TIDMSIT
Sanditon Investment Trust plc
INTERIM ACCOUNTS
For the period from
14 May 2014 to 31 December 2014
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
Chairman's Statement 1
Investment Manager's Report 2-4
Portfolio 5
Income Statement 6
Balance Sheet 7
Reconciliation of Movements
in Shareholders' Funds 8
Cash Flow Statement 9
Notes to the Half Year Report 10-16
Interim Management Report 17-19
Directors and Officers 20
Chairman's Statement
for the period from 14 May 2014 to 31 December 2014
First of all I would like to thank all shareholders for supporting the launch
of Sanditon Investment Trust plc (the "Company"). We were delighted to reach
our target of raising GBP50,000,000 and pleased that the costs associated with
the launch were within the prospectus estimates, with a starting Net Asset
Value ("NAV") of 98.7p.
After an encouraging first quarter, the NAV performance of your Company slipped
back to close the year at 99.2p, 0.5% ahead of the starting NAV. The Company's
share price at 31 December 2014 of 105.25p was trading at a premium of 6.1% to NAV.
Although at the headline level European equity markets were only slightly down
in the second half of 2014, it has certainly been an eventful period to start a
portfolio. The manager outlines his thoughts in the Investment Manager's
Report. Whilst it is disappointing the NAV did not continue its early progress,
the correlation of the Company's performance to equity markets has been low and
the Board believes the more recent volatility of equity markets justifies the
Company's current low net positioning.
As you know, your Company's only unlisted investment is a holding in Sanditon
Asset Management Limited ("SAM"). Your Company acquired a 20% stake in SAM at
launch for a cost of GBP200,000. As set out in the prospectus and in the absence
of any evidence of substantial underperformance relative to the business plan,
we do not propose to revalue this stake until 2016, after SAM has produced its
annual audited results (to 31/3/16). However, the Board will share their
thoughts, after consultation with your Company's broker and auditor, on an
appropriate valuation methodology for that stake, ahead of the first valuation
in mid 2016. Two things will drive our approach - a wish to provide a
conservative but fair valuation and a methodology which is not overly
complicated and can expect to remain constant.
We are encouraged to hear of the progress SAM has made in its first six months
of trading. After the launch of your Company, SAM launched a UK listed UCITS
umbrella structure with Thesis as its Authorised Corporate Director. The
prospectus allowed your Company to seed SAM funds, up to a total of 10% of NAV
in any fund subject to a maximum of 20% of NAV in total SAM funds. It has only
been necessary to seed the UK Select fund. At the end of December SAM had
assets under management of GBP290m.
2015 looks like it will be a challenging year for all investors and I look
forward to reporting on the progress of your Company in due course.
Rupert Barclay
Chairman
24 February 2015
Investment Manager's Report
period ending 31 December 2014
We would like to start by thanking shareholders for their support in your
Company's recent flotation. As the Investment Manager for your Company,
Sanditon Asset Management would welcome any comments from shareholders about
our communications with you. We hope you find our website www.sanditonam.com
both easy to access and to navigate. For those that have not looked at our
website, you will find a dedicated section for Sanditon Investment Trust plc at
the top right of the home page where we post quarterly fact sheets with
investment commentary, along with other information on your Company. We hope
you find it informative.
Your Company launched after five years of strongly rising asset prices,
encouraged by aggressively loose monetary policy from most of the world's
Central Banks. Whilst Quantitative Easing (QE) has certainly boosted asset
prices and, its proponents would argue, helped an economic recovery of sorts in
the early adopters of QE, the US and the UK; distorting the cost of capital for
too long is likely to cause serious stresses for the financial system. What is
most worrying for us is that Central Bankers around the world, along with their
political masters, seem to have lost all interest in the long-term and have
become obsessed with the short term. The Bank of Japan has now gone `all in'
with QE, in an attempt to debase the Yen, allowing its projected balance sheet
to rise towards 80% of GDP by 2017. The ECB has announced this month that it
will join in with a EUR1.1trillion programme, overcoming German objections which
almost certainly were not as strong as they might have been if Japan was not
doing its own QE, and if that does not work the ECB has promised it will `do
whatever it takes' - but to achieve what exactly? Driving absurdly low bond
yields to even lower or negative rates? Is the level of bond yields in Europe,
with 10 year yields for Germany at under 0.4%, France 0.5% and Italy and Spain
at 1.4-1.5% the constraint on growth in the Eurozone? It seems clear to us that
the primary objective of QE for the Eurozone is to devalue the currency, as it
is for Japan and as it was for the UK and to a lesser extent the US. Currency
wars are not new and in the end are nearly always a zero sum game. Any gains to
one particular economy are likely to be short term and may well prevent
countries from making the tougher decisions needed to improve their
competitiveness in the longer term. Despite the significant devaluation of
sterling post the crisis, the UK's balance of payments deficit has risen to
almost 5% of GDP.
