SANDITON INVESTMENT TRUST PLC
Annual Results for the period to 30 June 2015
Performance Highlights
| As at | |
| 30 June 2015 | |
| Share price | 106.50p |
| Premium to net asset value per share | 3.4% |
| Dividends per ordinary share | 0.45p |
| Ongoing charges | 1.2% |
| Period since launch on | |
| Total Return Performance | 27 June 2014 to 30 June 2015 |
| NAV per ordinary share | 3.02% |
| Share price | 6.50% |
| Hurdle rate (RPIX + 2%) | 3.06% |
| FTSE All-Share Index (Total Return) | 2.48% |
Commenting on the results, the Chairman, Rupert Barclay said:
"This is our first annual report on your Company, Sanditon Investment Trust, and I would like to start by thanking shareholders for participating in the successful flotation in June last year.
I would like to remind shareholders of the two key objectives of the Company. First, at least to preserve the real value of your capital with a minimum objective of returning 2% above the UK Retail Price Index excluding mortgage interest payments ("RPIX"). Second, we hoped that an investment in your Company would prove to be an asset diversifier for shareholders' portfolios, having low correlation to leading equity indices by virtue of its proposed long/short structure.
Your Company finished the period with a Net Asset Value ("NAV") of 103.02p, just below its minimum objective, although the Investment Manager also had to overcome the start-up costs which impacted NAV by 1.3% at launch. June's RPIX was 1.06% per annum and reflected the low inflation/low return environment we are in. Your Company's share price closed the financial period at 106.5p, at a premium of 3.4% to NAV. The Board were encouraged that the shares traded at a premium to NAV throughout the period. Your Company's shares exhibited low correlation to the FTSE All-Share Index since launch with Bloomberg calculating the correlation at 0.05x. With such low correlation to the index, your Company is proving to be an asset diversifier to more traditional equity products.
Stake in Sanditon Asset Management
That the shares have traded at a premium is doubtless in part due to your Company's 20% holding in the Investment Manager, Sanditon Asset Management ("SAM"). The Board remains encouraged by the progress and development of SAM. SAM has now successfully launched all the sub-funds of its UK listed UCITS structure which were outlined in your Company's prospectus, with only one, TM Sanditon UK Select Fund, requiring seeding from your Company. At the end of June 2015 SAM had assets under management of close to £500m and had traded sufficiently profitably in its first nine months of revenue generation to declare a dividend of 10p per share for its financial period end 31 March 2015. The dividend of £20,000 was received by your Company just before the period end and equated to 10% of the initial cost of the SAM stake.
The Board are satisfied that there has been no diminution in value of the SAM stake since it was acquired and, as per the prospectus, we propose to review the valuation of the SAM stake from its current cost basis in 2016 after the receipt of SAM's audited accounts for the year to 31 March 2016. The Board will outline the valuation methodology for the SAM stake in next year's interim report. We are likely to use a hybrid of conventional asset management company valuation techniques, with a view to selecting an approach which will be consistent over time and which provides a conservative but fair valuation.
Charges and fees
Our total ongoing charges at 30 June 2015 were 1.2%. Performance fees are only payable/accruable if the lower of NAV or the share price exceeds the hurdle rate of RPIX + 2%. No performance fees were accrued as at 30 June 2015.
Share buy back
As the Board believes the stake in SAM should ensure that your Company's shares continue to trade at a premium to NAV over the next year, the Board will not be asking shareholders permission to buy back shares this year. However, the Board will review this decision annually.
Dividends
Although providing an income is not an objective for your Company, because the yield of the Manager's long book has been at a significant premium to the yield of the short book through the period, the portfolio has generated an income surplus of 0.49p per share and the Board is pleased to recommend an annual dividend of 0.45p per share. There can be no assurance that your Company will always generate surplus income to allow a dividend to be paid.
