TIDMSIT
Sanditon Investment Trust plc
INTERIM ACCOUNTS
For the six months to 31 December 2017
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 & 2
Investment Manager's Report 3 to 6
Portfolio 7
Income Statement 8 & 9
Statement of Financial 10
Position
Statement of Changes in 11
Equity
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 2017
Performance
2017 was a disappointing year for the performance of your Company, but given
the Company's positioning at the start of the year, and the subsequent market
outturn, not entirely surprising. The net asset value (NAV) finished the year
at 92.51p, which combined with a dividend of 0.9p paid in December resulted in
a loss for the first half of the financial year of 7.0%. Your company's share
price fared worse, falling by 12.4% to finish the year at 85.4p, to leave the
shares trading at a 7.6% discount to NAV.
The Company's bearish positioning in being net short for most of the period and
with an investment portfolio biased to value has been unhelpful in a global
equity market which has made consistent progress and been dominated by cyclical
and growth stocks. With RPIX inflation in the UK reaching 4.2% by the end of
2017, the Company remains far behind its target return of 2% ahead of RPIX.
Unsurprisingly given its net short position for most of 2017, its correlation
with the UK equity market since launch remains extremely low at 0.03x.
The investment manager gives a comprehensive review of performance in his
report that follows. All fund managers have to tread a fine line between
patience and obstinacy. Your fund manager has a clear view that most asset
prices have been heavily distorted by quantitative easing and offer poor value.
He is bearish, and the Board, whilst challenging him regularly and thoroughly
in view of the disappointing performance, is supportive of this stance.
However, his partial retreat at the beginning of December, removing the
Company's 15% plus net short position ahead of an expected Christmas rally,
shows flexibility.
Stake in Sanditon Asset Management
Sanditon Asset Management (SAM) finished the year with assets under management
(AUM) of GBP585m, a decrease of 10.1% from the end of your Company's financial
year, as a result of outflows primarily from its UK funds. SAM alerted the
Company's shareholders in recent quarterly fact sheets that as a result of
MiFID II it will be paying the costs of research from its own resources. Total
annualised costs are expected to be in the order of GBP150,000-GBP200,000.
As SAM has a lean cost base, little mitigation is available, and these payments
for research will inevitably impact SAM's profitability. Ahead of the annual
revaluation of its holding in SAM in June, the Board will review whether any
alterations to the formula used for the valuation (the simple average of 1% of
AUM and 5x after tax profits) should be made.
Charges and Fees
Our total ongoing charges at 31 December 2017 were 1.3% per annum. No
performance fees have been paid or have accrued at 31 December 2017.
Share Buy Back
The Board has been approached by some shareholders about the potential use of
share buy backs. The Board does not currently have permission to buy back
shares. Moreover, given the relatively small size of the Company the Board
would be concerned that a buy back policy would not necessarily remove the
current discount the shares are trading at and that remaining shareholders
would not be best served by an increase in the total expense ratio that a
smaller Company would entail. I would remind shareholders that your Company has
an unusually shareholder friendly structure with a first continuation vote in
December 2020 at the latest.
Outlook
Weaker market conditions or a broadening of the market away from highly rated
stocks are probably needed for your Company to deliver better performance.
Whilst 2018 starts with the global economy in a synchronised upswing, we have
also seen an increase in market volatility and it should also see an
acceleration in tapering of remaining asset purchase programmes as well as
further interest rate increases which will result in tighter liquidity
conditions. We hope this will create a more favourable backdrop for your
Company.
Rupert Barclay
Chairman
1 March 2018
Investment Manager's Report
for the six months to 31 December 2017
Overview
2017 was not a good year to be bearish. Hindsight shows we were wrong to have
been net short and to have had a defensive skew in our portfolio. Whilst the UK
equity market's progress was relatively pedestrian at the headline level, until
a strong December surge left it up 13% for the year, this hid a wide variation
between the winners and losers in the market. Defensive and domestic shares
remained deeply out of favour whilst investors chased industrial cyclicals,
commodity cyclicals and highly rated shares. After a dull first six months of
the year, we had a very poor second half with the net asset value falling by
7.0%, as both our long and short books lost money.