Along with Japanese QE, the biggest financial event in the period under review
was the dramatic fall in the oil price. This will inevitably act like a tax cut
for consumers (we have heard estimates of a GBP10bn boost to the UK economy from
cheaper petrol and utility bills), and it strikes us that Central Bankers with
a long-term view would use this opportunity to withdraw excess liquidity by
modestly increasing interest rates from their emergency levels. However,
despite talk from Central Bankers like Mr. Carney that they would look through
the recent fall in the oil price - the fact that the two members on the MPC
voting for an interest rate rise in the second half of 2014 have now changed
their mind, suggests otherwise. There appears to be institutional paralysis
within the Fed and the MPC. This is already the fourth longest economic
`recovery' in US history and yet the Fed seem terrified as to how markets, and
the economy, may react to even a modest increase in interest rates. In the UK,
with `forward guidance' widely discredited, it is anyone's guess when rates
will move but if the Fed and the MPC have not increased rates by the time the
next cyclical downturn begins, they will both have to continue to rely on
unconventional policy tools in an attempt to stimulate demand. At what point do
markets decide whether the emperor is wearing any clothes?
In a world of asset bubbles, all investors are driven to uncomfortable
positions. Few predicted that US 30 year treasuries would return roughly 30% in
2014. Now, with US 10 year yields at 1.8% against French 10 years at 0.5%, are
they good value? On a relative basis maybe - but on an absolute basis do
rational investors really want to lend money to over-indebted Western economies
at these rates? With equity dividend yields higher than companies' corporate
bond yields in many cases, does that make equities attractive? Again, maybe on
a relative basis, but we would argue not on an absolute basis. The median P/E
for US equities is at historically high levels. Stripping out banks and commodity
stocks from the UK market, the picture is much the same. QE has boosted asset prices,
no question - but almost certainly at a cost to future returns.
Oil, and other commodities were probably the earliest beneficiary of QE. Their
recent collapse should serve as a warning shot to all investors that their
confidence in current asset prices, be it bonds, equities or property should be
very low. Absence of yield from government and high grade corporate credit is
collectively driving investors into riskier assets, as intended - but when the
bubble bursts and all the Central Banks are already `all in', the next
correction may leave the Credit Crunch of 2008 looking very tame.
Portfolio Structure and Performance
Your Company is an Equity long/short investment company. We have the ability to
change our `net exposure' (difference between longs and shorts) depending upon
our view of the attractiveness of equities as an asset class. Given our
previous comments, shareholders will not be surprised that we have started the
life of your Company with low net exposure, averaging +7.5% over the six month
period with a peak of +17% after the market fell sharply in October. The UK and
European equity markets ended the second half of 2014 down between 0-2% from
their end June levels, but with a sharp pick up in volatility with two
significant corrections in the autumn and in December being followed by two
swift rallies. This pick up in volatility is fairly typical towards the end of
an economic cycle and will probably encourage us to maintain low net exposure
for the near future.
With close to zero interest rates on our cash deposits, we therefore have to
try to ensure that our long book outperforms our short book if we are to make
positive returns. The fact sheets on our website give more detailed attribution
of our performance for those interested but as a generality we had a good start
with our NAV increasing from 98.7p at inception to 103.0p in October whilst
equity markets were going down but we have subsequently given back most of
those gains as the markets rallied to finish with a NAV at 99.2p. Over the
period our long book lost 0.5% and our short book made 1.6% representing
returns on average capital employed of -1.1% and +4.6% respectively - not
enough of a gap to make meaningful progress.
We started the portfolio with a long book biased to defensive and consumer
cyclical assets and a short book biased to industrial cyclicals and growth
shares. Our long in defensive shares was arguably not long enough as we were
rather put off by very strong price performance from defensive shares in the
five months before our launch. Whilst this was not a mistake to begin with, we
failed to use general market weakness in October to add to defensive shares
which led the subsequent market rally. We covered some industrial cyclical
shorts in October (Weir and Smiths Industries) and some growth shorts (Ocado
and Associated British Foods) for useful profits. The former did not rally, the
latter did and we put them back on the short book, both too early. Whilst it is
possible that European QE lengthens the recovery phase of the cycle a bit
longer we remain averse to industrial shares (both in the UK and in Europe)
which generally trade on peak margins and are vulnerable to a slowdown in their
top line. The cyclicality we have in the portfolio is in the consumer space
where margins remain far from peak levels and there are at last signs that
consumers are benefitting from a modest pick-up in real disposable income
growth, aided by the recent collapse in oil. Whilst we have made some money
from our commodity holdings, we do not currently have much exposure in either
the oil or mining space. Sharp price falls leave us wary of being too short in
this area, although we are still short two oil services stocks which
contributed 0.8% to performance in the period under review.
