Sanditon Investment Trust plc
ANNUAL REPORT & ACCOUNTS
For the year ended
30 June 2019
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 |
|
| Financial Highlights |
1 |
| Performance |
1 |
| Financial Calendar |
1 |
| Chairman’s Statement |
2 |
| Investment Manager’s Report |
3-5 |
| Portfolio |
6 |
| Directors |
7 |
| Strategic Report |
8-10 |
| Directors’ Report |
11-13 |
| Statement of Corporate
Governance |
14-16 |
| Directors’ Remuneration Report |
17-18 |
| Audit Committee Report |
19-20 |
| Statement of Directors’
Responsibilities in Respect of the Annual Report and the Financial
Statements |
21 |
| Independent Auditor’s Report |
22-25 |
| Income Statement |
26 |
| Statement of Financial Position |
27 |
| Statement of Changes in Equity |
28 |
| Cash Flow Statement |
29 |
| Notes to the Financial
Statements |
30-44 |
| Shareholder Information |
45 |
| Glossary of Terms and Alternative
Performance Measures |
46-47 |
| Notice of Annual General
Meeting |
48 |
| Notes to the Notice of Annual
General Meeting |
49-50 |
| Directors and Advisers |
51 |
Financial Highlights
|
As at |
As at |
|
30 June 2019 |
30 June 2018 |
| Total shareholders’ funds
(£000) |
£44,347 |
£45,981 |
| NAV per Ordinary Share (cum
income) |
88.69p |
91.96p |
| Share price |
81.00p |
82.00p |
| Discount to Net Asset Value per
Share |
-8.7% |
-10.8% |
| Dividends per Ordinary Share |
0.60p |
0.50p |
| Ongoing charges |
1.31% |
1.29% |
Performance
|
Year ended |
Year ended |
| Total Return Performance |
30 June 2019 |
30 June 2018 |
| NAV per Ordinary Share (including
dividend and provision for liquidation costs) |
-3.0% |
-7.6% |
| Share price |
-1.2% |
-15.8% |
| Hurdle rate (RPIX + 2%) |
+4.8% |
+5.4% |
| FTSE All-Share Index (Total
Return) |
+0.6% |
+9.0% |
| RPIX |
+2.8% |
+3.4% |
Financial Calendar
| Company’s year end |
30 June |
| Annual results announced |
October |
| Annual General Meeting |
5 December 2019 |
| Company’s half year end |
31 December |
| Dividend payment |
December 2019 |
Chairman’s Statement
for the period 1 January 2019 to
30 June 2019
Performance
Sanditon Investment Trust’s (the “Company”) net asset value
(“NAV”) fell by 5%, to 89p per Ordinary Share, over the second half
of the Company’s financial year, to leave a loss for the year of
3.0%. The share price closed the financial year at 81p, a fall of
7% to widen the discount to NAV to 9%. Your Company has recently
been inversely correlated with equity markets and remains so
(-0.14x over the last year), despite the Manager briefly going net
long at the end of 2018. Equity markets reversed the sharp falls of
the second half of 2018 with most developed markets showing double
digit returns. The cause of the bounce was the Federal Reserve’s
signal that it would pivot on interest rates from a tightening to a
loosening mode. Sharp falls in bond yields led equities higher, as
the hope of looser money overrode deteriorating economic momentum
across the globe.
Dividends
The Board is pleased to recommend a dividend of 0.6p per share
to be paid to shareholders on the register at the close of business
on 22 November 2019. The Board also
intends to pay a stub dividend for the first half of the Company’s
new financial year, which will be announced in mid-November and
again will be paid to shareholders on the register at the close of
business on 22 November 2019.
Charges and fees
Our total ongoing charges at 30 June
2019 were 1.31% per annum. No performance fees have been
paid or accrued.
Stake in Sanditon Asset Management
Sanditon Asset Management (“SAM”) finished the period with
assets under management (“AUM”) of £524 million, a decrease of 4.5%
since our last report at the end of December and a decrease of 7.5%
since SAM’s year end of 31 March
2019. Your Company’s stake in SAM was revalued in June using
our notified valuation methodology of the average of 1% of AUM and
5x profit after tax. This led to a 7.5% diminution in value of our
stake to £1,305,000, giving an overall valuation for SAM of
£6,525,000.
Continuation Vote/Voluntary Liquidation
At the outset of your Company, a shareholder-friendly
continuation vote structure was put in place to ensure that
shareholders were not stuck in a small, relatively illiquid vehicle
if the prospects for SAM were not bright. The first continuation
vote is due to be held in December
2020. Having spoken with significant shareholders including
members of SAM itself who speak for 21% of the Company’s equity,
the Board of SIT and SAM have reluctantly concluded that the chance
of a successful continuation vote in 2020 is slim. As a result of
this feedback, SAM informed the Board that it did not wish to
continue managing the Company for the next year as, in its view, it
was in the best interests of all shareholders to propose an early
liquidation of the Company.
The Board considered alternatives to winding down the Company
including appointing a new manager or merging the Company with
another investment trust. We concluded, after consultations with
our advisors, that none of these solutions were optimal. Therefore,
rather than wait for an unsuccessful continuation vote in 2020, the
Board have decided to put a resolution to shareholders at a general
meeting to be held immediately following the forthcoming AGM,
authorising a voluntary liquidation of your Company. The Board will
vote in favour of the resolution in respect of their own
shareholdings and recommend all shareholders vote in favour.
The enclosed circular to shareholders sets out the proposed
timetable should shareholders vote in favour of the resolution.
Should shareholders vote in favour of the resolution, SAM will
liquidate the investment portfolio promptly. The Board of SIT
expects to receive a sum for its SAM stake where any difference
between the current holding valuation (£6.525 per Ordinary Share)
and the eventual value is immaterial to the SIT shareholders.
Outlook
The Fed’s pivot on interest rates to a dovish position was
harmful to our performance in the first half of 2019 but in a fast
moving market it is encouraging that your Company’s performance has
improved in the new financial year. We are naturally disappointed
that our bearish investment view has led to indifferent performance
and that we have had to conclude that it is in the best interests
of all shareholders that we propose a voluntary liquidation of your
Company. We thank all our shareholders for their support.
Rupert Barclay
Chairman
30 October 2019
Investment Manager’s Report
for the period 1 January 2019 to
30 June 2019
“If you can keep your head when all around you are losing
theirs”
Overview
As we report on another frustrating six months for your Trust,
it is always worth reflecting on one’s own investment sanity. Our
central thesis since your Trust launched in 2014 has been that
Quantitative Easing (QE) and extremely loose monetary policy has
seriously distorted all asset prices and that even a partial
reversal of QE would lead to a serious setback in asset prices.
Monetary tightening took a lot longer to occur than we expected,
but with the first (fairly modest) attempt at normalising monetary
policy by the Federal Reserve (the only major developed country to
attempt to normalise), markets did indeed take fright in the second
half of 2018. The first half of 2019 has been a very different
story with most equity markets up between 10-20%, oil up 20%, gold
up 10% and bonds up sharply as the US 10-year yield collapsed to
2%, from over 3% as recently as last November. The cause of all
this excitement? A Federal Reserve in retreat from its attempt to
normalise monetary policy, by admitting defeat and cutting interest
rates in July, rather than raising them three more times as the
markets expected at the beginning of the fourth quarter of
2018.
There is no doubt that global growth is slowing with several
developed countries flirting with recession, including the Brexit
paralysed UK. Mr. Trump’s much publicised trade wars are doubtless
partly to blame for the slowdown in global growth, but we have no
doubt that the modest monetary tightening in the US and the modest
tightening in credit in China are
the main causes. For all that most of us want to think that Mr.
Trump is a bit of a fool, he sees the dangers of tighter money
raining on his re-election parade. His sniping at the Fed has paid
off and he is unlikely to let up this side of the election
campaign. Central bankers’ backbones have been pretty brittle since
the crash of 2008, but most depressing for us was Mr. Powell’s
press conference announcing the quarter point cut in the Fed funds
rate in July, which the Fed had characterised as a ‘one-off cut’ in
a mid-cycle economic correction. When told during the press
conference that markets were falling (as they were expecting at
least two more cuts in 2019), he started blustering that of course
the Fed would be watching the data closely etc. etc. Do not doubt
that the current crop of central bankers are slaves to the
market.
Over in Europe, with the global
slowdown impacting growth in its economic powerhouse Germany, along with many others, the departing
president of the ECB announced that his successor is likely to have
to cut already negative interest rates further and restart QE, only
a few months after stopping it. As Ms. Lagarde comes from the
existing clique of policy makers responsible for current central
bank thinking, we have little doubt that she will follow through
with her predecessor’s inclination. So what that an ECB balance
sheet of 4.7 trillion euros and
negative interest rates has not restored Europe to a sustainable growth path? It must
be that we haven’t done enough! With most bond yields in EU
countries now negative and even stricken Italy able to borrow 10 year money at 1.8%, it
cannot be the cost of money that is holding Europe back. When will central bankers work
that out?
The answer probably lies in what comes next. Central bankers
will not admit it, but QE has failed. It has helped fuel the rise
of populism as the vast majority feel left out of the economic
recovery enjoyed since the 2008 crash. Yes, Gini coefficients have
been relatively stable throughout Europe and the US since the crash, but wealth
inequality has grown significantly. QE has disproportionately
benefitted those who have assets; the rich.
Continuing on the same path seems foolish to us, as it is likely
to bolster left (or right) wing populists who, if they reach power,
are likely to test markets’ resolve with significant fiscal
expansion. Mr. Salvini, a convert from the left may be the first to
test the bond market’s current bout of complacency, but closer to
home, it is very likely that the current or next administration
will enter into a period of fiscal profligacy. And in some sense
who could blame them with UK 30-year yields at 1.1% (and inflation
running around 2%), why not spend large on updating the countries
creaking infrastructure? Mr. Johnson has entered office with
promises of more money for almost everyone. The Conservative led
administrations under Mr. Cameron and Mrs. May had got the annual
deficit back to £25.5 billion for the last financial year, at a
manageable 1.2% of GDP but the debt to GDP ratio remains at a lofty
85.2% (the Maastricht guidelines of 60% are long forgotten!). Yet
the bond market seems unfazed by the prospect of financial
profligacy. Parliament may, for now, have stopped a No Deal Brexit
but now that we are in election mode it is likely a government of
any hue will announce a significant boost to infrastructure
spending. For the economy it may well be the right thing to do (and
better in our mind than more mindless QE) but for the bond market?
The same pressures exist throughout the world. We have become
hostages to a debt burden, where central bankers are too terrified
to raise the cost of money for fear of the economic repercussions,
yet they know the outcome of their policies will be an ever-rising
debt burden. Money is free!
“If you can trust yourself when all men doubt you but make
allowance for their doubting too”
We have been bearish since the start of your Trust but have
tried to be pragmatic and adjust our bearishness into market falls.
Indeed, at the end of 2018 when the market was back at our launch
levels in 2014, we did go 40% net long of the market, suspecting
the Fed would abandon their hawkishness. However, our overall
investment bias of being long value and defensive stocks and short
of growth and cyclical stocks has not been where the market is at,
(although many cyclical stocks have seen substantial profit
deterioration and some have seen sharp falls). The market in its
wisdom has wanted to chase growth stocks at the expense of
everything else. There is certainly some justification for rerating
solid long duration stocks as the risk-free rate falls, but the
investment herding and scale of rerating has dwarfed previous
episodes, apart from the brief TMT bubble at the turn of the
millennium. We have been wary of describing the UK equity market as
a bubble, as we do think there are pockets of cheap valuations,
however we remain convinced that asset markets overall are inflated
and likely to see a substantial correction. We try to continue to
doubt our investment sanity, but when we see Greek 10-year
government bond yields trade in line with US 10-year yields (as
they did briefly during the first half of 2019), we are convinced
that central bankers’ policies have distorted the market’s
sanity!
Portfolio Performance and Structure
The first six months of 2019 saw your portfolio lose 4.3% before
charges, resulting in a loss for the financial year of 1.7%. The
long book made 2.8% but the short book lost 7.1%, representing
returns on capital of 6.3% and -14.1% respectively against the
market return of 13.0%. The disappointing performance of our long
book relative to the market is largely explained by the chart below
that shows the correlation of value and growth stocks to the bond
market. Falling bond yields have simply been destructive for
‘value’ stocks but have helped ‘growth’ stocks rerate to historic
highs. We have been on the wrong side of this trade since your
Trust’s launch, with only brief periods of respite.
An equity market driven by bonds not profits – MSCI World decile
portfolios based on US bond correlation
[GRAPHIC REMOVED]
Source: SG Cross Asset Research/Equity Quant
We went temporarily long of the market in December, expecting
the US Federal Reserve to moderate its planned monetary tightening
as a result of last year’s equity market weakness. The Fed did
indeed turn more dovish, leading to the collapse in bond yields and
substantial equity market rallies mentioned earlier. Our futures
long positioned added 1.2% but was mitigated by selling too early
and reverting to a short futures position which cost 0.7%. The main
change in portfolio structure has been reverting to a net short
position of 15%, from the last reported 40% net long, with little
change in the portfolio’s underlying structure.
Our poor performance is largely attributable to our long
value/defensive and short growth/cyclical skew. As our long book
does not hold many highly rated growth stocks, we had few
substantial winners on our long book. Diageo and RELX, both held
since launch added 1.0% and 0.7% respectively as the shares gained
21% and 18%. Diageo trades on 24x earnings for 7% growth and RELX
trades on just over 20x for similar forecast growth, but with
probably greater risks to their subscription-based revenue model
from the growing pressure for free access to research. Both
benefitted from falling bond yields and weakening sterling, as did
most other growth defensive shares over the half year.
Value stocks on our long book were mostly disappointing over the
period, with continued share price weakness from BT (-17%), ITV
(-13%), Sainsbury’s (-26%), Vodafone (-15%) and Wood Group (-10%).
Collectively, these five stocks detracted 1.5% from NAV. Whilst
some of these had company specific reasons, (Sainsbury’s merger
with Asda was blocked by the CMA), their performance was fairly
typical of value stocks in the first half and the polarisation seen
in the chart above. We only made money in three value stocks. We
sold our position in BAT after a 16% gain for a 0.3% profit, and
modest recoveries in Equiniti and Greene King’s share prices added
0.2% each.
Losses on our short book were generally widespread, despite
significant earnings downgrades from some of our shorts. This
included our biggest negative contribution, Ocado, which cost 2.2%
as its shares leapt by 47% as concerns about a fire destroying its
Andover facility (15% of its UK capacity) were overcome by its deal
to sell 50% of its UK business to M&S for up to £750 million.
We do not dispute this was a good deal for Ocado (and a desperate
one from M&S) but profits remain elusive for Ocado and their
business model shows no sign of reducing its capital intensity.
Earnings forecasts for the current year for Ocado have dropped to a
loss per share of 13p from 0p at the start of the year. Analysts
now hope it will make 14p in 2023, coincidentally the same number
they forecast Ocado would make last year when we started your Trust
in 2014. The actual result? A loss of 3.6p.
Whilst Just Eat did not cost us in the latest half year, it was
disappointing that it did not reward us either, as their earnings
forecasts continued to fall sharply, with 2019 forecasts now an
astonishing 75% lower than they were a year ago. Growing sales is
relatively easy, profits less so. Shareholders can find more
details on our performance from our two quarterly fact sheets at
www.sanditonam.com.
Your portfolio retains its strong value bias with the average
P/E of the long book at 12.3x remaining at around a third of our
short book P/E of 32x (excluding the loss making Ocado). We are
well aware that we are standing in the way of current market
momentum and investment flows which remain resolutely anti-value.
Whilst we have always believed our hedge fund structure would
deliver low correlation with equity markets, we did not necessarily
expect it to be inversely correlated which is where we have been
over the last year with a correlation of -0.14x to the UK equity
market.
The fifth line of Kipling’s famous poem asks
“If you can wait and not be tired by waiting”.
Investment requires pragmatism and patience, accepting one’s
views might be wrong or just out of tune with current market
trends. We think we have been patient but we accept that our
returns have been disappointing. We put continuation votes into our
structure at the outset of the Trust to ensure that if investors’
patience was shorter in duration than ours then they could get
their money back.
Conversations with key shareholders led us to believe we had no
chance of achieving a successful continuation vote next year. In
those circumstances Sanditon Asset Management decided that, in the
interests of all shareholders, the best course of action was to ask
the Board of SIT to offer an early vote on a voluntary liquidation
of your Company. The management of SAM will be voting in favour of
the resolution.
It only remains for me to thank shareholders for their support
and wish them financial success in what we are sure are going to be
very tricky markets.
Tim Russell
Sanditon Asset Management Limited
30 October 2019
Portfolio
as at 30 June 2019
| Country Breakdown (% of NAV)* |
Long |
Short |
Net |
Gross |
| Germany |
0.0 |
-1.4 |
-1.4 |
1.4 |
| Italy |
0.0 |
-5.2 |
-5.2 |
5.2 |
| United Kingdom |
37.4 |
-46.4 |
-9.0 |
83.8 |
| Total |
37.4 |
-53.0 |
-15.6 |
90.4 |
| Business Cycle Groupings (% of
NAV)* |
Long |
Short |
Net |
Gross |
| Commodity Cyclical |
0.0 |
0.0 |
0.0 |
0.0 |
| Consumer Cyclical |
5.7 |
-2.4 |
3.3 |
8.1 |
| Industrial Cyclical |
4.3 |
-10.4 |
-6.1 |
14.7 |
| Growth |
0.0 |
-20.2 |
-20.2 |
20.2 |
| Financial |
6.6 |
0.0 |
6.6 |
6.6 |
| Growth Defensive |
12.1 |
-7.6 |
4.5 |
19.7 |
| Value Defensive |
8.7 |
0.0 |
8.7 |
8.7 |
| FTSE 100 Future |
0.0 |
-12.4 |
-12.4 |
12.4 |
| Total |
37.4 |
-53.0 |
-15.6 |
90.4 |
| Long Positions (% of NAV)** |
% |
| TM Sanditon UK Select |
10.0 |
| Diageo |
5.7 |
| ITV |
4.1 |
| RELX |
3.9 |
| Babcock |
3.4 |
| Sanditon Asset Management |
2.9 |
| Melrose |
2.8 |
| Aviva |
2.8 |
| Vodafone |
2.7 |
| IG Group |
1.8 |
| Greene King |
1.6 |
| Capita |
1.5 |
| John Wood Group |
1.4 |
| Equiniti |
1.3 |
| Reckitt Benckiser |
1.3 |
| Man Group |
1.2 |
| J Sainsbury |
1.1 |
| JUST Group |
0.8 |
| Total |
50.3*** |
|
|
| Total number of positions (long and
short)** |
38 |
* Excluding holdings in Sanditon Asset Management and TM
Sanditon UK Select Fund
** Including holdings in Sanditon Asset Management and TM
Sanditon UK Select Fund
*** The long positions are presented based on the notional value
of CFD holdings and the actual value of equity holdings
Directors
Rupert Barclay – Chairman
Mr Barclay is currently Chairman of Impact Healthcare REIT plc
and a former director and chair of the audit committee of Lowland
Investment Company plc. He is a founder and managing partner of the
strategic advisory firm Cairneagle Associates LLP and a number of
private companies, and was formerly senior independent director of
Dimension Data plc until its acquisition by NTT Communications
Corporation in 2010 and a director of Instinet Inc. In his
strategic advisory career he is a former partner of LEK Consulting
and former Head of Strategy and M&A at two top 50 UK companies,
Allied Domecq and Reuters. He has an MA in Classics from
Cambridge, an MBA with Distinction
from INSEAD and is a Fellow of the Institute of Chartered
Accountants in England &
Wales.
