Annual Financial Report

RNS Number : 6528L

Aurora Investment Trust PLC

20 April 2018

AURORA INVESTMENT TRUST plc

ANNUAL FINANCIAL REPORT

Year ended 31 December 2017

STRATEGIC REPORT

OBJECTIVE

To provide shareholders with long term returns through capital and income growth.

POLICY

Phoenix Asset Management Partners Limited (Phoenix) was appointed Investment Manager on 28 January 2016. Phoenix currently seeks to achieve the Objective by investing 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 Board is seeking shareholder approval at the AGM to increase the flexibility of the Company to invest outside the UK and in unlisted securities.

BENCHMARK

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

PERFORMANCE

	Year to	Period 1 March 2016 to
	31 December 2017	31 December 2016

Aurora Performance (total return)	+18.5%	+7.3%
Benchmark (total return)	+13.1%	+19.1%

DIVIDEND

The Directors recommend a final dividend of 2.75p per share, to be paid on 19 June 2018 to shareholders on the register as at 27 April 2018.

No final dividend was paid in 2017, but an interim dividend of 2.0p per share in respect of the financial period ended on 31 December 2016 was paid on 10 April 2017.

ANNUAL GENERAL MEETING

The Annual General Meeting of the Company will be held at the offices of Grant Thornton, 30 Finsbury Square, London EC2P 2YU on 6 June 2018 at 12.00 noon.

CHAIRMAN'S STATEMENT

Performance Review

- The performance for the year to end December 2017 was +18.5%, out-performing the benchmark FTSE All Share Index by 5.4%.

- One of the key features of the Investment Management Agreement with Phoenix is that they earn no management fees other than an annual performance fee, equal to one third of NAV per share total returns in excess of the total return of the FTSE All-Share Index. This fee is subject to claw back and a high water mark and is capped at 4% of NAV p.a. in the case of an absolute increase in NAV per share; and 2% in the case of a decrease but with outperformance compared with the FTSE All-Share.

- Despite Aurora's strong outperformance of the Index in 2017, no performance fee was earned by Phoenix. The NAV had lagged the Index in 2016 and, as the performance fee is calculated on a cumulative basis, it can only be earned once the lag has been caught-up. At the year-end, the "lag" had reduced to just under 5%, after which a performance fee will be earned for subsequent outperformance.

- The share price of Aurora traded at a premium to NAV for substantially all of the period in question. The average premium for the year was 1.5%, which was helpful in attracting new investors and to increase the size of the Company through the issuance of new shares. Accordingly our aim is for the shares to continue to trade at a small premium to NAV and to grow the Company further, as discussed below.

Two Years of Phoenix Management

- 2017 was the second full year of Phoenix management, which began with their being appointed Investment Manager in January 2016. Aurora is managed under the same investment strategy as Phoenix's long standing, open-ended fund, the Phoenix UK Fund. Since its inception in 1998 that fund has delivered, net of fees, annualised returns of 10% compared with 5.5% for the FTSE All-Share Index.

- I thought it might be useful to add some observations on our experience over the last few years of the investment management process and practices of Phoenix. Three key words stand out in my experience: patience, discipline and focus. There's a lot of talk about patient capital but it seems to me that the root of long term outperformance is the willingness to accept some periods of underperformance followed by (hopefully more significant) periods of outperformance based on core investment principles. The key though are those investment principles that guide the stock selection. Get them right, wait to find the right business at the right price - as evidenced by the recent purchase of Dignity after many years of patient research and monitoring - and hopefully you'll reap a long-term reward.

Discipline I think goes with patience. It's about waiting to buy the right stock but also it's about using thorough processes, checklists and research gathering processes to find the right stock. Phoenix build up the required knowledge by studying the relevant industries and companies in detail - a learning process which can take several years. When it comes to price, Phoenix are disciplined in only paying up to half of what they believe the business is worth.

The last word I mentioned was focus. In the case of Phoenix this involves knowing some sectors really very well. That requires that patience and discipline but it also requires a willingness to shut out other ideas and stay focused on what you know - your circle of competence. That means for instance some focus on consumer stocks such as Sports Direct, where Phoenix have been patient and successful - in terms of investment returns. Alternatively, it could mean a focus on housebuilding companies or, indeed, specialist hobby brands - a niche within the consumer space arguably - which involves outfits such as Hornby or latterly Stanley Gibbons.

There is though one side effect of what we think as the three virtues of patience, discipline and focus - sometimes there aren't many new portfolio additions. This means turnover can and has been low.

The rarity of suitable investment candidates, combined with the time-consuming nature of the investment process, inevitably results in a concentrated portfolio, typically of a maximum of between 15 and 20 investments.

I would add a final parting observation. Patience, discipline and focus can also be applied not only to the investment process but also the way the Company is developed over time and marketed to a wider audience. Phoenix are committed to growing the size of the Company and have over the last few years attracted what we would like to believe are high quality, patient investors from wealth managers, family offices and university endowments. Within the retail space this is echoed by the determination of the Company to reach a wider private investor audience, a development we hope will be accelerated with the appointment by Phoenix of Frostrow, as covered later, to assist in marketing Aurora to a national audience. Again, these all demonstrate a commitment to the long term, to building the Company and creating real value for our shareholders.

Investment Policy

- At this year's AGM, shareholders will be asked to vote on a resolution to amend Aurora's Investment Policy. The Existing Investment Policy limits the scope of investment to UK listed equities and cash. The changes, which have been proposed by Phoenix and carefully considered by the Aurora Board, will broaden the scope to enable investment in companies listed outside the UK (limited to 20% of assets at cost price) and unlisted securities (limited to 10% of gross assets at cost price). From the Board's discussions with Phoenix, it is clear that the proposed amendments do not represent a shift in Phoenix's investment strategy and objectives. Rather, they will enable Phoenix to implement more effectively their well-established investment philosophy. The ability to hold 10% of gross assets at cost price, in unlimited securities is also necessary to participate in the Stanley Gibbons investment, which Phoenix have recently undertaken. Phoenix have assured the Board that they will be cautious in making use of the expanded remit and the Board recommends that shareholders approve the proposed changes.

Growth of the Company

Growing the Company remains a key objective of the Board. A new prospectus was published during the year to enable the continued issuance of new shares, both via small "tap-issues" and larger, more structured "Placings". A total of 12,679,198 new shares were issued in 2017, bringing the total number of shares issued during the era of Phoenix management to 28,080,114. Consequently, the market capitalisation of the Company, which had been £51.69m in January 2017, finished the year at £88.34m.

After the year-end, in January 2018, Phoenix announced the appointment of Frostrow Capital to assist achieving an increase in the size of the Company by raising the profile of Aurora, with potential investors across the UK. This appointment will be paid for, at their suggestion, by Phoenix and therefore minimise the cost to shareholders. Frostrow has an excellent reputation built on the provision of similar services to a select number of other investment trusts.

In last year's statement I mentioned our objective was to increase the size of Aurora to £100m. At the time of writing, the market cap has reached £92.63m and it seems appropriate to update the objective. Having spoken with Phoenix, who have considered the investment opportunities available to them, our new objective is now to increase the size of Aurora to £200m over the next two to three years. As well as finding sufficient opportunities to invest new money, it is essential that the Company attracts new shareholders with a long-term focus who understand and respect the Phoenix investment strategy.

Dividend

The Board recommends a final dividend of 2.75 per share, which if approved by shareholders at the AGM will be paid on 19 June 2018.