Whilst we understand that European and Japanese QE may keep financial assets
bubbling along at higher levels, elevated valuations suggest returns will be
hard to come by. Preserving the real value of capital is going to be a
significant challenge for all investors. We hope we meet that challenge.
Sanditon Asset Management Limited
24 February 2015
Portfolio
as at 31 December 2014
Country Breakdown (% of NAV)
Long Short Net Gross
United Kingdom 56.5 -37.7 18.8 94.2
France 4.6 -4.1 0.5 8.7
Germany 0.0 -4.4 -4.4 4.4
Italy 0.0 -0.9 -0.9 0.9
Spain 2.2 0.0 2.2 2.2
Business Cycle Groupings (% of NAV)*
Long Short Net Gross
Commodity 4.7 -2.2 2.5 6.9
Cyclicals
Consumer 14.1 -1.6 12.5 15.7
Cyclicals
Industrial 3.0 -20.7 -17.7 23.7
Cyclicals
Growth 7.1 -14.6 -7.5 21.7
Financial 10.3 0.0 10.3 10.3
Growth 7.8 -4.2 3.6 12.0
Defensives
Value 5.9 -3.7 2.2 9.6
Defensives
Top 10 Long Positions (% of NAV)**
%
Ashmore Group 6.2
Babcock International 3.6
Laird 3.3
Melrose Industries 3.0
BHP Billiton 2.8
Peugeot 2.8
Hargreaves Lansdown 2.8
Halfords 2.5
Man Group 2.3
Imperial Tobacco 2.3
Total 31.6
Total number of positions *** 48
* Excluding holdings in Sanditon Asset Management and TM Sanditon UK Select
** Excluding 10% holding in TM Sanditon UK Select
*** Including holdings in Sanditon Asset Management and TM Sanditon UK Select
Income Statement
for the period from 14 May 2014 to 31 December 2014
(Unaudited)
14 May 2014 to 14 May 2014 to 14 May 2014 to
31 December 31 December 31 December
2014 2014 2014
Revenue Capital Total
Notes GBP000 GBP000 GBP000
Gains on - 226 226
investments
held at fair
value through
profit or loss
Income 2 299 - 299
Management fee 3 (48) (145) (193)
Other expenses 4 (115) - (115)
Return before 136 81 217
finance costs &
taxation
Finance costs - - -
Return on 136 81 217
ordinary
activities
before taxation
Taxation on - - -
ordinary
activities
Return on 136 81 217
ordinary
activities
after taxation
attributable to
shareholders
Return per 14 0.27 0.16 0.43
Ordinary Share
(pence):
The notes on pages 10 to 16 form part of these accounts.
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.
Balance Sheet
as at 31 December 2014
(Unaudited)
31 December
2014
Notes GBP000
Fixed assets
Investments at fair value 5 13,085
through profit or loss
Current assets
Debtors 6 20
Cash at bank 37,672
37,692
Creditors - amounts falling
due within one year
Creditors 7 (1,188)
Net current assets 36,504
Total assets less current 49,589
liabilities
Net assets 49,589
Capital and reserves
Share capital 9 500
Share premium 10 48,872
Capital reserve 11 81
Revenue reserve 12 136
Total shareholders' funds 49,589
Net asset value per share - 99.2
Ordinary Share (pence)
The notes on pages 10 to 16 form part of these accounts.
Reconciliation of Movement in Shareholders' Funds
for the period from 14 May 2014 to 31 December 2014
(Unaudited)
Share
Share Premium Capital Revenue
Capital Account Reserve Reserve Total
GBP000 GBP000 GBP000 GBP000 GBP000
Balance at - - - - -
14 May 2014
Return on - - 81 136 217
ordinary
activities
after
taxation
Issue of 500 49,500 - - 50,000
Ordinary
Shares
IPO costs - (628) - - (628)
Balance at 500 48,872 81 136 49,589
31 December
2014
The notes on pages 10 to 16 form part of these accounts.