Christopher Keljik OBE
Mr Keljik was with Standard Chartered Plc for most of his career
serving in Singapore, New York, Hong
Kong and London. At
retirement he was the Group Executive Director with
responsibilities for Africa, the
Middle East, South Asia, Europe and the Americas. He was the Senior
Independent Director of Foreign & Colonial Investment Trust
plc, Schroder Asian Total Return Investment Company plc and
Millennium & Copthorne Hotels plc and a non executive director
of Jardine Lloyd Thompson Group plc. He is a Fellow of the
Institute of Chartered Accountants in England and Wales.
Hugo Dixon
Mr Dixon is an author and columnist. He is the founder of
Reuters Breakingviews. Before founding Breakingviews in 1999, which
he edited until 2012, Mr Dixon spent 13 years at the Financial
Times, the last five as head of Lex. He began his journalistic
career at The Economist. Mr Dixon has a first class degree in
philosophy, politics and economics from Oxford
University. He is the author of The In/Out Question, The
Penguin Guide to Finance and Finance Just in Time.
Mark Little – Chairman of the
Audit Committee
Mr Little is a non-executive director of Securities Trust of
Scotland Plc, Majedie Investment Trust Plc and an investment
director with 7 Investment Management Ltd. He was formerly Managing
Director of Barclays Wealth (Scotland and Northern Ireland). He is a member of the
Institute of Chartered Accountants of Scotland.
Strategic Report
for the year ended 30 June
2019
The Directors submit to the shareholders their Strategic Report,
Directors’ Report and the Audited Financial Statements of the
Company for the year ended 30 June
2019.
Business and tax status
The Company is an investment trust listed on the London Stock
Exchange and its principal activity is portfolio investment. The
Company has been accepted by HM Revenue & Customs as an
investment trust subject to the Company continuing to meet the
eligibility conditions contained in Section 1158 of the Corporation
Tax Act 2010 and the ongoing requirements outlined in Chapter 3 of
Part 2 of the Regulations for all accounting periods starting on or
after 27 June 2014. In the opinion of
the Directors, the Company has conducted its affairs during the
period under review, and subsequently, so as to maintain its status
as an investment trust for the purposes of Chapter 4 of Part 24 of
the Corporation Tax Act 2010.
The Company is an investment company as defined in Section 833
of the Companies Act 2006. The Company is not a close company for
taxation purposes.
The Company’s status as an investment trust allows it to obtain
an exemption from paying taxes on the profits made from the sale of
its investments.
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.
Alternative Investment Fund Management Directive (“AIFMD”)
Sanditon Asset Management Limited (the “Manager”) is authorised
and regulated by the FCA and as such is subject to its rules in the
conduct of its investment business. The Manager is a Small
Authorised UK AIFM. To qualify for such status, the Manager must
continue to meet certain conditions including a limit on the
Manager’s assets under management in certain types of investment
fund, including any assets acquired through the use of leverage.
The Company is the Manager’s only Alternative Investment Fund. If
the gross assets of the Company exceed the €100m limit allowed to
be a Small Authorised UK AIFM, the Manager will apply to the FCA
for authorisation to be a Full-Scope UK AIFM. The Board does not
expect such application process to have any impact on the Company
or the management of its assets on the basis that, once such
application is made by the Manager, the Manager would be able to
continue managing the Company’s assets until the FCA has approved
the application.
Investment policy
The Company invests predominantly in listed equity securities of
companies:
• incorporated in; or
• which derive a significant proportion of their revenues or
profits from; or
• which are predominantly operating in;
the EU, the EEA or Switzerland.
The Company utilises derivative instruments, including contracts
for differences and other equity-related derivative instruments,
for investment purposes, efficient portfolio management and
gearing. Any use of derivatives for investment purposes will be
made on the basis of the same principles of risk spreading and
diversification that apply to the Company’s direct investments. The
gross exposure of the Company’s portfolio shall not exceed 200% of
the net asset value.
Assets denominated in currencies other than sterling will not
automatically be hedged.
The Company holds a 20 per cent equity interest in SAM acquired
on Admission in 2014 in order to benefit from the potential growth
in the Manager’s business. The Company acquired such interest at
the same price per share at which the SAM Founder Shareholders
subscribed for their shares in SAM. The Company will not invest in
unlisted securities other than its equity interest in SAM.
The Company has the ability to invest in investment funds
managed or advised by SAM (“SAM Funds”). Such investment shall only
be made with the prior approval of the Board and on terms whereby
any management and performance fees which would otherwise be
payable by the Company to the Manager pursuant to the Management
Agreement in respect of such investment are not double charged. The
Company invested £4,950,000 in the TM Sanditon UK Select Fund
during the period ended 30 June 2015.
There were no additional investments in investment funds managed by
SAM in the year to 30 June 2019
(30 June 2018: none).
The Company will manage and invest its assets in accordance with
its published investment policy. Any material change to this policy
will only be made with the approval of shareholders by ordinary
resolution unless otherwise permitted by the Listing Rules.
Key performance indicators
The Company’s Directors meet regularly to review the performance
of the Company and its shares. The key performance indicators
(“KPIs”) used to measure the progress and performance of the
Company over time are as follows:
1)The share price in absolute terms and relative to RPIX plus
2%.
2)The net asset value per share return in absolute terms and
relative to RPIX plus 2%.
3)Ongoing charges. The annualised ongoing charges figure for the
year was 1.31% (2018: 1.29%). This figure, which has been prepared
in accordance with the recommended methodology of the Association
of Investment Companies, represents the annual percentage reduction
in shareholder returns as a result of recurring operational
expenses excluding performance fee. There is no performance fee
accrual in respect of the year ended 30 June
2019 (2018: no performance fee accrued). The Board reviews
each year an analysis of the Company’s ongoing charges figure.
All of these areas were examined throughout the year and the
table below summarises the results:
|
As at or year to |
|
30 June |
|
2019 |
| Total Return Performance |
|
| NAV per Ordinary Share |
|
| (including dividend and provision
for liquidation costs) |
-3.0% |
| Share price |
-1.2% |
| RPIX + 2% |
+4.8% |
| Ordinary Share Performance |
|
| Net Asset Value per Ordinary Share
(cum income) |
88.69p |
| Net dividends declared per Ordinary
Share |
0.60p |
| Ongoing charges† |
1.31% |
†See glossary of terms on pages 46 and 47.
Return per share – basic
The total return per Ordinary Share based on the net total
return on ordinary activities after taxation of £(1,234,000) (2018:
£(3,811,000)) was (2.47)p (2018: (7.63)p).
These calculations are based on the number of 50,000,000
Ordinary Shares in issue during the year to 30 June 2019 (2018: 50,000,000). The return per
Ordinary Share can be further analysed between revenue and capital
as below:
|
Year ended |
Year ended |
|
30 June 2019 |
30 June 2019 |
|
Pence per Ordinary
Share |
£000 |
| Net revenue return |
0.68p |
340 |
| Net capital return |
(3.15)p |
(1,574) |
| Net total return |
(2.47)p |
(1,234) |
The Company does not have any dilutive securities.
Dividends
The Company is managed to target absolute return rather than for
dividend yield. Accordingly, the Board does not seek to target any
particular level of dividend and intends rather to distribute by
way of dividend most of the net revenue earnings available for this
purpose. The Board recommends a final dividend of 0.60p per share.
Subject to approval at the Annual General Meeting, the recommended
final dividend will be paid on 20 December
2019 to members on the register at the close of business on
22 November 2019 and the shares will
be marked ex-dividend on 21 November
2019.
Net asset value
The net asset value per Ordinary Share, including revenue
reserve, at 30 June 2019 was 88.69p
(2018: 91.96p).
Principal risks associated with the Company (also see note 18 on
pages 38 to 44).
Investment and strategy risk
The Board regularly reviews 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%
return above inflation, and monitors its compliance with the
investment guidelines.
Accounting, legal and regulatory risk
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 SE 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 lead Investment manager or several
members of the investment management team or a change in Investment
Manager could result in a deterioration in investment performance.
The Investment Manager reports to the Board on developments at SAM
including succession and business continuity plans.
Discount
A disproportionate widening of the discount relative to the
Company’s peers could result in loss of value for shareholders.
The Board undertakes a regular review of the level of
premium/discount and consideration is given to ways in which share
price performance may be enhanced, including the effectiveness of
marketing.
Operational risk
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 these systems. The Custodian and
the Administrator produce reports on their internal controls which
are reviewed by their auditors and give assurance 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 15 and 16.
Financial risk
The financial risks faced by the Company are disclosed in note
18 on pages 38 to 44.
The Board considers these risks to have remained unchanged
throughout the year under review.
Viability statement
As is set out in the Chairman’s’ Statement on page 2, the Board
has put forward a proposal to shareholders that the Company be
wound up and placed into voluntary liquidation. A general meeting
to consider this will be held on 5 December
2019 following the companies AGM.
Taking account of this, the principal risks that the Company
faces and their potential impact on its future developments and
prospects, the Directors have assessed the viability of the
Company, to the extent that they are able to do so to 5 December 2019. The Directors confirm that they
have a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due in
the period of assessment up to 5 December
2019.
Board diversity
The Nomination Committee considers diversity, including the
balance of skills, knowledge, gender and experience, amongst other
factors when reviewing the composition of the Board and appointing
new directors, but does not consider it appropriate to establish
targets or quotas in this regard. The Board comprises four
non-executive Directors all of whom are male. The Company has no
employees.
Social, community and human rights
The Company does not have any specific policies on social,
community or human rights issues as it is an investment company
which does not have any physical assets, property, employees or
operations of its own.
For and on behalf of the Board
Rupert Barclay
Chairman
30 October 2019
Directors’ Report
for the year ended 30 June
2019
Directors
The present Directors are listed below and on page 7. They are
all non-executive and have served throughout the year.
Rupert Barclay – Chairman
Christopher Keljik OBE
Hugo Dixon
Mark Little – Chairman of the
Audit Committee
None of the Directors, nor any persons connected with them, had
a material interest in any of the Company’s transactions,
arrangements or agreements during the year. None of the Directors
has, or has had, any interest in any transaction which is, or was,
unusual in its nature or conditions or significant to the business
of the Company, and which was effected by the Company during the
current financial year.
At the date of this report, there are no outstanding loans or
guarantees between the Company and any Director.
Conflicts of interest
The Board has put in place a framework for Directors to report
conflicts of interest or potential conflicts of interest which it
believes has worked effectively during the year. All Directors are
required to notify the Company Secretary of any situations where
they consider that they have a direct or indirect interest, or duty
that would conflict, or possibly conflict, with the interests of
the Company. No such situations however, have been identified.
There remains a continuing obligation to notify the Company
Secretary of any new situation that may arise, or any change to a
situation previously notified. It is the Board’s intention to
review all notified situations on a quarterly basis.
Corporate governance
The statement of Corporate Governance, as shown on pages 14 to
16, is incorporated by cross reference into this report.
Bribery prevention policy
The provision of bribes of any nature to third parties in order
to gain a commercial advantage is prohibited and is a criminal
offence. The Board has a zero tolerance policy towards bribery and
a commitment to carry out business fairly, honestly and openly. The
Board takes its responsibility to prevent bribery by the Company’s
Manager on its behalf very seriously and the Investment Manager has
anti-bribery policies and procedures in place. The Company’s other
key service providers have anti-bribery policies.
Modern slavery act
The Company is an investment vehicle and does not provide goods
or services in the normal course of its business, or have
customers. Accordingly, the Directors consider that the Company is
not within the scope of the Modern Slavery Act 2015.
Prevention of the facilitation of tax evasion
In response to the implementation of the Criminal Finances Act
2017, the Board have adopted a zero-tolerance approach to the
criminal facilitation of tax evasion. A copy of the Company’s
policy on preventing the facilitation of tax evasion can be found
on the Company’s website: www.sanditonam.com. The policy is
reviewed annually by the Audit Committee.
Global greenhouse gas emissions
for the year ended 30 June
2019
The Company has no greenhouse gas emissions to report from the
operations of the Company, nor does it have responsibility for any
other emission producing sources under the Companies Act 2006
(Strategic Report and Directors’ Report) Regulations 2013.
Substantial shareholdings
As at the date of this report the Company had been notified of
the following substantial interests in the Ordinary share capital
of the Company.
|
Number |
|
Number |
|
|
of shares at |
% of total |
of shares at |
% of total |
|
22 October 2019† |
voting rights |
30 June 2019 |
voting rights |
| Premier Fund Managers Limited |
13,491,833 |
27.0% |
12,301,833 |
24.6% |
| Hargreaves Lansdown |
6,201,281 |
12.4% |
6,193,459 |
12.4% |
| Tim Russell |
6,082,125 |
12.2% |
5,900,000 |
11.8% |
| Schroders plc |
4,799,584 |
9.6% |
4,876,750 |
9.8% |
| Ravenscroft Limited |
4,000,000 |
8.0% |
4,000,000 |
8.0% |
| J. Safra Sarasin |
2,344,289 |
4.7% |
2,478,894 |
5.0% |
†The latest practicable date prior to the publication of this
report.
Going concern
Given that the Board has put forward a proposal to shareholders
that the Company be wound up and placed into voluntary liquidation
on 5 December 2019, the Directors
believe that it would not be reasonable to adopt the going concern
basis in preparing the financial statements. Therefore the
financial statements have been prepared under the ‘break up’ basis
after including a provision for the liquidation of the Company
based on estimated costs to liquidate the Company. Please refer to
note 1 on page 30 of the accounting policies.
Performance
An outline of the performance, market background, investment
activity and portfolio strategy during the period under review, as
well as the investment outlook, is provided in the Chairman’s
Statement on page 2 and Investment Manager’s Report on pages 3 to
5.
UK Stewardship Code
The UK Stewardship Code is overseen and published by the
Financial Reporting Council, the independent regulator overseeing
financial reporting, accounting and auditing and corporate
governance. The Code, first published in 2010, sets the benchmark
in the UK for institutional investors to meet ownership obligations
in respect of their holdings of UK equities.
SAM’s stewardship policy, the principles of which are set out
below, has been reviewed by the Board and responsibilities for
voting have been delegated to SAM.
Principle 1: Policy on operation of stewardship
responsibilities
SAM manages client assets with the objective of generating
returns consistent with clients’ objectives. It is therefore
central to SAM’s investment process to consider each company’s
ability to create, sustain and protect value. It is essential to
question and challenge companies about issues that SAM perceives
may affect their value. Engagement and actively voting the shares
it manages on behalf of clients should therefore be seen as
integral to its equity investment process.
Principle 2: Conflicts of interest
Asset management is SAM’s only business. Even so, it is possible
that situations may arise that would lead to concerns over possible
conflicts of interest. Such considerations are included in and
covered by SAM’s Conflicts of Interest Policy.
Principle 3: Monitoring
Typically, monitoring by the Investment Manager (supported by
SAM’s mid office team who are responsible for monitoring corporate
actions and related deadlines) will occur around financial
reporting, general meetings, in connection with news and
announcements and when, for whatever reason, SAM might be
conducting research into investment ideas or reviewing
holdings.
Principle 4: Implementation
Engagement, if required or appropriate, will be conducted
through meetings with company management. It may include further
contact with executives, meeting or otherwise communicating with
non-executive Directors or the chairman, voting, communicating via
the Company’s advisers, submitting resolutions at general meetings
or requisitioning extraordinary general meetings. SAM may conduct
these additional engagements in connection with specific issues or
as part of the general, regular contact with companies.
Principle 5: Working with other shareholders
There are rare occasions when it may be better to work with
other shareholders to effect change. This may involve sharing views
and ideas with other institutions. It may also involve meeting
companies jointly with other shareholders or using the services of
third-party membership organisations or other collaborative or
informal groups.
Principles 6 & 7: Voting & Reporting
It is the policy of SAM’s UK equity business to vote all shares
at all meetings except where there are onerous restrictions – for
example, where trading is restricted prior to a meeting in shares
committed to vote (share blocking), SAM will usually only vote
where the benefit of voting outweighs the benefit of the ability to
trade.
Full details of SAM’s policy in respect of the Stewardship Code
can be found on its website www.sanditonam.com.
Companies Act 2006 Disclosures
In accordance with Section 992 of the Companies Act 2006 the
Directors disclose the following information:
• the Company’s capital structure and voting rights are
summarised on pages 49 and 50, and there are no restrictions on
voting rights nor any agreement between holders of securities that
result in restrictions on the transfer of securities or on voting
rights;
• there exist no securities carrying special rights with regard
to the control of the Company;
• details of the substantial shareholders in the Company are
listed on page 11;
• the Company does not have an employees’ share scheme;
• the rules concerning the appointment and replacement of
Directors, amendment of the Articles of Association and powers to
issue or buy back the Company’s shares are contained in the
Articles of Association of the Company and the Companies Act
2006;
• there exist no agreements to which the Company is party that
may affect its control following a takeover bid; and
• there exist no agreements between the Company and its
Directors providing for compensation for loss of office that may
occur because of a takeover bid.
Auditor
Ernst & Young LLP have expressed their willingness to
continue in office as Auditor and a resolution proposing their
reappointment and to authorise the Board to determine their
remuneration will be submitted at the Annual General Meeting.