The Company has no fixed dividend policy, but it expects to continue to pay an annual dividend, which will comprise substantially all of the net revenues for the year.

AGM

A warm welcome is extended to shareholders to the AGM to be held at 12 noon on 6 June 2018 at the offices of Grant Thornton, 30 Finsbury Square, London EC2P 2YU.

Lord Flight

Chairman

20 April 2018

INVESTMENT POLICY AND RESULTS

The Company adopted the Existing Investment Policy on 28 January 2016, with the appointment of Phoenix Asset Management Partners ("Phoenix") as the Company's new Investment Manager.

The Board has recently undertaken a review of its Existing Investment Policy and in particular the lack of flexibility that the Company has to make investments out with the UK and into unlisted securities. Accordingly the Board is seeking shareholder approval at the AGM to adopt the wording set out below under the heading Revised Investment Policy as the Company's investment objective and policy following the AGM.

EXISTING INVESTMENT POLICY

The Company's existing objective is to provide shareholders with long-term returns through capital and income growth by investing in a concentrated portfolio of UK listed equities.

The Company seeks to achieve its investment objective by investing in a portfolio of UK listed equities. The portfolio will be relatively concentrated. The exact number of individual holdings will very over time but typically the portfolio will consist of 15 to 20 holdings. The Company may use derivatives and similar instruments for the purpose of capital preservation. There are no pre-defined maximum or minimum exposure levels for each individual holding or sector, but these exposures re 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 investment.

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 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 total assets of the Company in other listed closed-ended funds other than closed-ended investment funds which themselves have published investment policies to invest no more than 15 per cent of their total assets in other listed closed-ended funds. The Company will not invest in any other fund managed by the Company's investment manager.

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 per cent 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 the shareholders.

REVISED INVESTMENT POLICY

The Company's objective is to provide Shareholders with long-term returns through capital and income growth.

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 per cent. of the Company's gross assets.

· The maximum permitted investment in unlisted securities at cost price is 10 per cent. 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 per cent. of its gross assets in any one underlying issuer.

· The Company may from time to time invest in other UK listed investment companies, but the Company will not invest more than ten per cent. in aggregate of the gross assets of the Company in other listed closed-ended investment funds.

· 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 purpose 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 per cent. 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 investment policy does not include any fixed dividend policy. However, 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.

OBJECTIVES AND KEY PERFORMANCE INDICATORS (KPIs)

The Company's principal investment objective is to achieve capital growth. The Company's success in attaining its objectives is measured 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 Net Asset Value (NAV) 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.

PERFORMANCE

The Investment Manager is Phoenix Asset Management Partners Limited, 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 IMR.

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 beaten.

Upon the change of Investment Manager, the benchmark became the FTSE All-Share Index Total Return.

Performance is shown below. For the previous period performance is shown from from 28 January 2016, when Phoenix became Investment Manager, to 31 December 2016.

	Year to	Period from 28 January 2016 to
	31 December 2017	31 December 2016

Aurora Performance (total return)	+18.5%	+10.2%
Benchmark (total return)	+13.1%	+20.5%

The Ongoing Charges ratio was as follows:

	Year to 31 December 2017	Period from 1 March 2016 to 31 December 2016 (annualised)
Ongoing Charges Ratio	0.54%	1.04%

ALTERNATIVE PERFORMANCE MEASURES ("APMs")

The disclosures of Performance above are considered to represent the Company's APMs (which are measurements not defined in Accounting Standards). Definitions of these APMs together with how these measures have been calculated can be found in the Glossary.

REVENUE RESULT AND DIVIDEND

The Company's revenue profit after tax for the year amounted to £1,306,307 (Period 1 March 2016 to 31 December 2016: £636,037).

The directors recommend a final dividend of 2.75p per Ordinary Share. If approved by the AGM this dividend will be paid on 19 June 2018 to shareholders on the register at 27 April 2018; the ordinary shares will be marked ex-dividend on 26 April 2018. In accordance with International Financial Reporting Standards this dividend is not reflected in the financial statements for the period ended 31 December 2017.

In 2017 an interim dividend of 2.00p per ordinary share was paid, absorbing £614,526.

FIVE YEAR SUMMARY

The following data are all expressed as pence per share. NAV figures are all calculated at bid prices.

Year	NAV	Dividend in respect of year	Share price (mid market)
	p	p	p
Year ended 28 February 2014	191.78	3.80	166.00
Year ended 28 February 2015	171.37	3.85	147.50
Year ended 29 February 2016	162.30	1.00	158.00
Period to 31 December 2016	172.66	2.00	173.50
Year ended 31 December 2017	205.72	2.75	208.00

TOP HOLDINGS

AT 31 DECEMBER 2017

	Date of first purchase	Weight	By valuation	Avg. Cost per share*	Share Price	Market Cap	Net Cash/ (Debt)
		%	£	£	£	£	£

Lloyds Banking Group	Dec-15	10.8	9,412,706	0.67	0.6781	48.8bn	(9.5bn)
Tesco	Dec-15	10.1	8,838,929	1.77	2.07	17.0bn	(3.3bn)
Bellway	Dec-15	10.0	8,705,834	25.12	24.76	4.4bn	16mil
Sports Direct	Dec-15	8.6	7,527,936	3.51	3.77	2.0bn	(472mil)
Glaxosmithkline	Dec-15	8.2	7,106,656	14.03	13.18	65.2bn	(14.8bn)
Randall & Quilter	Feb-16	7.1	6,226,636	1.22	7.16	167mil	60.4mil
Redrow	Oct-16	6.6	5,729,663	5.07	6.545	2.4bn	73mil
Vesuvius	Dec-15	6.0	5,222,327	3.95	5.84	1.6bn	(321 mil)
Hornby	July-16	5.5	4,786,556	0.29	0.27	35mil	4mil
Morrison Supermarkets	Dec-15	4.8	4,157,429	1.97	2.199	5.1bn	(930mil)
JD Weatherspoon	Jan-16	4.0	3,465,876	7.46	12.57	1.3bn	(700mil)
Easyjet	Feb-16	3.3	2,852,850	10.49	14.63	5.9bn	357mil
		85.0	74,033,398

Other (<3%)		9.8	8,553,903
Total		94.8	82,587,301
Cash		5.2	4,506,798
Overall Total		100.0	87,094,099

*Net cost including sales

The Company held over 3% of the issued share capital of the following:

Randall & Quilter 3.81%

Hornby PLC 14.15%

PORTFOLIO ANALYSIS

AT 31 DECEMBER 2017

	Percentage of Portfolio
Retail	23.5
Construction	18.8
Financial	13.5
Industrials	11.9
Pharmaceuticals	8.2
Food & Beverage	6.3
Insurance	7.1
Leisure	5.5

Cash	5.2

	100.0

ANALYSIS BY TYPE, MARKET AND CURRENCY

All investments are of Ordinary Shares, denominated in sterling. All holdings carried at a value are in listed companies with the exception of Hornby and Randall & Quilter, which are quoted on AIM. The Company also has a registered holding in China Chaintek, but this has been written down to a valuation of £Nil.

STATEMENT FROM THE CIO OF THE INVESTMENT MANAGER

If 2016 was a year for sowing, as we did in a substantial way after the Brexit vote, then 2017 was a year of reaping. The alchemy that produced the strong performance for the year was an attractively priced portfolio of businesses delivering strong fundamental returns in their underlying businesses. Each of our 3 housebuilders was up around 50%, as was our new addition in 2016, easyJet. Most of the portfolio performed strongly.