In a relatively quiet year for portfolio activity, our problems are best
illustrated by the change in the average P/Es of our long and short book which
moved from the beginning of 2017 from an average P/E of 14x and 24x
respectively to 15x and 40x by the end of the year. Growth stocks were
aggressively rerated and the market largely ignored value stocks. This trend
accelerated in the second half.
Shareholders will know our bearish thesis has been based on the view that
quantitative easing (QE) has inflated an asset bubble, as the collapse in the
risk-free rate has increased the appetite of investors to chase riskier assets.
The chart opposite shows the expansion of the big three central banks' balance
sheets against the S&P index demonstrating the link between QE and equity
prices.
[Graphic removed}
Source: Federal Reserve Board, Standard & Poor's
Shareholders will see, in our modest defence, that it looked as though QE
programmes were peaking at the end of 2016, but a renewed surge from both the
ECB and the Bank of Japan dwarfed the tightening measures the Fed has announced
so far. As we wrote in the Company's annual report, it is staggering that
nearly a decade on from the financial crisis, central banks should have
expanded their balance sheets at the fastest rate since 2009, particularly
given the strength of most economic data released through the year. We started
the year modestly net short and told shareholders we were likely to increase
the short into market strength, and we did indeed move the net short from 6% at
the beginning of the year to 18% by September. With no signs of market weakness
in the often weak autumn months, and mindful that the progress of Mr. Trump's
tax reforms were likely to be welcomed by the US equity market, we retreated by
covering our futures short to leave us modestly net long at the start of
December in case of a strong Christmas rally, which duly occurred.
The question remains are we closer to policy unwind now? We still believe the
answer is definitively yes. The US has continued to raise interest rates in
2017 and has given a steer of a further three interest rate increases in 2018
and it has also started to unwind its $4.4 trillion QE programme. Admittedly it
is taking tentative steps, now selling just $20 billion of assets a month,
rising by $10 billion a quarter until it reaches $50 billion a month. The ECB
persists with negative interest rates but it has at last cut back its monthly
buying programme from EUR60 billion a month to EUR30 billion and the Germans are
still putting pressure on them to stop QE. The Bank of England reversed its
misguided post-referendum interest rate cut but has made no noises about
reversing its QE programme and it continues to have an asymmetric attitude to
inflationary pressures. With the old measure of inflation hitting 4% and CPI
over 3%, quite why they think 0.5% interest rates are appropriate remains
puzzling. The Japanese have taken QE to extraordinary levels with the Bank of
Japan's balance sheet at $4.6 trillion representing 93% of GDP, but December
did see the first month of modest shrinkage in their balance sheet. With signs
of China tightening credit as well, it seems very likely that 2018 will see
only a very modest expansion of the global central banks' balance sheet at best
and quite possibly will be the first year of shrinkage since the 2008 crash. We
believe this withdrawal of stimulus will be very important.
We hope it goes without saying that given the broad strength of global economic
data, relatively tight labour markets and a commodity backdrop which is no
longer helpful for inflation, central bankers should be tightening monetary
policy. Markets remain convinced that tightening will be negligible,
conditioned as they are to believing in the central bank put. We are often
asked what the catalyst will be for causing the significant market setback we
expect and of course one never knows until after a fall what particular piece
of data or event was seen as the catalyst. Throughout my career, I have always
seen extreme valuation as the biggest risk to market corrections and the market
we are currently in bears similarities with other bull markets. Inflation, both
consumer and wage, is the dog that has yet to bark in this cycle but given
where rates are it should not need much of a pick up to make investors reassess
the interest rate outlook. As QE slows or reverses, it is very difficult to
believe that this, in itself, will not cause some upward pressure on market
rates. Mr. Trump's fiscal largesse will also add further pressure as the
Treasury will need to pick up debt issuance as tax receipts drop, and it is
also highly likely that US corporates will respond to the tax cuts by raising
wages.