Subject to a successful vote to wind up the Company at the
General Meeting the auditors will not be re-appointed.
The Directors who held office at the date of approval of this
Directors’ Report confirm that, so far as they are each aware,
there is no relevant audit information of which the Company’s
Auditor is unaware; and each Director has taken all the steps that
they ought to have taken as Directors to make themselves aware of
any relevant audit information and to establish that the Company’s
Auditor is aware of that information.
By Order of the Board
Rupert Barclay
Chairman
30 October 2019
Statement of Corporate Governance
Introduction
The Board is accountable to the Company’s shareholders for the
governance of the Company’s affairs and this statement describes
how the principles of the Financial Reporting Council’s UK
Corporate Governance Code issued in April
2016 (“the Code”) have been applied to the affairs of the
Company. In applying the principles of the Code, the Directors have
also taken account of the Code of Corporate Governance published by
the Association of Investment Companies (“the AIC Code”) by
reference to the AIC Corporate Governance Guide for Investment
Companies (“the AIC Guide”) issued in July
2016, which has established a framework of best practice
specifically for the boards of investment trust companies. There is
some overlap in the principles laid down by the two Codes and there
are some areas where the AIC Code is more flexible for investment
trust companies.
The revised UK Corporate Governance Code published in 2018,
together with the AIC Code of Corporate Governance published in
February 2019, which is effective for
financial years beginning after 1 January
2019 will apply in the financial year ending 30 June 2020.
Board of Directors
The Board currently consists of four non-executive Directors all
of whom are independent of the Investment Manager. Their
biographies are set out on page 7. Collectively the Board has the
requisite range of business and financial experience which enables
it to provide clear and effective leadership and proper stewardship
of the Company.
The number of meetings of the Board, the Audit Committee, the
Nomination Committee and the Management Engagement Committee held
during the financial year and the attendance of individual
Directors are shown below:
|
|
|
|
Management |
|
|
Audit |
Nomination |
Engagement |
|
Board |
Committee |
Committee |
Committee |
| Number of meetings |
|
|
|
|
| in the year |
4 |
2 |
1 |
1 |
| Rupert Barclay |
4 |
2 |
1 |
1 |
| Christopher Keljik |
4 |
2 |
1 |
1 |
| Hugo Dixon |
4 |
2 |
1 |
1 |
| Mark Little |
4 |
2 |
1 |
1 |
The Board deals with the Company’s affairs, including the
setting of gearing and investment policy parameters, the monitoring
of gearing and investment policy and the review of investment
performance. The Investment Manager takes decisions as to asset
allocation and the purchase and sale of individual investments. The
Board papers circulated before each meeting contain full
information on the financial condition of the Company. Key
representatives of the Investment Manager attend the Board
meetings, enabling Directors to seek clarification on matters of
concern.
Matters specifically reserved for discussion by the full Board
have been defined and a procedure adopted for the Directors to take
independent professional advice if necessary at the Company’s
expense.
The Chairman of the Company was independent of the Investment
Manager at the time of his appointment as an independent
non-executive Director and continues to be considered independent
by the other Board members. A senior non-executive Director has not
been identified as the Board is comprised entirely of non-executive
Directors.
In accordance with the Articles of Association, new Directors
stand for election at the first Annual General Meeting following
their appointment. The Articles require that at every Annual
General Meeting, there shall retire from office any Director who
shall have been a Director at each of the two preceding Annual
General Meetings and who was not appointed or re-elected by the
Company in General Meeting at, or since, either such Annual General
Meeting. However, the Board has taken the decision to adopt
corporate governance best practice resulting in the annual
re-election of all Directors.
Performance evaluation/re-election of Directors
An appraisal process has been established in order to review the
effectiveness of the Board, the Committees and individual
Directors. This process involves the consideration by the Chairman
and the Board of responses from individual Directors to a
questionnaire which is completed on an annual basis. In addition,
the other Directors meet collectively once a year to evaluate the
performance of the Chairman. The Board recommends the re-election
of Mr Rupert Barclay, Mr
Christopher Keljik, Mr Hugo Dixon and Mr Mark
Little, who offer themselves for re-election.
Board tenure
The Board subscribes to the view expressed in the AIC Code that
long-serving Directors should not be prevented from forming part of
an independent majority. It does not consider that the length of a
Director’s tenure reduces his or her ability to act independently.
The Board’s policy on tenure is that continuity and experience add
significantly to the strength of the Board and, as such, no limit
on the overall length of service of any of the Company’s Directors
has been imposed, although the Board believes in the merits of
periodic and progressive refreshment of its composition.
Committees
The Board believes that the interests of shareholders in an
investment trust company are best served by limiting the size of
the Board such that all Directors are able to participate fully in
all the activities of the Board. It is for this reason that the
membership of the Audit, Management Engagement and Nomination
Committees is the same as that for the Board as a whole.
Audit Committee
Mr Little is the Chairman of the Audit Committee and as
permitted by the AIC Code of Corporate Governance the Chairman of
the Board, Mr Barclay, is a member of the Audit Committee. This is
considered to be appropriate given the small size of the Board and
that all Directors are independent. The Audit Committee reviews
audit matters within clearly-defined written terms of reference
(copies of which are available upon request from the Company
Secretary). The Audit Committee Report is set out on pages 19 and
20.
Management Engagement Committee
Mr Barclay is the Chairman of the Management Engagement
Committee which is responsible for reviewing the performance of the
Investment Manager and of all other third party service providers,
their terms of appointment and remuneration. The Committee meets
annually.
Nomination Committee
Mr Barclay is the Chairman of the Nomination Committee which
operates within defined terms of reference available from the
Company Secretary. This is responsible for the Board appraisal
process, reviews the Board’s size and structure and is responsible
for succession planning. The Board has due regard for the benefits
of diversity in its membership and seeks to ensure that its
structure, size and composition, including the skills, knowledge,
diversity (including gender) and experience of Directors, is
sufficient for the effective direction and control of the Company.
The Nomination Committee meets at least annually and comprises all
the non-executive Directors of the Board.
Remuneration Committee
The Board as a whole considers Directors’ remuneration and
therefore has not appointed a separate remuneration committee. As
the Company is an investment trust and all Directors are
non-executive the Company is not required to comply with the Code
in respect of executive Directors’ remuneration. Directors’ fees
are detailed in the Directors’ Remuneration Report on pages 17 and
18.
Risk management and internal control
The UK Corporate Governance Code requires the Directors, at
least annually, to review the effectiveness of the Company’s system
of risk management and internal control and to report to
shareholders that they have done so. This encompasses a review of
all controls which the Board has identified as including: business,
financial, operational, compliance and risk management.
The Directors are responsible for the Company’s system of risk
management and internal control which is designed to safeguard the
Company’s assets, maintain proper accounting records and ensure
that financial information used within the business, or published,
is reliable. However, such a system can only be designed to manage
rather than eliminate the risk of failure to achieve business
objectives and therefore can only provide reasonable, but not
absolute, assurance against fraud, material misstatement or
loss.
The Board as a whole is primarily responsible for the monitoring
and review of risks associated with investment matters and the
Audit Committee is primarily responsible for other risks.
As the Board has contractually delegated to other companies the
investment management, the custodial services and the day-to-day
accounting and company secretarial requirements, the Company relies
significantly upon the system of risk management and internal
controls operated by those companies. Therefore, the Directors have
concluded that the Company should not establish its own internal
audit function, but will review this decision annually. Investment
management is performed by Sanditon Asset Management Limited and
administration services by Northern Trust Global Services SE.
Details of the agreements with the Investment Manager and the
Administrator are set out below. The custodian is The Northern
Trust Company.
An investment limits and restrictions checklist has been
considered at all regular Board meetings. The risk map has been
considered at regular meetings of the Audit Committee. As part of
the risk review process, regular reports are received from the
Investment Manager on all investment related matters including
compliance with the investment mandate, the performance of the
portfolio compared with relevant indices and compliance with
investment trust status requirements. The Board also receives and
reviews reports from the custodian on its internal controls and
their operation.
The Board as a whole regularly reviews the terms of the
management and secretarial contracts.
The Board confirms that appropriate procedures to review the
effectiveness of the Company’s system of risk management and
internal control have been in place, throughout the year and up to
the date of this report, which cover all controls including
financial, operational and compliance controls and risk
management.
Investment Manager
The Company’s Manager is Sanditon Asset Management Limited.
Under the terms of the Management Agreement the Manager is entitled
to a management fee, accrued daily and payable monthly in arrears,
at the rate of 0.75 per cent. per annum of the Company’s Net Asset
Value. The Manager may also become entitled to a performance fee
(see note 3 on page 32). The Management Agreement is terminable
upon 6 months’ written notice, and at any time in the event of the
insolvency of the Company or the Manager.
The investment performance is reviewed at each regular Board
meeting at which representatives of the Investment Manager are
required to provide answers to any questions raised by the Board.
The Board has instigated an annual formal review of the Investment
Manager which includes consideration of:
• performance compared with the hurdle;
• investment resources dedicated to the Company; and
• investment management fee arrangements and notice period
compared with the peer group.
It is not considered appropriate to continue with the
appointment of the Investment Manager given the decision to propose
to shareholders that the Company be wound-up (see Chairman’s
Statement on page 2).
Administrator
Northern Trust Global Services SE has been appointed as the
Administrator of the Company. The Investment Fund Services
Agreement is terminable by the Company on 6 months’ notice or by
the Administrator on 12 months’ notice.
Company Secretary
Sanditon Asset Management Limited was appointed as the Company
Secretary of the Company on 22 February
2018 (in place of Northern Trust Global Services SE). The
Board has direct access to the advice and services of the Company
Secretary, Sanditon Asset Management Limited, which is responsible
for ensuring that Board and Committee procedures are followed and
that applicable regulations are complied with. The Secretary is
also responsible to the Board for ensuring timely delivery of
information and reports and that statutory obligations of the
Company are met. The Secretary provides its services through
Northern Trust Global Services SE.
Individual Directors may take independent professional advice on
any matter concerning them in the furtherance of their duties at
the Company’s expense. The Company also maintains Directors’ and
Officers’ liability insurance to cover legal defence costs.
Custodian
The Northern Trust Company has been appointed as custodian to
provide custody services to the Company. The Custody Agreement is
terminable upon 30 days’ written notice by either party.
Relations with shareholders
The Board, the Investment Manager and all the Directors are
available to enter into dialogue with shareholders.
All shareholders are encouraged to attend and vote at the Annual
General Meeting, during which the Board and the Investment Manager
are available to discuss issues affecting the Company and
shareholders have the opportunity to address questions to the
Investment Manager, the Board and the Chairmen of the Board’s
standing committees.
Any shareholder who would like to lodge questions in advance of
the Annual General Meeting is invited to do so in writing to the
Company Secretary at the address detailed on page 51. The Company
always responds to letters from individual shareholders.
The Annual and Interim Reports of the Company present a full and
readily understandable review of the Company’s performance. Copies
are dispatched to shareholders by mail and are also available for
download from the Investment Manager’s website:
www.sanditonam.com.
A quarterly fact sheet is produced by the Investment Manager and
is also available via its website. If a shareholder would like to
contact the Board directly, they should write to the Chairman,
Sanditon Investment Trust plc, c/o Sanditon Asset Management
Limited, Fifth Floor, 33 Cannon Street, London EC4M 5SB, marking their letter “Private
and Confidential”.
Statement of compliance
The Board believes that it has complied with all the material
provisions, in so far as they apply to the Company’s business, of
the Code throughout the period under review. It did not, however,
comply with the following provisions, as explained previously:
• due to the small size of the Board and nature of the business
a separate remuneration committee has not been established; and the
Board has considered there is no need to nominate a senior
non-executive Director
The Board has also adhered to the principles of the AIC Code in
all material respects.
By Order of the Board
Rupert Barclay
Chairman
30 October 2019
Directors’ Remuneration Report
for the year ended 30 June
2019
Introduction
This report is prepared in accordance with Schedule 8 to The
Large and Medium-sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013 and in accordance with the Listing
Rules of the Financial Conduct Authority and the Companies Act
2006. An ordinary resolution for the approval of this report will
be put to the shareholders at the forthcoming Annual General
Meeting.
The Company’s Remuneration Policy was approved by the
shareholders at the Annual General Meeting on 6 December 2018 under Section 439 of the
Companies Act 2006.
The Company is not able to make remuneration payments to a
Director, or loss of office payments to a current or past Director,
unless the payment is consistent with the approved policy or has
otherwise been approved by the shareholders.
The law requires your Company’s Auditor to audit certain of the
disclosures provided. Where disclosures have been audited, they are
indicated as such. The Auditor’s opinion in respect of these
disclosures is included in their report on pages 22 to 25.
Remuneration Committee
The Board as a whole fulfils the function of a Remuneration
Committee. All Directors are non-executive and the Company has no
employees. No professional adviser was consulted in the year for
setting the level of Directors’ fees.
Directors’ beneficial and family interests (audited)
The interests of the Directors and their families in the
Ordinary Shares of the Company were as follows:
|
Ordinary Shares |
Ordinary Shares |
|
at 22 October
2019† |
at 30 June 2019 |
| Rupert Barclay |
200,000 |
200,000 |
| Christopher Keljik |
265,000 |
265,000 |
| Hugo Dixon |
260,000 |
260,000 |
| Mark Little |
11,818 |
11,818 |
†The latest practicable date prior to the publication of this
report.
Directors’ remuneration policy
The Board’s policy is that the remuneration of non-executive
Directors should reflect the experience of the Board as a whole and
be fair and comparable to that of other investment trusts that are
similar in size, have a similar capital structure and have similar
investment objectives. It is intended that this policy will
continue in subsequent years.
The fees for the non-executive Directors are determined within
the limit of £500,000 set out in the Company’s Articles of
Association. The Directors are not eligible for bonuses, pension
benefits, share options, long-term incentive schemes or other
benefits. Directors are entitled to be reimbursed for any
reasonable expenses properly incurred by them in connection with
the performance of their duties and attendance at Board and general
meetings and committees.
Directors’ service contracts
It is the Board’s policy that none of the Directors has a
service contract. Letters confirming the terms of their appointment
provide that a Director shall retire and be subject to re-election
at the first Annual General Meeting after his/her appointment. The
terms also provide that a Director may be removed without notice
and that compensation will not be due on leaving office. Copies of
the Letters of Appointment are available for inspection at the
registered office of the Company. Directors and officers insurance
is maintained and paid for by the Company on behalf of the
Directors.
Your Company’s performance
For the purposes of this report the Board is required to select
an index against which the Company’s performance can be measured.
The Board has decided it should be the RPIX +2%, which is
referenced in the Company’s investment objective.
The graph below shows the total return (assuming all dividends
are reinvested) to Ordinary Shareholders against the RPIX +2%, for
the period from 27 June 2014 (the
date the shares were admitted to trading on the London Stock
Exchange) to 30 June 2019.
[GRAHIC REMOVED]
ANNUAL REPORT ON REMUNERATION
Directors’ emoluments for the year (audited)
The Directors who served in the year received the following
emoluments in the form of fees:
|
Fees |
Expenses |
Total year |
Total year |
|
year ended |
year ended |
ended |
ended |
|
30 June |
30 June |
30 June |
30 June |
|
2019 |
2019 |
2019 |
2018 |
|
£ |
£ |
£ |
£ |
| Rupert Barclay |
30,000 |
– |
30,000 |
30,000 |
| Christopher Keljik |
20,000 |
– |
20,000 |
20,000 |
| Hugo Dixon |
20,000 |
– |
20,000 |
20,000 |
| Mark Little |
24,000 |
790 |
24,790 |
24,522 |
| Total |
94,000 |
790 |
94,790 |
94,522 |
From 1 July 2017 Directors’ fees
are paid at the following rates: Chairman £30,000; Chairman of the
Audit Committee £24,000; and other Directors £20,000.
|
Expected fees to |
|
5 December 2019 |
|
£ |
| Chairman |
15,000 |
| Chairman of the Audit Committee |
12,000 |
| Non-executive Director |
10,000 |
Fees in the above table are based on the assumption the Company
is wound up on 5 December 2019 as
explained in the Chairman’s Statement on page 2.
Spend on pay
As the Company has no employees, the Directors do not consider
it appropriate to present a table comparing remuneration paid to
employees with distributions to shareholders. The total fees paid
to Directors are shown above.
Statement of Voting at the Annual General Meeting
At the Annual General Meeting of the Company held on
6 December 2018 a binding resolution
was put to shareholders to approve the Directors’ Remuneration
Policy, set out in the 2018 Annual Report and Accounts. This
resolution was passed on a show of hands. The proxy votes
registered in respect of the binding resolution were:
|
For |
Against |
Withheld |
| Number of proxy votes |
11,087,087 |
100,000 |
5,497 |
At the Annual General Meeting of the Company held on
6 December 2018 an advisory
resolution was put to shareholders to approve the Directors’
Remuneration Report, set out in the 2018 Annual Report and
Accounts. This resolution was passed on a show of hands. The proxy
votes registered in respect of the advisory resolution were:
|
For |
Against |
Withheld |
| Number of proxy votes |
11,192,584 |
0 |
0 |
Approval
A resolution for the approval of the Directors’ Remuneration
Report for the year ended 30 June
2019 will be proposed at the Annual General Meeting to be
held on 5 December 2019.
By Order of the Board
Rupert Barclay
Chairman
Signed on behalf of the Board of Directors
30 October 2019
Audit Committee Report
The composition of the Audit Committee which comprises the whole
Board, all of whom are independent, is set out on page 14.
The terms of reference of the Audit Committee require that the
Committee shall review and challenge where necessary:
• the consistency of, and any changes to, accounting policies
both on a year on year basis and across the Company;
• the methods used to account for significant or unusual
transactions where different approaches are possible;
• whether the Company has followed appropriate accounting
standards and made appropriate estimates and judgements, taking
into account the views of the external Auditor;
• the clarity of disclosure in the Company’s financial reports
and the context in which statements are made; and
• all material information presented with the financial
statements, such as the Strategic Report and the Statement of
Corporate Governance (insofar as it relates to the audit and risk
management).
The Audit Committee meets at least twice a year and is
responsible for reviewing the annual and interim reports, the
nature and scope of the external audit and the findings thereon,
and the terms of appointment of the Auditor, including their
remuneration and the provision of any non-audit services by them.
