SANDITON INVESTMENT TRUST PLC - Half-yearly Report

Sanditon Investment Trust plc

INTERIM ACCOUNTS

For the six months

to 31 December 2015

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

Chairman's Statement

for the six months to 31 December 2015

Performance

Your Company had a disappointing six months with the net asset value closing at 99.3p which, after including the 0.45p maiden dividend paid to shareholders in December, amounted to a loss of 3.25% over the period. Your Company's share price closed the year at 107.4p, up 0.8% since 30 June 2015, leaving the shares trading at an expanded premium of 8.2% to net asset value. Inflation over the period remained becalmed with the RPIX up just 1.3% p.a. in December and returns from the UK equity market in the second half of 2015 fell by over 3.5% affected by sharp falls in commodity shares. The Investment Manager gives a thorough review of performance in the report that follows.

Stake in Sanditon Asset Management

Your Company's only unlisted holding, a 20% stake in Sanditon Asset Management (SAM), has continued to make good progress with asset gathering finishing 2015 with assets under management of just over £630 million, more than double the amount at the start of the year. Approximately 35% of the assets are in hedge fund structures. Whilst this is an encouraging start for a business which launched its first fund in the summer of 2014, the key to SAM's future growth will be improving the investment performance of its fund range.

In these interim accounts we continue to value the stake in SAM at cost but as previously communicated to shareholders we have reviewed the basis of valuation which we will use in the 30 June 2016 annual accounts. Valuing a stake in an unlisted asset management company is as much an art as a science. After consulting with your Company's auditor and broker and reviewing listed companies' valuations and the valuation methodologies used by a range of unlisted asset management companies, the Board is close to completing its review of the valuation metrics it proposes to use for your stake in SAM. As I said in my last report to you, the Board are keen to have a methodology which was as simple as possible, conservative and which we hope will remain constant.

We have decided to use a simple 50/50 hybrid of a percentage of funds under management and an adjusted after tax profit multiple, based on SAM's audited results to 31 March 2016. Both multiples will be at significant discounts to listed peers to reflect, inter alia, the infancy of the business, a narrow product range, the lack of historical higher margin assets compared to peers and a greater concentration of customers than its competitors.

We believe this approach will produce a valuation which is both conservative but fair and we hope it is one which can remain constant, although the Board will review the nominal multiples we decide upon annually in relation to quoted peers.

Director

Mr. Charles Harman retired from the Board in December 2015, having taken up a full time position with your Company's broker. I would like to take this opportunity to thank Charles for his thoughtful insights and contribution to the Board since launch. The Board is in the process of interviewing a replacement non-executive director, the outcome of which will be announced in due course.

Outlook

In my previous reports I stated that the investment environment was likely to be challenging through 2015. So it remains. The turn in the U.S interest rate cycle, the ongoing collapse in the price of most commodities and worrying signs that Chinese growth is slowing very sharply have contributed to a dramatic collapse in risk appetite as we start 2016. Quantitative easing worked in boosting asset prices post the 2008 crash but even a modest tightening of the monetary tiller makes it look as if preserving capital is going to be the real challenge for all investors in 2016.

Rupert Barclay

Chairman

18 February 2016

Investment Manager's Report

for the six months to 31 December 2015

The performance of your Company's underlying assets over the second half of 2015 was disappointing. Whilst the share price held relatively stable, the net asset value fell back to 99.3p. The loss for the half year of 3.25% was well behind the reported inflation rate at the end of December 2015 (RPIX was 1.3%), even if modestly ahead of the FTSE A All Share's capital return of -3.6% for the period.

If shareholders look back at our first two reports since launch (which can be seen on our website at www.sanditonam.com), you will see that we have been broadly right about how generating returns from equities was likely to get a lot more difficult for all investors. It remains our view that all investors should be very wary of pretty much every asset class, so distorted have all assets been by extraordinary monetary experiments undertaken by most of the world's leading central banks. Over the 18 month period since your Company launched, the FTSE A All Share Index has had four corrections of roughly 10% only to bounce back to levels roughly where we started. At the end of December 2015 the index was down 4.4% since launch and I am sure shareholders will have seen that volatility continuing at the start of 2016. We have broadly done well in the down periods for equity markets but have given back gains into equity rallies. This sort of volatility is not untypical towards the end of bull markets and we are probably closer to the stage when one of these corrections is the start of something more significant.