Rising prices and good news make it harder to find bargains and so the year ended without us having made any new investments. The cash position increased to 5.5% at year-end.

Phoenix acting through all its accounts acquired a controlling position in Hornby plc during the year, that triggered a mandatory bid and we followed that up with a capital raise. At the end of those steps Phoenix, through all the accounts and funds it manages has an aggregate interest in 75% of the company. The Aurora Investment Trust for its part owns 14%.

We took this unusual move to enable the Company to adopt a strategy that we think will lead to a successful revival of the core business. What we have given up in terms of liquidity will be gained in the value we believe comes from having some say in the levers of value creation within a company. Some of these are protective; we can prevent things that in the past have subtracted value, like overpriced acquisitions, poor capital allocation and a lack of frugality. On the positive side, it allows us to choose who should manage the business and we did that. Lyndon Davies joined Hornby in October 2017 as CEO, with an agreement to buy the business he founded and built, Oxford Diecast. Lyndon has a great track record as a successful entrepreneur who competed with Hornby. He has a keen awareness of the Hornby's strengths, weaknesses and potential; we couldn't be happier to have him on board.

Hornby is an example of us using all the means at our disposal to make attractive investments for our clients whilst protecting the downside risk. In the past this has taken many forms, not just purchasing equity, and we expect to continue to approach investments that way in the future. Post the year-end and ahead of the publication of this report, Phoenix announced a deal to make an investment in Stanley Gibbons, which, if it completes, we will tell you about in next year's report. In structuring that transaction we have sacrificed convention and appearances for downside risk protection and ultimate returns.

As the UK heads towards Brexit we may see more turbulence in markets and from our perspective, we welcome that because it is in those conditions that short-term valuations on the stock market are most likely to get out of kilter with long term intrinsic values (i.e. what they are likely to be really worth to a long-term investor). However, even in strong markets, individual businesses come unstuck and have big share price falls. Occasionally one of those will be in our candidate universe and we will get an opportunity to act. This has happened in early 2018 with Dignity plc.

A long-term focus on the future, an almost obsessional focus on the competitive dynamics of business, observed first hand in the field and a willingness to be patient for long periods of time, (acting only occasionally, when values merit it) will, we believe, continue to deliver attractive long-term returns for our investors. Over 20 years we have developed a disciplined approach to investment using a system and process that continues to learn from its shortcomings. This reduces our error rate, limits losses when errors are spotted and ultimately builds a portfolio that we understand the value of, with a good measure of confidence. Today's portfolio is priced at almost half of the intrinsic value we estimate it contains and although that is not a guide over the short-term, (which we characterise as less than 3 years), it has, historically, been the best guide for our long-term expectations.

Proposed change of investment policy

At this year's AGM we will be asking shareholders to vote on proposed amendments to Aurora's Existing Investment Policy. The major changes are mentioned in the Chairman's Statement and outlined in more detail elsewhere.

A few years ago, shortly before his death, I had the very good fortune to meet with Peter Cundill, a highly successful Canadian investor once named by Warren Buffett as a potential successor. Amongst many other things Peter told me that given the level of knowledge and expertise we had about our companies we were unnecessarily restricting ourselves by only investing in the listed equity. His view, which I have come to share, was that having gained a good understanding of a companies value we should look for the best risk adjusted way of making our investment, anywhere in the capital structure. We have been approaching things in that way since.

We would have sought to alter the Existing Investment Policy at some point, the catalyst for doing so now is the recent investment by other Phoenix Funds in Stanley Gibbons, the world's leading stamp and coin dealing business. The two substantial changes are to allow investment in unlisted companies and in companies listed in countries other than the UK (limited to 10% and 20% at cost prices, respectively).

Our investment in Stanley Gibbons takes an unusual form, structured to protect our downside risk and making it a far superior investment to buying only the listed equity. Our overall investment in Stanley Gibbons comprised the purchase of four assets: 58% of the equity (listed shares), the bank loan, a portfolio of stamps and a receivable from the administration of a Guernsey entity. We hope to be able to allocate Aurora its share of the Stanley Gibbons investment and we need to change the Existing Investment Policy to do so.

We have invested in Stanley Gibbons and Hornby because they fit our profile of having great long term potential to make attractive returns for shareholders whilst being currently available at attractive prices.

These changes do not herald any change in our investment philosophy or principles which have served us well at Phoenix for the past 20 years.

Gary Channon

CIO Phoenix Asset Management Partners

20 April 2018

INVESTMENT MANAGER'S REVIEW AND OUTLOOK

In early March, a week or so before putting pen to paper for this review, the FT published a story entitled "Global investors shun UK Stock market" (FT: Chris Flood: March 5^th 2018) that suggested UK equities are currently the most unpopular asset class in the world among large institutional investors; not the most auspicious of backdrops for an investment trust with significant exposure to UK domestic businesses. Moreover, one of the questions we have been most frequently asked during recent meetings with potential investors is "how do you feel the portfolio is positioned, given Brexit?". The question is perfectly reasonable and the answer has two parts; firstly, we make the general observation that the Brexit negotiation process, like the making of a sausage, is not attractive to behold. It is also a subject to which we bring no unique insight; whether we end-up with the political equivalent of a short-dated Iceland frozen banger or a mouth-watering, hand-made finocchiona, remains to be seen. The most important point on this topic, for shareholders of Aurora, is that the Phoenix investment approach does not involve so-called "top-down" investing. For readers not familiar with the jargon, "top down" investing is when a fund manager begins with a belief that world events will unfold in a certain way (for example, concluding ahead of the event that Britain's leaving the EU will mean such-and-such). Then, each stock in the portfolio is selected with this opinion in mind; if that opinion turns out to be accurate then the investment performance of the portfolio may be good; if the view turns out to be wrong, the investment performance is more likely to be poor. On the other hand, the Phoenix approach to building a portfolio of stocks is known as "bottom-up". Less ribald than it sounds, this simply means we don't pick stocks on the basis that they will benefit from specific macro-economic events but because we think each investment is a compelling proposition in its own right. And that brings us to the second part of the answer we give to potential investors who ask us about Brexit or our UK focus; that despite the prevailing downer on UK business, our portfolio comprises a number of high-quality companies that are generally prospering and that we think will continue to do well over the medium to long-term, whatever Brexit has in store.

Turning last year's precedent into a tradition, we will begin the activity review with the year's laggard, GSK, whose share price fell 11%. GSK has a new, highly regarded CEO, Emma Walmsley, whose actions we have been watching closely and of which we so far approve. However, fears remain that the company doesn't have sufficient new patented drugs to replace older products whose patents face expiry. Known as the "patent cliff", this has been one of the "bear" arguments against GSK for a while. However, our counter is that this view doesn't consider the long history of creative destruction in large pharma' companies; a patented drug's commercial life is almost never more than 15 years; drugs come-and-go all the time and yet today's largest drug companies have been major forces in the pharmaceutical industry for generations. Why should the companies endure when the products they sell do not? We think the answer lies in the vast scale and expertise possessed by companies like GSK in areas such as R&D and distribution; their size and depth of talent means that significant discovery (and subsequent commercialisation) is likely, even when predicting the advent of specific new products is impossible. Another "bear" argument is that global pharma' firms are unwieldy and staid; sitting-ducks to smaller, more nimble competitors. And yet, despite the profusion of start-up "bio-tech" businesses to have emerged over recent decades, almost none of them have threatened the dominance of "big pharma'". Even when these smaller businesses (or university departments) discover something of potential commercial value, they often form alliances with, or are acquired by, much larger pharma' groups. Why? Because the bigger firms, with their benefits of scale, are more likely to succeed in commercialising innovation. With the shares priced under £13 we increased our shareholding in GSK during the year.