Outlook
The Investment Manager gives a thorough review of your Company's investment performance in the Investment Manager's report in the Annual report. The Manager's low net positioning throughout the period seems to have been vindicated by the lacklustre performance of equity markets since your Company's launch, with the FTSE All-Share Index at 30 June 2015 down 1% since launch. I said in the interim report that 2015 would be a challenging year for investors and so it is proving, but the Board is reassured that your Company's structure has the ability to deliver positive returns irrelevant of the market environment, although there are no guarantees. The Board is encouraged by your Company's steady start and I look forward to updating you on your Company's progress early in 2016."
Principal risks associated with the Company (also see note 19 on pages 36 to 42 of the Annual report).
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 monitored by the Investment Manager and any adverse 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 SAM
A sudden departure of the Investment Manager or several members of the investment management team could result in a 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, the Administrator 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 the systems. The custodian and the Administrator produce reports on their internal controls which are reviewed by their auditors and give assurances regarding the effective operation of controls. These reports are reviewed by the Board. Details of material contracts entered into by the Company can be found on pages 14 and 15 of the Annual report.
Financial
The financial risks faced by the Company are disclosed in note 19 on pages 36 to 42 of the Annual report.
Statement under the Disclosure & Transparency Rules 4.1.12
The Directors each confirm to the best of their knowledge that:
a) the financial statements, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;
b) this Annual Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces; and
c) the Annual Report and financial statements, taken as a whole, is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.
For and on behalf of the Board
Rupert Barclay
Chairman
6 October 2015
Portfolio as at 30 June 2015
| Country Breakdown (% of NAV)* | Long | Short | Net | Gross |
| United Kingdom | 42.9 | -39.0 | 3.9 | 81.9 |
| France | 1.8 | -2.7 | -0.9 | 4.5 |
| Germany | - | -3.9 | -3.9 | 3.9 |
| Italy | - | -1.5 | -1.5 | 1.5 |
| Spain | 2.2 | - | 2.2 | 2.2 |
| Sweden | - | -1.6 | -1.6 | 1.6 |
| Netherlands | 4.4 | - | 4.4 | 4.4 |
| Total | 51.3 | -48.7 | 2.6 | 100.0 |
| Business Cycle Groupings (% of NAV)* | Long | Short | Net | Gross |
| Commodity Cyclicals | 6.2 | -1.1 | 5.1 | 7.3 |
| Consumer Cyclicals | 12.2 | -2.7 | 9.5 | 14.9 |
| Industrial Cyclicals | 3.0 | -15.2 | -12.2 | 18.2 |
| Growth | 1.6 | -16.4 | -14.8 | 18.0 |
| Financial | 6.7 | -0.8 | 5.9 | 7.5 |
| Growth Defensives | 12.0 | -8.1 | 3.9 | 20.1 |
| Value Defensives | 9.6 | -4.4 | 5.2 | 14.0 |
| Top 20 Long Positions (% of NAV)** | % |
| TM Sanditon UK Select Fund | 10.2 |
| Ashmore Group | 4.5 |
| Reed Elsevier | 4.4 |
| Babcock International | 3.8 |
| Mothercare | 3.3 |
| Melrose Industries | 3.0 |
| BHP Billiton | 2.7 |
| BCA Marketplace | 2.6 |
| HSBC | 2.2 |
| Telefonica | 2.2 |
| Diageo | 2.1 |
| Centrica | 2.0 |
| Sanofi | 1.8 |
| WM Morrison Supermarkets | 1.8 |
| Kingfisher | 1.7 |
| Capita | 1.7 |
| BT | 1.7 |
| WPP | 1.7 |
| Home Retail Group | 1.6 |
| Spirent Communications | 1.6 |
| Total | 56.6 |
| Total number of positions (long and short)** | 51 |
* Excluding holdings in Sanditon Asset Management and TM Sanditon UK Select Fund
** Including holdings in Sanditon Asset Management and TM Sanditon UK Select Fund
Income Statement
for the period from 14 May 2014 to 30 June 2015
| 14 May 2014 | 14 May 2014 | 14 May 2014 | ||
| to 30 June 2015 | to 30 June 2015 | to 30 June 2015 | ||
| Revenue | Capital | Total | ||
| Notes | £000 | £000 | £000 | |
| Gains on investments held at fair value | ||||
| through profit or loss | - | 2,177 | 2,177 | |
| Income | 2 | 571 | - | 571 |
| Management fee | 3 | (95) | (286) | (381) |
| Other expenses | 4 | (220) | - | (220) |
| Return before finance costs & taxation | 256 | 1,891 | 2,147 | |
| Finance costs | - | - | - | |
| Return on ordinary activities before taxation | 256 | 1,891 | 2,147 | |
| Taxation on ordinary activities | (11) | - | (11) | |
| Return on ordinary activities after taxation | ______ | ______ | ______ | |
| attributable to shareholders | 245 | 1,891 | 2,136 | |
| ===== | ==== | ===== | ||
| Return per Ordinary Share (pence): | 9 | 0.49 | 3.78 | 4.27 |
| ===== | ===== | ===== |
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 supplementary revenue and capital columns are both prepared under guidance from the Association of Investment Companies.
A Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been reflected in this statement.
Balance Sheet as at 30 June 2015
| 30 June | ||
| 2015 | ||
| Notes | £000 | |
| Fixed assets | ||
| Investments at fair value through profit or loss | 11 | 12,772 |
| Current assets | ||
| Debtors | 25 | |
| Amounts due in respect of contracts for difference | 1,157 | |
| Collateral paid in respect of contracts for difference | 11,844 | |
| UK Treasury Bills | 21,481 | |
| Cash and short term deposits | 8,457 | |
| 42,964 | ||
| Creditors - amounts falling due within one year | ||
| Creditors | (133) | |
| Amounts payable in respect of contracts for difference | (4,095) | |
| Creditors | (4,228) | |
| Net current assets | 38,736 | |
| Total assets less current liabilities | 51,508 | |
| ______ | ||
| Net assets | 51,508 | |
| ===== | ||
| Capital and reserves | ||
| Share capital | 6 | 500 |
| Share premium | 48,872 | |
| Capital reserve | 1,891 | |
| Revenue reserve | 245 | |
| ______ | ||
| Total shareholders' funds | 51,508 | |
| ===== | ||
| Net asset value per share - Ordinary Share (pence) | 103.02 | |
| ===== |
Reconciliation of Movement in Shareholders' Funds
for the period from 14 May 2014 to 30 June 2015
| Share | |||||
| Share | Premium | Capital | Revenue | ||
| Capital | Account | Reserve | Reserve | Total | |
| £000 | £000 | £000 | £000 | £000 | |
| Balance at 14 May 2014 | - | - | - | - | - |
| Return on ordinary activities | |||||
| after taxation | - | - | 1,891 | 245 | 2,136 |
| Issue of Ordinary Shares | 500 | 49,500 | - | - | 50,000 |
| Launch costs | - | (628) | - | - | (628) |
| Balance at 30 June 2015 | 500 | 48,872 | 1,891 | 245 | 51,508 |
Cash Flow Statement
for the period from 14 May 2014 to 30 June 2015
| 30 June | ||
| 2015 | ||
| Notes | £000 | |
| Net cash outflow from operating activities | 7 | (8,133) |
| Taxation | ||
| Tax paid | (11) | |
| Financial investments | ||
| Purchases of investments | (23,634) | |
| Sales of investments | 12,344 | |
| Net cash outflow from financial investments | (11,290) | |
| Equity dividends paid | - | |
| Net cash outflow before financing activities | (11,290) | |
| Financing | ||
| Issue of Ordinary Shares | 50,000 | |
| Payment of issue costs | (628) | |
| Net cash inflow from financing activities | 49,372 | |
| ______ | ||
| Increase in cash and cash equivalents | 29,938 | |
| ===== | ||
| Comprised of: | ||
| UK Treasury Bills | 21,481 | |
| Cash and cash equivalents | 8,457 | |
| ______ | ||
| Increase in cash and cash equivalents | 29,938 | |
| ===== |
Notes to the Financial Statements
for the period from 14 May 2014 to 30 June 2015
1. ACCOUNTING POLICIES
(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.
