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 £549m, 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 £5.5m 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 to 31 December 2018 |
Six months to 31 December 2018 |
Six months to 31 December 2018 |
Six months to 31 December 2017 |
Six months to 31 December 2017 |
Six months to 31 December 2017 |
For the year ended 30 June 2018 |
For the year ended 30 June 2018 |
For the year ended 30 June 2018 |
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
Notes |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
Gains/(losses) on investments held at fair value
through profit or loss |
|
– |
924 |
924 |
– |
(3,552) |
(3,552) |
– |
(3,895) |
(3,895) |
Income |
|
340 |
– |
340 |
314 |
– |
314 |
682 |
– |
682 |
Management fee |
2 |
(44) |
(132) |
(176) |
(45) |
(134) |
(179) |
(88) |
(263) |
(351) |
Other expenses |
|
(125) |
– |
(125) |
(127) |
– |
(127) |
(253) |
– |
(253) |
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
Return on ordinary activities before taxation |
|
171 |
792 |
963 |
142 |
(3,686) |
(3,544) |
341 |
(4,158) |
(3,817) |
Taxation on ordinary activities |
|
(21) |
21 |
– |
(8) |
13 |
5 |
(24) |
30 |
6 |
|
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
Return on ordinary activities after taxation
attributable to shareholders |
|
150 |
813 |
963 |
134 |
(3,673) |
(3,539) |
317 |
(4,128) |
(3,811) |
|
|
====== |
====== |
====== |
====== |
====== |
====== |
====== |
====== |
====== |
Return per Ordinary Share (pence) |
|
0.30p |
1.63p |
1.93p |
0.27 |
(7.35) |
(7.08) |
0.63 |
(8.26) |
(7.63) |
|
|
====== |
====== |
====== |
====== |
====== |
====== |
====== |
====== |
====== |
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 |
£000 |
£000 |
£000 |
Fixed assets |
|
|
|
|
Investments at fair value through
profit or loss |
4 |
11,367 |
13,869 |
10,314 |
|
|
_______ |
_______ |
_______ |
Current assets |
|
|
|
|
Debtors |
|
84 |
60 |
189 |
Amounts due in respect of contracts
for difference |
|
1,937 |
890 |
1,239 |
Collateral paid in respect of
contracts for difference |
|
7,906 |
8,977 |
10,006 |
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 difference |
|
(3,361) |
(3,033) |
(4,034) |
|
|
_______ |
_______ |
_______ |
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 (pence) |
|
93.39 |
92.51 |
91.96 |
|
|
====== |
====== |
====== |
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 |
|
£000 |
£000 |
£000 |
£000 |
£000 |
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 2018 |
500 |
48,872 |
(3,010) |
332 |
46,694 |
|
====== |
====== |
====== |
====== |
====== |
Six months to 31 December 2017 (unaudited)
|
|
Share |
|
|
|
|
Share |
Premium |
Capital |
Revenue |
|
|
Capital |
Account |
Reserve |
Reserve |
Total |
|
£000 |
£000 |
£000 |
£000 |
£000 |
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 2017 |
500 |
48,872 |
(3,368) |
249 |
46,253 |
|
====== |
====== |
====== |
====== |
====== |
For the year ended 30 June 2018 (audited)
|
|
Share |
|
|
|
|
Share |
Premium |
Capital |
Revenue |
|
|
Capital |
Account |
Reserve |
Reserve |
Total |
|
£000 |
£000 |
£000 |
£000 |
£000 |
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 |
|
|
£000 |
£000 |
£000 |
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. DIVIDEND
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 |
|
£000 |
£000 |
£000 |
UK: |
|
|
|
Investments listed on a recognised
investment exchange |
5,088 |
7,749 |
4,207 |
TM Sanditon UK Select Fund |
4,818 |
4,571 |
4,646 |
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 2018 |
31 December 2018 |
31 December 2017 |
31 December 2017 |
30 June
2018 |
30 June
2018 |
|
No. of Shares |
£000 |
No. of Shares |
£000 |
No. of Shares |
£000 |
Allotted, issued & fully
paid: |
|
|
|
|
|
|
Ordinary Shares of £0.01 |
50,000,000 |
500 |
50,000,000 |
500 |
50,000,000 |
500 |
|
_______ |
_______ |
_______ |
_______ |
_______ |
_______ |
|
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 £43.5 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, £30,068 (31 December
2017: £29,400) 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 £20,000 per annum for each Director, with the
Chairman of the Audit Committee receiving an additional fee of
£4,000 per annum. The Chairman’s fee is £30,000 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