2018 has started with US bond yields looking as though they are about to break
out of their long-term downtrend. Whether the denouement this cycle is like
1987 (rising bond yields), 2000 (TMT hysteria) or 2008 (high leverage) is
slightly beside the point. The current market has many of the characteristics
of recent bull markets and we are again hearing of the possibility of equity
markets 'melting up', even from well-known value investors, some of whom have
joined the equity party (as though the 45% move in the US market since Mr.
Trump was elected a mere 15 months ago was not already a 'melt up'!). It is
also true that many hedge funds have given up shorting with record net longs in
the industry and private investors are pouring money into equity funds
(particularly in the US where the fear of missing out has always encouraged
greed) at record pace. This behaviour is very typical near market peaks.
Another of the refrains we have heard often in the last two years has been
'what is the alternative to equities?' This, of course, has been the point of
QE - to drive investors into riskier assets by depriving them of any safe low
risk return. We can at least counter now, that with US interest rates likely to
be raised north of 2% this year, that the dollar cash yield is close to the
equity yield on the US market. With highly elevated equity valuations, that is
becoming an attractive alternative.
Portfolio Structure and Performance
Over the first six months of your Company's financial year, your portfolio lost
6.5% before fees. The long book lost 1.8% and the short book lost 4.7% against
the market return of 7.2%. These represented returns on capital of -3.9% and
-11.8% respectively. Whilst being net short cost us in the last financial year,
the reasonably well-timed covering of our FTSE futures short during this period
ensured a relatively small 0.4% loss to asset value as a result of being net
short through the period. So the overall result was largely down to our
investment skew - long defensive and value against short cyclical and growth -
which for the first time since launch saw both our long and short book
underperform the market. The long book was particularly disappointing, with
stocks that had performed poorly in the first half of the year getting much
worse in the second. We wrote last time that our largest holding Babcock had
been derated, despite performing broadly in line with expectations to trade on
just 10x earnings. A further 20% price fall in the second half of 2017 (with no
negative news released during the period), left it trading on 8x and cost us
1.25% over the half. Our short in Just Eat conversely rose a further 20% to
trade on over 45x earnings and costing a further 1.2%, as the shares responded
to the Competition and Markets Authority's surprising approval of their
takeover of Hungry House, its largest competitor in the UK market. Whilst this
had no impact on the numbers for 2017, which were modestly downgraded through
the year to the same tune as Babcock's earnings, it is modestly enhancing for
2018 earnings, as almost any cash financed deal is in a zero-interest rate
environment. This sort of disparity between lowly rated and highly rated stocks
was replicated across the market and overall our long positions in value
defensive stocks cost 1.6% and our shorts in growth cost 2.9%.
Whilst we retreated from being net short to very modestly net long at the end
of the period, we have not changed the overall skew of the portfolio. We accept
that it is the skew that has caused us most problems over the last year, but we
do believe the performance in the market over 2017 does suggest that our skew
will work well in a down market. We believe that is now particularly the case
given the growing disparity between the P/Es of our long and short book.
However, if the market maintains its current enthusiasm for highly rated stocks
your portfolio is likely to continue to struggle.
We only made one change to the long book over the second half of the year,
replacing Inmarsat (in a well-timed sale in August) with Aviva, the insurance
group. With a yield of almost 6% and a strong balance sheet following some
non-core disposals, shareholders can expect improved returns. On the short book
we covered shorts in Merlin Entertainments (after a profit warning), Weir
(recovery in oil price likely to help their US shale related business), Tesco
(signs of improved trading momentum) and Elementis (one of very few
disappointing industrial cyclicals in the last two years).
Within the confines of our bearish view, which is clearly not in tune with
current market conditions, we are trying to manage risk by keeping our gross
leverage low. We hope 2018 sees a turn in our performance and shareholders can
follow our progress by reading our detailed quarterly fact sheets which can be
found on our website (www.sanditonam.com). We are also open to contact from
shareholders at any time.