MSCI Europe Growth Index/MSCI Europe Value Index - normalised as of 31/01/1995

[GRAPHIC REMOVED]

Source: Bloomberg

The reason for our lagging the rallies is illustrated in the chart below which shows the outperformance of 'growth' stocks against 'value' stocks as represented by the MSCI indices. We have, since launch, been short of growth stocks and our value bias is best seen by the average price earnings ratio of our long book at December 2015 of 16.5x being not far off half the price earnings ratio of our short book at 32.4x. Not since the TMT boom in 1999 has growth been so highly rated relative to value and the outperformance has now lasted for a decade, with only a brief renaissance for value in the early days of Quantitative Easing programmes in 2009. Of course, charts like these tell you about the past and not necessarily about the future but as a business cycle investor we are always interested in areas of the market which have gone in a continuous line for too long. Cycles, be they economic or investment, usually correct such linear extensions and we are minded to be patient with our current value tilt.

Market Review

The second half of 2016 was dominated by two events - the continuing collapse in commodity prices with oil, for example, falling from $50 to $30 over the period and the first increase in interest rates in the U.S. since the crisis of 2008. The collapse in oil was a continuation of a trend that has now lasted five years with OPEC's latest meeting failing or unwilling to make production cuts to offset the increase in supply coming from US shale and the re-emergence of Iran on the world stage. The collapse in commodities may cause many corporate casualties, which is clearly what Saudi Arabia is hoping for in its battle with US shale. Time will tell whether over-leveraged companies can survive a lower for longer commodity environment - especially in US shale where we understand some low quality crude grades are now selling for less than $2 a barrel. As we wrote last time, falling prices always lead to a collapse in capital spending and if that is exacerbated by corporate casualties tightening supply in the longer term, prices are likely to stabilise and then increase. We know there are plenty of believers predicting the end of the fossil fuel age, but it strikes us that the one thing ensuring that is an unlikely outcome is low fossil fuel prices.

The Federal Reserve eventually raised rates in December having been scared off in October by weak markets and weak data from China. What changed in China between October and December to convince the Fed to move is not entirely clear to this investor, but we are generally of the view that the move was better late than never. That is not to say that it might not have a more significant impact on both the economy and markets than one would normally expect from a modest first increase in rates. We fully expect it to. The removal of zero rates should change investors reckless chasing of all other risk assets and we rather expect within the market it may have an impact on the chart above.

A modest tightening in US monetary policy is coming at a time of significant market tightening in the credit markets and at the same time as a huge unwinding of foreign currency reserves from China, Saudi Arabia and many other commodity surplus countries which are now fighting serious deteriorations in their budgetary positions. It will be interesting to see whether the Fed feel able to push through further interest rate increases as Ms. Yellen tries to normalise rates. We suspect one more might be enough to push the US decisively into a downturn. The markets are bound to test her and other policy makers' nerves in the months ahead. It seems very safe to predict that our own Governor's nerves are not up to much. The MPC look incapable of making a decision and it looks assured we will go into the next downturn with no conventional monetary levers to pull.

Portfolio Structure and Performance

The shape of your portfolio was little changed over the six months, although we increased our exposure to 'growth' shorts to -23.5% net from -15% last time and increased our exposure to defensives to +14.5% from +9%.

Our overall net position ended the period at +6%, (almost market neutral and little changed over the previous period end) but we did use the FTSE futures through the period as a quick way to adjust our net position into sharp falls and rallies with our net exposure range through the period being +18% to -16%. Our futures activity added 1.25% to NAV (positive contributions from both a short position in the middle of the period and a long position towards the end) helping to mitigate what was generally a poor portfolio shape for the period under review.

