TIDMSIT
Sanditon Investment Trust plc
INTERIM ACCOUNTS
For the six months
to 31 December 2018
Company Number 09040176
Investment Objective
The Company's investment objective is to:
* deliver absolute returns of at least 2% per annum, compounded annually, above
RPIX; and
* be an asset diversifier for shareholders by targeting low correlation with
leading large capitalisation equity indices.
Contents
Investment Objective (see above)
Chairman's Statement 1 & 2
Investment Manager's Report 3 to 6
Portfolio 7
Income Statement 8 & 9
Statement of Financial Position 10
Statement of Changes in Equity 11
Notes to the Interim Accounts 12 to 14
Interim Management Report 15 to 17
Directors and Officers 18
Chairman's Statement
for the six months to 31 December 2018
Performance
Your Company's net asset value ("NAV") made modest progress during its first
half gaining 2.1%, including the dividend of 0.5p paid to shareholders in
December. The share price also had a better half closing at 87p, a gain of 6%,
tightening the discount to NAV to 6.8% from the previously reported 10.8%. It
was a torrid period for equity markets with the UK market closing off nearly
11%, the Dow and the Euro Stoxx off nearly 12% and the NASDAQ off over 17%. The
manager is a little disappointed that the long book did not defend better
during the market rout, but it is pleasing that the manager's view that
tightening monetary policy was going to pressure global growth and equity
markets, is becoming increasingly evident. It is also encouraging that your
Company is proving to be an asset diversifier, with its correlation to the UK
equity market a very low 0.06x since launch and over the last six months it has
been inversely correlated by 0.1x.
With the UK equity market at the end of 2018 back to the level the Company was
launched at in the summer of 2014, the manager has temporarily reversed his
bearish positioning. Whilst this is largely a tactical call, it also reflects
that recent market weakness and fears over the outcome of Brexit negotiations
has left many UK stocks on very low valuations. Many UK domestic stocks have
been in an extreme bear market and should the performance of the UK economy
post its planned exit from the EU in March prove not to be catastrophic for
growth, the manager believes UK centric stocks could bounce sharply.
Stake in Sanditon Asset Management
Sanditon Asset Management finished the year with assets under management (AUM)
of GBP549m, a decrease of just over 5% since our last report and 4% lower than
SAM's previous year end (March 2018), off which the last valuation was struck.
In the context of double digit declines for equity markets, this was a
creditable performance but nonetheless falling average AUM means lower
revenues. I have highlighted before that extra costs associated with MiFID II
will lead to some pressure on SAM's profits, so we expect the next valuation
for SAM to see a mark down in the value of our stake in SAM.
Time will tell whether a sharp improvement in SAM's performance in 2018, with
its key European long fund recording almost top decile performance in 2018,
will translate into asset growth which, in turn, is key for its profit growth.
In the meantime, SAM continues to generate cash, with cash balances of GBP5.5m at
31 December 2018 continuing to provide support to the valuation in SIT's books.
Continuation Vote
Shareholders are reminded that SAM's first continuation vote will be held in
December 2020.
Charges and Fees
Our total ongoing charges at 31 December 2018 were 1.3% per annum. No
performance fees have been paid or accrued.
Outlook
Tighter global liquidity conditions, slowing economic growth and a poor profit
outlook may weigh on share prices in 2019, but significant market weakness in
the last few months of 2018 has left pockets of value. Should the equity
markets move away from chasing growth stocks, we hope your Company's strong
value bias will help it to deliver positive returns in what is set to be
another volatile year for financial assets.
Rupert Barclay
Chairman
18 February 2019
Investment Manager's Report
for the six months to 31 December 2018
Overview
"The greatest and boldest operation ever undertaken by the Federal Reserve
and... it resulted in one of the most costly errors committed by it or any
other banking system in the last 75 years."
So said the British economist Lionel Robbins in testimony to the US Senate
Committee in 1934 about the Federal Reserve's loose monetary policy in the run
up to the Great Depression. We have no doubt in time that a modern economist
will write something similar about the enormous (mis)use of Quantitative Easing
("QE") and zero interest rates, but for the moment the jury is still out on
whether the policy has been a failure. I have taken that quote from John
Galbraith's seminal book on the Great Crash of 1929 which is well worth (re)
reading for its insights into investor behaviour. History does not always
repeat itself but it often rhymes, as Mark Twain was attributed as saying.