Tim Russell Sanditon Asset Management Limited
1 March 2018
Portfolio
as at 31 December 2017
Business Cycle Groupings (% of NAV)*
Long Short Net Gross
Commodity 4.3 0.0 4.3 4.3
Cyclical
Consumer Cyclical 5.5 -3.0 2.5 8.5
Industrial 6.9 -11.8 -4.9 18.7
Cyclical
Growth 0.5 -19.7 -19.2 20.2
Financial 8.4 0.0 8.4 8.4
Growth Defensive 10.1 -5.6 4.5 15.7
Value Defensive 11.0 0.0 11.0 11.0
_______ _______ _______ _______
Total 46.7 -40.1 6.6 86.8
====== ====== ====== ======
Country Breakdown (% of NAV)*
Long Short Net Gross
Denmark 1.4 0.0 1.4 1.4
France 0.0 -7.8 -7.8 7.8
Germany 0.0 -3.0 -3.0 3.0
Italy 0.0 -4.2 -4.2
Netherlands 5.7 0.0 5.7 5.7
United Kingdom 39.6 -25.0 14.6 64.6
_______ _______ _______ _______
Total 46.7 -40.0 6.7 86.7
====== ====== ====== ======
*Excluding holdings in Sanditon Asset Management and TM Sanditon UK Select
Fund.
Top 20 Long Positions (% of NAV)**
%
1 TM Sanditon UK Select Fund 9.9
2 RELX 5.7
3 Babcock International 5.6
4 Diageo 4.4
5 Melrose Industries 3.9
6 Sanditon Asset Management 3.4
7 Man Group 2.9
8 HSBC 2.7
9 Aviva 2.7
10 ITV 2.5
11 J Sainsbury 2.3
12 BHP Billiton 1.6
13 Laird 1.6
14 GlaxoSmithKline 1.6
15 BT Group 1.5
16 AP Moller-Maersk 'B' 1.4
17 GKN 1.4
18 Ophir Energy 1.3
19 Dixons Carphone 1.1
20 Greene King 1.0
_______
Total 58.5
======
Total number of positions** 36
======
**Including holdings in Sanditon Asset Management and TM Sanditon UK Select
Fund.
Income Statement
for the six months to 31 December 2017
(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
2017 2017 2017 2016 2016 2016 June 2017 June 2017 June 2017
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Notes GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
(Losses)/ - (3,552) (3,552) - (525) (525) - (2,116) (2,116)
gains on
investments
held at fair
value
through
profit or
loss
Income 314 - 314 365 - 365 874 - 874
Management 2 (45) (134) (179) (49) (149) (198) (96) (291) (387)
fee
Other (127) - (127) (123) - (123) (235) - (235)
expenses
_______ _______ _______ _______ _______ _______ _______ _______ _______
Return on 142 (3,686) (3,544) 193 (674) (481) 543 (2,407) (1,864)
ordinary
activities
before
taxation
Taxation on (8) 13 5 (20) 20 - (45) 40 (5)
ordinary
activities
_______ _______ _______ _______ _______ _______ _______ _______ _______
Return on 134 (3,673) (3,539) 173 (654) (481) 498 (2,367) (1,869)
ordinary
activities
after
taxation
attributable
to
shareholders
====== ====== ====== ====== ====== ====== ====== ====== ======
Return per 0.27 (7.35) (7.08) 0.35 (1.31) (0.96) 0.99 (4.73) (3.74)
Ordinary
Share
(pence)
====== ====== ====== ====== ====== ====== ====== ====== ======
The notes on pages 12 to 14 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.
There is no other comprehensive income.