Over the period our long book lost 1.9% and our short book lost 0.55%, representing returns on capital employed of -3.6% and -1.1% respectively. Our biggest losses came from being long commodities (-2.7%) where we were demonstrably too early removing our shorts in this space earlier in the year. Unsurprisingly, given the continued sharp falls in commodity prices, the oil & gas and the mining sectors were the worst two in the market with falls of 15% and 40% respectively. We were particularly hit by BHP Billiton's exposure to the Samarco mining disaster in Brazil which cost 1% and the continuing precipitous collapse in Anglo-American which cost 1.1%. We bought the shares almost 80% off their peak and they have more than halved again as investors have taken fright of anything with financial leverage. It is incontrovertible that the more a share price falls, the higher the debt/equity ratio becomes and the more dilutive an equity raise will be. In Anglo's case their debt maturities of over 6 years should have given them some breathing space but the market is in a fear phase and Anglo, like many others, have left it rather late to raise equity, so the market is fearful it will have to sell good assets at the wrong stage of the cycle. We do not deny that trying to time the bottom of a commodity cycle is a perilous task and we have been too early so far, although we did not get carried away with the size of our positions.

Our short position to 'growth' stocks was also costly in the second half (-2.1% to NAV). The only positive came from Ocado which fell by 32% adding 1.1%, which was gratifying as we wrote about it last time. Shorts in Just Eat and Moneysupermarket, amongst others, were less successful. All our shorts are highly rated, have seen insider selling and have business models which seem to us could be as easily disrupted as they have disrupted others. They are also generally asset light so when things do go wrong share price falls could be precipitate as they were in the aftermath of the TMT boom. It remains the highest conviction view in your Company at present.

We expect the outlook for equity markets to remain very tricky so are unlikely to change our low net exposure approach at present. However, like Pavlov's dog, we are becoming conditioned to expect the market to have sharp rallies after steep falls and our current approach of adding to our net exposure into falls always runs the risk that one of the falls turns into something more dramatic. We are certainly not reassured that Central bankers can continue to support markets like they have since 2009.

2016 will see several electoral events (Scottish elections, US presidential elections and a possible Brexit referendum) which combined with continuing competitive currency devaluations and significant geopolitical tensions in the Middle East are likely to result in a volatile year for markets. It is likely that capital preservation will remain our goal in the near-term.

Sanditon Asset Management Limited

18 February 2016

Portfolio

as at 31 December 2015

Country Breakdown (% of NAV)*

Business Cycle Groupings (% of NAV)*

Top 20 Long Positions (% of NAV)**

*?Excluding holdings in Sanditon Asset Management, TM Sanditon UK Select and Future.

**?Including holdings in Sanditon Asset Management, TM Sanditon UK Select and Future.

Income Statement

for the six months to 31 December 2015

The notes on pages 10 to 12 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 2015

The notes on pages 10 to 12 form part of these accounts.

Statement of Changes in Equity

Six months to 31 December 2015 (unaudited)

The notes on pages 10 to 12 form part of these accounts.

Notes to the Interim Accounts

1. ACCOUNTING POLICIES

A summary of the principal accounting policies is set out below:

(a) Basis of accounting

The financial statements have been prepared in accordance with the applicable UK Accounting Standards, 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). The half-year accounts are prepared in accordance with Financial Reporting Standard 104 - Interim Financial Reporting.

Previously, the financial statements were prepared in accordance with UK Generally Accepted Accounting Practice ("UK GAAP"). The transition to FRS did not result in any significant changes to the accounting policies.

The financial information for the period ended 30 June 2015 included in this report, has been taken from the Company's full accounts, as restated to comply with FRS from the transition date 1 July 2015. Restatement of opening balances relating to equity values, assets and liabilities and profits and losses of the Company between UK GAAP as previously reported and under FRS as restated have not been presented as there have been no required changes to the reported amounts. Therefore restatement tables have not been prepared for any of the primary statements.

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

The Company's investment manager is Sanditon Asset Management Limited. With effect from Admission, the Manager shall be entitled to receive from the Company in respect of its services provided under the Management Agreement, a management fee accrued daily and payable monthly in arrears calculated at the rate of one-twelfth of 0.75 per cent. per calendar month of the Company's Net Asset Value. 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 2015.