We are ambivalent about short-term share price movements (and don't think they can be predicted) although we did note that last year's wooden spoon went to Sports Direct amidst a perfect storm of bad PR and a minor profits warning. However, we said at the time that we rated the business and its management very highly and we were enthused about the investment. This year, the shares did better (up 35%) and, much more importantly, the underlying business continued to perform well. One of the many fascinating elements of the business is Mike Ashley's approach to investing in freehold property. He built the business over several decades with a leasehold strategy, only deciding to acquire freeholds when there was a need to do so and when suitable locations could be acquired on very attractive terms. Now this is the case, Mike and his team are buying prime sites and developing them into flagship stores with a more up-market feel and product range, thus satisfying the consumer's demand for more premium products. Owning rather than leasing stores means that Mike and his team have full control over the property and get to retain the benefits of expensive refurbishments. This isn't the case in a leased store, where the landlord retains the benefits of a tenant's improvements to the property. Initial reports suggest that these new, freehold flagship stores are doing very well, generating a high return on the capital invested in them. This is one example among many of how this nimble business continues to succeed.

Tesco and Morrisons (whose share price moves for the year were 2% and -3% respectively) continued along the path of "self-help" and we are generally pleased with what we are finding when we visit stores; pricing strategies are clearer and more competitive and they are not afraid to copy competitor's good ideas; a useful attribute in a good retailer. For example, Lidl sells some of its meat under the "Birchwood Farm" brand; an invented name intended to graft a feel-good provenance onto an otherwise commodity product. Although ideas like this can be easily discounted as cynical marketing tricks, they do seem to appeal to customers and so we were pleased to see Tesco follow suit with some of its own "farm" brands. We are less enamoured with Tesco's proposed acquisition of Booker. It has been a frequent topic of discussion in the Phoenix office and the current view is that although it is likely that the price to be paid for Booker is too high, the size of the deal means it doesn't have sufficient negative impact to undermine our investment case for Tesco.

We reduced the weight in our housebuilding investments ahead of the UK general election because the Conservative manifesto wasn't quite as tub-thumping for housebuilders as it might have been. In particular, there was no mention of the "help-to-buy" scheme, which has been tailwind for housebuilders in recent years. Subsequently, these fears abated when Theresa May and other Conservatives restated their desire to see more housebuilding, upon which we partly reversed the reduction and increased our investment in Redrow and Bellway (shares up 49% and 58% respectively) which had tremendous years, with higher sales and profits and ongoing high returns on capital. We have previously written quite extensively about the positive trading conditions currently being experienced by house-builders in the UK and we won't repeat everything here. Suffice to say that the housing market remains under-supplied with new-build houses, and that since the credit crunch ten years ago, the Government has been pulling policy levers to increase the number of houses built in this country. Against the positive general market backdrop, Bellway and Redrow are both benefitting from opening new subsidiaries in parts of the country where they didn't previously operate, a strategy that is enabling them to increase their sales faster than the overall market.

Our investment in Hornby (shares down 4%) may appear unusual as we own 75% of the business and a Phoenix Partner, James Wilson, sits on their Board. However, it is in other ways typical of our approach. The business owns a series of great brands including Hornby, Corgi, Airfix and Scalextrics. These nostalgic brands occupy a special place in the hearts and minds of Hornby's customers, who are often long-standing and devoted hobbyists. However, the brands have not fulfilled their potential because of various operational set-backs. We increased our shareholding of Hornby during the year, believing that these set-backs will be overcome with better management. One of several promising examples of this already in action is the new approach to offering discounts to wholesale customers. In the past, Hornby used these discounts to tempt orders from these customers. However, the tactic was over-used, causing those customers to become too reliant on discounts. The new management of Hornby have announced that discounting will stop immediately, a decision that will most likely cost Hornby some sales in the short-term but be of long-term benefit to the value and perception of the brands.

EasyJet (shares up 54%) is an investment of quite recent vintage, having first been purchased during autumn 2016, in the wake of the Brexit "leave" vote. Unfortunately, since then, the highly regarded CEO, Carolyn McCall has left the business. Her emphasis on return-on-capital meant that the business pursued a very disciplined growth strategy, creating much value for shareholders. We will watch carefully to see that the new CEO continues to operate the business along similar lines. Apart from the loss of McCall, the news for easyJet has been largely positive this year as some weaker European airlines such as Monarch and Air Berlin have gone bust and easyJet's strategy of providing a convenient, low-cost alternative to more expensive national airlines continues to work. We are pleased with the progress the business is making and are excited about the investment. (An aside on Easyjet: if you are ever at a dinner party dull enough to be enlivened by an injection of airline trivia, try this: Ryanair and easyJet combined, fly approximately 2,600 routes. On what percentage of those routes do they compete with each other, within a two-hour time slot? Is the answer A: 40%, B: 10% or C: less than 0.5%? The answer is C, less than 0.5%.

A combination of easy funding and hubris has left parts of the "casual dining" market with too much capacity, resulting in financial difficulties and site closures at businesses including Byron, Jamie's Italian and Prezzo. Yet, despite this slew of bad news coming from the overall market, JD Wetherspoon (shares up 43%) where food makes up 40% of turnover, grew both sales and profits in 2017. The focused, low-cost business model, combined with excellent, consistent customer service continues to endure in a market not currently awash with success stories.

Another company bearing the fingerprints of its founders is niche insurer, Randall & Quilter, (R&Q) (shares up 9%) whose principals, Ken Randall and Alan Quilter, started the business in 1991. For the last couple of years, R&Q has been selling non-core assets and re-focusing on their "run-off" and "fronting" specialisms. During the year, they issued £49m worth of new shares by way of an "open offer" and plan to use the money to expand the core business. We are excited about the prospects and added to our investment in the open offer.

The new CEO of Vesuvius (shares up 52%) has recently been reporting improvements in the company's major markets (steel foundry and steel flow) as global steel production has been increasing. Sales and profits increased over the year and an internal restructuring programme is continuing to lower costs. Debt also fell and the 20% return-on-capital remains very impressive for any business, let alone one in an industry that is generally capital intensive. Vesuvius specialises in so-called "flat steel", which is used in consumer products including cars and fridges, rather than construction. Medium and long-range forecasts suggest that flat steel production will increase significantly as consumer goods markets continue to grow in China, India and other parts of the developing world.

During the period, Lloyds (shares up 14%) was returned to full public ownership, increased its dividend, increased underlying profit, strengthened its balance sheet, increased the "net interest margin" (the difference between interest income earned by Lloyds and the amount Lloyds pays its' own lenders; a higher net interest margin is a good thing) and drew nearer to the end of the PPI or "conduct claims" saga. Core operating costs fell year-on-year, with the company reporting a market-leading "cost-income ratio" (a measure of efficiency). The company reiterated the long-term targets set out by CEO Antonio Horta Osario and said that the recent acquisition of the MBNA credit card business is running ahead of schedule. Last year we said of the Lloyds investment that "the business fundamentals have been on the turn (i.e. improving) for some time and yet the shares remain cheap. It is a good example of why it pays not to stick ones neck out and talk about when and why a share price might start to rise" which is even more valid today! We added to the Lloyds holding during the year.

