businesses in the portfolio,
which itself remains well positioned for the end of restrictions and a resumption of
normal economic life. This was particularly acute for our airline holdings.
The pandemic has proved to be another pullback from which our portfolio
recovered its value and set out a new high (NAV wise); this one took 476 calendar
days. In the 24 years that Phoenix has been managing money we have experienced
6significant pullbacks of 24% and more. In all prior occasions, the reversal from old
peak to new peak has always been within a year, but this is the first to go over that
timescale, albeit by asmall number of months. We believe starting out with a portfolio
of very undervalued businesses and using the fall in prices to act rationally, combined
with an absence of leverage is why this happens.
Apart from the preservation of capital, what matters is the amount of future value
we add by acting rationally in those dips to acquire investments whose valuations
have overreacted to the negative short term news.
In the market drop of 2020 we did add considerable value to intrinsic value but that
had to be set against the loss in intrinsic value suffered by a number of our businesses
from the forced closures and restrictions on economic activity. Considerable value was
lost in airlines and hospitality. Putting it together we emerged with more value than
we entered with but not with as significant a boost as we would have liked and have
achieved in most other major pullbacks.
At the beginning of 2021 we outlined our plan to buy an inexpensive hedge against
the risk that the pandemic response would unleash inflation. The hedge was
purchased in July/August once conditions permitted. That inflation risk did
subsequently manifest itself and the hedge significantly increased in value. This added
considerably to the Company performance and value during 2021. We spent 1% of the
Company net assets on the hedge and ultimately sold it for around 17 times that.
Thoseproceeds now sit in the Company as cash and UK Treasury Bills, which we will
deploy into opportunities that meet our criteria, which is with a minimum of 100% of
upside to their intrinsic values. If we do that, we will have turned 1% into at least 34%
which should more than compensate for any damage to the overall value of our
businesses from the higher rates that inflation brings.
We don’t hedge often (twice in 24 years). We only hedge when the following
conditions apply; there is a risk that we believe is improbable but could damage the
intrinsic value of our portfolio materially and there is insurance available in some form
that is very cheap so that we can spend a very modest amount of the portfolio (1% or
less) to hedge against it. We don’t hedge to smooth out expected swings in the
market – that’s not our definition of risk. We will never take open ended liability, and
the most that could have been lost on this investment was 1%. We will never imperil
your capital.
As we write the world is entering another period of bad news politically and
economically with the tragedy unfolding in Ukraine. This creates even more
complications for central banks trying to work out what to do with interest rates.
Inflation is being pushed higher by the impact on energy prices but this is the sort of
inflation that ends up in recession as spending is diverted away from other things to
cover higher energy prices. Based upon what we can see at this point there is less
fundamental damage to the intrinsic value of the portfolio than that caused by the
pandemic lockdowns. Furthermore, we enter into this turbulent period with 19% of
the Company’s total assets in cash and cash equivalents and, as always, a roster of
businesses we would like to own should they become available at attractive prices.
Statement from
the Chief
Officer of the
Gary Channon
Chief Investment Officer Phoenix
Asset Management Partners
April 2022
16 Annual Report Strategic Report
An analysis of our past record shows the majority of the value we add through
portfolio changes, occur in those infrequent windows where markets are
overwhelmed with pessimism. Although as an investor it is never comfortable
watching an investment fall in value, please take some comfort that it is in those times
we plant the seeds of future growth in your capital.
In 2021 we were able to create and float the Castelnau Group Limited (“Castelnau”)
which contains the direct business activity we do at Phoenix. You can read more about
that on the Castelnau website, but during the year the Company exchanged holdings it
had in the businesses we are directly involved in, i.e. Dignity, Hornby and Stanley
Gibbons, for shares in Castelnau when it floated. This holding in Castelnau was capped at
15% at cost. Our goal at Castelnau, as it is in the rest of the portfolio, is to put your
capital to work in businesses that generate high returns on it. For a clearer understanding
of the philosophy and objectives of Castelnau I would recommend a read of the
Castelnau Group fourth quarterly report of 2021 which can be found on their website at
Changes we make to the portfolio are the minority and so the main engine of value
creation is the returns our underlying businesses make on their capital. We invest in
businesses which make at least 15% on capital and so the capital they retain each
year is building the long term earnings and therefore value. If we get those
assessments right, that return will ultimately be the return we achieve overall at the
portfolio level.