Reading J.K. Galbraith's work again I was struck by how little has changed in
respect of central bankers' ability to inflate asset bubbles and the trust that
investors place in 'the mystique of central banking'. It is usually investors
who come off worse from having too much faith in the competence of monetary
authorities.
The market's gyrations continued in the second half of 2018, finishing the year
with almost every asset class down by approximately 10%. It turned out there
were few places to hide, with even gold finishing the year modestly down.
Readers will know that we have been bearish on asset prices and suitably gloomy
about our own disappointing performance as markets rose whilst we have often
been short. However, on the second last day of 2018 the UK's main index was
slightly below the level it was when we launched your Company back in the
summer of 2014. We argued then, that in an unprecedented era of loose monetary
policy designed to inflate risk assets, going forward 'preserving the real
value of capital is going to be a significant challenge for all investors'. The
challenge undoubtedly remains, as we have now entered an era of Quantitative
Tightening ("QT").
In the first half of your financial year, the UK equity market fell by 11% but
the net asset value of your Company rose by 2.1% (including the 0.5p dividend
paid in December). Whilst we were slightly disappointed by this outturn, it
does highlight that the structure we have been running with since launch
remains very lowly correlated with the performance of the underlying markets in
which we invest. We have not recovered the lost ground in 2017, but we have
made a start and our relative performance has improved materially. We were
pleased that the improvement in performance has led to a modest recovery in the
share price.
The weakness in equity markets in the second half coincided with US bond yields
breaking decisively, albeit briefly, above 3% and the end of global QE. A near
20% correction in NASDAQ, and some unhelpful goading by Mr. Trump, seemed
sufficient to make the new Governor of the Federal Reserve turn more dovish in
his language when delivering the expected increase in US rates to 2.5% in
December. The market expected a further three interest rate increases in 2019,
but now many commentators expect none. From peaking at 3.24% in November, the
10 year bond yield crashed back to finish the year at 2.68%. As we have argued
previously that it would not take much in the way of monetary tightening to
cause a significant slowdown (and remember we have had no tightening in Europe
or Japan and the US economy has been helped by the massive easing of fiscal
policy at the end of 2017), we cannot say we are too surprised at how quickly
the Fed has become nervous about its policy tightening. But this is a problem
of central bankers' own making. Having flooded markets with years of excessive
monetary easing, leading to a huge build up in government and corporate debt
(see chart below on US corporate debt) at the peak of this current economic
cycle, it is not surprising that investors are frightened the party is ending.
There may be bounces as central bankers try to assuage fears, but the
conventional arsenal for battling a new global slowdown, which looks underway
through much of the developed world, is pretty empty. Alternatives such as
peoples' QE do not look very equity or bond friendly to us.
Portfolio Performance and Structure
The first six months of your Company's new financial year saw your portfolio
return 2.7% before charges. The long book lost 6.4% but the short book gained
9.1%, representing returns on capital of -11.6% and +21.5% respectively against
the market return of -11.0%.
After reasonable outperformance from our long book in the first half of 2018,
largely due to bids we reported on last time, we were disappointed that our
value oriented long book delivered a return slightly worse than the market.
This was in large part due to the performance of two of our top three holdings,
Babcock and ITV. Babcock fell by 40%, costing your Company 2.2% as hedge funds
built up short positions and leaked fairly innocuous reports about how
management weren't very good and their relationship with the MoD (its key
customer) was deteriorating (speculative hearsay). Babcock's management have
certainly made mistakes in the last six years, notably their poorly timed
acquisition of Avincis, but its share price performance bears no correlation
either with its business performance or its valuation. It finished 2018 on a P/
E of less than 6x, and profit forecasts that were within 2% of the numbers
expected at the beginning of 2018. Hardly deserving of more than a third of the
share price. Hedge funds who think shorting a stable business on such a low
valuation is likely to be a profitable trade clearly hope that momentum stays
their friend. The chart above shows how QE's effect on different investment
styles has been uneven.
We have argued, and continue to believe, that any unwinding of QE will have an
equal and opposite effect on markets overall and on the investment styles that
have led the bull market. That is why we remain long value and short growth.