Outlook

A "top-down" investor might point to Brexit or any other "news" and try and pin-point how the portfolio outlook will be impacted by certain macro-economic outcomes. Our "bottom-up" approach means that our portfolio outlook is formed by focusing on business fundamentals instead. Although a huge amount of work goes into making and monitoring each of our investments, the case for owning each one boils down to a pretty simple investment thesis (in fact, an inability to articulate an investment case in simple terms is a good warning sign). We spend most of our time questioning and testing the theses using our primary research. Every piece of research used at Phoenix is produced in-house; in twenty years we have never made an investment using broker research. What is the relevance of this? It means that our investment outlook is a moving feast, informed by what we observe by putting boots on the ground and watching our investee businesses in action.

A significant part of this involves mystery shopping; we regularly "buy" a sample basket of sports items to test whether Sports Direct remains the lowest cost producer. We spend time inspecting the toilets in Weatherspoons' because they are a good litmus test of pub management and are important when customers form impressions. Each month, we use housebuilder's web sites to track the sales of new-build houses at over 100 locations around the UK (tip: housing developments often have their own individual websites that show exactly the housing plots available for sale. Identified by a unique number, these plots are removed from the websites once sold; by building a regular data series it is relatively easy, albeit time consuming, to figure out how many houses are being sold each month.) We visit numerous branches of Tesco and Morrisons and in each one we ask shop assistants "where is the soy sauce?" We grade them for the quality of their response, record the data and use the trend as one of many indicators of customer service standards.

We think that the most relevant outlook statement we can make is that currently, the research that we do gives us confidence that the companies in our portfolio are performing well, in line with our investment theses. And, very importantly, the shares are cheap. These two elements augur well for future investment returns.

Tristan Chapple

Investment Manager

Phoenix Asset Management Partners

20 April 2018

OTHER STRATEGIC REPORT INFORMATION

RISK ANALYSIS

The Board considers that the principal risks faced by the shareholders of the Company fall into two categories:

External Risks

Poor performance in the UK and/or world economies; poor corporate profits and dividends.

Poor stock market performance caused by market-specific factors, such as rising interest rates, the unwinding of "bubbles" or disinvestment by institutions, superimposed on general economic factors, or caused by shocks, wars, disease etc. The Board does not consider, however, that short-term volatility represents a risk for the long-term shareholder, since it regards long-term performance to be of primary importance.

Internal Risks

Poor asset management, which may include poor stock selection, excessive concentration of the portfolio, mistakes regarding currency movements, speculation in shares of companies without sound or established businesses and speculation in derivatives.

Poor governance, compliance or administration, including particularly the risk of loss of investment trust status.

All these and other risks can result in shareholders not making acceptable returns from their investment in the Company.

RISK CONTROLS

External risks

As described in the Investment Policy section above, external risks are mitigated by diversification of the portfolio and by not utilising gearing.

Risk diversification

An element of risk is inherent in investment undertaken on a selective basis. The Company seeks to mitigate the degree of risk by investing in securities in substantial organisations, normally listed and traded on the London Stock Exchange, and by spreading its investments across a range of such securities. At 31 December 2017 the Company held 16 stocks, spread across 8 main sectors.

Gearing

The Company has discontinued the use of gearing as an element of its Exiting Investment Policy and will continue to do so under the Revised investment Policy. Under the articles, borrowings are permitted up to a maximum of 30% of NAV. The Company's agreement with BNP also permits borrowing of up to 30% of NAV, but there is currently no intention to make use of this allowance.

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.

Internal risks

The control of risks related to governance, compliance and administration is dealt with in the report on Corporate Governance.

VIABILITY STATEMENT

The Company is subject to continuation votes every three years. As a consequence of the appointment of Phoenix, the Directors proposed the replacement of the pre-existing continuation vote schedule by a new three-year schedule, with the next vote falling due in 2019. This was approved by the AGM held in July 2016.

Although there will be a continuation vote in 2019, the Directors consider that a longer time frame is appropriate for the purpose of assessing the Company's viability. At the present time, the Board's expectation is that it will recommend continuation of the Company beyond 2019. Accordingly, they have concluded that they should continue to utilise a five year period for this purpose.

After making inquiries, 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 from the date of approval of this document.

In reaching this conclusion, the directors have considered each of the principal risks and uncertainties set out above. They have considered the liquidity and solvency of the Company, the level of discount at which its shares trade, its income and expenditure profile including the absence of monthly management fees and the discontinuation of the use of gearing as an instrument of normal investment policy. 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 and the sale of shares from treasury 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 directors do not expect there to be any material increase in the annual ongoing charges of the Company over the period of their assessment. 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 during the period under review.

SOCIAL, ETHICAL, HUMAN RIGHTS AND ENVIRONMENTAL MATTERS

Being an investment company, with no staff, premises, manufacturing or other operations of its own, the Company does not have any direct influence on social, ethical, human rights and environmental matters. The Company has no greenhouse gas emissions to report from its operations, nor any responsibility for emission producing sources.

BOARDROOM DIVERSITY

The Company has no employees. At 31 December 2017 the Company had five directors, all of whom were male. The Company's policy is that the Board should have a broad range of skills; while keeping this in mind, consideration is given to the recommendations of the AIC Code and other guidance on boardroom diversity.

OUTLOOK

The outlook for Aurora is discussed in the Chairman's Statement and the Manager's Review and Outlook.

This Strategic Report was approved by the Board on 20 April 2018.

For and on behalf of the Board

Lord Flight

Chairman

20 April 2018

GOVERNANCE

STATEMENT OF DIRECTORS' RESPONSIBILITIES FOR THE ANNUAL REPORT

The directors are responsible for preparing the Strategic Report, the Directors' Report, the Remuneration Reports and the financial statements in accordance with applicable law and regulations.

Company law in the United Kingdom requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company for that period. In preparing these financial statements, the directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and accounting estimates which are reasonable and prudent;

· state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements;

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

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

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the website used by the Company.

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

Statement under the Disclosure and Transparency Rules 4.1.12

The directors confirm that to the best of their knowledge and belief;

(a) The financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer; and

(b) this annual 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

Having taken advice from the Audit Committee, the Directors consider that the annual report and financial statements taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

For and on behalf of the Board

Lord Flight

Chairman

20 April 2017

FINANCE

STATEMENT OFCOMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2017

Year ended 31 December

2017

Period ended 31 December 2016

		Revenue	Capital	Total	Revenue	Capital	Total
Note		£'000	£'000	£'000	£'000	£'000	£'000
	Profits on investments designated at fair value through profit or loss	-	10,621	10,621	-	2,144	2,144

2	Investment income	1,683	-	1,683	944	-	944
	Total income	1,683	10,621	12,304	944	2,144	3,088
3	Investment management fees	-	-	-	-	125	125
3	Other expenses	(376)	-	(376)	(308)	-	(308)
	Profit before tax	1,307	10,621	11,928	636	2,269	2,905
6	Tax	-	-	-	-	-	-
	Profit and total comprehensive income for the period	1,307	10,621	11,928	636	2,269	2,905

8	Earnings per share	3.67p	29.85p	33.52p	3.00p	10.72p	13.72p

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

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

The comparative period is not directly comparable to the period ended 31 December 2017, being of ten months as compared to twelve months.

The Board has recommended a final dividend of 2.75p per share (see note 7).