We continue to believe our approach will deliver long term results well in excess of
market averages, without risking permanent losses of capital.
Gary Channon
CIO Phoenix Asset Management Partners
29 April 2022
Annual Report Strategic Report 17
Strategic Report
Review and
Steve Tatters
Phoenix Asset Management
April 2022
During the year to 31 December 2021, the NAV per share increased by 19.1%
the share price by 13.5%. The FTSE All-Share Index (total return) rose by 18.3% over
the same period. Net assets at year-end were £194m (2020 £163m). This compares
well with the Company’s prior year performance, when the NAV per share declined by
5.3%, the share price declined by 10.0% and the FTSE All-Share Index (total return)
declined by 9.8%. Since Phoenix began managing the Company on 28 January 2016
to 31 December 2021, the NAV has risen 75.9% versus 59.2% for the FTSE All-Share
Index (total return).
The outperformance in 2021 has again resulted in a performance fee being earned,
80% of which was paid to us by way of shares in the Company in February 2022, the
remaining 20% will become due once the audit has been finalised. In accordance with
the Investment Management Agreement we are required to hold those shares for
3years. If the outperformance versus the index disappears on the third-year
anniversary, these shares will be cancelled, and we will receive nothing. This, we
believe, is one of the most aligned fee structures in the industry.
2022 started positively as the impact of COVID restrictions related to the Omicron
variant were reversed. The inflation hedge also continued to perform strongly, however
as we write in April, the portfolio and market have been impacted by the war in
Ukraine. Since year end up to 28 February 2022, the NAV has fallen slightly, with the
FTSE All-Share Index (total return) falling 0.5% for the same period.
Performance Review
From a performance perspective, 2021 continued to be dominated by COVID but was
also impacted by noise around Brexit. Additionally, some of the portfolio’s holdings
flagged during the year, the risk that persistent inflation would manifest itself became
more pertinent. Inflationary pressures were seen in the second half of the year and
Central Banks began to react by signalling the likelihood of interest rate rises.
The first half of the year saw a broad market rally which the portfolio participated
in. On 30 June 2021, the NAV was up 8.5% versus 11.1% for the Index.
In Q3 the portfolio fell slightly with the market up over 2%. During this period,
performance was impacted by, what we considered was an unnecessarily large and
deeply discounted rights issue from easyJet on which we comment more fully later.
In the fourth quarter the Company posted a good performance. The NAV rose 10%
versus 1.8% for the Index, as fears over the impact of rising interest rates resulted in
the inflation hedge performing strongly.
From a share price perspective, holdings with the highest price rises were the
inflation hedge and Frasers Group. The inflation hedge was implemented to protect
the portfolio against the impact of inflation, through the purchase of September 2022
put options on the short sterling future contract, the security identifier is LU2P99. The
options were purchased at £0.03 and were priced at £0.33 on 31 December 2021.
They subsequently rallied to over £1 and were sold in stages during the first two
months of 2022. The Frasers Group share price increased by 71% during the year, as
the company demonstrated a strong recovery from the pandemic and highlighted the
potential of its elevation strategy in its Flannels luxury retail business.
Other share price risers of note were Lloyds, which rose 35% during the year, and
the housebuilders, Bellway and Barratt Development, which rose 17% and 16%
Fallers of note included our low-cost airlines due to the continued impact of the
pandemic. easyJet fell by 20% with Ryanair falling 12%. Prior to the emergence of
the Omicron variant both holdings had benefited from travel restrictions being lifted
but this was reversed when the scale of disruption around Omicron became clear.
This is an Alternative Performance Measure (‘APM’) the calculation of which can be found on page 99.
18 Annual Report Strategic Report
Activity Review
The only activity of note in the first half of the year was the sale of our holding in
Redrow in February and March. We expected continued changes in environmental and
building regulations and the company is in transition following the retirement of its
founder. We preferred the way in which Barratt and Bellway utilised their landbanks
(the practice of holding land for future development) which were generally held for
short periods and turned around more quickly.