ITV fell by 28% costing 1.5% leaving its shares on a P/E of 9x. ITV has
experienced greater downgrades than Babcock (forecasts have declined by 15%
through 2018), as TV advertising has been hit by both a structural shift
towards online and a cyclical downturn, but the valuation seems to us to
undervalue its production arm which makes about half of its profits. ITV
remains the market's most likely takeover target and deservedly so on this
rating. We added to both positions during the half.
Much more encouraging was the performance of our short book where the return on
capital was almost double that of the market. Our shorts in growth stocks added
4.6% to NAV and shorts in industrial cyclicals added 3.5%. Most of our
contributions came from businesses warning on profits (Valeo, Fuchs, Sophos,
Just Eat) or just a retreat from very high valuations (Ocado, Burberry,
Intertek). We expect 2019 will see more of the same and although we moderated
our short towards industrial cyclicals in the second half of 2018, we are
looking to rebuild into a bounce in the market overall. We remain short growth
stocks which have bounced again as bond yields have fallen in December. It is
interesting to us how a stock such as Just Eat, where earnings forecasts for
2018 and 2019 have fallen by 30% since the start of 2018 (for reasons we
highlighted as likely in our previous reports), only saw a share price fall of
25% in 2018. This tells us that the market's preference for growth stocks
remain, even in the face of evidence that too much faith is being placed in
forecasts. Unrealistic growth forecasts suggest to us that this area of the
market is likely to remain a profitable hunting ground for shorts. It was
pleasing that one of our shorts Sophos (cyber security software) had two
disappointing statements in 2018 and has warned again in 2019, leading to a
fall of more than 50% in its share price.
We have temporarily used the substantial market weakness in the second half of
last year to reverse our net short position of 28% by covering our futures
short and going long the FTSE future. The use of futures is necessarily a short
term tactical instrument and the most efficient instrument for changing the net
exposure of your Company quickly. Unfortunately, we went long at the beginning
of a December which turned out to be one of the worst on record for the market,
negating the contribution made from being short over the rest of the period.
Our 40% net long is likely to be temporary. All bear markets typically have
sharp bounces after initial falls. However, we are also cognisant that unlike
in the summer of 2014 when we started your Company, there are now a significant
number of very lowly rated businesses (nearly a quarter of the FTSE 100 trade
on under 10x 2019 earnings forecasts) and further significant falls in equity
markets are likely to lead us to running with a larger net long position, on
average, than we have done since launch.
Your portfolio retains its strong value bias with the average P/E of its long
book at 11.6x nearly a third of our short book P/E of 32.8x (excluding the
currently loss making Ocado). Should our thesis that a reversal in QE should
lead to a reversal in market leadership prove correct, we would expect to make
progress in 2019. We have not mentioned Brexit, because at the time of writing
it is still unclear what form, if any, it may take. Our view all along has been
that Brexit is very much a sideshow to the likely impact global QT will have on
markets. In as much as it has had an impact on U.K. domestic stocks in Brexit
baskets, we imagine any resolution will lead to a sharp recovery in some of
those share prices. If you have any questions, please feel free to contact
either the Chairman, Rupert Barclay or us at Sanditon Asset Management.
Tim Russell
Sanditon Asset Management Limited
18 February 2019
US Corporate Debt has never been this high
[GRAPHIC REMOVED]
Source: SG Cross Asset Research/Equity Quant, Thomson Reuters Datastream
Forward P/E of Global Quality versus Global Value
[GRAPHIC REMOVED]
Source: SG Cross Asset Research/Equity Quant
Portfolio
as at 31 December 2018
Business Cycle Groupings (% of NAV)*
Long Short Net Gross
Commodity Cyclicals 0.7 -1.0 -0.3 1.7
Consumer Cyclicals 5.4 -2.1 3.3 7.5
Industrial Cyclicals 4.5 -7.9 -3.4 12.4
Growth 0.0 -17.4 -17.4 17.4
Financial 8.7 0.0 8.7 8.7
Growth Defensives 10.7 -6.9 3.8 17.6
Value Defensives 13.3 -1.0 12.3 14.3
Future 28.5 0.0 28.5 28.5
_______ _______ _______ _______
Total 71.8 -36.3 35.5 108.1
====== ====== ====== ======
Country Breakdown (% of NAV)*
Long Short Net Gross
United Kingdom 71.8 -28.1 43.7 99.9
Italy 0.0 -4.8 -4.8 4.8
Germany 0.0 -2.4 -2.4 2.4
Spain 0.0 -1.0 -1.0 1.0
_______ _______ _______ _______
Total 71.8 -36.3 35.5 108.1
====== ====== ====== ======
*Excluding holdings in Sanditon Asset Management
and TM Sanditon UK Select Fund.