BALANCE SHEET

AT 31 DECEMBER 2017

		2017	2016
Notes		£'000	£'000
	NON-CURRENT ASSETS
9	Investments designated at fair value through profit or loss	82,587	49,849
		82,587	49,849
	CURRENT ASSETS
	Other receivables	351	251
	Cash and cash equivalents	4,507	1,403
		4,858	1,654

	TOTAL ASSETS	87,445	51,503

	CURRENT LIABILITIES:
	Other payables	72	65
		72	65


	TOTAL ASSETS LESS CURRENT LIABILITIES	87,373	51,438

	EQUITY
10	Called up share capital	10,618	7,448
	Capital redemption reserve	179	179
	Share premium account	54,009	32,557
12	Investment holding gains	10,887	2,111
12	Other capital reserves	10,053	8,208
	Revenue reserve	1,627	935

	TOTAL EQUITY	87,373	51,438

13	Net assets per ordinary share	205.72p	172.66p

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2017

Year to 31 December

2017	Notes
		Share capital	Capital redemption reserve	Share premium account	Investment holding losses	Other capital reserves	Revenue reserve	Total
		£,000	£'000	£,000	£,000	£,000	£,000	£,000

Opening equity		7,448	179	32,557	2,111	8,208	935	51,438

Total comprehensive income/(loss) for the year		-	-	-	8,776	1,845	1,307	11,928

Issue of new shares		3,170	-	21,737	-	-	-	24,907

Share issue costs		-	-	(285)	-	-	-	(285)

Dividends paid	7	-	-	-	-	-	(615)	(615)

Closing equity		10,618	179	54,009	10,887	10,053	1,627	87,373

Period to 31 December

2016	Notes
			Share capital	Capital redemption reserve	Share premium account	Investment holding losses	Other capital reserves	Revenue reserve	Total
			£,000	£'000	£,000	£,000	£,000	£,000	£,000

Opening equity			3,598	179	10,997	(4,371)	7,551	486	18,440

Total comprehensive income/(loss) for the year			-	-	-	6,482	(4,213)	636	2,905

Sale of shares from treasury			-	-	-	-	4,870	-	4,870

Issue of new shares			3,850	-	21,861	-	-	-	25,711

Share issue costs			-	-	(301)	-	-	-	(301)

Dividends paid		7	-	-	-	-	-	187	(187)

Closing equity			7,448	179	32,557	2,111	8,208	935	51,438

CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2017

	Year to 31 December	Period to 31 December
	2017	2016
	£'000	£'000

NET CASH OUTFLOW FROM OPERATING ACTIVITIES
Cash inflow from investment income and interest	1,631	747
Cash outflow from management expenses	(417)	(322)

Payments to acquire non-current asset investments	(44,895)	(36,198)
Receipts on disposal of non-current asset investments	22,778	2,938

NET CASH OUTFLOW FROM OPERATING ACTIVITIES	(20,903)	(32,835)


CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issues of new shares	24,622	25,410
Sale of treasury shares	-	4,870
Dividends paid	(615)	(187)
NET CASH FLOW FROM FINANCING ACTIVITIES	24,007	30,093


INCREASE/(DECREASE) IN CASH	3,104	(2,742)



Cash and cash equivalents at beginning of year	1,403	4,145

Increase/(decrease) in cash	3,104	(2,742)

Cash and cash equivalents at end of year	4,507	1,403

The comparative period is not directly comparable to the period ended 31 December 2017, being of ten months as compared to twelve months.

NOTES TO THE FINANCIAL STATEMENTS

1. ACCOUNTING POLICIES

Basis of Accounting

The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS), which comprise standards and interpretations approved by the IASB and International Accounting Standards and Standing Interpretations Committee interpretations approved by the IASC that remain in effect, and to the extent that they have been adopted by the European Union.

Under IFRS, the AIC Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" issued in January 2017 has no formal status, but the Company adheres to the guidance of the SORP.

The accounting policies are unchanged from those used in the last annual financial statements except where otherwise stated. The particular accounting policies adopted are described below:

(a) Accounting Convention

The accounts are prepared under the historical cost basis, except for the measurement of fair value of investments.

(b) Investments

As the Company's business is investing in financial assets with a view to profiting from their total return in the form of increases in fair value, investments are designated as fair value through profit or loss on initial recognition in accordance with IAS 39. At this time, fair value is the consideration given, excluding material transaction or other dealing costs associated with the investment.

After initial recognition such investments are valued at fair value. For quoted investments this is established by reference to bid, or last, market prices depending on the convention of the exchange on which the investment is quoted. Gains or losses are recognised in the capital column of the Statement of Comprehensive Income. All purchases and sales of investments are accounted for on a trade date basis.

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

(d) Capital Reserves

The Company is not precluded by its Articles from making any distribution of capital profits by way of dividend, but the Directors have no current plans to do so. Profits and losses on disposals of investments are taken to the other capital (gains on disposal) reserve. Revaluation movements are taken to the investment holding reserve via the capital column of the Statement of Comprehensive Income.

(e) Investment Management Fees, Finance Costs and Other Costs

Performance-related fees are charged to other capital reserves (gains on disposal) via the capital column of the Statement of Comprehensive Income. Other costs are normally charged to revenue, unless there is a compelling reason to charge to capital. Tax relief in respect of costs allocated to capital is credited to capital via the capital column of the Statement of Comprehensive Income on the marginal basis.

(f) Taxation

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

Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. In addition, tax losses available to be carried forward as well as other income tax credits are assessed for recognition as deferred tax assets.

Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply at their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. Deferred tax liabilities are always provided for in full. Deferred tax assets are recognised to the extent that it is probable that they will be able to be offset against future taxable income.

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

(g) Foreign currency

The currency of the primary economic environment in which the Company operates (the functional currency) is pounds sterling ("Sterling"), which is also the presentational currency of the Company. Transactions involving currencies other than Sterling are recorded at the exchange rate ruling on the transaction date. At each balance sheet date, monetary items and non-monetary assets and liabilities, which are fair valued and which are denominated in foreign currencies, are retranslated at the closing rates of exchange. Such exchange differences are included in the Statement of Comprehensive Income and allocated to capital if of a capital nature or to revenue if of a revenue nature. Exchange differences allocated to capital are taken to gains on disposal or investment holding losses, as appropriate.

(h) Cash and cash equivalents

Cash and Cash Equivalents in the Cash Flow Statement comprise cash held at bank.

(i) Dividends payable to equity shareholders

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

(j) Judgements and estimations

The directors have reviewed matters requiring estimation and/or judgement. The preparation of the financial statements requires management to make judgements, estimations and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet 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. There are no judgments or estimates that have had a significant effect on amounts recognised in the financial statements.

2.	INCOME	Year to 31 December	Period from 1 March to 31 December
		2017	2016
	Income from investments:	£'000	£'000
	Franked dividends from listed or quoted investments	1,683	795
	Unfranked income from overseas dividends	-	149
		1,683	944

3.	INVESTMENT MANAGEMENT FEES AND OTHER EXPENSES		2017			2016
		Revenue	Capital	Total	Revenue	Capital	Total
		£'000	£'000	£'000	£'000	£'000	£'000
	Investment management fees - monthly -performance	- -	- -	- -	- -	- (125)	- -
	Administration fees	111	-	111	79	-	79
	Depository/custodian fees	60	-	60	60	-	60
	Registrar's fees	24	-	24	22	-	22
	Directors' fees	88	-	88	71	-	71
	Auditor's fees	31	-	31	29	-	29
	Printing	14	-	14	14	-	14
	Miscellaneous expenses	48	-	48	33	-	33
	Total other expenses	376		376	308	-	308

All expenses include any relevant irrecoverable VAT. The amounts excluding VAT paid or accrued for the audit of the Company are £25,250 (2016: £24,500).