Also, in the first half of the year, we called for a general meeting in Dignity to put
ourselves forward to replace the executive management after we came to the view
that the company was not collaborating as it had originally promised to do. We cannot
separately report on Dignity given our inside position. We appreciate your patience as
we implement a new management framework, but we can say that everything that
has happened since we were appointed leads us to believe it was the right thing to
In September, as mentioned earlier, easyJet instigated a capital raise. We reported
in the Aurora September monthly report that we had anticipated and modelled for a
raise, but the size and structure of this one diluted value more than we expected and
our interactions with management revealed their shortcomings as capital allocators.
After rejecting a merger approach from Wizz Air at a premium to the £8 share price,
arguing that it undervalued the company, they issued £1.2bn of new equity at £4per
At the time of the issue, easyJet had access to £2.9bn of unrestricted liquidity
versus an operating cash burn of £40m per week. 40% of their planes are owned
outright and unencumbered. In our opinion, per share shareholder value would have
been better served through a smaller raise and a more gradual balance sheet repair
from retained earnings as travel returns.
Despite strong reservations around the rights issue, we did participate as it was
the economically right thing to do and we remain confident in easyJet’s ability to
benefit from the resumption of travel post the pandemic.
We were also pleased to report in the September factsheet that shareholders had
approved the inclusion of the Castelnau Group in the Company’s portfolio. We have
previously written of the rationale behind the new vehicle and for a full progress report
please see the Castelnau year end report on its website:
We reported we are making progress in all the businesses within Castelnau. We
see significant potential in them, and we believe we know what is required to realise
that potential. We are in the process of adding to our resourcing for Castelnau to give
us capabilities that we will deploy in Group companies.
At the time of writing there is great uncertainty due to the Russian invasion of
Ukraine. In the December factsheet, prior to significant concerns over Russian activity
in Ukraine, we wrote the following about the uncertainty created by rising inflation and
interest rates:
Annual Report Strategic Report 19
Strategic Report
For decades now investing has been done in an environment of low inflation and
low interest rates. That era may be drawing to a close. It probably will at some point
anyway because the nature of human progress is cyclical oscillations around a trend.
We believe our approach to stock selection is well positioned to cope with a
change in those conditions because of these three key attributes of a successful
investment in times of inflation and rising rates:
Pricing Power: This is the ability of a company to have some control over its
profitability by passing on changes in its costs to its customers. Persistently low
returns on capital aren’t the choice of managements; they are imposed upon them by
the competitive landscape. Our process seeks out businesses that have some control
over their returns and this characteristic is highly valuable in times of inflation.
Absence of Leverage: Businesses with highly leveraged balance sheets run the
risk of a transfer of value away from equity holders in times of stress and higher rates.
We avoid leverage where there is a risk of ruin but there are many balance sheets we
see that will struggle with higher rates. Increasing leverage has turbo charged equity
returns over the past few decades and this has been something of a comparative
headwind for our approach. The benefits of it though will be seen when those forces
Margin of Safety: Probably Ben Graham’s most valuable contribution is the use of
a margin of safety between when you pay and what you expect value to be. Approach
this conservatively again and again and it builds into a cumulative edge that delivers
returns in excess of the average. We never pay more than half our estimate of the
present value of all its future cash generation. That margin of safety has meant that
despite all the errors in those estimations and the unexpected negative events, the
Phoenix UK Fund has returned around 6.7% more per year than the market and that
builds into a significant difference when compounded through time since our inception
in 1998. (1,336.1% versus 232.5%). The Aurora portfolio remains a very close replica
of the Phoenix UK Fund.
The present uncertainty over Ukraine is significant, but we have a track record in
previous crises of adding long-term value. As an organisation we strive to keep
learning and improving. The investment horizon looks fraught with danger or
opportunity depending on how you look at it; from our perspective it’s both. Thorough
analysis, patience and a long-term perspective have been and will be the winning
ingredients behind our ability to achieve superior returns over time.
Steve Tatters
Phoenix Asset Management Partners
29 April 2022
20 Annual Report Strategic Report
Value of £1,000 invested
in the Phoenix UK Fund at
launch to 31 December 2021
Phoenix UK Fund Track Record
The investment strategy followed by the Phoenix UK Fund is the same as that followed by the Company*
Phoenix UK Fund (Net)
FTSE All-Share Index (total return)*
31 December
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.