Top 20 Long Positions (% of NAV)**
%
1 Babcock International 5.0
2 Reed Elsevier 4.8
3 Diageo 4.5
4 ITV 4.3
5 Melrose Industries 3.7
6 Sanditon Asset Management 3.1
7 Vodafone 3.0
8 Aviva 2.4
9 HSBC 2.3
10 British American Tobacco 1.9
11 BT 1.5
12 IG Group 1.5
13 Equiniti Group 1.4
14 J Sainsburys 1.1
15 Greene King 1.1
16 Just Retirement 1.1
17 Man Group 1.0
18 DS Smith 0.8
19 Ophir Energy 0.7
20 Indivior 0.7
_______
Total 45.9
======
Total number of positions** 40
======
**Including holdings in Sanditon Asset Management
and TM Sanditon UK Select Fund.
Income Statement
for the six months to 31 December 2018
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) (Audited) (Audited)
Six months Six months Six months Six months Six months Six months For the For the For the
to 31 to 31 to 31 to 31 to 31 to 31 year year year
December December December December December December ended 30 ended 30 ended 30
2018 2018 2018 2017 2017 2017 June 2018 June 2018 June 2018
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Notes GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Gains/ - 924 924 - (3,552) (3,552) - (3,895) (3,895)
(losses) on
investments
held at fair
value
through
profit or
loss
Income 340 - 340 314 - 314 682 - 682
Management 2 (44) (132) (176) (45) (134) (179) (88) (263) (351)
fee
Other (125) - (125) (127) - (127) (253) - (253)
expenses
_______ _______ _______ _______ _______ _______ _______ _______ _______
Return on 171 792 963 142 (3,686) (3,544) 341 (4,158) (3,817)
ordinary
activities
before
taxation
Taxation on (21) 21 - (8) 13 5 (24) 30 6
ordinary
activities
_______ _______ _______ _______ _______ _______ _______ _______ _______
Return on 150 813 963 134 (3,673) (3,539) 317 (4,128) (3,811)
ordinary
activities
after
taxation
attributable
to
shareholders
====== ====== ====== ====== ====== ====== ====== ====== ======
Return per 0.30p 1.63p 1.93p 0.27 (7.35) (7.08) 0.63 (8.26) (7.63)
Ordinary
Share
(pence)
====== ====== ====== ====== ====== ====== ====== ====== ======
The total column of this statement is the profit and loss account of the
Company. All the revenue and capital
items in the above statement derive from continuing operations.
The notes on pages 12 to 14 form part of these accounts.
There is no other comprehensive income and therefore the total return for the
year is also the total
comprehensive income for the year.
Statement of Financial Position
as at 31 December 2018
(Unaudited) (Unaudited) (Audited)
31 December 31 December 30 June
2018 2017 2018
Notes GBP000 GBP000 GBP000
Fixed assets
Investments at fair value through profit or 4 11,367 13,869 10,314
loss
_______ _______ _______
Current assets
Debtors 84 60 189
Amounts due in respect of contracts for 1,937 890 1,239
difference
Collateral paid in respect of contracts for 7,906 8,977 10,006
difference
UK Treasury Bills 23,978 16,989 21,122
Cash and short term deposits 4,869 8,610 9,247
_______ _______ _______
Total current assets 38,774 35,526 41,803
_______ _______ _______
Current liabilities
Creditors (86) (109) (2,102)
Amounts payable in respect of contracts for (3,361) (3,033) (4,034)
difference
_______ _______ _______
Total current liabilities (3,447) (3,142) (6,136)
_______ _______ _______
Net current assets 35,327 32,384 35,667
Total assets less current liabilities 46,694 46,253 45,981
_______ _______ _______
Net assets 46,694 46,253 45,981
====== ====== ======
Capital and reserves
Share capital 5 500 500 500
Share premium 48,872 48,872 48,872
Capital reserve (3,010) (3,368) (3,823)
Revenue reserve 332 249 432
_______ _______ _______
Total shareholders' funds 46,694 46,253 45,981
====== ====== ======
Net asset value per share - Ordinary Share 93.39 92.51 91.96
(pence)
====== ====== ======
The notes on pages 12 to 14 form part of these accounts.