2. INCOME
| Period ended | |
| 30 June 2015 | |
| £000 | |
| Income from investments | |
| UK franked dividends | 437 |
| UK treasury bills interest | 82 |
| Overseas dividends | 25 |
| Other income | 27 |
| _______ | |
| 571 | |
| ====== |
3. INVESTMENT MANAGEMENT FEE
| Period ended | |
| 30 June 2015 | |
| £000 | |
| Basic fee: | |
| 25% charged to revenue | 95 |
| 75% charged to capital | 286 |
| _____ | |
| 381 | |
| ==== | |
| Performance fee charged 100% to capital: | |
| Performance fee accrual | - |
| _____ | |
| - | |
| ==== |
The Company's investment manager is Sanditon Asset Management Limited (the 'Manager'). 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. 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) 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.
The Company may invest in other funds operated by the Manager and where it does the management fee is credited back to the Company by the Manager and any gain on the funds is excluded from the performance fee calculation. At 30 June 2015 £18,000 was due to be credited back and is included within Other Income (note 2).
4. OTHER EXPENSES
| Period ended | |
| 30 June 2015 | |
| £000 | |
| Secretarial services and fund administration fees | 56 |
| Other administration expenses | 51 |
| Auditor's remuneration - audit services | 18 |
| - tax compliance services | 7 |
| Directors' fees | 78 |
| Irrecoverable VAT | 10 |
| _____ | |
| 220 | |
| ==== |
The other fees paid to Ernst & Young of £28,200 in connection with the launch of the Company are included in the launch costs charged to the share premium which are disclosed in note 11 of the Annual report.
5. DIVIDEND
The dividend relating to the period ended 30 June 2015 which is the basis on which the requirements of Section 1159 of the Corporation Tax Act 2010 are considered is detailed below:
| Period ended | Period ended | |
| 30 June 2015 | 30 June 2015 | |
| Pence Per Ordinary Share | £000 | |
| Annual dividend - payable on 18 December 2015* | 0.45p | 225 |
*Not included as a liability in the period ended 30 June 2015 accounts.
The annual dividend will be paid on 18 December 2015 to members on the register at the close of business on 20 November 2015. The shares will be marked ex-dividend on 19 November 2015.
6. SHARE CAPITAL
| Period ended | Period ended | |
| 30 June 2015 | 30 June 2015 | |
| Number of Shares | £000 | |
| Allotted, issued & fully paid: | ||
| Opening balance Ordinary Shares of £0.01 | 50,000,000 | 500 |
| __________ | ___ | |
| 50,000,000 | 500 | |
| ======== | === |
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 £1 per Ordinary Share. The shares were admitted to the Official List on 27 June 2014.
7. RECONCILIATION OF NET RETURN BEFORE FINANCE COSTS AND TAXATION TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES
| Period ended | |
| 30 June 2015 | |
| £000 | |
| Return on ordinary activities before finance costs and taxation | 2,147 |
| Capital return before finance costs and taxation | (1,891) |
| Accrued income and prepayments | (25) |
| Other creditors | 133 |
| Investment management fee capitalised | (286) |
| Net movement in collateral pledged to broker | (11,844) |
| Gains on CFDs realised during the period | 695 |
| Amounts due in respect of CFDs | (1,157) |
| Amounts payable in respect of CFDs | 4,095 |
| ______ | |
| Net cash inflow from operating activities | (8,133) |
| ===== |
8. FINANCIAL COMMITMENTS
At 30 June 2015 there were no commitments in respect of unpaid calls and underwritings.
9. RETURN PER SHARE - BASIC
Total return per Ordinary Share is based on the total comprehensive income for the period after taxation of £2,136,000.
These calculations are based on the 50,000,000 Ordinary Shares in issue during the period to 30 June 2015.