Annual Report Strategic Report 21
Strategic Report
Phoenix UK Fund Track Record
Investment NAV
Return NAV Return FTSE All-Share Per Share
Year (Gross) (Net) Index (A Class)
% % % %
1998 (8 mths) 17.6 14.4 -3.3 1,143.71
1999 –1.3 –4.6 24.3 1,090.75
2000 24.7 23.0 –5.8 1,341.46
2001 31.7 26.0 –13.1 1,690.09
2002 –17.8 –20.1 –22.6 1,349.64
2003 51.5 49.8 20.9 2,021.24
2004 14.1 11.2 12.8 2,247.26
2005 1.4 0.3 22.0 2,254.99
2006 9.5 8.3 16.8 2,442.90
2007 3.4 2.3 5.3 2,498.40
2008 –39.5 –40.2 –29.9 1,494.31
2009 62.8 59.7 30.2 2,386.48
2010 1.1 0.0 14.7 2,386.37
2011 3.0 1.9 –3.2 2,430.75
2012 48.3 42.2 12.5 3,456.27
2013 40.5 31.3 20.9 4,539.47
2014 1.9 0.1 1.2 4,544.25
2015 20.1 14.7 0.9 5,211.13
2016 9.1 7.6 16.8 5,605.58
2017 21.5 16.3 13.1 6,518.69
2018 –13.6 –14.7 –9.5 5,558.97
2019 30.3 27.7 19.1 7,098.36
2020 –3.9 –4.9 –9.7 6,748.66
2021 23.4 18.7 18.3 8,011.17
Cumulative 1,336.6 701.1 232.5 n/a
Annualised Returns 11.9 9.2 5.2 n/a
22 Annual Report Strategic Report
Directors’ duty to promote the success of the Company
The Board seeks to understand the views of the Company’s Shareholders and its
other key stakeholders as well as how their interests and the matters set out in
section 172 of the Companies Act 2006 have been considered. 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 of their actions over the
long-term and on other key stakeholders.
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 position of the Company’s business;
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
Identifying stakeholders
As an externally managed investment company, the Company’s operational activities
are all outsourced and therefore it does not have any employees. The Board has
identified its key stakeholders which include Shareholders, investee companies,
Investment Manager, financial advisers, the Company Secretary, Administrator,
Registrar, Lawyers, Depositary and Custodian. The Board is aware of the need to
foster the Company’s relationships with its key stakeholders through its stakeholder
management activities. The Board provides oversight and challenge to the Investment
Manager to ensure that the Company meets its requirements to create and preserve
Shareholder value.
The Board and Investment Manager are seeking to promote an investor base of
long-term investors. The appropriate and regular feedback from its Shareholders is
achieved through the mechanisms described in detail in the ‘Other Strategic Report
Information and Corporate Governance Statement’ and through relations with
Shareholders and the investee companies with the support of Liberum, the
Company’s brokers, Frostrow, the Company’s distribution advisor, and the Investment
The Board communicates twice a year via the Annual Report and Half-yearly
Report and more frequently via monthly factsheet. Additionally, it releases daily NAV
calculations via a regulatory news service. At each of its regular meetings the Board
tracks Shareholder changes and monitors the evolving Shareholder profile. Details of
Shareholders owning a notifiable interest in the Company can be found on page 37.
All Shareholders have the opportunity to attend the Company’s AGM at which the
Directors and representatives of the Investment Manager are available in person to
meet with Shareholders and to answer their questions. Furthermore, a presentation
would normally be given by the Investment Manager to those present at the AGM
outlining the Company’s performance. Details of the proxy votes received on each
resolution are published on the Company’s website shortly after the AGM.
Report under
Section 172 of
the Companies
Act 2006
Annual Report Strategic Report 23
Strategic Report
Environmental, Social and Governance (‘ESG’) Matters
The Board expects good standards of business sustainability, especially on ESG (as
referred to below) at the companies in which it 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 Managers own corporate governance
Further details of the Investment Manager’s approach to ESG within its investment
framework can be found on its website at
Key Service Providers
The Company relies on service providers to manage its operations. The Investment
Manager is the most fundamental service provider to the Company’s long-term
success. A description of key service providers’ role together with the terms of their
engagement can be found on pages 35 and 36. Each year and during the current
financial year, the Board reviews the performance and terms of engagement of each
of its service providers to ensure each remain competitive and to consider the quality
of the service they provide.