The Audit Committee has considered the independence of the Auditor
and the objectivity of the audit process and is satisfied that
Ernst & Young LLP (“EY”) is independent and has fulfilled its
obligations to shareholders. The Audit Committee has satisfied
itself as to the Auditor’s effectiveness, objectivity, independence
and the competitiveness of its fees before recommending its
re-appointment. This is the fourth year that EY has served as the
Company’s Auditor and the lead partner is rotated every five years.
To comply with the provision of the Code the Company will review
the option to re-tender the external auditor on a regular
basis.
The Audit Committee meets representatives of the Investment
Manager who report as to the proper conduct of business in
accordance with the regulatory environment in which both the
Company and the Investment Manager operate and reviews the
Investment Manager’s internal controls. The Company’s external
Auditor also attends this Committee at its request and reports on
its findings in relation to the Company’s statutory audit.
As the Company has no employees, section C.3.4 of the Code,
which deals with arrangements for staff to raise concerns in
confidence about possible improprieties in respect of financial
reporting or other matters, is not directly relevant to it. The
Audit Committee has confirmed with the Investment Manager and the
Administrator that they do have “whistle blowing” policies in place
for their staff.
The Audit Committee met in February
2019 and considered the form and content of the Company’s
interim report to 31 December
2018.
The Committee reviewed the key risks of the Company and the
internal control framework operating to control risk. The Committee
also reviewed the terms of engagement of the audit firm and its
proposed programme for the year end audit.
The Audit Committee met a number of times in the second half of
the year to review the outcome of the audit work and the final
draft of the financial statements for the year end 30 June 2019. During this review the Audit
Committee met with representatives of both the Investment Manager
and the Administrator and sought assurances where necessary. The
external Auditor attended the half year and year end Audit
Committee meetings and presented reports on their audit plan and
subsequently their audit findings. These did not include any
significant matters of concern in relation to the financial
statements.
Contracts for non-audit services must be notified to the Audit
Committee who consider any such engagement in the light of the
requirement to maintain audit independence.
The Auditor is responsible for the annual statutory audit. No
other services are provided by the Auditor and it is the Company’s
policy not to seek substantial non-audit services from its
Auditor.
Significant issues for the Audit Committee
The Audit Committee identified and considered the following
significant issues:
Proposal to wind up the Company in December 2019
The Board approved a proposal for the voluntary liquidation of
the Company and the Audit Committee subsequently reviewed the
financial statements prepared on a break up basis. The
enclosed circular sets out the recommended process and timetable
for the liquidation. The Audit Committee also reviewed the annual
report disclosures addressing the preparation of the financial
statements on a break up basis prior to recommending to the Board
that they should be approved.
The accuracy of the valuation of the investment portfolio
The Company’s investments have been valued in accordance with
the accounting policies, as discussed in note 1 (b) on page 30.
Within FRS 102 Fair Value Hierarchy, all investments are
categorised as either Level 1 or 2, other than the sole unquoted
investment detailed below which is categorised as Level 3.
The Committee notes that Level 1 and 2 investments are valued
using stock exchange prices provided by third party financial data
providers. During the year the Committee reviewed internal controls
reports from the Administrator concerning the systems and controls
around the pricing and valuation of securities. As a result of
preparing the financial statement on a break up basis, the Audit
Committee reviewed the fair values of Level 1 and 2 investments and
satisfied itself that they were materially equivalent to their net
realisable values.
As detailed in note 1(b) on page 30 the Company’s only unquoted
investment is valued by the Directors at £1,304,790. In determining
that this amount appropriately reflected its fair value, the
Committee considered inter alia the 2019 audited results of SAM,
other analyses prepared by SAM and the agreed valuation methodology
as set out in note 7(b) on page 35. These documents have also been
reviewed by the Auditor who presented their findings to the
Committee at the meeting to approve the year end financial
statements.
As a result of preparing the financial statements on a break up
basis, the Board agreed with SAM that the basis for determining the
net realisable value of the Company’s investment in SAM would be
with reference to its pro-rata share of SAM’s net assets, adjusted
to include forecast cashflows prior to the planned closure of SAM
and any further associated costs pertaining to its winding up. The
Audit Committee compared the carrying fair value of its stake in
SAM to its share of the net asset value of SAM reported in its 30
September management accounts, which had been adjusted for forecast
cashflows and estimated closure costs, and concluded that no
adjustments were required to the carrying fair value calculated
under the originally agreed methodology. This was on the grounds
that the difference between the fair value and estimated net
realisable value required under the break up basis of accounting
were immaterial to the Company’s financial statements.
The risk of misappropriation of assets and unsecured ownership
of investments
The Committee reviews reports from its service providers on key
controls over the assets of the Company. Any significant issues are
reported by SAM to the Committee. SAM has put in place procedures
to ensure that investments can only be made to the extent that the
appropriate contractual and legal arrangements are in place to
protect the Company’s assets.
As part of the day to day controls of the Company there are
regular reconciliations between the accounting records and the
records kept by the custodian of the assets they safeguard which
are owned by the Company. During the year and at the year-end there
were no matters brought to light which call into question that the
key controls in this area were not working, or that the assets
recorded in the books of account are not held in safe custody.
The accuracy of the calculation of management and performance
fees
The Committee receives reports on the calculation of any
performance fee accruals that have been included in the Company’s
NAV. The management fee and any performance fee are calculated in
accordance with the contractual terms in the investment management
agreement by the Administrator and are reviewed in detail by SAM
and are also subject to a monthly review and approval by the
Chairman of the Audit Committee. The audit also includes checks on
the calculation of the management fee and any performance fee to
ensure that they are correctly calculated.
The external audit plan was reviewed with the external Auditor
and the Committee concluded that suitable audit procedures had been
implemented to obtain reasonable assurance that the Financial
Statements as a whole would be free of material misstatements.
Specifically with reference to the highlighted issue:
The Committee was satisfied that the procedures put in place by
the external Auditors allowed them to independently test the
valuation of the investment portfolio including the Company’s stake
in SAM.
Review of the Auditor
The Audit Committee has reviewed the effectiveness of the
Auditor including:
• independence (the Auditor reports to the Audit Committee at
the half-year and year end the steps it takes to ensure its
independence and objectivity and makes the Committee aware of any
potential issues, explaining all relevant safeguards);
• quality of the audit work including the ability to resolve
issues in a timely manner, its communication with the Company;
and
• the quality of people and services.
The Audit Committee was satisfied that the audit process was
effective for the year under review.
Financial statements
In finalising the financial statements for recommendation to the
Board for approval the Committee has concluded that it is not
appropriate to prepare the accounts on a going concern basis as
detailed in the Chairman’s Statement on page 2. The Audit Committee
has also satisfied itself that the Annual Report and financial
statements taken as a whole are fair, balanced and understandable,
and provide the information necessary for shareholders to assess
the Company’s performance, business model and strategy. All of the
above were satisfactorily addressed through the ‘page turn’ review
of the financial statements at the year end Audit Committee meeting
and consideration of reports provided by, and discussed with, the
Investment Manager and the Auditor. The Board as a whole have
approved the conclusions arrived at by the Audit Committee as
disclosed in the Statement of Directors’ Responsibilities in
respect of the Annual Report and the financial statements on page
21.
Mark Little
Chairman of the Audit Committee
30 October 2019
Statement of Directors’ Responsibilities
in Respect of the Annual Report and the Financial Statements
The Directors are responsible for preparing the annual report
and the financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial period. Under that law, the Directors
have elected to prepare the financial statements in accordance with
UK Accounting Standards and applicable law, including FRS 102 “the
Financial Reporting Standard applicable in the UK and Republic of
Ireland”.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the profit or
loss of the Company for that period.
In preparing these financial statements, the Directors are
required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable and
prudent;
• state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
For reasons stated in the Directors’ Report and note 1, the
financial statements of the Company have been prepared on a break
up basis as the Company is not a going concern.
The Directors are responsible for keeping adequate accounting
records which are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and which enable them to ensure
that the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report, Statement of Corporate Governance
and Audit Committee Report that complies with that law and those
regulations.
The financial statements are published on the www.sanditonam.com
website, which is maintained by the Company’s Investment Manager.
The maintenance and integrity of the website maintained by Sanditon
Asset Management Limited is, so far as it relates to the Company,
the responsibility of Sanditon Asset Management Limited.
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; and
b) the Strategic Report contained in the 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.
The 2016 UK Corporate Governance Code also requires Directors to
ensure that the Annual Report and financial statements are fair,
balanced and understandable. In order to reach a conclusion on this
matter, the Board has requested that the Audit Committee advise on
whether it considers that the Annual Report and financial
statements fulfil these requirements. The process by which the
Committee has reached these conclusions are set out in the Audit
Committee’s report on pages 19 and 20. As a result, the Board has
concluded that the Annual Report and financial statements for the
year ended 30 June 2019, taken as a
whole, are fair, balanced and understandable, and provide 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
30 October 2019
Independent Auditor’s Report
to the members of Sanditon Investment Trust plc
OPINION
We have audited the financial statements of Sanditon Investment
Trust Plc for the year ended 30 June
2019 which comprise the Income statement, the Statement of
financial position, the Statement of changes in equity, the Cash
flow statement and the related notes 1 to 18, including a summary
of significant accounting policies. The financial reporting
framework that has been applied in their preparation is applicable
law and United Kingdom Accounting Standards including FRS 102 “The
Financial Reporting Standard applicable in the UK and Republic of
Ireland” (United Kingdom Generally Accepted Accounting
Practice).
In our opinion, the financial statements:
• give a true and fair view of the Company’s affairs as at
30 June 2019 and of its loss for the
year then ended;
• have been properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the
Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor’s responsibilities for the audit of the financial
statements section of our report below. We are independent of the
Company in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the UK,
including the FRC’s Ethical Standard as applied to public interest
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Emphasis of matter – financial statements prepared on a break up
basis
We draw attention to Note 1(a) of the financial statements,
which explains that the Company would be wound up and therefore the
Directors do not consider it to be appropriate to adopt the going
concern basis of accounting in preparing the financial statements.
Accordingly, the financial statements have been prepared on a break
up basis as described in Note 1 (a).
Our opinion is not modified in respect of this matter.
Overview of our audit approach
| Key audit matters |
• Preparation of the financial
statements on the break up basis. |
|
• Performance fees or the high
watermark to be carried forward are not calculated in line with the
Investment Management Agreement (“IMA”). |
|
• Incorrect valuation of the
unquoted investment in the Manager, Sanditon Asset Management
Limited (“SAM”). |
| Materiality |
• Overall materiality of £445k
(2018: £460k) which represents 1% of Net Assets of the Company as
at 30 June 2019. |
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our
audit of the financial statements as a whole, and in our opinion
thereon, and we do not provide a separate opinion on these
matters.
| Risk |
Our response to the risk |
Key observations communicated to the
Audit Committee |
| Preparation of the financial
statements on the break up basis |
|
• We concluded that it was
appropriate for the financial statements to be prepared under the
break up basis and that appropriate adjustments had been made to
the quantitative and qualitative disclosures. |
| Refer to the Directors’ Report
(pages 11 to 13), the Audit Committee Report (pages 19 and 20);
Note 1a of the Accounting policies (page 30); and Notes 7 and 9 of
the Financial Statements (pages 34 and 36). |
|
• Based on the work performed we had
no matters to report to the Audit Committee. |
| The Company’s financial statements
have been prepared on a break up basis. Consequently, assets and
liabilities of the Company should be accounted at the net
realisable or settlement values. |
|
|
| The fair value of quoted investments
and derivatives based on underlying quoted securities (2019:
£8,180k and -£2,542k, 2018: £8,853k and -£2,795k) is considered
representative of their net realisable value and no accounting
measurement adjustment has been recorded. The fair value of the
Company’s stake in SAM (2019: £1,305k, 2018: £1,461k) has also been
assessed as materially equivalent to its net realisable value for
the purpose of the Company’s financial statements. |
|
|
| Estimated liquidation costs of
£150,000 have been recorded as a provision and disclosed in the
notes to the financial statements. |
We have performed the following
procedures: |
|
|
• Obtained evidence from the
Company’s broker presenting shareholder feedback in relation to the
continuation vote. |
|
|
• Reviewed evidence that the Board
had approved the preparation of a circular setting out proposals to
place the Company into voluntary liquidation subject to the passing
of a special resolution at the 2019 AGM. |
|
|
• Obtained and reviewed the estimate
of liquidation expenses recorded in the financial
statements. |
|
|
• Reviewed the financial statement
accounting policies and disclosures to confirm that necessary
adjustments to apply the break up basis of presentation were
complete and accurate. |
|
|
|
|
| Performance fees or the high
watermark to be carried forward are not calculated in line with the
Investment Management Agreement (“IMA”) |
We have performed the following
procedures: |
• Based on the work performed we had
no matters to report to the Audit Committee. |
| Refer to the Audit Committee Report
(pages 19 and 20); Accounting policies (page 30); and Note 3 of the
Financial Statements (page 32). |
• Obtained an understanding of the
Administrator’s processes for calculating the performance
fees. |
|
| The Company’s performance fee for
the period amounted to £Nil (2018: £Nil). |
• Recalculated the performance fees
or the high watermark to be carried forward and ensured the
calculations are in line with the Investment Management
Agreement. |
|
| The performance fee is calculated
using a methodology as set out in the Investment Management
Agreement between the Company and the Manager described on page 32
of financial statements. Incorrect calculation of this fee could
have a material impact on the return generated for
shareholders. |
• Validated all key external inputs
used in the calculations to third party data. |
|
|
|
|
| Incorrect valuation of the unquoted
investment in the Manager, Sanditon Asset Management Limited
(“SAM”) |
We have performed the following
procedures: |
• The difference between the fair
value and net realisable value of the Company’s stake in SAM was
immaterial to the Company’s financial statements. |
| Refer to the Audit Committee Report
(pages 19 and 20); Accounting policies (page 30); and Notes 8 and
18 of the Financial Statements (pages 34 and 38). |
• Performed our walkthrough
procedures to gain an understanding of SAM processes and controls
surrounding the valuation of unquoted investment in the Manager to
assess whether they have been designed effectively. |
• Based on the work performed we had
no matters to report to the Audit Committee. |
| The Company has a 20% holding in SAM
amounting to £1.30m (2018: £1.46m). |
• Discussed the valuation
methodology with the Board of directors of the Company and
confirmed with SAM and the Board that the Company’s stake will be
disposed of with reference to its share of SAM’s net assets at the
time of liquidation proposals being approved by shareholders. |
|
| In accordance with the Company’s
valuation policy and UK GAAP, the holding in SAM is carried at fair
value determined by the directors. |
• We agreed the inputs to the fair
valuation of SAM in the Company’s accounts to amounts disclosed in
SAM’s audited accounts as at 31 March 2019 and AUM data to
published information from the Administrator. |
|
| Under the break up basis of
presentation, the Company is required to value its stake in SAM at
its estimated net realisable value. |
• We obtained the 30 September
management accounts of SAM and agreed the cash balances and
receivables to bank statements and invoices. We also agreed a
sample of the recorded liabilities to supporting documentation and
enquired as to the presence of unrecorded liabilities. |
|
| Fair value is determined using the
following formula described on page 35 of the financial statements:
a simple average of 1% of SAM’s year end assets under management
(“AUM”) and 5x after tax profits (adjusted to exclude any
performance fees earned). |
• We compared the carrying fair
value of the Company’s investment in SAM to its pro rata share of
audited net assets of SAM as at 31 March 2019 and the 30 September
management accounts adjusted to include forecast cashflows prior to
the closure of SAM to assess the difference between the carrying
fair value of the investment and the net realisable value estimated
by the Board of directors and SAM. |
|
There are no changes to the risks reported in the prior year
except for the preparation of the financial statements under the
break up basis of presentation.
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and
our allocation of performance materiality determine our audit scope
for the Company. This enables us to form an opinion on the
financial statements. We take into account size, risk profile, the
organisation of the Company and effectiveness of controls,
including controls and changes in the business environment when
assessing the level of work to be performed.
Our application of materiality
We apply the concept of materiality in planning and performing
the audit, in evaluating the effect of identified misstatements on
the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually
or in the aggregate, could reasonably be expected to influence the
economic decisions of the users of the financial statements.
Materiality provides a basis for determining the nature and extent
of our audit procedures.
We determined materiality for the Company to be £445k (2018:
£460k), which is 1% (2018: 1%) of the Company’s net assets value as
at 30 June 2019. We believe that net
assets value is the most important financial metric on which
shareholders judge the performance of the Company and it is
generally accepted auditing practice for investment trust
audits.
Performance materiality
The application of materiality at the individual account or
balance level. It is set at an amount to reduce to an appropriately
low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our
assessment of the Company’s overall control environment, our
judgment was that performance materiality was 75% (2018: 75%) of
our planning materiality, namely £334k (2018: £345k). We have set
performance materiality at this percentage due to our past
experience of the audit that indicates a lower risk of
misstatements, both corrected and uncorrected.
Reporting threshold
An amount below which identified misstatements are considered as
being clearly trivial.
We agreed with the Audit Committee that we would report to them
all uncorrected audit differences in excess of £22k (2018: £23k),
which is set at 5% (2018: 5%) of planning materiality, as well as
differences below that threshold that, in our view, warranted
reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our
opinion.
Other information
The other information comprises the information included in the
annual report set out on pages 1 to 21, including the Strategic
Report and Directors’ Report set out on pages 8 to 13, other than
the financial statements and our auditor’s report thereon. The
directors are responsible for the other information.
Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated
in this report, we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of the other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our
responsibility to specifically address the following items in the
other information and to report as uncorrected material
misstatements of the other information where we conclude that those
items meet the following conditions:
• Fair, balanced and understandable set out on page 21
the statement given by the directors that they consider 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, is materially inconsistent with our knowledge
obtained in the audit; or
• Audit committee reporting set out on pages 19 and 20
the section describing the work of the Audit Committee does not
appropriately address matters communicated by us to the Audit
Committee; or
• Directors’ statement of compliance with the UK Corporate
Governance Code set out on pages 14 to 16
the parts of the directors’ statement required under the Listing
Rules relating to the Company’s compliance with the UK Corporate
Governance Code containing provisions specified for review by the
auditor in accordance with Listing Rule 9.8.10R(2) do not properly
disclose a departure from a relevant provision of the UK Corporate
Governance Code.