Consideration will be given to an annual dividend in respect of the year ended 30 June 2016 at a Board meeting to be held in September 2016. An announcement will be made shortly after that meeting.

4. INVESTMENTS

5. SHARE CAPITAL

Interim Management Report

six months ended 31 December 2015

General

The Company was incorporated in England and Wales as a public limited Company on 14 May 2014 with registered number 09040176. 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. 13,494,900 Ordinary Shares were issued pursuant to the offer and 36,505,100 were issued under the placing. The fund raise was oversubscribed. The shares were admitted to the Official List on 27 June 2014 and dealings commenced on that day.

Investment Objective

The Company's investment objective is to:

• Deliver absolute returns of at least 2 per cent per annum, compounded annually, above RPIX; and

• Be an asset diversifier for Shareholders by targeting low correlation with leading large capitalisation equity indices.

Alternative Investment Fund Managers Directive ("AIFMD")

In order to comply with AIFMD, the Company has appointed Sanditon Asset Management Limited ("SAM") to act as its Alternative Investment Fund Manager ("AIFM"). SAM has been approved as a Small Authorised UK Alternative Investment Fund Manager by the UK's Financial Conduct Authority.

Going Concern

The Directors believe that, having considered the Company's investment objectives, risk management policies, capital management policies and procedures, nature of the portfolio and expenditure projections, the Company has adequate resources and an appropriate financial structure in place to continue in operational existence for the foreseeable future. The assets of the Company consist mainly of securities which are readily realisable. For these reasons, they consider that there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts.

As at 31 December 2015 the Company had net assets of £49.6 million and it has sufficient cash balances to meet current obligations as they fall due. The Company continues to meet day-to-day liquidity needs through its cash resources.

The Directors have a reasonable expectation that the Company will continue in existence for the foreseeable future.

Principal risks and uncertainties

The key risks to the Company fall broadly under the following categories:

• Investment and strategy

The Board will regularly review the investment mandate and long-term investment strategy in relation to the market and economic conditions. The Board also regularly monitors the Company's investment performance against the objective to deliver at least 2% above inflation and its compliance with the investment guidelines.

• Accounting, legal and regulatory

In order to qualify as an investment trust, the Company must comply with the provisions contained in Section 1158 of the Corporation Taxes Act 2010. A breach of Section 1158 in an accounting period could lead to the Company being subject to corporation tax on gains realised in that accounting period. Section 1158 qualification criteria are continually monitored by the Investment Manager and the results reported to the Board at its regular meetings. The Company must also comply with the Companies Act and the UKLA Listing Rules. The Board relies on the services of the administrator, 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. A potential buy-back of shares would be in accordance with London Stock Exchange rules and at the Board's discretion.

• Operational

Like most other investment trust companies, the Company has no employees and therefore relies upon the services provided by third parties and is dependent on the control systems of the Investment Manager, the custodian and the Company's other service providers. The security, for example, of the Company's assets, dealing procedures, accounting records and maintenance of regulatory and legal requirements, depend on the effective operation of these systems. The custodian produces reports on its internal controls which are reviewed by 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 10 and 11. At 31 December 2015, £31,386 (31 December 2014: £32,000) of this fee remained outstanding. SAM received £1,732 (31 December 2014: £3,109 - website and some IPO related costs) in relation to a contribution to the costs of the website.

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 £16,000 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 £25,000 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 2016

Directors and Officers

as at 31 December 2015

Directors

Rupert Barclay, Chairman

Hugo Dixon

Christopher Keljik

Charles Harman (retired 1 December 2015)

Investment Manager

Sanditon Asset Management Limited

Fifth Floor

33 Cannon Street

London EC4M 5SB

Telephone: 020 3595 2900

Secretary and 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

Capita Asset Services

The Registry

34 Beckenham Road

Beckenham

Kent BR3 4TU

Email: ssd@capitaregistrars.com

Stockbroker

JPMorgan Cazenove

25 Bank Street

Canary Wharf

London E14 5JP

Website

www.sanditonam.com