Monitoring of Key Decisions and the outcome of those decisions
The Board meets at least quarterly and at such other times as deemed appropriate.
During these meetings, the Board considers reports from the Investment Manager on
the Company’s portfolio, its investment activity and sector diversity. In addition, the
Investment Manager provides an overview of engagement with the investee
companies as well as potential investee companies. The Board debates the Company’s
portfolio and notable acquisitions or disposals at each of its meetings and challenges
stock selection where deemed appropriate. In between meetings, the Investment
Manager and Board maintain contact through which they consider investment ideas,
further fundraising initiatives and market outlook and strategies to consider adjusting
the Company’s portfolio in line with the Company’s investment policy.
The Board receives reports from Frostrow (the Company’s Distribution Advisor) and
Liberum (the Company’s Stockbroker) on the Company’s Shareholder base including
any changes; its Secretary on the latest governance issues, legal or market
announcements; the Depositary’s oversight report and its Administrator on the
Company’s management accounts. Furthermore, the Board receives reports from
Liberum on the performance of the Company’s peers and ad hoc reports from its other
key stakeholders as deemed appropriate. During the year the Chairman, and
Investment Manager met with several of the Company’s Shareholders and beneficial
owners to gain a greater understanding of their views and opinions and to help
promote the Company and support any share issues that were undertaken. These
discussions were relayed to the Board who considered these discussions at their
quarterly meetings.
The Board was pleased to note from Shareholders that had met with the Chairman
and Investment Manager during the year that they remained supportive of the Board
and the Company’s Investment Manager. During the year, the Board undertook a
review of its stakeholders, which included a review of its control report 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. During the current financial year, the
Board reviewed the performance and terms of engagement of each of its key service
providers to ensure each remained competitive and agreed that it was appropriate that
they continue or be changed as disclosed elsewhere in this Report.
24 Annual Report Strategic Report
In satisfaction of Company’s Investment Management Agreement, the Board
agreed to issue shares to the Investment Manager in satisfaction of the performance
fee which the Investment Manager earned in respect of the year to 31 December
During the year, having debated the merits and structure of Castelnau, with the
Investment Manager and advisers and having considered the long-term interests of
the Company’s Shareholders, the Board approved the transfer of a portion of the
Company’s holding in each of Dignity PLC, Hornby PLC and Phoenix SG Limited to
Castelnau in exchange for shares in Castelnau. To facilitate the transaction, the
Boardrecommended the following to shareholders at a General Meeting held on
28September 2021 which were duly approved:
(i) amend its investment policy to permit investments in Castelnau (as a fund
managed by the Investment Manager);
(ii) transfer to Castelnau certain of the Company’s investments in exchange for
theissue to the Company of shares in the capital of Castelnau pursuant to the
terms of a share purchase agreement between the Company, the Investment
Manager and Castelnau (the Castelnau Related Party Transaction”);
(iii) amend the performance fee provisions contained in the investment
management agreement between the Company and the Investment Manager
to exclude the Company’s investment in Castelnau and the fact that Castelnau
will pay a performance fee directly to the Investment Manager.
As part of the Board’s succession plan, the Board agreed to appoint Trust
Associates as search consultants, to search for two additional Board members to
replace Lord Howard Flight and the Honourable James Nelson who will be stepping
down from the Board at the Company’s forthcoming AGM. Trust Associates has no
connection to the Company or Board.
Other decisions included the payment of a dividend which was paid to satisfy the
Company’s dividend policy which states that nearly all the Company’s revenue is paid
to Shareholders by way of a dividend. It was also paid to satisfy the Company’s
investment trust status which states that no less than 85% of the Company’s
qualifying revenue must be distributed to Shareholders.
Boardroom Diversity
The Board currently comprises five non-executive Directors of which two are female
and three male. The Board considers its composition, including the balance of skills,
knowledge, diversity (including gender and race) and experience, amongst other
factors on an annual basis and when appointing new Directors. The Board has
considered the recommendations of the Davies and Parker review but does not
consider it appropriate to establish targets or quotas in this regard. Summary
biographical details of the Directors are set out in the Corporate Governance
Statement on page 31.