Opinions on other matters prescribed by the Companies Act
2006
In our opinion the part of the directors’ remuneration report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of
the audit:
• the information given in the Strategic Report and the
Directors’ Report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
• the Strategic Report and Directors’ Reports have been prepared
in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Company
and its environment obtained in the course of the audit, we have
not identified material misstatements in the Strategic Report or
Directors’ Report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
• adequate accounting records have not been kept, or returns
adequate for our audit have not been received from branches not
visited by us; or
• the financial statements and the part of the Directors’
Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
• certain disclosures of directors’ remuneration specified by
law are not made; or
• we have not received all the information and explanations we
require for our audit.
Responsibilities of Directors
As explained more fully in the Statement of Directors’
Responsibilities set out on page 21, the directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view, and for such
internal control as the directors determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
Explanation as to what extent the audit was considered capable
of detecting irregularities, including fraud
The objectives of our audit, in respect to fraud, are; to
identify and assess the risks of material misstatement of the
financial statements due to fraud; to obtain sufficient appropriate
audit evidence regarding the assessed risks of material
misstatement due to fraud, through designing and implementing
appropriate responses; and to respond appropriately to fraud or
suspected fraud identified during the audit. However, the primary
responsibility for the prevention and detection of fraud rests with
both those charged with governance of the entity and
management.
Our approach was as follows:
• We obtained an understanding of the legal and regulatory
frameworks that are applicable to the Company and determined that
the most significant are the Companies Act 2006, the Listing Rules,
the UK Corporate Governance Code and section 1158 of the
Corporation Tax Act 2010.
• We understood how the Company is complying with those
frameworks through discussions with the Audit Committee and Company
Secretary and review of the Company’s documented policies and
procedures.
• We assessed the susceptibility of the Company’s financial
statements to material misstatement, including how fraud might
occur by considering the key risks impacting the financial
statements. We identified risks with respect to incorrect valuation
of the unquoted investment in SAM and incorrect calculation of
performance fees. Further discussion of our approach is set out in
the section on key audit matters above.
• Based on this understanding we designed our audit procedures
to identify non-compliance with such laws and regulations. Our
procedures involved review of the reporting to the directors with
respect to the application of the documented policies and
procedures and review of the financial statements to ensure
compliance with the reporting requirements of the Company.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council’s website at
https://www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor’s report.
Other matters we are required to address
• We were appointed by the Company at the launch to audit the
financial statements for the year ending 30
June 2015 and subsequent financial periods.
The period of total uninterrupted engagement including previous
renewals and reappointments is 5 years, covering the years ending
30 June 2015 to 30 June 2019.
• The non-audit services prohibited by the FRC’s Ethical
Standard were not provided to the Company and we remain independent
of the Company in conducting the audit.
• The audit opinion is consistent with the additional report to
the Audit Committee.
Use of our report
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to them in
an auditor’s report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company’s members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Matthew Price (Senior statutory
auditor)
for and on behalf of Ernst & Young LLP, Statutory
Auditor
London
30 October 2019
Notes:
1. The maintenance and integrity of the Sanditon Investment
Trust plc web site is the responsibility of the directors; the work
carried out by the auditors does not involve consideration of these
matters and, accordingly, the auditors accept no responsibility for
any changes that may have occurred to the financial statements
since they were initially presented on the web site.
2. Legislation in the United
Kingdom governing the preparation and dissemination of
financial statements may differ from legislation in other
jurisdictions.
Income Statement
for the year ended 30 June
2019
|
|
Year ended 30 June
2019 |
Year ended 30 June
2019 |
Year ended 30 June
2019 |
Year ended 30 June
2018 |
Year ended 30 June
2018 |
Year ended 30 June
2018 |
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
Notes |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
| Losses on investments held |
|
|
|
|
|
|
|
| at fair value through profit or
loss |
7 |
– |
(1,364) |
(1,364) |
– |
(3,895) |
(3,895) |
| Income |
2 |
732 |
– |
732 |
682 |
– |
682 |
| Management fee |
3 |
(86) |
(259) |
(345) |
(88) |
(263) |
(351) |
| Other expenses |
4 |
(257) |
– |
(257) |
(253) |
– |
(253) |
| Return on ordinary activities |
|
|
|
|
|
|
|
| before taxation |
|
389 |
(1,623) |
(1,234) |
341 |
(4,158) |
(3,817) |
| Taxation on ordinary activities |
5 |
(49) |
49 |
– |
(24) |
30 |
6 |
| Return for the year |
|
340 |
(1,574) |
(1,234) |
317 |
(4,128) |
(3,811) |
|
|
|
|
|
|
|
|
| Return per Ordinary Share
(pence): |
15 |
0.68 |
(3.15) |
(2.47) |
0.63 |
(8.26) |
(7.63) |
The total column of this statement is the profit and loss
account of the Company.
The notes on pages 30 to 44 form part of these accounts.
The supplementary revenue and capital columns are both prepared
under guidance from the Association of Investment Companies.
There is no other comprehensive income and therefore the return
for the year is also the total comprehensive income for the
year.
Statement of Financial Position
as at 30 June 2019
|
|
30 June |
30 June |
|
|
2019 |
2018 |
|
Notes |
£000 |
£000 |
| Fixed assets |
|
|
|
| Investments held at fair value
through profit or loss |
7 |
9,485 |
10,314 |
|
|
|
|
| Current assets |
|
|
|
| Debtors |
8 |
105 |
189 |
| Amounts due in respect of contracts
for difference |
9 |
1,035 |
1,239 |
| Collateral paid in respect of
contracts for difference |
|
8,108 |
10,006 |
| UK Treasury Bills |
|
25,178 |
21,122 |
| Cash at bank |
|
4,412 |
9,247 |
| Total current assets |
|
38,838 |
41,803 |
|
|
|
|
| Current liabilities |
|
|
|
| Provision for liquidation costs |
10 |
(150) |
– |
| Creditors |
10 |
(249) |
(2,102) |
| Amounts payable in respect of
contracts for difference |
9 |
(3,577) |
(4,034) |
| Total current liabilities |
|
(3,976) |
(6,136) |
| Net current assets |
|
34,862 |
35,667 |
|
|
|
|
| Total assets less current
liabilities |
|
44,347 |
45,981 |
| Net assets |
|
44,347 |
45,981 |
|
|
|
|
| Capital and reserves |
|
|
|
| Share capital |
11 |
500 |
500 |
| Share premium |
12 |
48,872 |
48,872 |
| Capital reserve |
13 |
(5,547) |
(3,823) |
| Revenue reserve |
|
522 |
432 |
| Total shareholders’ funds |
|
44,347 |
45,981 |
|
|
|
|
| Net asset value per share – Ordinary
Share (pence) |
|
88.69 |
91.96 |
The financial statements on pages 26 to 44 of Sanditon
Investment Trust plc, Company number 09040176, were approved by the
Board and authorised for issue on 30 October
2019 and were signed on its behalf by:
Rupert
Barclay
Chairman
The notes on pages 30 to 44 form part of these accounts.
Statement of Changes in Equity
for the year ended 30 June
2019
|
|
Share |
Share |
Capital |
Revenue |
|
|
|
Capital |
Premium |
Reserve |
Reserve |
Total |
| For the year ended 30 June 2019 |
Notes |
£000 |
£000 |
£000 |
£000 |
£000 |
| Balance at 1 July 2018 |
|
500 |
48,872 |
(3,823) |
432 |
45,981 |
| Return for the year |
|
– |
– |
(1,574) |
340 |
(1,234) |
| Provision for liquidation costs |
|
– |
– |
(150) |
– |
(150) |
| Dividends paid |
6 |
– |
– |
– |
(250) |
(250) |
| Balance at 30 June 2019 |
|
500 |
48,872 |
(5,547) |
522 |
44,347 |
|
Share |
Share |
Capital |
Revenue |
|
|
Capital |
Premium |
Reserve |
Reserve |
Total |
| For the year ended 30 June 2018 |
£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 30 to 44 form part of these accounts.
Distributable reserves comprise: the revenue reserve and capital
reserves attributable to realised profits.
All investments are held at fair value through profit or loss.
When the Company revalues the investments still held during the
period, any gains or losses arising are credited/charged to the
capital reserve.
Cash Flow Statement
for the year ended 30 June
2019
|
Year ended |
Year ended |
|
30 June |
to 30 June |
|
2019 |
2018 |
|
£000 |
£000 |
| Return on ordinary activities before
taxation* |
(1,234) |
(3,817) |
| Capital return before finance costs
and taxation |
1,623 |
4,158 |
| Decrease/(increase) in debtors |
84 |
(24) |
| (Decrease)/increase in other
creditors |
(1,853) |
1,988 |
| Investment management fee
capitalised |
(259) |
(263) |
| Net movement in collateral pledged
to broker |
1,898 |
(373) |
| Gains/(losses) on futures and CFDs
realised during the period |
120 |
(3,130) |
| Decrease in amounts due in respect
of CFDs |
204 |
668 |
| Decrease in amounts payable in
respect of CFDs |
(457) |
(1,183) |
| Overseas tax recovered/(paid) |
– |
6 |
| Net cash inflow/(outflow) from
operating activities |
126 |
(1,970) |
|
|
|
| Cashflow from investing
activities |
|
|
| Purchases of investments |
(3,680) |
(1,734) |
| Sales of investments |
3,025 |
6,554 |
| Net cash (outflow)/inflow from
investing activities |
(655) |
4,820 |
|
|
|
| Cashflow from financing
activities |
|
|
| Equity dividends paid |
(250) |
(450) |
| Net cash outflow from financing
activities |
(250) |
(450) |
| (Decrease)/increase in cash and cash
equivalents |
(779) |
2,400 |
|
|
|
| Cash and cash equivalents at the
start of the year |
30,369 |
27,969 |
| Cash and cash equivalents at the end
of the year |
29,590 |
30,369 |
|
|
|
| Comprised of: |
|
|
| UK Treasury Bills |
25,178 |
21,122 |
| Cash at bank |
4,412 |
9,247 |
| Cash and cash equivalents at the end
of the year |
29,590 |
30,369 |
*Cash inflow from dividends was £603,000 (2018: £617,000) and
cash inflow from interest was £208,000 (2018: £68,000).
The notes on pages 30 to 44 form part of these accounts.
Notes to the Financial Statements
for the year ended 30 June
2019
1.ACCOUNTING POLICIES
A summary of the principal accounting policies is set out
below:
(a) Basis of accounting
The financial statements have been prepared under the historical
cost convention as modified to include the revaluation of
investments and in accordance with applicable UK Accounting
Standards and with the Statement of Recommended Practice (“SORP”)
‘Financial Statements of Investment Trust Companies and Venture
Capital Trusts’ issued by the Association of Investment Companies
(issued November 2014 and updated in
February 2018).
The financial statements have been prepared in accordance with
FRS 102 (“the Financial Reporting Standard applicable in the UK and
Republic of Ireland” issued by the Financial Reporting
Council).
The Board has put forward a proposal to shareholders that the
Company be wound up and placed into voluntary liquidation on
5 December 2019. Therefore these
financial statements have been prepared under the ‘break up’ basis,
where all assets and liabilities are stated at their net realisable
and/or settlement values. The carrying fair value of the Company’s
only unlisted investment in SAM has been compared to its estimated
net realisable value based on the 30 September management accounts
adjusted to take account of forecast cashflows and estimated
closure costs associated with the planned liquidation of SAM in
December 2019. No adjustments were required to the carrying
fair value calculated under the originally agreed methodology on
the grounds that the difference between the fair value and
estimated net realisable value required under the break up basis of
accounting were immaterial to the Company’s financial statements. A
provision for liquidation costs of £150,000 has been included in
the financial statements. All liabilities including liquidation
costs are stated at the estimated amount.
(b) Investments
As the Company’s business is investing in financial assets with
a view to profiting from their total return in the form of
increases in fair value, financial assets are designated as held at
fair value through profit or loss in accordance with FRS 102
Section 11: ‘Basic Financial Instruments’, and Section 12: ‘Other
Financial Instruments’. The Company manages and evaluates the
performance of these investments on a fair value basis in
accordance with its investment strategy, and information about the
investments is provided on this basis to the Board of
Directors.
The Company’s investments, including financial derivative
instruments, are classified as held at fair value through profit or
loss. After initial recognition, these continue to be measured at
fair value, which for quoted investments is either the bid price or
the last traded price depending on the convention of the exchange
on which the investment is listed. For investments, including
financial derivative instruments, that are not actively traded or
where active stock exchange quoted prices are not available, fair
value is determined by reference to a variety of valuation
techniques including broker quotes and price modelling. Gains or
losses on investments, including financial derivative instruments
are recognised in the capital column of the Income Statement.
Purchases and sales of the financial assets are recognised on the
trade date, being the date which the Company commits to purchase or
sell the assets.
The sole unlisted investment is the Company’s 20% stake in SAM
and is valued by the Directors at fair value, using the guidelines
on valuation published by the International Private Equity and
Venture Capital Association (“IPEVC Valuation Guidelines”).
Changes in the fair value of investments held at fair value
through profit or loss and gains or losses on disposal are included
in the capital column of the Income Statement within
“gains/(losses) on investments held at fair value through profit or
loss”.
(c) Derivatives
Derivatives which comprise of Contracts for Differences (“CFDs”)
and futures contracts are held at fair value based on traded
prices. The sources of the return under the derivative contract
(e.g. notional dividends, financing costs, interest returns and
capital changes) are allocated to the revenue and capital columns
of the Income Statement in accordance with the nature of the
underlying source of income and in accordance with the guidance
given in the SORP issued by the Association of Investment
Companies.
Notional dividend income arising on long or short CFD positions
is apportioned wholly to the revenue account. Notional interest
income on short CFD positions is allocated wholly to the capital
account. Notional interest expense on long and short CFD positions
is allocated wholly to capital. Changes in value relating to
underlying price movements of securities in relation to CFD
exposures are allocated to capital.
Futures contracts may be entered into for investment purposes
and any fair value changes and profits and losses on the closure of
positions are included in capital.
(d) Foreign currency
Transactions denominated in foreign currencies are translated
into sterling at actual exchange rates as at the date of the
transaction. Monetary assets and liabilities denominated in foreign
currencies at the period end are reported at the rates of exchange
prevailing at the year end. Any gain or loss arising from a change
in exchange rates subsequent to the date of the transaction is
included as an exchange gain or loss to capital or revenue in the
income statement as appropriate. Foreign exchange movements on
investments are included in the Income Statement within gains on
investments.
(e) Income
Investment income has been accounted for on an ex-dividend basis
or when the Company’s right to the income is established. Special
dividends are credited to capital or revenue in the Income
Statement, according to the circumstances surrounding the payment
of the dividend. UK dividends are accounted for net of any tax
credits. Overseas dividends are included gross of withholding
tax.
Interest receivable on cash deposits is accounted for on an
accruals basis. Income from fixed income securities is recognised
in the income statement using the effective interest method.
(f) Expenses
All expenses are accounted for on an accruals basis and are
charged as follows:
• the basic investment management fee is charged 25% to revenue
and 75% to capital;
• any performance fee earned is allocated to capital;
• investment transaction costs are allocated to capital; and
• other expenses are charged wholly to revenue.
(g) Taxation
The charge for taxation is based upon the net revenue for the
year. The tax charge is allocated to the revenue and capital
accounts according to the marginal basis whereby revenue expenses
are first matched against taxable income arising in the revenue
account. Deferred taxation is recognised in respect of all timing
differences which are differences between taxable profits and
return for the year that arise from the inclusion of income and
expenses in tax assessments in periods different from those in
which they are recognised in the financial statements.
As an approved investment trust in the UK, the Company does not
suffer tax on capital profits and UK dividend income received into
the revenue account is also not taxable.
(h) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, short term
deposits in banks and short term investments in UK Government Bills
that are readily convertible to known amounts of cash and which are
subject to an insignificant risk of changes in value.
2.INCOME
|
Year ended |
Year ended |
|
30 June 2019 |
30 June 2018 |
|
£000 |
£000 |
| Income from investments |
|
|
| UK franked dividends |
133 |
183 |
| UK treasury bills interest |
152 |
50 |
| Income from contracts for
difference |
412 |
411 |
| Other income |
35 |
38 |
|
732 |
682 |
3.INVESTMENT MANAGEMENT FEE
|
Year ended |
Year ended |
|
30 June 2019 |
30 June 2018 |
|
£000 |
£000 |
| Basic fee: |
|
|
| 25% charged to revenue |
86 |
88 |
| 75% charged to capital |
259 |
263 |
|
345 |
351 |
|
|
|
| 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 revenue.
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” was 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. 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
2019 £35,000 (2018: £35,000) was included within Other
Income (note 2).
4.OTHER EXPENSES
|
Year ended |
Year ended |
|
30 June 2019 |
30 June 2018 |
|
£000 |
£000 |
| Secretarial services and fund
administration fees |
55 |
55 |
| Other administration expenses |
26 |
24 |
| Registrar’s fees |
13 |
14 |
| Printing and postage |
6 |
5 |
| Custody fees |
11 |
12 |
| Subscription and listing fees |
19 |
17 |
| Auditor’s remuneration* |
23 |
22 |
| Directors’ fees |
94 |
94 |
| Irrecoverable VAT |
10 |
10 |
|
257 |
253 |
*There were no non-audit services in 2019 (2018: nil).
5.TAXATION
(a) Analysis of Charge in the Year:
|
Year ended 30 June
2019 |
Year ended 30 June
2019 |
Year ended 30 June
2019 |
Year ended 30 June
2018 |
Year ended 30 June
2018 |
Year ended 30 June
2018 |
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
| Current tax |
49 |
(49) |
– |
30 |
(30) |
– |
| Overseas tax |
– |
– |
– |
(6) |
– |
(6) |
| Total tax charge for the year (see
note 5 (b)) |
49 |
(49) |
– |
24 |
(30) |
(6) |
(b)Factors Affecting the Current Tax Charge for the Year:
The tax assessed for the year is higher than the standard rate
of corporation tax in the UK for a large company of 19.00% (2018:
19.00%). The differences are explained below:
|
Year ended 30 June
2019 |
Year ended 30 June
2019 |
Year ended 30 June
2019 |
Year ended 30 June
2018 |
Year ended 30 June
2018 |
Year ended 30 June
2018 |
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
| Total return before taxation |
389 |
(1,623) |
(1,234) |
341 |
(4,158) |
(3,817) |
| UK corporation tax at 19.00% (2018:
19.00%) |
74 |
(308) |
(234) |
65 |
(790) |
(725) |
| Effects of: |
|
|
|
|
|
|
| Capital losses not subject to
corporation tax |
– |
259 |
259 |
– |
740 |
740 |
| UK dividends which are not
taxable |
(25) |
– |
(25) |
(35) |
– |
(35) |
| Overseas tax suffered |
– |
– |
– |
(6) |
– |
(6) |
| Movement in unutilised management
expenses |
– |
– |
– |
– |
20 |
20 |
| Total tax charge |
49 |
(49) |
– |
24 |
(30) |
(6) |
The Company is not liable to tax on capital gains due to its
status as an investment trust. Due to the Company’s status as an
investment trust, and the intention to continue meeting the
conditions required to obtain approval in the foreseeable future,
the Company has not provided for deferred tax on any capital gains
and losses arising on the revaluation or disposal of
investments.