Cash Flow Statement
for the period from 14 May 2014 to 31 December 2014
(Unaudited)
31 December
2014
Notes GBP000
Net cash inflow from 8 92
operating activities
Taxation
Tax paid -
Financial investments
Purchases of investments (118,943)
Sales of investments 107,151
Net cash outflow from (11,792)
financial investments
Equity dividends paid -
Net cash outflow before (11,700)
financing activities
Financing
Issue of Ordinary Shares 50,000
Payment of issue costs (628)
Net cash inflow from 49,372
financing activities
Increase in cash 37,672
The notes on pages 10 to 16 form part of these accounts.
Notes to the Interim Accounts
1. ACCOUNTING POLICIES
A summary of the principal accounting policies is set out below:
(a) Basis of accounting
The financial statements have been prepared in accordance with the applicable
UK Accounting Standards and with the Statement of Recommended Practice
"Financial Statements of Investment Trust Companies and Venture Capital Trusts"
(issued in January 2009).
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.
(b) Investments
Upon initial recognition investments are designated by the Company "at fair
value through profit or loss". They are accounted for on the date they are
traded and are included initially at fair value which is taken to be their
cost. Subsequently investments are valued at fair value which is the bid market
price for listed investments. The Company's only unquoted investment is in the
Company's Investment Manager, Sanditon Asset Management Limited ("SAM") which
is valued by the Directors in accordance with the International Private Equity
and Venture Capital Valuation Guidelines and currently carried at cost. It is
anticipated that the valuation methodology will move from the cost basis once
SAM has produced its audited results to 31 March 2016.
Changes in the fair value of investments held at fair value through profit or
loss and gains or losses on disposal are included in the capital column of the
income statement within "gains/(losses) on investments held at fair value
through profit or loss".
(c) Foreign currency
Transactions denominated in foreign currencies are translated into sterling at
actual exchange rates as at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the period end are reported at
the rates of exchange prevailing at the year end. Any gain or loss arising from
a change in exchange rates subsequent to the date of the transaction is
included as an exchange gain or loss to capital or revenue in the income
statement as appropriate. Foreign exchange movements on investments are
included in the Income Statement within gains on investments.
(d) Income
Investment income has been accounted for on an ex-dividend basis or when the
Company's right to the income is established. Special dividends are credited to
capital or revenue in the Income Statement, according to the circumstances
surrounding the payment of the dividend. UK dividends are accounted for net of
any tax credits. Overseas dividends are included gross of withholding tax.
Interest receivable on deposits is accounted for on an accruals basis.
(e) Expenses
All expenses are accounted for on an accruals basis and are charged as follows:
* the basic investment management fee is charged 25% to revenue and 75% to
capital;
* any performance fee earned is allocated to capital;
* investment transaction costs are allocated to capital; and
* other expenses are charged wholly to revenue.
(f) Taxation
The charge for taxation is based upon the net revenue for the year. The tax
charge is allocated to the revenue and capital accounts according to the
marginal basis whereby revenue expenses are first matched against taxable
income arising in the revenue account. Deferred taxation will be recognised as
an asset or a liability if transactions have occurred at the balance sheet date
that give rise to an obligation to pay more taxation in the future, or a right
to pay less taxation in the future. An asset will not be recognised to the
extent that the transfer of economic benefit is uncertain.
As an approved investment trust in the UK, the Company does not suffer tax on
capital profits and UK dividend income received into the revenue account is
also not taxable.
2. INCOME
Period ended
31 December 2014
GBP000
Income from investments
UK franked dividends 259
UK treasury bills interest 36
Other income 4
299
3. INVESTMENT MANAGEMENT FEE
Period ended
31 December 2014
GBP000
Basic fee:
25% charged to revenue 48
75% charged to capital 145
193
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 shall be 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 excluding cash. 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 be 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.