4. DIRECTORS' FEES

The fees paid or accrued were £81,250 (10 month period to 31 December 2016: £67,708). There were no other emoluments. The gross figures shown for directors' fees in note 3 above include employers' National Insurance charges or VAT, as appropriate. Full details of the fees of each director are given in the Directors' Remuneration Report.

5. TRANSACTION CHARGES

		Year to 31	Period from 1 March to 31
		December	December
G		2017	2016
		£'000	£'000

	Transaction costs on purchases of investments	132	196
	Transaction costs on sales of investments	11	4
	Total transaction costs included in gains or losses on investments at fair value through profit or loss	143	200

6. TAXATION

Year to 31 December Period from 1 March

to 31 December

		2017			2016
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Corporation tax	-	-	-	-	-	-
Overseas tax	-	-	-	-	-	-
Tax charge in respect of the current year	-	-	-	-	-	-

Current taxation

The taxation charge for the year is different from the standard rate of corporation tax in the

UK (19.25%). The differences are explained below:

	Year ended	Period to
	31 December	31 December
	2017	2016
	£'000	£'000
Total profit before tax	11,928	2,905

Theoretical tax at UK corporation tax rate of 19.25% (20.0%)	2,296	581
Effects of:
Capital profits that are not taxable	(2,045)	(479)
UK dividends which are not taxable	(324)	(159)
Overseas dividends that are not taxable	-	(30)
Increase in excess tax losses	73	62
Expenses charged to capital account for which a deduction is claimed	-	25
Actual current tax	-	-

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.

Factors that may affect future tax charges

The Company has tax losses of £9,182,061 (2016: £8,805,985) in respect of management expenses, equivalent to a potential tax saving of £1,560,950 at the prospective tax rate of 17% (2016: £1,673,137 at the then prospective rate of 19%) and tax losses of £1,490,706 (2016: £1,490,706) in respect of loan interest, equivalent to a potential tax saving of £253,420 at the prospective tax rate of 17% (2016: £283,234 at the then prospective tax rate of 19%) .

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

7. ORDINARY DIVIDENDS

	Year to	Period to
	31 December	31 December
	2017	2016
	£'000	£'000
Dividends reflected in the financial statements:
Interim dividend for the period to 31 December 2016 at 2.00p per share	615	-
Final dividend for the year ended 28 February 2016 at 1.00p per share (2015: 3.85p)	-	187

Dividends not reflected in the financial statements:
Final dividend for the year 2017 of 2.75p per share	1,280	-
Interim dividend for the period to 31 December 2016 at 2.00p per share	-	615

8. EARNINGS PER SHARE

Earnings per share are based on the profit of £11,927,202 (2016:£2,905,495) attributable to the weighted average of 35,585,776 (21,166,160) ordinary shares of 25p in issue during the year.

Supplementary information is provided as follows: revenue earnings per share are based on the revenue profit of £1,306,307 (2016: £636,037); capital earnings per share are based on the net capital profit of £10,620,895 (2016: £2,269,458), attributable to the weighted average of 35,585,776 (2016:21,166,160) ordinary voting shares of 25p.

9. INVESTMENTS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS

	2017	2016
	£'000	£'000
UK listed securities	82,587	49,849
Total non-current investments designated at fair value through profit or loss	82,587	49,849
Movements during the year:
Opening balance of investments, at cost	47,738	18,816
Additions, at cost	44,895	36,198

Disposals - proceeds received or receivable	(22,778)	(2,938)
- add realised losses/ less realised profits	1,845	(4,338)
- at cost	(20,933)	(7,276)

Cost of investments designated at fair value through profit or loss at 31 December	71,700	47,738

Revaluation of investments to market value:
Opening balance	2,111	(4,371)
Increase/(decrease) in unrealised appreciation debited to investment holding reserve	8,776	6,482
Balance at 29 February	10,887	2,111

Market value of non-current investments designated at fair value through profit or loss at 31 December	82,587	49,849

10. SHARE CAPITAL

		2017	2016
Allotted, called up and fully paid
Ordinary shares of 25p	Number	42,471,503	29,792,305
	£'000	10,618	7,448

The Company did not purchase any of its own shares during the year ended 31 December 2017 or the period ended 31 December 2016. No shares were cancelled during either year or period.

No shares were held in Treasury or sold from Treasury during the year ended 31 December 2017 (period ended 31 December 2016 3,029,520 shares sold from Treasury for a gross amount of £4,882,617).

Placings

A placing was carried out on 15 March 2017 under the terms of the placing programme that had been established by a prospectus dated 22 March 2016. This raised £4,338,178, net of commission but before professional and other fees, for the issue of 2,352,913 new shares. Under the 2016 prospectus up to 55 million shares could be issued from time to time during the period from 30 March 2016 to 21 March 2017. The price at which shares could be issued under that programme was the NAV per share at the time of issue plus a premium to cover the expenses of the issue as determined by the Board at the time of each issue.

On 5 September 2017 the Company issued a new prospectus. This provided for an initial placing and offer for subscription and for a new placing programme. Authority to issue shares pursuant to these proposals was granted by a General Meeting on 28 September 2017. The price at which shares can be issued under this prospectus is the NAV per share at the time of issue plus a premium pf 1.25%. The initial placing and offer for subscription was carried out on 6 October 2017, raising £9,125,586, net of commission but before professional and other fees, for the issue of 4,565,650 new shares.

Block listings

The Company had also put in place during 2016 a block listing facility for up to 5,043,177 new shares, to meet market demand arising from time to time. Under this facility a total of 4,092,635 new shares were issued in the period January-August 2017, raising £7,858,271, net of commission.

On 16 October 2017 the Company established a new block listing facility for up to 8,160,700 new shares, also to meet market demand arising from time to time. Under this facility a total of 1,668,000 new shares were issued during the period October-December 2017, raising £3,441,881, net of commission.

At 31 December 2017, the Company had 42,471,503 (2016: 29,792,305) shares in issue. The number of voting shares at 31 December was 42,471,503 (2016: 29,792,305).

11. TOTAL EQUITY

Total Equity includes, in addition to Share Capital, the following reserves:

Capital Redemption Reserve. When any shares are redeemed or cancelled, a transfer of realised profit must be made to this reserve in order to maintain the level of capital that is not distributable.

Share Premium Account. When shares are issued at a premium to their nominal value, the "capital profit" arising on their allotment must be held in a Share Premium Account, which is not distributable in the ordinary course and may be utilised only in certain limited circumstances.

Capital profits arising from the Company's investment transactions are held as Capital Reserves, subdivided between Gains on Disposal for profits arising upon sales of investments and Investment Holding gains/losses for portfolio revaluations. The movements on this account are analysed in note 14 below.

The Company's Revenue Reserves are the net profits that have arisen from the Company's revenue income in the form of dividends and interest, less operating expenses and dividends paid out to the Company's shareholders.