After claiming relief against accrued income taxable on receipt,
the Company has a deferred tax asset of approximately £89,000
(2018: £89,000) relating to excess expenses of £495,000 (2018:
£495,000). It is unlikely that the Company will generate sufficient
taxable profits in the future to utilise these expenses and
therefore no deferred tax asset in respect of these expenses has
been recognised.
6.DIVIDEND
The dividend relating to the year ended 30 June 2019 which is the basis on which the
requirements of Section 1159 of the Corporation Tax Act 2010 are
considered is detailed below:
|
Year ended 30 June
2019 |
Year ended 30 June
2019 |
Year ended 30 June
2018 |
Year ended 30 June
2018 |
|
Pence Per |
|
Pence Per |
|
|
Ordinary Share |
£000 |
Ordinary Share |
£000 |
| Annual dividend – payable on 19
December 2018* |
– |
– |
0.50p |
250 |
| Annual dividend – payable on 20
December 2019** |
0.60p |
300 |
– |
– |
*Not included as a liability in the year ended 30 June 2018 accounts.
**Not included as a liability in the year ended 30 June 2019 accounts.
The annual dividend will be paid on 20
December 2019 to members on the register at the close of
business on 22 November 2019. The
shares will be marked ex-dividend on 21
November 2019.
7.INVESTMENTS
(a) Summary of Valuation
|
30 June 2019 |
30 June 2018 |
|
£000 |
£000 |
| UK: |
|
|
| Investments listed on a recognised
investment exchange |
3,711 |
4,207 |
| TM Sanditon UK Select Fund |
4,469 |
4,646 |
| Unquoted investment |
1,305 |
1,461 |
|
9,485 |
10,314 |
(b)Movements
In the year ended 30 June 2019
|
Quoted |
Unquoted |
|
Quoted |
Unquoted |
|
|
Holdings |
Holdings |
Total |
Holdings |
Holdings |
Total |
|
UK |
UK |
2019 |
UK |
UK |
2018 |
|
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
| Book cost at beginning of year |
9,409 |
200 |
9,609 |
13,817 |
200 |
14,017 |
| Gains/(losses) on investments
held |
|
|
|
|
|
|
| at beginning of year |
(556) |
1,261 |
705 |
533 |
1,349 |
1,882 |
| Valuation at beginning of year |
8,853 |
1,461 |
10,314 |
14,350 |
1,549 |
15,899 |
| Purchases at cost |
3,680 |
– |
3,680 |
1,734 |
– |
1,734 |
| Sales: |
|
|
|
|
|
|
| – proceeds |
(3,025) |
– |
(3,025) |
(6,554) |
– |
(6,554) |
| – (losses)/gains on investment
holdings sold in the year |
(403) |
– |
(403) |
412 |
– |
412 |
| Movements in losses on
investment |
|
|
|
|
|
|
| holdings held at end of year |
(925) |
(156) |
(1,081) |
(1,089) |
(88) |
(1,177) |
| Valuation at end of year |
8,180 |
1,305 |
9,485 |
8,853 |
1,461 |
10,314 |
|
Total |
Total |
|
Year ended |
Year ended |
|
30 June 2019 |
30 June 2018 |
|
£000 |
£000 |
| Comprising: |
|
|
| Book cost at end of year |
9,861 |
9,609 |
| (Losses)/gains on investment
holdings at year end |
(376) |
705 |
| Valuation at end of year |
9,485 |
10,314 |
Transaction costs on investment purchases for the year ended
30 June 2019 amounted to £24,600
(2018: £17,200) and on investment sales for the year amounted to
£5,500 (2018: £9,800).
The Company’s 20% investment in SAM was acquired on 15 July 2014. Having considered alternative
methods of measurement using information from the audited financial
information of SAM to 31 March 2019
and subsequent business performance projections with due regard to
the risks applicable in its early years of trading, the Board have
agreed the valuation methodology for the Company’s holding in SAM
using a simple average of 1% of SAM’s year end assets under
management (“AUM”) and 5x after tax profits (adjusted to exclude
any performance fees earned and any associated staff bonuses paid –
SAM pay out a maximum of 50% of performance fees earned to staff).
The Directors concluded the fair value of the investment as at
30 June 2019 to be £1,304,790 (as at
30 June 2018: £1,461,151). This
represents the most appropriate approximation of the fair value of
the Company’s investment in SAM. The Board have considered the net
realisable value of its stake in SAM by reviewing the liquidation
value of SAM’s Balance Sheet and determined that there was no need
to adjust the formula driven fair value on the grounds that the
difference is not material to the Company’s financial
statements.
(c) Losses on Investments
|
Total |
Total |
|
Year ended |
Year ended |
|
30 June 2019 |
30 June 2018 |
|
£000 |
£000 |
| (Losses)/gains on investment
holdings sold in year |
(403) |
412 |
| Movements in losses on investment
holdings held at the year end |
(1,081) |
(1,177) |
| Total losses on investments |
(1,484) |
(765) |
| Total gains/(losses) on futures and
on CFD assets and liabilities held at fair value through profit or
loss |
120 |
(3,130) |
| Total losses on investments held at
fair value through profit or loss |
(1,364) |
(3,895) |
8.DEBTORS
|
30 June 2019 |
30 June 2018 |
|
£000 |
£000 |
| Amounts due from brokers |
77 |
102 |
| Accrued income |
– |
57 |
| Overseas withholding tax
receivable |
3 |
2 |
| Prepayments |
25 |
28 |
|
105 |
189 |
9.DERIVATIVES
Whilst the Company may use a variety of derivative contracts,
the main derivatives entered into during the year were contracts
for difference under a master agreement with the Company’s CFD
counterparties to enable the Company to gain long or short exposure
on individual securities through CFDs. CFDs are synthetic equities
and are valued by reference to the underlying market value of the
corresponding security.
Notional dividend income on long positions amounted to £669,000
(2018: £657,000) and notional dividend expenses on short positions
amounted to £257,000 (2018: £246,000) during the year. The net
amount of £412,000 (2018: £411,000) is included within dividend
income in note 2 on page 32. Realised and unrealised gains on
contracts for difference are shown in note 7(c).
The fair value of the CFDs at 30 June
2019 was negative £2,542,000 (2018: negative £2,795,000)
comprising revaluation gains of £1,035,000 (2018: revaluation gains
of £1,239,000) recorded in current assets and revaluation losses of
£3,577,000 (2018: revaluation losses of £4,034,000) recorded in
current liabilities.
The Company also invested in FTSE futures during the year, the
realised gains amounted to £257,000 (2018: losses of £216,000)
which are included in note 7(c) above.
10.CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
|
30 June 2019 |
30 June 2018 |
|
£000 |
£000 |
| Provision for liquidation costs |
150 |
– |
| Purchases for future settlement |
133 |
1,997 |
| Accrued expenses |
116 |
105 |
| Total creditors |
399 |
2,102 |
11.SHARE CAPITAL
|
Year ended 30 June
2019 |
Year ended 30 June
2019 |
Year ended 30 June
2018 |
Year ended 30 June
2018 |
|
Number of |
|
Number of |
|
|
Shares |
£000 |
Shares |
£000 |
| Allotted, issued & fully
paid: |
|
|
|
|
| Opening balance Ordinary Shares of
£0.01 |
50,000,000 |
500 |
50,000,000 |
500 |
|
50,000,000 |
500 |
50,000,000 |
500 |
12.SHARE PREMIUM
|
Year ended |
Year ended |
|
30 June 2019 |
30 June 2018 |
|
£000 |
£000 |
| Opening balance |
48,872 |
48,872 |
| Closing balance |
48,872 |
48,872 |
13.CAPITAL RESERVE
|
Year ended 30 June
2019 |
Year ended 30 June
2019 |
Year ended 30 June
2019 |
Year ended 30 June
2018 |
Year ended 30 June
2018 |
Year ended 30 June
2018 |
|
Gains/(losses) |
Investment |
|
Gains/(losses) |
Investment |
|
|
on sale of |
holdings |
|
on sale of |
holdings |
|
|
investments |
gains/(losses) |
Total |
investments |
gains/(losses) |
Total |
|
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
| Opening balance |
(4,528) |
705 |
(3,823) |
(1,577) |
1,882 |
305 |
| (Losses)/gains on investment
holdings |
|
|
|
|
|
|
| sold in the year |
(403) |
– |
(403) |
412 |
– |
412 |
| Total gains/(losses) on futures and
on CFD |
|
|
|
|
|
|
| assets and liabilities held at fair
value |
|
|
|
|
|
|
| through profit or loss in the
year |
120 |
– |
120 |
(3,130) |
– |
(3,130) |
| Movements in losses on
investment |
|
|
|
|
|
|
| holdings held at the year end |
– |
(1,081) |
(1,081) |
– |
(1,177) |
(1,177) |
| Investment management fee charged to
capital |
(259) |
– |
(259) |
(263) |
– |
(263) |
| Current tax transfer |
49 |
– |
49 |
30 |
– |
30 |
| Provision for liquidation costs |
(150) |
– |
(150) |
– |
– |
– |
| Closing balance |
(5,171) |
(376) |
(5,547) |
(4,528) |
705 |
(3,823) |
14.FINANCIAL COMMITMENTS
At 30 June 2019 there were no
commitments in respect of unpaid calls and underwritings (2018:
none).
15.RETURN PER SHARE – BASIC
Total return per Ordinary Share is based on the return for the
year after taxation of £(1,234,000) (year to 30 June 2018: £(3,811,000)).
These calculations are based on the 50,000,000 Ordinary Shares
in issue during the year to 30 June
2019 (year to 30 June 2018:
50,000,000 Ordinary Shares).
The return per Ordinary Share can be further analysed between
revenue and capital as below:
|
Year ended 30 June
2019 |
Year ended 30 June
2019 |
Year ended 30 June
2018 |
Year ended 30 June
2018 |
|
Pence |
|
Pence |
|
|
per share |
£000 |
per share |
£000 |
| Net revenue return |
0.68p |
340 |
0.63p |
317 |
| Net capital return |
(3.15)p |
(1,574) |
(8.26)p |
(4,128) |
| Net total return |
(2.47)p |
(1,234) |
(7.63)p |
(3,811) |
16.NET ASSET VALUE PER SHARE
Total shareholders’ funds and the net asset value per share
attributable to the ordinary shareholders at the year end
calculated in accordance with the Articles of Association were are
as follows:
|
Net asset value |
Net asset value |
|
per share |
per share |
|
30 June 2019 |
30 June 2018 |
| Total shareholders’ funds
(£000) |
44,347 |
45,981 |
| Net asset value per share |
88.69p |
91.96p |
The net asset value per share is based on total shareholders’
funds above and on the 50,000,000 Ordinary Shares in issue at the
year end (30 June 2018: 50,000,000
Ordinary Shares).
17.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 2019 £11,150 (2018: £11,060) of this fee
remained outstanding after taking into account the £17,249 (2018:
£17,216) 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 (see note 3 on
page 32).
Full details of Directors’ interests are set out in the
Directors’ Remuneration Report on page 17. Fees paid to the
Directors are disclosed in the Directors’ Remuneration Report on
page 18. No fees were outstanding to be paid to the Directors at
the year end.
The Company has an investment in TM Sanditon UK Select Fund of
£4,469,355 at 30 June 2019
(£4,646,565 at 30 June 2018).
The Company has a 20% holding in the Investment Manager,
Sanditon Asset Management Limited (see note 7 on pages 34 and
35).
18.FINANCIAL INSTRUMENTS AND CAPITAL DISCLOSURES
Risk Management Policies and Procedures
As an investment trust the Company invests in equities and
equity related derivatives for the long-term so as to secure its
investment objective stated on page 8. In pursuing its investment
objective, the Company is exposed to a variety of risks that could
result in either a reduction in the Company’s net assets or a
reduction of the profits available for dividends.
These risks, include market risk (comprising currency risk,
interest rate risk, and other price risk), liquidity risk, and
credit risk, and the Directors’ approach to the management of them
are set out below.
The objectives, policies and processes for managing the risks,
and the methods used to measure the risks, are set out below.
(a) 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
(see (i) below), interest rate risk (see (ii) below) and other
price risk (see (iii) below). The Board of Directors reviews and
agrees policies for managing these risks. The Company’s Investment
Manager assesses the exposure to market risk when making each
investment decision, and monitors the overall level of market risk
on the whole of the investment portfolio on an ongoing basis.
(i) Currency Risk
A proportion of the Company’s assets, liabilities, and income
are denominated in currencies other than sterling (the Company’s
functional currency, in which it reports its results). The
Investment Manager does not hedge currency exposure. As a result,
movements in exchange rates may affect the sterling value of those
items.
The Investment Manager monitors the Company’s exposures and
reports to the Board on a regular basis.
Income denominated in foreign currencies is converted to
sterling on receipt. The Company does not use financial instruments
to mitigate the currency exposure in the period between the time
that income is included in the financial statements and its
receipt.
Foreign currency exposures
An analysis of the Company’s equity investments and Contracts
for Differences that are priced in a foreign currency is:
|
As at |
As at |
|
30 June 2019 |
30 June 2018 |
|
£000 |
£000 |
| Contracts for Differences: |
|
|
| Euro |
(2,931) |
(2,176) |
| Total |
(2,931) |
(2,176) |
Foreign currency sensitivity
Due to the insignificant impact of fluctuations in foreign
currency no sensitivity analysis is shown.
(ii) Interest Rate Risk
Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in market interest rates.
The Company is exposed to interest rate risk specifically
through its cash holdings, holdings of UK Treasury Bills and on
positions within the CFD portfolio. Interest rate movements may
affect the level of income receivable from any cash at bank and on
deposits. The effect of interest rate changes on the earnings of
the companies held within the portfolio may have a significant
impact on the valuation of the Company’s investments. Movements in
interest rates will also have an impact on the valuation of the CFD
derivative contracts, see below for further details.
Interest rate exposure
The exposure at 30 June 2019 of
financial assets and liabilities to interest rate risk is shown by
reference to floating interest rates – when the interest rate is
due to be re-set.
|
30 June 2019 |
30 June 2018 |
|
due within |
due within |
|
one year |
one year |
|
£000 |
£000 |
| Exposure to floating interest
rates: |
|
|
| CFD derivative contract |
|
|
| – Notional long positions |
12,873 |
12,865 |
| – Notional short positions |
(18,055) |
(20,962) |
| Cash at bank |
4,412 |
9,247 |
| Collateral paid in respect of
contracts for difference |
8,108 |
10,006 |
| UK Treasury Bills |
25,178 |
21,122 |
The possible effects on fair value and cash flows that could
arise as a result of changes in interest rates are taken into
account when making investment decisions. Derivative contracts are
not used to hedge against the exposure to interest rate risk.
The Company is exposed to interest rate risk on cash holdings
and CFD positions held within the portfolio.
The Company does not have any fixed rate exposure at
30 June 2019 (30 June 2018: none).
If interest rates had been +/- 25 basis points and all other
variables were held constant, the Company’s return attributable to
shareholders for the year ended 30 June
2019 would have been increased/(decreased) by approximately
+/- £81,000.
(iii) Other Price Risk
Other price risk is the risk that the fair value or future cash
flows of a financial instrument will fluctuate because of changes
in market prices (other than those arising from interest rate risk
or currency risk), whether those changes are caused by factors
specific to the individual financial instrument or its issuer, or
factors affecting similar financial instruments traded in the
market.
The Company is exposed to market price risk arising from its
equity investments and its exposure to the positions within the CFD
portfolio. The movements in the prices of these investments result
in movements in the performance of the Company.
The Company’s exposure to other changes in market prices at
30 June 2019 on its equity
investments was £9,485,000 (30 June
2018: £10,314,000). In addition, the Company’s gross market
exposure to these price changes through its CFD portfolio was
£12,873,000 (30 June 2018:
£12,865,000) through long positions and £18,055,000 (30 June 2018: £20,962,000) through short
positions.
The Company utilises CFDs, as part of its investment policy.
These instruments can be highly volatile and potentially expose
investors to a higher risk of loss. The low initial margin deposits
normally required to establish a position in such instruments
permit a high degree of leverage. As a result, depending on the
type of instrument, a relatively small movement in the price of a
contract may result in a profit or loss which is high in proportion
to the value of the net exposures in the underlying CFD positions.
In addition, daily limits on price fluctuations and speculative
position limits on exchanges may prevent prompt liquidation of
positions resulting in potentially greater losses.
The Company limits the gross market exposure, and therefore the
leverage, of this strategy to approximately 200% of the Company’s
net assets. The CFDs utilised have a linear performance to
referenced stocks quoted on exchanges and therefore have the same
volatility profile to the underlying stocks. Short CFD positions
carry a greater risk of loss than a simple long exposure or CFD
long positions which are limited to the initial capital invested.
Possible losses from securities sold short can theoretically be
unlimited. Market exposures to derivative contracts are disclosed
below.
Economic exposure through derivatives is restricted to 200% of
the Company’s net assets. The gross value represents the aggregate
of the long and short exposures without netting and so within this
limit, market exposure may be significantly less. The net exposure
refers to the market exposure the Company has to the underlying
securities on long CFD positions, less the market exposure to the
underlying securities on which the Company has taken short
positions.
Exposures are monitored daily by the Investment Manager. The
Company’s Board also reviews exposures regularly.