Statement of Changes in Equity
Six months to 31 December 2018 (unaudited)
Share
Share Premium Capital Revenue
Capital Account Reserve Reserve Total
GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1 July 2018 500 48,872 (3,823) 432 45,981
_______ _______ _______ _______ _______
Return on ordinary
activities
after taxation - - 813 150 963
Dividends paid - - - (250) (250)
_______ _______ _______ _______ _______
Balance at 31 December 500 48,872 (3,010) 332 46,694
2018
====== ====== ====== ====== ======
Six months to 31 December 2017 (unaudited)
Share
Share Premium Capital Revenue
Capital Account Reserve Reserve Total
GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1 July 2017 500 48,872 305 565 50,242
_______ _______ _______ _______ _______
Return on ordinary
activities
after taxation - - (3,673) 134 (3,539)
Dividends paid - - - (450) (450)
_______ _______ _______ _______ _______
Balance at 31 December 500 48,872 (3,368) 249 46,253
2017
====== ====== ====== ====== ======
For the year ended 30 June 2018 (audited)
Share
Share Premium Capital Revenue
Capital Account Reserve Reserve Total
GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1 July 2017 500 48,872 305 565 50,242
_______ _______ _______ _______ _______
Return for the year - - (4,128) 317 (3,811)
Dividends paid - - - (450) (450)
_______ _______ _______ _______ _______
Balance at 30 June 2018 500 48,872 (3,823) 432 45,981
====== ====== ====== ====== ======
The notes on pages 12 to 14 form part of these accounts.
Notes to the Interim Accounts
1. ACCOUNTING POLICIES
A summary of the principal accounting policies is set out below:
Basis of accounting
The financial statements have been prepared in accordance with the applicable
UK Accounting Standards, being FRS102 - The Financial Reporting Standard - and
with the Statement of Recommended Practice "Financial Statements of Investment
Trust Companies and Venture Capital Trusts" (issued in November 2014 and
updated in February 2018). The half-year accounts are prepared in accordance
with Financial Reporting Standard 104 - Interim Financial Reporting.
The financial information for the period ended 30 June 2018 included in this
report has been taken from the Company's full accounts.
They have also been prepared on the assumption that approval as an investment
trust will continue to be granted. The financial statements have been prepared
on a going concern basis.
2. INVESTMENT MANAGEMENT FEE
(Unaudited) (Unaudited) (Audited)
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2018 2017 2018
GBP000 GBP000 GBP000
Basic fee:
25% charged to revenue 44 45 88
75% charged to capital 132 134 263
_______ _______ _______
176 179 351
====== ====== ======
Performance
fee charged
100% to
capital:
Performance fee accrual - - -
_______ _______ _______
- - -
====== ====== ======
The Company's investment manager is Sanditon Asset Management Limited. With
effect from Admission, the Manager is entitled to receive from the Company in
respect of its services provided under the Management Agreement, a management
fee accrued daily and payable monthly in arrears calculated at the rate of
one-twelfth of 0.75 per cent. per calendar month of the Company's Net Asset
Value. In accordance with the Directors' policy on the allocation of expenses
between income and capital, in each financial period 75 per cent. of the
management fee payable is expected to be charged to capital and the remaining
25 per cent. to income.
The Manager is also entitled to a performance fee which equals 15 per cent. of
the amount by which the Reference Amount at the end of a Performance Period
exceeds the higher of (a) the Hurdle (the "Hurdle" means the Initial Gross
Proceeds adjusted for the total amount of any dividends paid or payable)
increased by RPIX plus 2 per cent. per annum, compounded annually (on a
pro-rata basis where applicable) from Admission and (b) the High Watermark (the
"High Watermark" means, as at the end of the relevant Performance Period, the
highest of (i) the Reference Amount of the previous Performance Period, (ii)
the Reference Amount of the most recent Performance Period in respect of which
a performance fee was paid; and (iii) the Initial Gross Proceeds; and in each
case adjusted for any repurchases by the Company of Ordinary Shares or any
dividends paid or payable during the relevant Performance Period multiplied by
the time weighted average of the total number of Shares in issue during that
Performance Period).