Annual Report Strategic Report 25
Strategic Report
Stewardship code
The Board and the Investment Manager support and have a strong commitment to the
UK Stewardship Code, the latest version of which was issued by FRC, effective from
1January 2020 and endorsed by the AIC which sets out the 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 Managers website at
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 Modern Slavery Act 2015 is not applicable to the Company and the Company
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
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 their procedures and policies are 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 contractors and suppliers that they maintain a
zero-tolerance policy towards the provision of illegal services, including the facilitation
of tax evasion.
26 Annual Report Strategic Report
Principal Risks, Emerging Risks and Uncertainties
Procedure for Identifying Emerging Risks
The procedures in place to identify emerging or principal risks are described below.
The Audit Committee regularly reviews the Company’s risk matrix, focusing on
ensuring that the appropriate controls are in place to mitigate each risk. A system has
been established to identify emerging risks as they occur as detailed below. The
experience and knowledge of the Audit Committee and Board is invaluable to these
discussions, as is advice received from the Board’s service providers, specifically the
Investment Manager who is responsible for all portfolio management services.
The following is a description of the role each service provider plays in the
identification of emerging risks.
1. Investment Manager: the Investment Manager advises the Board at each
quarterly meeting on world markets, stock market trends, information on stock
specific matters as well as regulatory, political and economic changes likely to
impact the Company’s portfolio;
2. Distributor and Broker: provide advice at each meeting specific to the Board on
the Company’s share register, sector, competitors and the investment company
3. Company Secretary and Accounting Advisor: briefs the Board on forthcoming
legislation or regulatory changes that might impact the Company;
4. AIC: The Company is a member of the AIC, which provides regular technical
updates as well as drawing members’ attention to forthcoming industry and
regulatory issues.
Procedure for oversight of risks
Audit Committee: The risk matrix is reviewed at least twice a year. This includes a
review of the risk procedures and controls in place at the key service providers to
ensure that emerging (as well as known) risks are adequately identified and – so far as
practicable – mitigated. Experienced Non-Executive Directors on the Committee, each
bringing external knowledge of the investment trust (and financial services generally)
marketplace, trends, threats etc. as well as macro/strategic insight. The principal risks
faced by the Company, together with the approach taken by the Board towards them,
have been summarised below.
Principal Risks, and Uncertainties considered during the year
Portfolio Risk
Changes in general economic and market conditions including, for example, interest
rates, cost increase, rates of inflation, industry conditions, competition, political events
and trends, tax laws, national and international conflicts and other factors, particularly
noting the ongoing threat posed by COVID-19, the war in Ukraine and the persistent
threat of inflation and rising interest rates as discussed below and the impact to the
economy, could substantially and adversely affect the Company’s prospects. Other
portfolio risks are outlined as follows.
Poor stock selection, resulting in underperformance against the Company’s
Poor use of gearing, creating a drag on performance during times of market declines;
Illiquid stock creating a drag on performance;
Concentrated portfolio; and
Reputational damage caused by any of the above risks.
Other Strategic
Annual Report Strategic Report 27
Strategic Report
The market and operational risks and financial impact as a result of the COVID-19
pandemic, and measures introduced to combat its spread, were considered by the
Board. Each of the Company’s key service providers was able to demonstrate
operational resilience. In addition, the Investment Manager undertook a thorough
review of the impact on the Company’s portfolio of investments and was able to
provide the Board with assurance that the Company’s portfolio of investments had
strong businesses with robust balance sheets that could withstand major interruptions
to their operations. The Directors and the Investment Manager continue to monitor the
situation closely.
The Board has noted the sharp rise in inflation, the expectation that inflation would
continue to rise and the increasing threat this may pose to the Company. In response
to this the Board has agreed, following guidance from the Investment Manager, to
take out a put option with the intention of safeguarding the Company’s portfolio
against the impact of inflation. The Board and Investment Manager continue to
monitor the situation. The position was closed post year end, making substantial gains
for the Company which is discussed further in the Investment Managers Report.
Conflict in Ukraine
The Board and Investment Manager are monitoring the war that has erupted in
Ukraine and have considered the impact on the Company’s portfolio and operations.