12. CAPITAL RESERVES

	31 December	31 December
	2017	2016
	£'000	£'000
Investment holding gains/(losses)

Opening balance	2,111	(4,371)

Revaluation of investments - listed	8,776	6,482

Balance of investment holding gains at 31 December	10,887	2,111

Other capital reserves
Opening balance	8,208	7,551

Net gains and losses on realisation of investments	1,615	(4,370)
Capital distributions received	230	32
Expenses of capital management: management fees	-	125
Total of realised gains and losses reflected in the Statement of Comprehensive Income	1,845	(4,213)

Sale of treasury shares	-	4,870
Total gains and losses of other capital reserves	1,845	657
Balance of other capital reserves at 31 December	10,053	8,208
Total capital reserve at 31 December	20,940	10,319

13. NET ASSETS PER ORDINARY SHARE

The figure for net assets per ordinary share is based on £87,372,561 (2016: £51,438,261) divided by 42,471,503 (2016: 29,792,305) voting ordinary shares in issue at 31 December 2017.

14. RECONCILIATION OF PROFT BEFORE FINANCE COSTS AND TAX TO

NET INFLOW FROM OPERATING ACTIVITES


	Year to	Period to
	31 December 2017	31 December 2016
	£'000	£'000

Profit before finance costs and tax	11,928	2,905

(Increase) in non-current investments	(32,738)	(35,404)
(Increase) in other receivables	(100)	(200)
Increase/(decrease) in other payables	7	(136)

Net cash inflow from operating activities	(20,903)	(32,835)

15. RELATED PARTY TRANSACTIONS

Details of the management, administration and secretarial contracts can be found in the Directors' Report. Mr Chapple is a director of the company and an employee of Phoenix. Fees payable to Phoenix are shown in note 3.

Other payables include accruals of administration fees of £9,825 (2016 £8,056 for two months).

No provision has been made for a performance fee at 31 December 2017 (2016: £Nil). Any performance fee would be payable in shares after the end of the performance fee period, but the amount that would have be payable is provided in the accounts as an equivalent value of money. All figures include any appropriate VAT.

16. FINANCIAL ASSETS/LIABILITIES

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

Financial assets

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:

		2017			2016
	Interest bearing	Non- interest bearing	Total	Interest bearing	Non- interest bearing	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Non-current investments at fair value through profit or loss:
£ sterling equities	-	82,587	82,587	-	49,849	49,849
	-	82,587	82,587	-	49,849	49,849

Cash at bank:
Floating rate - £ sterling	-	4,507	4,507	-	1,403	1,403

	-	4,507	4,507	-	1,403	1,403

Cash at bank includes £4,506,798 (2016: £1,393,316) held by the Company's Depository, BNP Paribas.

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.

The Company no longer uses borrowing for investment management purposes. There were no short-term trade payables (other than accrued expenses).

17. FINANCIAL INSTRUMENTS - 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 2017 was invested entirely in sterling securities and there was no 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 2017 or 31 December 2016 and no sensitivity analysis is presented for this risk.

A (ii) Interest Rate Risk

The Company did not hold fixed interest securities at 31 December 2017 or 31 December 2016.

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 2017 or 31 December 2016.

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.

B Liquidity Risk

Liquidity Risk is considered to be small, because the portfolio is invested in readily realisable securities. As a consequence, cash flow risks are also considered to be small. The Manager estimates that, under normal market conditions and without causing excessive disturbance to the prices of the securities concerned, the majority of the portfolio could be realised within 7 days.

C Credit Risk

The Company invests in quoted equities and fixed interest securities. The Company's investments are held by BNP ("the Depository"), which is a large international bank with a high reputation. The Company's normal practice is to remain fully invested at most times and not to hold very large quantities of cash. At 31 December 2017, cash at bank comprised £4,506,798 (2016: £1,393,316) held by the Depository. At 31 December 2017 no cash was held at Coutts & Co (2016: £10,078) the account with Coutts & Co having been closed.

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 commensurately with the level of risk.

The Company monitors capital on the basis of the carrying amount of equity, less cash and cash equivalents as presented on the face of the statement of financial position.

The Company sets the amount of capital in proportion to its overall financing structure, i.e. equity and financial liabilities. The Company 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.

18. FAIR VALUE HIERARCHY

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

Classification		Input

Level 1		Valued using quoted prices in active markets for identical assets
Level 2		Valued by reference to valuation techniques using observable inputs other than quoted prices included within Level 1
Level 3		Valued by reference to valuation techniques using inputs that are not based on observable market data

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset.

Assessment of Hierarchy

The Company's subsidiary was held at cost less impairment and therefore its valuation as an investment in the Company's balance sheet did not fall within the fair value hierarchy. The investment was written off in 2016.

	2017	2016

Level 1	82,587	49,849
Level 2	-	-
Level 3	-	-

19. STANDARDS, AMENDMENTS AND INTERPRETATIONS TO EXISTING STANDARDS THAT ARE NOT YET EFFECTIVE AND HAVE NOT BEEN ADOPTED EARLY BY THE COMPANY

At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective, and have not been adopted early by the Company.

Information on new standards, amendments and interpretations that are expected to be relevant to the Company's financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Company's financial statements.

The Company intends to adopt these standards (where applicable) when they become effective.

· IFRS 9 Financial Instruments - classification and measurement of financial assets and financial liabilities as defined in IAS39 (IASB effective date 1 January 2018).

· IFRS 15 Revenue from Contracts with customers(effective date 1 January 2018).

· IFRS 16 Leases (effective date 1 January 2019).

It is not expected that the adoption of IFRS 9, IFRS 15 or IFRS 16 will have any significant impact on the Company.

20. POST BALANCE SHEET DATE EVENTS

Since 31 December 2017 the Company has made further issues from its block listing facility of 4,074,474 new shares.

As at 20 April 2018 the Company has 46,545,977 shares in issue and the number of voting shares is 46,545,977.

21. FINANCIAL INFORMATION

This announcement does not constitute the Company's statutory accounts. The financial information for the period to 31 December 2017 is derived from the statutory accounts for that period, which will be delivered to the registrar of companies following the Company's Annual General Meeting. The statutory accounts for the period to 31 December 2016 have been delivered to the registrar of companies. The auditors reported on the accounts for the period to 31 December 2016; their report was unqualified and did not include a statement under Section 498(2) or (3) of the Companies Act 2006.

The annual report for the year ended 31 December 2017 will be posted to shareholders and will be made available on the Investment Manager's website.

This announcement contains regulated information under the Disclosure Rules and Transparency Rules of the FCA.

The annual report will be submitted to the National Storage Mechanism and will shortly be available for inspection at http://www.morningstar.co.uk/NSM

24. ANNUAL GENERAL MEETING

The Annual General Meeting will be held on 6 June 2018 at 12.00 noon at the offices of Grant Thornton (UK) LLP, 30 Finsbury Square, London EC1V 4RU.

20 April 2018

Secretary and registered office

PraxisIFM Fund Services Limited

Mermaid House

2 Puddle Dock

London EC4V 3DB

This information is provided by RNS

The company news service from the London Stock Exchange

END

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Annual Financial Report

CHAIRMAN'S STATEMENT

TOP HOLDINGS

PORTFOLIO ANALYSIS

External Risks

Internal Risks

Poor asset management, which may include poor stock selection, excessive concentration of the portfolio, mistakes regarding currency movements, speculation in shares of companies without sound or established businesses and speculation in derivatives.

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STATEMENT OF DIRECTORS' RESPONSIBILITIES FOR THE ANNUAL REPORT

STATEMENT OFCOMPREHENSIVE INCOME

Period ended 31 December 2016

Note

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FOR THE YEAR ENDED 31 DECEMBER 2017

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