The CFD positions are diversified across sectors and geographies
comprising 30 positions as at 30 June
2019 (25 positions as at 30 June
2018).
|
30 June 2019 |
30 June 2019 |
30 June 2018 |
30 June 2018 |
|
£000 |
% of net assets |
£000 |
% of net assets |
| CFDs – gross exposure relating to
short positions |
(18,055) |
-40.6 |
(20,962) |
-45.6 |
| CFDs – gross exposure relating to
long positions |
12,873 |
28.9 |
12,865 |
28.0 |
| FTSE 100 Future |
(5,527) |
-12.4 |
(9,122) |
-19.8 |
| Net market exposure |
(10,709) |
-24.1 |
(17,219) |
-37.4 |
The Board of Directors manages the market price risks inherent
in the investment portfolio by ensuring full and timely access to
relevant information from the Investment Manager. The Board meets
regularly and at each meeting reviews investment performance. The
Board monitors the Investment Manager’s compliance with the
Company’s objective.
When appropriate, the Company manages its exposure to risk by
using futures contracts or by buying put options on indices and on
quoted equity investments in its portfolio. During the year, FTSE
futures contracts were used as being a short term efficient
instrument to alter the Company’s net exposure.
Concentration of exposure to other price risks
A sector breakdown and geographical allocation of the portfolio
is contained in the Portfolio on page 6.
Other price risk sensitivity
The following table illustrates the sensitivity of the profit
after taxation for the year to an increase or decrease of 10% in
the fair values of the Company’s equities and CFDs. This level of
change is considered to be reasonably possible based on observation
of current market conditions. The sensitivity analysis is based on
the Company’s equities and net fair value of the CFDs as at the
balance sheet date, with all other variables held constant.
|
Increase in |
Decrease in |
Increase in |
Decrease in |
|
fair value |
fair value |
fair value |
fair value |
|
2019 |
2019 |
2018 |
2018 |
|
£000 |
£000 |
£000 |
£000 |
| Impact on capital return –
increase/(decrease) |
1,410 |
(1,410) |
1,559 |
(1,559) |
| Return after taxation –
increase/(decrease) |
1,410 |
(1,410) |
1,559 |
(1,559) |
(b) Liquidity Risk
This is the risk that the Company will encounter difficulty in
meeting obligations associated with financial liabilities.
Liquidity risk exposure
The undiscounted gross cash outflows of the financial
liabilities as at 30 June 2019, based
on the earliest date on which payment can be required, were as
follows:
|
30 June 2019 |
30 June 2018 |
|
less than 3
months |
less than 3
months |
|
£000 |
£000 |
| Provision for liquidation costs |
150 |
– |
| Amounts payable in respect of
contracts for differences |
3,577 |
4,034 |
| Other payables |
249 |
2,102 |
|
3,976 |
6,136 |
The Company is exposed to liquidity risks from the leverage
employed through exposure to long and short CFD positions. However,
timely sale of trading positions can be impaired by many factors
including decreased trading volume and increased price volatility.
As a result, the Company may experience difficulties in disposing
of assets to satisfy liquidity demands. Liquidity risk is minimised
by holding sufficient liquid investments which can be readily
realised to meet liquidity demands. The Company’s liquidity risk is
managed on a daily basis by the Investment Manager in accordance
with established policies and procedures in place.
The investment in unquoted securities may have limited liquidity
and be difficult to realise. At 30 June
2019 the unquoted securities are valued at £1,304,790
(30 June 2018: £1,461,151) which
relates to the investment in Sanditon Asset Management Limited.
(c) 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.
The cash is subject to counterparty credit risk as the Company’s
access to its cash could be delayed should the counterparties
become insolvent or bankrupt.
The Company’s holdings in CFD contracts present counterparty
credit risk. The Company’s maximum exposure to counterparty credit
risk from holding these contracts will be equal to the notional
amount of any net unrealised gains as disclosed in the financial
statements. CFD contracts generally require variation margins and
the counterparty credit risk is monitored by the Investment
Manager.
In summary, the exposure to credit risk at 30 June 2019 was as follows:
|
30 June 2019 |
30 June 2018 |
|
3 months or less |
3 months or less |
|
£000 |
£000 |
| Cash at bank |
4,412 |
9,247 |
| UK Treasury Bills |
25,178 |
21,122 |
| Amounts due in respect of contracts
for difference |
1,035 |
1,239 |
| Collateral paid in respect of
contracts for difference |
8,108 |
10,006 |
| Debtors |
105 |
189 |
|
38,838 |
41,803 |
None of the above assets were impaired or past due but not
impaired.
Investment transactions are carried out with a number of
brokers, whose credit-standing is reviewed periodically by the
Investment Manager, and limits are set on the amount that may be
due from any one broker. This is monitored by the Board as part of
the investment limits and restrictions checklist (as shown on page
15).
Cash at bank is held only with reputable banks with high quality
external credit ratings. The Company generally holds significant
cash balances and seeks to limit exposure to any one bank to 20% of
net assets. The Company’s principal counterparties are Northern
Trust and CFD provider Bank of America Merrill Lynch. Cash is also
held in UK Treasury Bills.
(d) Fair Value Measurements of Financial Assets and Financial
Liabilities
Fair value is the amount for which an asset could be exchanged,
a liability settled, or an equity instrument granted could be
exchanged, between knowledgeable, willing parties in an arm’s
length transaction.
The valuation techniques used by the Company are explained in
the accounting policies note 1 (b) on page 30.
The table below sets out fair value measurements using fair
value hierarchy.
| Financial assets at fair value |
Level 1 |
Level 2 |
Level 3 |
Total |
| through profit or loss at 30 June
2019 |
£000 |
£000 |
£000 |
£000 |
| Assets: |
|
|
|
|
| Equity investments |
3,711 |
– |
1,305 |
5,016 |
| TM Sanditon UK Select Fund |
– |
4,469 |
– |
4,469 |
| Contracts for difference – fair
value gains |
– |
1,035 |
– |
1,035 |
| Liabilities: |
|
|
|
|
| Contracts for difference – fair
value losses |
– |
(3,577) |
– |
(3,577) |
| Total |
3,711 |
1,927 |
1,305 |
6,943 |
|
|
|
|
|
| Financial assets at fair value |
Level 1 |
Level 2 |
Level 3 |
Total |
| through profit or loss at 30 June
2018 |
£000 |
£000 |
£000 |
£000 |
| Assets: |
|
|
|
|
| Equity investments |
4,207 |
– |
1,461 |
5,668 |
| TM Sanditon UK Select Fund |
– |
4,646 |
– |
4,646 |
| Contracts for difference – fair
value gains |
– |
1,239 |
– |
1,239 |
| Liabilities: |
|
|
|
|
| Contracts for difference – fair
value losses |
– |
(4,034) |
– |
(4,034) |
| Total |
4,207 |
1,851 |
1,461 |
7,519 |
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 2019 and at 30
June 2018, the Company’s Level 3 investments relates to the
investment in Sanditon Asset Management Limited. The Board have
agreed the valuation methodology for the Company’s holding in SAM
which it believes to be straightforward, conservative and fair. The
Board has decided to use a simple average of 1% of SAM’s year end
assets under management (“AUM”) and 5x after tax profits (adjusted
to exclude any performance fees earned and any associated staff
bonuses paid – SAM pay out a maximum of 50% of performance fees
earned to staff). This resulted in the Directors approving a
reduction in your Company’s holding in SAM from £1,461,151 to
£1,304,790.
The Board have considered the net realisable value of its stake
in SAM by reviewing the liquidation value of SAM’s Balance Sheet
and determined that there was no need to adjust the formula driven
fair value on the grounds that any difference is not material to
the Company’s financial statements.
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 2019 |
|
Investments |
|
£000 |
| Opening fair value |
1,461 |
| Decrease in fair value of investment
in Sanditon Asset Management Limited |
(156) |
| Closing fair value |
1,305 |
| Level 3 financial assets at fair
value through profit or loss |
|
|
As at |
|
30 June 2018 |
|
Investments |
|
£000 |
| Opening fair value |
1,549 |
| Increase in fair value of investment
in Sanditon Asset Management Limited |
(88) |
| Closing fair value |
1,461 |
(e) Capital Management Policies and Procedures
The Company’s capital management objectives are:
• to ensure that the Company will be able to continue as a going
concern up until the liquidation vote and thereafter if the vote is
not passed; and
• to deliver absolute returns of at least 2% per annum,
compounded annually, above RPIX.
The key performance indicators are contained in the strategic
report on page 9.
The Company is subject to several externally imposed capital
requirements:
• As a public company, the Company has to have a minimum share
capital of £50,000.
• In order to be able to pay dividends out of profits available
for distribution by way of dividends, the Company has to be able to
meet one of the two capital restriction tests imposed on investment
companies by company law.
The Company’s capital at 30 June
2019 comprises of called up share capital and reserves
totalling £44,347,000 (30 June 2018:
£45,981,000).
The Board regularly monitors, and has complied with, the
externally imposed capital requirements. This is unchanged from the
prior period.
Shareholder Information
SHARE PRICE AND PERFORMANCE INFORMATION
The Ordinary Shares are listed on the London Stock Exchange.
Information about the Company can be obtained directly from:
www.sanditonam.com
Contact Sanditon on 020 3595 2900, or by e-mail to
info@sanditonam.com
SHARE DEALING
Shares can be purchased through a stockbroker.
SHARE REGISTER ENQUIRIES
The register for the Ordinary Shares is maintained by Link Asset
Services. In the event of queries regarding your holding, please
contact the Registrar on 0871 664 0300 (calls cost 12p per minute
plus network extras, lines are open Monday to Friday 9:00 a.m. to 5:30 p.m.); overseas +44 371 664
0300; or e-mail enquiries@linkgroup.co.uk. Changes of name and/or
address must be notified in writing to the Registrar.
STATEMENT REGARDING NON-MAINSTREAM INVESTMENT PRODUCTS
The Company currently conducts its affairs so that the Ordinary
Shares issued by the Company can be recommended by IFAs to retail
investors in accordance with the FCA’s rules in relation to
non-mainstream investment products and intends to continue to do so
for the foreseeable future.
Sanditon Investment Trust’s shares fall outside the restrictions
which apply to non-mainstream investment products because Sanditon
Investment Trust plc is an investment trust.
A member of the Association of Investment Companies.
Glossary of Terms and Alternative Performance Measures
ALTERNATIVE PERFORMANCE MEASURES (“APMs”)
We assess our performance using a variety of measures that are
not specifically defined under FRS and therefore termed APMs. The
APMs that we use may not be directly comparable with those used by
other companies.
DISCOUNT/PREMIUM
If the share price of an investment trust is lower than the NAV
per share, the shares are said to be trading at a discount. The
size of the discount is calculated by subtracting the share price
from the NAV per share and is usually expressed as a percentage of
the NAV per share. If the share price is higher than the NAV per
share, the shares are said to be trading at a premium. The
discount/premium is shown on page 1. The Board monitors the level
of discount or premium.
|
|
|
As at |
|
|
Page |
30 June 2019 |
| NAV per Ordinary Share |
a |
1 |
88.69p |
| Share price |
b |
1 |
81.00p |
| Discount |
(b÷a)-1 |
|
-8.7% |
ONGOING CHARGES
The ongoing charges represent the Company’s management fee and
all other operating expenses, excluding finance costs, expressed as
a percentage of the average of the daily net assets during the year
(see page 9).
|
|
Page |
£000 |
| Average NAV |
a |
|
46,103 |
| Annualised expenses |
b |
|
602 |
| Ongoing charges |
(b÷a) |
1 |
1.31% |
NET ASSET VALUE (“NAV”)
The NAV is the assets attributable to shareholders expressed as
an amount per individual share.
|
|
Page |
|
| Net assets (£000) |
a |
1 |
44,347 |
| Ordinary Shares in issue |
b |
36 |
50,000,000 |
| NAV per share |
(a÷b) |
1 |
88.69p |
TOTAL RETURN
The combined effect of any dividends paid, together with the
rise or fall in the share price or NAV. Total return statistics
enable the investor to make performance comparisons between
companies with different dividend policies.
|
|
Page |
NAV (p) |
| Closing NAV per share |
a |
1 |
88.69 |
| Plus: Dividend paid in the year
(note 6) |
b |
1 |
0.50 |
| NAV Total Return for year |
|
|
89.19 |
| Less: Opening NAV per share |
c |
1 |
-91.96 |
| Decrease in NAV Total Return for
year |
|
|
-2.77 |
| % NAV Total return for year |
(a+b+c)÷c |
|
-3.0% |
GROSS EXPOSURE
The sum of all long and short assets held.
NET EXPOSURE
The difference between long assets held and short assets.
Notice of Annual General Meeting
to the members of Sanditon Investment Trust plc
Notice is hereby given that 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, 5 December 2019, at
11:30 a.m. to consider and, if
thought fit, pass the following resolutions, which will be proposed
as to resolutions 1, 2, 3, 4, 5, 6, 7 and 8 as ordinary
resolutions:
ORDINARY RESOLUTIONS
| 1. |
To receive the Directors’ Report and
Financial Statements for the year ended 30 June 2019. |
|
|
| 2. |
To approve the Directors’
Remuneration Report for the year ended 30 June 2019. |
|
|
| 3. |
To approve the final dividend. |
|
|
| 4. |
To re-elect Mr Rupert Barclay as a
Director of the Company. |
|
|
| 5. |
To re-elect Mr Christopher Keljik as
a Director of the Company. |
|
|
| 6. |
To re-elect Mr Hugo Dixon as a
Director of the Company. |
|
|
| 7. |
To re-elect Mr Mark Little as a
Director of the Company. |
|
|
| 8. |
To re-appoint Ernst & Young LLP
as Auditor of the Company and to authorise the Board to determine
their remuneration. |
By order of the Board
Sanditon Asset Management Limited
Secretary
30 October 2019
Notes to the Notice of Annual General Meeting
1. Members are entitled to appoint a proxy to exercise all or
any of their rights to attend and to speak and vote on their behalf
at the meeting. A shareholder may appoint more than one proxy in
relation to the Annual General Meeting provided that each proxy is
appointed to exercise the rights attached to a different share or
shares held by that shareholder. A shareholder may not appoint more
than one proxy to exercise the rights attached to any one share. A
proxy need not be a shareholder of the Company.
A proxy form which may be used to make such appointment and give
proxy instructions accompanies this notice. If you do not have a
proxy form and believe that you should have one, or if you require
additional forms, please contact the Company’s registrars, Link
Asset Services (contact details can be found on page 51).
2. To be valid any proxy form or other instrument appointing a
proxy must be received by post to Link Asset Services, PXS1, 34
Beckenham Road, Beckenham, Kent BR3 4ZF or (during normal business
hours only) by hand at the offices of the Company’s registrars,
Link Asset Services, 34 Beckenham Road, Beckenham, Kent, BR3 4TU no
later than 11:30 a.m. on Tuesday,
3 December 2019.
3. The return of a completed proxy form, other such instrument
or any CREST Proxy Instruction (as described in paragraph 9 below)
will not prevent a shareholder attending the Annual General Meeting
and voting in person if he/she wishes to do so.
4. Any person to whom this notice is sent who is a person
nominated under section 146 of the Companies Act 2006 to enjoy
information rights (a “Nominated Person”) may, under an agreement
between him/her and the shareholder by whom he/she was nominated,
have a right to be appointed (or to have someone else appointed) as
a proxy for the Annual General Meeting. If a Nominated Person has
no such proxy appointment right or does not wish to exercise it,
he/she may, under any such agreement, have a right to give
instructions to the shareholder as to the exercise of voting
rights.
5. The statement of the rights of shareholders in relation to
the appointment of proxies in paragraphs 1 and 2 above does not
apply to Nominated Persons. The rights described in these
paragraphs can only be exercised by shareholders of the
Company.
6. To be entitled to attend and vote at the Annual General
Meeting (and for the purpose of the determination by the Company of
the votes they may cast), shareholders must be registered in the
Register of Members of the Company by 11:30
a.m. on Tuesday, 3 December
2019 (or, in the event of any adjournment, on the date which
is two days before the time of the adjourned meeting for the
purposes of which no account is to be taken of any part of a day
that is not a working day). Changes to the Register of Members
after the relevant deadline shall be disregarded in determining the
rights of any person to attend and vote at the meeting.
7. As at 30 October 2019 (being
the last business day prior to the publication of this Notice) the
Company’s issued share capital consisted of 50,000,000 Ordinary
Shares, carrying one vote each. Therefore, the total voting rights
in the Company as at 30 October 2019
are 50,000,000.
8. CREST members who wish to appoint a proxy or proxies through
the CREST electronic proxy appointment service may do so by using
the procedures described in the CREST Manual. CREST Personal
Members or other CREST sponsored members, and those CREST members
who have appointed a service provider(s), should refer to their
CREST sponsor or voting service provider(s), who will be able to
take the appropriate action on their behalf.
9. In order for a proxy appointment or instruction made using
the CREST service to be valid, the appropriate CREST message (a
“CREST Proxy Instruction”) must be properly authenticated in
accordance with Euroclear UK & Ireland Limited’s
specifications, and must contain the information required for such
instruction, as described in the CREST Manual (available via
www.euroclear.com/CREST). The message, regardless of whether it
constitutes the appointment of a proxy or is an amendment to the
instruction given to a previously appointed proxy must, in order to
be valid, be transmitted so as to be received by the issuer’s agent
(ID RA10) by 11:30 a.m. on Tuesday,
3 December 2019. For this purpose,
the time of receipt will be taken to be the time (as determined by
the time stamp applied to the message by the CREST Application
Host) from which the issuer’s agent is able to retrieve the message
by enquiry to CREST in the manner prescribed by CREST. After this
time any change of instructions to proxies appointed through CREST
should be communicated to the appointee through other means.
10. CREST members and, where applicable, their CREST sponsors,
or voting service providers should note that Euroclear UK &
Ireland Limited does not make available special procedures in CREST
for any particular message. Normal system timings and limitations
will, therefore, apply in relation to the input of CREST Proxy
Instructions. It is the responsibility of the CREST member
concerned to take (or, if the CREST member is a CREST personal
member, or sponsored member, or has appointed a voting service
provider, to procure that his or her CREST sponsor or voting
service provider(s) take(s)) such action as shall be necessary to
ensure that a message is transmitted by means of the CREST system
by any particular time. In this connection, CREST members and,
where applicable, their CREST sponsors or voting system providers
are referred, in particular, to those sections of the CREST Manual
concerning practical limitations of the CREST system and
timings.
11. The Company may treat as invalid a CREST Proxy Instruction
in the circumstances set out in Regulation 35(5)(a) of the
Uncertificated Securities Regulations 2001.