Statement of Financial Position
as at 31 December 2017
(Unaudited) (Unaudited) (Audited)
31 December 31 December 30 June
2017 2016 2017
Notes GBP000 GBP000 GBP000
Fixed assets
Investments at fair value 4 13,869 16,173 15,899
through profit or loss
_______ _______ _______
Current assets
Debtors 60 52 165
Amounts due in respect of 890 2,038 1,907
contracts for difference
Collateral paid in respect 8,977 10,890 9,633
of contracts for
difference
UK Treasury Bills 16,989 20,983 18,988
Cash and short term 8,610 5,775 8,981
deposits
_______ _______ _______
Total current assets 35,526 39,738 39,674
_______ _______ _______
Current liabilities
Creditors (109) (113) (114)
Amounts payable in respect (3,033) (4,168) (5,217)
of contracts for
difference
_______ _______ _______
Total current liabilities (3,142) (4,281) (5,331)
_______ _______ _______
Net current assets 32,384 35,457 34,343
Total assets less current 46,253 51,630 50,242
liabilities
_______ _______ _______
Net assets 46,253 51,630 50,242
====== ====== ======
Capital and reserves
Share capital 5 500 500 500
Share premium 48,872 48,872 48,872
Capital reserve (3,368) 2,018 305
Revenue reserve 249 240 565
_______ _______ _______
Total shareholders' funds 46,253 51,630 50,242
====== ====== ======
Net asset value per share 92.51 103.26 100.48
- Ordinary Share (pence)
The notes on pages 12 to 14 form part of these accounts.
Statement of Changes in Equity
Six months to 31 December 2017 (unaudited)
Share
Share Premium Capital Revenue
Capital Account Reserve Reserve Total
GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1 500 48,872 305 565 50,242
July 2017
_______ _______ _______ _______ _______
Return on - - (3,673) 134 (3,539)
ordinary
activities
after taxation
Dividends paid - - - (450) (450)
_______ _______ _______ _______ _______
Balance at 31 500 48,872 (3,368) 249 46,253
December 2017
====== ====== ====== ====== ======
Six months to 31 December 2016 (unaudited)
Share
Share Premium Capital Revenue
Capital Account Reserve Reserve Total
GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1 500 48,872 2,672 617 52,661
July 2016
_______ _______ _______ _______ _______
Return on - - (654) 173 (481)
ordinary
activities
after taxation
Dividends paid - - - (550) (550)
_______ _______ _______ _______ _______
Balance at 31 500 48,872 2,018 240 51,630
December 2016
====== ====== ====== ====== ======
For the year ended 30 June 2017 (audited)
Share
Share Premium Capital Revenue
Capital Account Reserve Reserve Total
GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1 500 48,872 2,672 617 52,661
July 2016
_______ _______ _______ _______ _______
Return for the - - (2,367) 498 (1,869)
year
Dividends paid - - - (550) (550)
_______ _______ _______ _______ _______
Balance at 30 500 48,872 305 565 50,242
June 2017
====== ====== ====== ====== ======
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 January 2017). 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 2017 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
2017 2016 2017
GBP000 GBP000 GBP000
Basic fee:
25% charged to 45 49 96
revenue
75% charged to 134 149 291
capital
_______ _______ _______
179 198 387
====== ====== ======
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 2017.
Consideration will be given to an annual dividend in respect of the year ended
30 June 2018 at a Board meeting to be held in September 2018. 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
2017 2016 2017
GBP000 GBP000 GBP000
Investments
listed on a
recognised
investment
exchange:
UK 12,320 13,963 14,350
Overseas - 857 -
Unquoted
investments:
UK* 1,549 1,353 1,549
_______ _______ _______
13,869 16,173 15,899
====== ====== ======
* Investment in Sanditon Asset Management Limited.
5. SHARE CAPITAL
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) (Audited)
31 December 31 December 31 December 31 December 30 June 2017 30 June 2017
2017 2017 2016 2016
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 GBP
0.01
_______ _______ _______ _______ _______ _______
50,000,000 500 50,000,000 500 50,000,000 500
====== ====== ====== ====== ====== ======
Interim Management Report
six months ended 31 December 2017
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 2017 the Company had net assets of GBP46.3 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 2017, GBP29,400 (31
December 2016: GBP33,677) 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
1 March 2018
Directors and Officers
as at 31 December 2017
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 Limited
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
END
(END) Dow Jones Newswires
March 01, 2018 09:58 ET (14:58 GMT)
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