The Company has a large cash position following the closure of the Company’s hedge
position which the Investment Manager intends to use strategically when an
appropriate opportunity arises.
Continuation Vote
In accordance with the articles, the Company will hold a continuation vote at the next
AGM on 28 June 2022. Having consulted with key shareholders and taking account of
the Company’s track record over the past three years, and the successful broadening
of the shareholder base, the Board believes the continuation vote will pass.
Management of risks
The Board undertakes a review of the performance of the Company and scrutinises
and challenges notable transactions at each quarterly Board meeting. At least on an
annual basis the Management Engagement Committee reviews the engagement of
the Investment Manager, including the Investment Manager’s achievements with
regard to the Company’s performance.
The Company mainly invests in organisations listed and traded on the London Stock
Exchange, and by spreading its investments across a range of such securities. At
31December 2021, the Company held 21 (2020: 19) stocks, spread across 9 (2020: 8)
main sectors. The diversification of the Company’s portfolio is considered at each of
the quarterly board meetings.
28 Annual Report Strategic Report
The Company has the power under its Articles to borrow money, however does not
currently intend to use gearing. 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. The Board will keep under
review whether any provision should be made for the use of short-term borrowing for
the sole purpose of meeting working capital requirements from time-to-time. Further
details concerning currency risks, liquidity risks and interest rate risks are given in
Note 17.
The Board undertakes a review of the liquidity of the investments at each quarterly
Board meeting and takes appropriate action, where deemed necessary.
Operational Risk
The Company is exposed to the operational and cyber risks of its third-party service
providers. The Investment Manager, Registrar, Depositary, Administrator and Company
Secretary each have comprehensive business continuity plans which facilitate
continued operation of the business in the event of a service disruption or major
disruption. The Audit Committee received the internal controls reports of the relevant
service providers, where available and was able to satisfy itself that adequate controls
and procedures were in place to limit the impact to the Company’s operations,
particularly with regard to a financial loss.
The performance of service providers is reviewed annually via its Management
Engagement Committee. Each service provider’s contract defines the duties and
responsibilities of each and has safeguards in place including provisions for the
termination of each agreement in the event of a breach or under certain
circumstances. Each agreement also allows for the Board to terminate subject to
astated notice period. During the year under review the Board undertook a thorough
review of each service provider and agreed that their continued appointment remained
appropriate and, in the Company’s long-term interest.
Regulatory risk
Poor governance, compliance or administration, including particularly the risk of loss of
investment trust status and the impact this may have on the Company was considered
by the Board. Having been provided with assurance from each of the key service
providers, the Board was satisfied that no such breach had occurred.
Viability Statement
In accordance with the articles, the Company will hold a continuation vote at the next
AGM on 28 June 2022. Having consulted with the Company’s key shareholders, who
expressed support for the continuation of the Company, and taking account of the
Company’s track record over the past three years and the successful broadening of
the shareholder base, the Board are confident the continuation vote will pass. The
continuation vote will be put to shareholders at every third AGM.
Annual Report Strategic Report 29
Strategic Report
The Directors have considered the viability of the Company over a five-year period
to 31 December 2026, which they believe is an appropriate period over which to
assess the Company, given the Company’s long-term investment strategy and the
principal and emerging risks and uncertainties outlined on pages 26 to 28.
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 2026. Furthermore,
having made enquiries of the Company’s largest shareholders, the Board are satisfied
that the continuation vote has sufficient support to successfully pass.
In reaching this conclusion, the Directors have considered each of the principal
risks and uncertainties set out above, including the ongoing impact of COVID-19 on
the Company, inflation and the conflict in Ukraine. As part of this process the Board
considered several severe but plausible scenarios, including the impact of significant
market movements. The Board has considered the liquidity and solvency of the
Company, the level of discount at which its Ordinary Shares trade at the time of
assessment, its income and expenditure profile including the absence of monthly
management fees and the non-utilisation of gearing as an instrument of normal
investment policy. Most of the Company’s investments comprise readily realisable
securities which could, if necessary, be sold to meet the Company’s funding
requirements. The Company’s plan to expand by the issue of new share capital is kept
under close, 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 Board has noted the sharp rise in inflation, the expectation that inflation would
continue to rise and the increasing threat this may pose to the Company. In response
to this the Board has agreed, following guidance from the Investment Manager, to
take out a hedge position against inflation. The Board and Investment Manager
continue to monitor the situation and have since year end closed the position, making
substantial gains on behalf of the Company.