The first "Performance Period" is the period from 27 June 2014 (the date of
Admission to the London Stock Exchange) to the end of the Company's third
accounting period and each subsequent Performance Period begins immediately
after the previous Performance Period and ends at the end of the Company's
third accounting period thereafter; provided that where the Management
Agreement is terminated the date of such termination shall be the end of the
then current Performance Period.
The "Reference Amount" means, in respect of a given Performance Period, the
lower of (i) the Net Asset Value on the last Business Day of a Performance
Period and (ii) the average of the closing mid-market prices for the five
Business Days ending on the last Business Day of a Performance Period of an
Ordinary Share as derived from the Official List of the UK Listing Authority,
multiplied by the number of Ordinary Shares in issue on the last Business Day
of that Performance Period; and in each case adjusted for the total amount of
any dividends paid or payable during that Performance Period and any accrual
for unpaid performance fees.
3. DIVID
No interim dividend has been declared in respect of the six months to 31
December 2018.
Consideration will be given to an annual dividend in respect of the year ended
30 June 2019 at a Board meeting to be held in September 2019. An announcement
will be made shortly after that meeting.
4. INVESTMENTS
(Unaudited) (Unaudited) (Audited)
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2018 2017 2018
GBP000 GBP000 GBP000
UK:
Investments listed on 5,088 7,749 4,207
a recognised
investment exchange
TM Sanditon UK Select 4,818 4,571 4,646
Fund
Unquoted investment 1,461 1,549 1,461
_______ _______ _______
11,367 13,869 10,314
====== ====== ======
5. SHARE CAPITAL
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) (Audited)
31 December 31 December 31 December 31 December 30 June 30 June
2018 2018 2017 2017 2018 2018
No. of GBP000 No. of GBP000 No. of GBP000
Shares Shares Shares
Allotted,
issued &
fully
paid:
Ordinary 50,000,000 500 50,000,000 500 50,000,000 500
Shares of
GBP0.01
_______ _______ _______ _______ _______ _______
50,000,000 500 50,000,000 500 50,000,000 500
====== ====== ====== ====== ====== ======
Interim Management Report
six months ended 31 December 2018
Investment Objective
The Company's investment objective is to:
* deliver absolute returns of at least 2 per cent per annum, compounded
annually, above RPIX; and
* be an asset diversifier for shareholders by targeting low correlation with
leading large capitalisation equity indices.
Alternative Investment Fund Managers Directive ("AIFMD")
In order to comply with AIFMD, the Company has appointed Sanditon Asset
Management Limited ("SAM") to act as its Alternative Investment Fund Manager
("AIFM"). SAM has been approved as a Small Authorised UK Alternative Investment
Fund Manager by the UK's Financial Conduct Authority.
Going Concern
The Directors believe that, having considered the Company's investment
objectives, risk management policies, capital management policies and
procedures, nature of the portfolio and expenditure projections, the Company
has adequate resources and an appropriate financial structure in place to
continue in operational existence for the foreseeable future. The assets of the
Company consist mainly of securities which are readily realisable. For these
reasons, they consider that there is reasonable evidence to continue to adopt
the going concern basis in preparing the accounts.
As at 31 December 2018 the Company had net assets of GBP43.5 million and it has
sufficient cash balances to meet current obligations as they fall due. The
Company continues to meet day-to-day liquidity needs through its cash
resources.
The Directors have a reasonable expectation that the Company will continue in
existence for the foreseeable future.
Principal risks and uncertainties
The key risks to the Company fall broadly under the following categories:
* Investment and strategy
The Board will regularly review the investment mandate and long-term investment
strategy in relation to the market and economic conditions. The Board also
regularly monitors the Company's investment performance against the objective
to deliver at least 2% above inflation and its compliance with the investment
guidelines.
* Accounting, legal and regulatory
In order to qualify as an investment trust, the Company must comply with the
provisions contained in Section 1158 of the Corporation Taxes Act 2010. A
breach of Section 1158 in an accounting period could lead to the Company being
subject to corporation tax on gains realised in that accounting period. Section
1158 qualification criteria are continually monitored by the Investment Manager
and the results reported to the Board at its regular meetings. The Company must
also comply with the Companies Act and the UKLA Listing Rules. The Board relies
on the services of the administrator, Northern Trust Global Services Limited
and its professional advisers to ensure compliance with the Companies Act and
the UKLA Listing Rules.