4. OTHER EXPENSES
Period ended
31 December 2014
GBP000
Secretarial services and fund 28
administration fees
Other administration expenses 26
Auditor's remuneration - audit services 9
- corporation tax advice fees 3
Directors' fees 39
Irrecoverable VAT 10
115
5. INVESTMENTS
31 December 2014
GBP000
Investments listed on a recognised
investment exchange:
UK 12,006
Overseas 879
Unquoted investments:
UK 200
13,085
6. DEBTORS
31 December 2014
GBP000
Accrued income and prepayments 20
20
7. CREDITORS
31 December 2014
GBP000
Amounts falling due within one year:
Unrealised losses on contracts for 1,067
difference
Other creditors 121
1,188
8. RECONCILIATION OF TOTAL RETURN ON ORDINARY ACTIVITIES BEFORE FINANCE COSTS
AND TAXATION TO NET CASH INFLOW FROM OPERATING ACTIVITIES
31 December 2014
GBP000
Total return on ordinary activities 217
before finance costs and taxation
Capital return before finance costs and (81)
taxation
Accrued income and prepayments (20)
Other creditors 121
Investment management fee capitalised (145)
Net cash inflow from operating 92
activities
9. SHARE CAPITAL
31 December 2014 31 December 2014
No of Shares GBP000
Allotted, issued & fully 50,000,000 500
paid:
Ordinary Shares of GBP0.01
50,000,000 500
10. SHARE PREMIUM
31 December 2014
GBP000
Share premium arising on Ordinary 49,500
Shares
IPO costs (628)
Closing balance 48,872
11. CAPITAL RESERVE
31 December 2014
GBP000
Gains on investments - held at fair 226
value through profit or loss
Investment management fee 75% (145)
capitalised
Closing balance 81
12. REVENUE RESERVE
Period ended
31 December 2014
GBP000
Retained profit for the period 136
Closing balance 136
13. FINANCIAL COMMITMENTS
At 31 December 2014 there were no commitments in respect of unpaid calls and
underwritings. However, the Company utilises derivative instruments and also
sells securities short.
14. RETURN PER ORDINARY SHARE
Total return per Ordinary Share is based on the return on ordinary activities
after taxation of GBP217,000. This calculation is based on the 50,000,000
Ordinary Shares in issue during the period.
The return per Ordinary Share can be further analysed between revenue and
capital as below:
Period ended Period ended
31 December 2014 31 December 2014
Pence per Ordinary Share GBP000
Net revenue return 0.27p 136
Net capital return 0.16p 81
Net total return 0.43p 217
15. NET ASSET VALUE PER SHARE
Total shareholders' funds and the net asset value per share attributable to the
ordinary shareholders at the period end calculated in accordance with the
Articles of Association were as follows:
Net Asset Value per share Net assets available
31 December 2014 31 December 2014
pence GBP000
Ordinary Shares of GBP0.01 99.2 49,589
(50,000,000 shares in
issue)
The net asset value per share is based on total shareholders' funds above, and
on 50,000,000 Ordinary Shares in issue at the period end.
16. 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 3. At 31 December 2014, GBP32,000 of this fee remained
outstanding. In addition, SAM received GBP3,109 in relation to a contribution to
the costs of the website and some IPO related costs.
17. RELATED PARTIES
The Directors are recognised as a related party under the Listing Rules and
amounts are disclosed in accordance with FRS 8. During the period, fees of GBP
39,000 have been charged.
Interim Management Report
period ended 31 December 2014
General
The Company was incorporated as a public limited Company on 14 May 2014. On 3
June 2014 the Company announced it had published a prospectus in connection
with an initial public offering of up to 50 million ordinary shares at 100
pence per ordinary share. Following the closing of the placing and offer for
subscription for ordinary shares the Board of the Company announced on 24 June
2014 that an aggregate of 50,000,000 ordinary shares in the Company ("Ordinary
Shares") would be issued at a price of GBP1 per Ordinary Share. 13,494,900
Ordinary Shares would be issued pursuant to the offer and 36,505,100 would be
issued under the placing. The fund raise was oversubscribed. The shares were
admitted to the Official List on 27 June 2014 and dealings commenced on that
day.
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 2014 the Company had net assets of GBP49.6 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, The Northern Trust Company 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. A potential buy-back of shares
would be in accordance with London Stock Exchange rules and at the Board's
discretion.
* 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 their
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
See note 16 on page 16.
Related party transactions
See note 17 on page 16.
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 the Accounting Standards Board's statement
"Half-Yearly Financial Reports"; and
* 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) and 4.2.8R (disclosure of related party transactions and changes
therein) of the FCA's Disclosure and Transparency Rules.
For and on behalf of the Board
Rupert Barclay
Chairman
24 February 2015
Directors and Officers
as at 31 December 2014
Directors
Rupert Barclay, Chairman
Hugo Dixon
Charles Harman
Christopher Keljik
Investment Manager
Sanditon Asset Management Limited
Fifth Floor
33 Cannon Street
London EC4M 5SB
Telephone: 020 3595 2900
Secretary and Administrator
The Northern Trust Company
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
1 More London Place
London SE1 2AF
Registrar
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Email: ssd@capitaregistrars.com
Stockbroker
JPMorgan Cazenove
25 Bank Street
Canary Wharf
London E14 5JP
Website
www.sanditonam.com
END
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