The Board has considered the conflict in Ukraine and in particular the impact this
may have on the Company, particularly a severe market downturn. The Board noted
that the Company has a large cash and near cash position, due to the disposal of the
hedge. These resources will enable the Company to continue in operational existence
and for the Investment Manager to take advantage of depressed stock prices in order
to benefit the Company.
The Company’s income from investments and cash realisable from the sale of
investments provide substantial cover to the Company’s operating expenses and any
other costs likely to be faced by the Company.
The outlook for the Company is discussed in the Chairmans Statement on pages 6
to8, and the Investment Managers Review on pages 17 to 19.
This Strategic Report was approved by the Board on 29 April 2022.
Lady Rachael Robathan
30 Annual Report Governance
Annual Report Governance 31
Directors, Investment Manager and Advisers
Website Address:
Registered Number – 03300814
Lord Flight (Chairman)
L Walker (Deputy Chair)
The Honourable J Nelson
Lady R Robathan
D Stevenson
Alternative Investment Fund
Manager (“AIFM”) and Investment
Phoenix Asset Management Partners
64-66 Glentham Road
London SW13 9JJ
Telephone: 0208 600 0100
Depository & Custodian
BNP Paribas Securities Services
10 Harewood Avenue
London NW1 6AA
Secretary, Administrator &
Registered Office
Sanne Fund Services (UK) Limited
6th Floor
125 London Wall
London EC2Y 5AS
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds LS1 4DL
Liberum Capital Limited
25 Ropemaker Street
London EC2Y 9LY
Grant Thornton UK LLP
30 Finsbury Square
London EC2A 1AG
Distribution Adviser
Frostrow Capital LLP
25 Southampton Buildings
London WC2A 1AL
Directors’ Report
By Order of the Board
Jenny Thompson
PraxisIFM Fund Services (UK) Limited
Company Secretary
April 2022
32 Annual Report Governance
The Directors present their report and Financial statements for the year ended
31December 2021.
Strategic Report
The Directors’ Report should be read in conjunction with the Strategic Report on
pages 4 to 29.
Corporate Governance
The Corporate Governance Statement on pages 40 to 49 forms part of this report.
Legal and Taxation Status
The Company has sought and obtained approval from HM Revenue and Customs of
its status as an investment trust under Sections 1158 and 1159 of the Corporation Tax
Act 2010. In the opinion of the Directors, the Company has conducted its affairs so as
to be able to maintain such status in respect of the year ended 31 December 2021.
Under Section 833 of the Companies Act 2006 the Company is an investment
company and operates as such.
Future Developments
The Company’s future developments are discussed in the Managers’ Report and
Chairman’s Statement on pages 6 to 19.
The Board and Re-Election of Directors
The Directors of the Company holding office during the year are stated below. Except
where indicated the Directors held office throughout the year and to the date of this
Lord Flight (Chairman)
L Walker (Deputy Chair)
The Honourable J Nelson
Lady R Robathan
D Stevenson
Lord Howard Flight and The Honourable James Nelson, having served in excess of
nine years as Directors of the Company have agreed to retire at the forthcoming AGM
and will not be putting themselves forward for re-election. Lucy Walker was appointed
Deputy Chair on 19 October 2021. Lucy Walker will take over from Lord Flight as Chair
of the Company with effect from the date of the AGM and Lady Rachael Robathan will
take over from James Nelson as Chairman of the Management Engagement and
Nomination & Remuneration Committees with effect from the AGM. All Directors are
non-executive. In accordance with the AIC Corporate Governance Code, the entire
Board will be subject to annual re-election. Accordingly, resolutions will be put to
re-elect Lady Rachael Robathan, Mr David Stevenson and Ms Lucy Walker at the
Company’s forthcoming AGM.
The report on Corporate Governance below contains a description of the Board’s
composition, its method of operation, its work during the year and that of its
Committees and of how its performance has been evaluated.
Annual Report Governance 33
Director’s Indemnities and Insurance