* Loss of investment team or Investment Manager
A sudden departure of the Investment Manager or several members of the
investment management team could result in a short-term deterioration in
investment performance.
* Discount
A disproportionate widening of the discount relative to the Company's peers
could result in loss of value for shareholders. There is a continuation vote in
December 2020.
* Operational
Like most other investment trust companies, the Company has no employees and
therefore relies upon the services provided by third parties and is dependent
on the control systems of the Investment Manager, the custodian and the
Company's other service providers. The security, for example, of the Company's
assets, dealing procedures, accounting records and maintenance of regulatory
and legal requirements, depend on the effective operation of these systems. The
custodian produces reports on its internal controls which are reviewed by its
auditors and give assurance regarding the effective operation of controls.
* Market risk
The fair value or future cash flows of a financial instrument held by the
Company may fluctuate because of changes in market prices. This market risk
comprises three elements - currency risk, interest rate risk and other price
risk (see below).
* Currency risk
The Company may invest in overseas securities and its assets may be subject to
currency exchange rate fluctuations.
* Interest rate risk
Interest rate movements may affect the level of income receivable on cash
deposits.
* Other price risk
Other price risks (i.e. changes in market prices other than those arising from
interest rate risk or currency risk) may affect the value of the investments.
* Credit risk
The failure of the counterparty to a transaction to discharge its obligations
under that transaction could result in the Company suffering a loss.
* Liquidity risk
This is the risk that the Company will encounter difficulty in meeting
obligations associated with financial liabilities.
Transactions with the Investment Manager
Under AIC Guidance, the Company is required to provide additional information
concerning its relationship with the Investment Manager, Sanditon Asset
Management Limited ("SAM"). Details of the investment management fee charged by
SAM are set out in note 2 on pages 12 and 13. At 31 December 2018, GBP30,068 (31
December 2017: GBP29,400) of this fee remained outstanding.
Related party transactions
During the period no transactions with related parties have taken place which
materially affected the financial position or performance of the Company. The
Directors' current level of remuneration is GBP20,000 per annum for each
Director, with the Chairman of the Audit Committee receiving an additional fee
of GBP4,000 per annum. The Chairman's fee is GBP30,000 per annum.
Directors' responsibility statement
The Directors are responsible for preparing the interim report, in accordance
with applicable law and regulations. The Directors confirm that, to the best of
their knowledge:
* The condensed set of financial statements within the interim report has been
prepared in accordance with FRS 104 issued by the Accounting Standards board on
"Half-Yearly Financial Reports";
* The Interim Management Report includes a fair review of the information
required by 4.2.7R (indication of important events during the first six months
of the year, their impact on the condensed set of financial statements, and a
description of the principal risks and perceived uncertainties for the
remaining six months of the financial year); and
* The Interim Management Report includes a fair review of the information
concerning related parties transactions as required by Disclosure and
Transparency Rule 4.2.8R.
For and on behalf of the Board
Rupert Barclay
Chairman
18 February 2019
Directors and Officers
as at 31 December 2018
Directors
Rupert Barclay, Chairman
Hugo Dixon
Christopher Keljik OBE
Mark Little
Investment Manager and Secretary
Sanditon Asset Management Limited
Fifth Floor
33 Cannon Street
London EC4M 5SB
Telephone: 020 3595 2900
Administrator
Northern Trust Global Services SE
50 Bank Street
Canary Wharf
London E14 5NT
Registered office
Fifth Floor
33 Cannon Street
London EC4M 5SB
Company number
09040176
Auditor
Ernst & Young LLP
25 Churchill Place
Canary Wharf
London E14 5EY
Registrar
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Email: enquiries@linkgroup.co.uk
Stockbroker
JPMorgan Cazenove
25 Bank Street
Canary Wharf
London E14 5JP
Website
www.sanditonam.com
Sanditon Asset Management
Fifth Floor, 33 Cannon Street, London, EC4M 5SB
Telephone: +44 (0)20 3595 2900
Email: info@sanditonam.com
END
(END) Dow Jones Newswires
February 18, 2019 08:34 ET (13:34 GMT)
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