The return per Ordinary Share can be further analysed between revenue and capital as below:
| Period ended | Period ended | |
| 30 June 2015 | 30 June 2015 | |
| Number of Shares | £000 | |
| Net revenue return | 0.49p | 245 |
| Net capital return | 3.78p | 1,891 |
| ______ | ______ | |
| Net total return | 4.27p | 2,136 |
| ===== | ===== |
10.RELATED PARTY TRANSACTIONS AND TRANSACTIONS WITH THE INVESTMENT MANAGER
Details of the investment management fee charged by Sanditon Asset Management Limited is set out in note 3. At 30 June 2015 £13,790 of this fee remained outstanding after taking into account the £18,000 to be credited to the Company from Sanditon Asset Management Limited in relation to the management fee on the Company's investment in TM Sanditon UK Select Fund.
Fees paid to the Directors are disclosed in note 4 above. There have been no material transactions between the Company and its Directors during the period and the only amounts paid to them were in respect of Directors' remuneration for which there were no outstanding amounts payable at the period end.
The Company has an investment in TM Sanditon UK Select Fund of £5,259,000 at 30 June 2015.
The Company has a 20% holding in the Investment Manager, Sanditon Asset Management Limited.
11. Fair Value Measurements of Financial Assets and Financial Liabilities
The financial assets and liabilities are either carried in the balance sheet at their fair value, or the balance sheet amount is a reasonable approximation of fair value (due from brokers, dividends receivable, accrued income, due to brokers, accruals and cash balances).
The valuation techniques used by the Company are explained in the accounting policies note 1 (b) on page 28 of the Annual report.
The table below sets out fair value measurements using fair value hierarchy.
| Financial assets at fair value through profit or loss | Level 1 | Level 2 | Level 3 | Total |
| at 30 June 2015 | £000 | £000 | £000 | £000 |
| Assets: | ||||
| Equity investments | 12,572 | - | 200 | 12,772 |
| Contracts for difference - fair value gains | - | 1,157 | - | 1,157 |
| Liabilities: | ||||
| Contracts for difference - fair value losses | - | (4,095) | - | (4,095) |
| ______ | ______ | _____ | ______ | |
| Total | 12,572 | (2,938) | 200 | 9,834 |
| ===== | ===== | ==== | ===== |
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows:
Level 1 - valued using quoted prices in active markets for identical assets.
Level 2 - valued by reference to valuation techniques using observable inputs including quoted prices.
Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market data.
Level 3 fair values are determined by the Directors using valuation methodologies in accordance with the IPEVC Guidelines and as detailed in note 1 (b). Significant inputs include investment cost, the value of the most recent capital raising, the adjusted net asset value of funds and the Pricing Committee's valuations. In accordance with IPEVC Guidelines, new investments are carried at cost, the price of the most recent investment being a good indication of fair value. Thereafter, fair value is the amount deemed to be the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. At 30 June 2015, the Company's Level 3 investments relates to the investment in Sanditon Asset Management Limited.
A reconciliation of fair value measurements in Level 3 is set out below.
Level 3 financial assets at fair value through profit or loss
| As at | |
| 30 June 2015 | |
| Investments | |
| £000 | |
| Opening fair value | - |
| Investment in Sanditon Asset Management Limited | 200 |
| ____ | |
| Closing fair value | 200 |
| === |
12. Publication of non-statutory accounts
The financial information contained in this announcement does not constitute statutory accounts as defined in the Companies Act 2006. The 2015 annual report and financial statements will be filed with the Registrar of Companies shortly.
The report of the Auditor for the period ended 30 June 2015 contains no qualification or statement under section 498(2) or (3) of the Companies Act 2006. This announcement was approved by the Board of Directors on 6 October 2015.
13. Annual results
Copies of the annual report will be sent to members shortly and will be available from the registered office, c/o Northern Trust Global Services Limited, 50 Bank Street, Canary Wharf, London E14 5NT.
14. Annual General Meeting
The Annual General Meeting of the Company will be held at the offices of Northern Trust, 50 Bank Street, Canary Wharf, London E14 5NT on Thursday 3 December 2015, at 12:00 noon.