12. Any corporation which is a member can appoint one or more
corporate representatives who may exercise on its behalf all of its
powers as a member provided that they do not do so in relation to
the same shares.
13. Under section 527 of the Companies Act 2006 members meeting
the threshold requirements set out in that section have the right
to require the Company to publish on a website a statement setting
out any matter relating to:
(i) the audit of the Company’s accounts (including the Auditor’s
report and the conduct of the audit) that are to be laid before the
Annual General Meeting; or (ii) any circumstance connected with an
Auditor of the Company ceasing to hold office since the previous
meeting at which annual accounts and reports were laid in
accordance with section 437 of the Companies Act 2006. The Company
may not require the shareholders requesting any such website
publication to pay its expenses in complying with sections 527 or
528 of the Companies Act 2006. Where the Company is required to
place a statement on a website under section 527 of the Companies
Act 2006, it must forward the statement to the Company’s Auditor
not later than the time when it makes the statement available on
the website. The business which may be dealt with at the Annual
General Meeting includes any statement that the Company has been
required under section 527 of the Companies Act 2006 to publish on
a website.
14. Any member attending the meeting has the right to ask
questions. The Company must cause to be answered any such question
relating to the business being dealt with at the meeting but no
such answer need be given if (a) to do so would interfere unduly
with the preparation for the meeting or involve the disclosure of
confidential information, (b) the answer has already been given on
a website in the form of an answer to a question, or (c) it is
undesirable in the interests of the Company or the good order of
the meeting that the question be answered.
15. A copy of this notice, and other information required by
s311A of the Companies Act 2006, is available at the Investment
Manager’s website: www.sanditonam.com
Directors and Advisers
as at 30 June 2019
Directors
Rupert Barclay, Chairman
Hugo Dixon
Christopher Keljik OBE
Mark Little
Investment Manager
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
Company Secretary
Sanditon Asset Management Limited*
Fifth Floor
33 Cannon Street
London EC4M 5SB
*Appointed 22 February 2018
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
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
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE
ATTENTION. IT CONTAINS PROPOSALS RELATING TO THE MEMBERS’ VOLUNTARY
LIQUIDATION OF SANDITON INVESTMENT TRUST PLC ON WHICH SHAREHOLDERS
ARE BEING ASKED TO VOTE. If you are in any doubt about the contents
of this document or the action you should take, you are recommended
to seek your own independent financial advice immediately from your
stockbroker, bank manager, solicitor, accountant or other
independent financial adviser who is authorised under the Financial
Services and Markets Act 2000.
If you have sold or otherwise transferred all your shares in
Sanditon Investment Trust plc (the “Company”), please forward this
document, and the accompanying Form of Proxy, as soon as possible
to the purchaser or transferee or to the stockbroker, bank or other
agent through whom the sale or transfer was effected for onward
transmission to the purchaser or transferee. If you have sold or
transferred only part of your holding of shares in the Company, you
should retain this document and the accompanying Form of Proxy and
consult the stockbroker, bank or other agent through whom the sale
or transfer was effected.
SANDITON INVESTMENT TRUST PLC
(a public limited company incorporated under the laws of
England and Wales with registered number 09040176)
Recommended Members’ Voluntary Liquidation of the Company
and
Notice of General Meeting
The proposals described in this document are conditional on
Shareholder approval. Your attention is drawn to the Letter from
the Chairman of the Company set out in Part I of this document
which contains the recommendation of the Directors that
Shareholders should vote in favour of the Resolution which is to be
proposed at the General Meeting referred to below. Your attention
is drawn to the paragraph headed “Action to be taken” of Part I of
this document.
Notice of a General Meeting of the Company, which is to be held
at the offices of Northern Trust, 50 Bank Street, Canary Wharf,
London E14 5NT at 11.35 a.m. (or as soon thereafter as the
immediately preceding Annual General Meeting shall have been
concluded or adjourned) on Thursday, 5
December 2019, is set out at the end of this document. To be
valid, the Form of Proxy for use by Shareholders at this meeting
must be completed, signed and returned in accordance with the
instructions printed thereon so as to be received by the Company’s
Registrar, Link Asset Services, The Registry, 34 Beckenham
Road, Beckenham, Kent, BR3 4TU, United
Kingdom, as soon as possible and, in any event, so as to
arrive by not later than 11.35 a.m. on
Tuesday, 3 December 2019.
Definitions
The following definitions apply throughout this document, unless
the context otherwise requires:
| Annual General Meeting |
the annual general meeting of the
Company convened for 11.30 a.m. on 5 December 2019 (or any
adjournment thereof) |
| Articles of Association |
the articles of association of the
Company, as amended from time to time |
| Board or the Directors |
the board of directors of the
Company |
| Company |
Sanditon Investment Trust plc |
| CREST |
the relevant system (as defined in
the CREST Regulations) in respect of which Euroclear is the
Operator (as defined in the CREST Regulations) |
| CREST Member |
a person who has been admitted by
Euroclear as a system-member (as defined in the CREST
Regulations) |
| CREST Participant |
a person who is, in relation to
CREST, a system-participant (as defined in the CREST
Regulations) |
| CREST Regulations |
The Uncertificated Securities
Regulations 2001 (SI 2001/3755) |
| CREST Sponsor |
a CREST Participant admitted to
CREST as a CREST sponsor, being a sponsoring system-participant (as
defined in the CREST Regulations) |
| CREST Sponsored Member |
a CREST member admitted to CREST as
a Sponsored Member |
| Distribution |
has the meaning given to it in the
paragraph headed “Shareholder Distributions” in Part I of this
document |
| Euroclear |
Euroclear UK & Ireland
Limited |
| Financial Conduct Authority or
FCA |
the Financial Conduct Authority of
the United Kingdom |
| Form of Proxy |
the form of proxy accompanying this
document for use by Shareholders in connection with the General
Meeting |
| General Meeting |
the General Meeting of Shareholders
of the Company convened for 11.35 a.m. (or as soon thereafter as
the immediately preceding Annual General Meeting shall have been
concluded or adjourned) on Thursday, 5 December 2019 at the offices
of Northern Trust, 50 Bank Street, Canary Wharf, London
E14 5NT, notice of which is set out at the end of this
document |
| HMRC |
HM Revenue & Customs |
| Investment Manager |
Sanditon Asset Management Limited
(registered number 08639467) |
| Liquidation Fund |
the cash to be retained by the
Liquidators to pay the Company’s known and contingent liabilities,
the VAT inclusive (if applicable) costs of the liquidation, and an
additional retention for unknown contingencies |
| Liquidators |
the proposed joint liquidators of
the Company, namely Gareth Rutt Morris and Andrew Martin Sheridan
of FRP Advisory LLP |
| London Stock Exchange |
London Stock Exchange plc |
| Main Market |
the London Stock Exchange’s main
market for listed securities |
| Members’ Voluntary Liquidation |
the proposed members’ voluntary
liquidation of the Company as described in this document |
| NAV or Net Asset Value |
the value of the assets of the
Company less its liabilities, determined in accordance with the
accounting principles adopted by the Company from time to time and
the Articles of Association |
| Notice or Notice of General
Meeting |
the notice of general meeting set
out at the end of this document |
| Official List |
the Official List of the FCA |
| Ordinary Shares |
ordinary shares of nominal value 1
penny each in the capital of the Company |
| Proposals |
the proposals for the members’
voluntary liquidation of the Company, as described in more detail
in this circular |
| Record Date |
6.00 p.m. on 4 December 2019 |
| Register |
the register of members of the
Company |
| Registrar |
Link Asset Services of The Registry,
34 Beckenham Road, Beckenham, Kent BR3 4TU |
| Resolution |
the special resolution set out in
the Notice of General Meeting to approve the Members’ Voluntary
Liquidation |
| Shareholders |
holders of Ordinary Shares |
| Sterling or £ |
pounds sterling, being the lawful
currency of the UK |
| United Kingdom or UK |
the United Kingdom of Great Britain
and Northern Ireland |
Expected Timetable
2019
| Date from which it is advised that
dealings in Ordinary Shares should only be for cash settlement and
immediate delivery of documents of title |
close of business on Monday, 2
December |
| Latest time and date for receipt of
Forms of Proxy from Shareholders for use at the General
Meeting |
11.35 a.m. on Tuesday, 3
December |
| Latest time for delivery to
Registrar of documents of title relating to dealings in Ordinary
Shares subject to cash settlement |
5.00 p.m. on Wednesday, 4
December |
| Close of the Register and Record
Date for participation in the Members’ Voluntary Liquidation |
6.00 p.m. on Wednesday, 4
December |
| Suspension of Ordinary Shares from
trading on the London Stock Exchange and suspension of listing on
the Official List of the FCA |
7.30 a.m. on Thursday, 5
December |
| General Meeting to approve the
Members’ Voluntary Liquidation and, if approved, the appointment of
the Liquidators |
11.35 a.m. on Thursday, 5
December |
| Cancellation of the listing of the
Ordinary Shares on the Official List and cancellation of admission
to trading of the Ordinary Shares on the Main Market |
8.00 a.m. on Friday, 6 December |
| Expected date of Distribution |
Friday, 27 December |
All references are to London
time.
The dates and times set out in the expected timetable above may
be adjusted by the Company, in which event details of the new dates
and/or times will be notified to the FCA and the London Stock
Exchange, and an announcement will be made through a Regulatory
Information Service.
Part I
Letter from the Chairman
Sanditon Investment Trust plc
(a public limited company incorporated under the laws of
England
and Wales with registered
number 09040176)
| Directors: |
Registered Office: |
| Rupert Barclay, Chairman |
Fifth Floor |
| Hugo Dixon |
33 Cannon Street |
| Christopher Keljik OBE |
London EC4M 5SB |
| Mark Little |
|
31 October 2019
Dear Shareholder
Recommended Members’ Voluntary Liquidation of the Company
Introduction
The Company has today announced proposals for a voluntary
liquidation of the Company. I am writing to provide you with
details of these proposals, which are subject to Shareholder
approval, and to explain why your Board is recommending that you
vote in favour of the Resolution to be proposed at the General
Meeting of the Company to be held at 11.35
a.m. (or as soon thereafter as the immediately preceding
Annual General Meeting shall have been concluded or adjourned) on
Thursday, 5 December 2019. A notice
of the General Meeting is set out at the end of this document.
Background
On the Company’s launch in 2014, the Board considered it
desirable that Shareholders should have the opportunity to review
the future of the Company at appropriate intervals. Accordingly, a
Shareholder-friendly continuation vote structure was put in place,
under which a resolution for the continuation of the Company would
be proposed at the sixth annual general meeting of the Company and,
if passed, every three years thereafter. The first such
continuation vote is due to take place at the Company’s annual
general meeting in 2020.
Having spoken with a number of significant Shareholders,
including members of the Investment Manager itself who speak for 21
per cent. of the Company’s equity, the Board, together with the
Investment Manager, have reluctantly concluded that the chance of a
successful continuation vote in 2020 is slim. As a result of this
feedback, the Investment Manager informed the Board that it did not
wish to continue managing the Company for the next year as, in its
view, it was in the best interests of all Shareholders to propose
an early liquidation of the Company. The Board has considered
alternatives to winding down the Company including appointing a new
manager or merging the Company with another investment trust.
However, after consultations with the Company’s advisers, the Board
concluded that none of these solutions were optimal. Therefore,
rather than wait for the unsuccessful continuation vote in 2020,
the Board, in consultation with the Investment Manager, have
decided to put a resolution to Shareholders, at a general meeting
to be held immediately following the forthcoming Annual General
Meeting, authorising a voluntary liquidation of the Company.
The Members’ Voluntary Liquidation
Under the Proposals, Shareholders on the Register on the Record
Date will be able to realise their investment in the Company
through the Members’ Voluntary Liquidation.
This is conditional upon Shareholder approval of the Resolution
by 75 per cent. or more of the votes cast. If the Resolution is not
passed, the Company shall continue in operation until alternative
proposals can be put forward.
If the Resolution is passed:
•
Gareth Rutt Morris and Andrew Martin Sheridan of FRP Advisory LLP will
be appointed as joint Liquidators and will assume immediate
responsibility for the affairs of the Company;
• the
Liquidators will proceed to wind up the Company in accordance with
the provisions of the Insolvency Act 1986;
• the
Directors will resign and all powers of the Board will cease;
and
• the
listing of Ordinary Shares on the Official List will be
cancelled.
Implementation of the Members’ Voluntary Liquidation is
conditional upon the Resolution being passed at the General
Meeting. In the event that the Resolution is not passed, the
Members’ Voluntary Liquidation will not proceed and the Company
will continue in operation until alternative proposals can be put
forward and will have to bear the abortive costs of having proposed
the Members’ Voluntary Liquidation.
Shareholder Distributions
Assuming the Resolution is passed, it is currently expected that
the Company’s portfolio will be realised for cash on or around
11 December 2019. In this case, the
Liquidators expect to distribute the cash proceeds of the
liquidation of the Company’s portfolio, less the costs of the
Proposals and the amount attributable to the Liquidation Fund,
described below, on or around 27 December
2019 to those Shareholders appearing on the register of
members as at the Record Date (the “Distribution”).
The Company’s sole unlisted investment is its 20 per cent.
holding in its Investment Manager, Sanditon Asset Management PLC
(the “SAM Holding”). The Board and the Investment Manager expect
the SAM Holding to be realised either by means of a buyback of
shares by the Investment Manager or, in the event that an agreement
on a buyback cannot be reached for whatever reason, through the
liquidation of the Investment Manager. In the event of a buyback,
the Board and the Investment Manager expect the price for the SAM
Holding to be agreed on or around 5 December
2019 on the basis of the net realisable value of the SAM
Holding. The Board and the Investment Manager do not expect the
difference in this price from the Company’s latest valuation of the
SAM Holding included in its Annual Report and Accounts for the year
ended 30 June 2019 to be material to
Shareholders in the context of the total Net Asset Value per
Ordinary Share to be realised.
At the Annual General Meeting, the Shareholders will be asked to
approve a final dividend for the financial year ended 30 June 2019. In order to retain investment trust
status for the period between 1 July
2019 and 4 December 2019, the
Company also intends to pay an interim dividend on or around
5 December 2019 to Shareholders on
the Register on 22 November 2019. The
exact amount and timing of the payment of such dividend will be
announced via RIS in or around the week commencing 18 November 2019.
The Liquidators will retain sufficient funds in the Members’
Voluntary Liquidation to meet the current, future and contingent
liabilities of the Company, including the VAT inclusive (if
applicable) costs and expenses of the liquidation not already paid
at the point of liquidation and an additional retention of £50,000
for unknown contingencies (the “Liquidation Fund”).
Once the Liquidators have realised the Company’s assets and made
the Distribution, satisfied the claims of creditors of the Company
and paid the costs and expenses of the liquidation, it is expected
that the Liquidators would make a final distribution to
Shareholders. This final distribution, if any, would be made solely
at the discretion of the Liquidators.
Nothing in the proposals contained in this document shall impose
any personal liability on the Liquidators or either
of them.
Estimated costs of the Members’ Voluntary Liquidation
It is anticipated that the total costs and expenses of
winding-up the Company will be approximately £150,000 (plus VAT,
where applicable), which include the fees of the Liquidators and
those of the Company’s advisers in connection with the
liquidation.
Service Providers
The Company’s Investment Manager and company secretary, Sanditon
Asset Management Limited, is planning to terminate its contract
with the Company. In addition, the Company is taking steps to serve
notice on certain other service providers (including its
administrator, Northern Trust Global Services SE and its broker,
JPMorgan Cazenove), such that their appointments will terminate
should the Resolution be passed.
However, the Liquidators will retain the services of the
Company’s Registrar, Link Asset Services, and the Company’s tax
adviser, Deloitte LLP, during the initial period after the Company
enters liquidation and will review their agreements as the Company
moves forward with the liquidation process.
Suspension and cancellation of the Company’s listing and trading
of the Ordinary Shares
The Register will be closed at 6.00 p.m.
on Wednesday, 4 December 2019.
Application will be made to the FCA for suspension of listing of
the Ordinary Shares on the Official List of the FCA and application
will be made to the London Stock Exchange for suspension of trading
in the Ordinary Shares at 7.30 a.m. on
Thursday, 5 December 2019.
The last day for dealings in the Ordinary Shares on the London
Stock Exchange on a normal rolling two day settlement basis will be
Monday, 2 December 2019. After
Monday, 2 December 2019, dealings
should be for cash settlement only and will be registered in the
normal way if the transfer, accompanied by the documents of title,
is received by the Registrar by close of business on Wednesday,
4 December 2019. Transfers received
after that time will be returned to the person lodging them and, if
the Resolution is passed, the original holder will receive any
proceeds from distributions made by the Liquidators.
If the Resolution is passed, the Company will immediately make
an application for the cancellation of the admission of the
Ordinary Shares to listing on the Official List and to trading on
the Main Market. The cancellation is expected to take effect at
8.00 a.m. on Friday, 6 December 2019.
After the liquidation of the Company and the making of the final
distribution to Shareholders (if any), existing certificates in
respect of the Ordinary Shares will cease to be of value and any
existing credit of the Ordinary Shares in any stock account in
CREST will be redundant.
General Meeting
The implementation of the Members’ Voluntary Liquidation will
require Shareholders to vote in favour of the Resolution at the
General Meeting. The Resolution is being proposed to:
• place
the Company into liquidation and to appoint the Liquidators;
and
•
authorise the Liquidators to make in specie distribution(s) to
Shareholders; and
• fix the
remuneration of the Liquidators on the basis of time spent by them;
and
• direct
that the Company’s books and records be held to the order of the
Liquidators.
You will find set out at the end of this document a Notice
convening the General Meeting to be held at 11.35 a.m. (or as soon thereafter as the
immediately preceding Annual General Meeting shall have been
concluded or adjourned) on Thursday, 5
December 2019. The Notice includes the full text of the
Resolution.
The Resolution to be proposed at the General Meeting will be
proposed as a special resolution and, in order to be passed, will
require the approval of 75 per cent. or more of the votes cast at
the General Meeting, whether in person or by proxy.
All Shareholders are entitled to attend and vote at the General
Meeting. In accordance with the Articles of Association, all
Shareholders present in person or by proxy shall, upon a show of
hands, have one vote each and on a poll shall have one vote in
respect of every Ordinary Share held.
Taxation
The following paragraphs, which are intended as a general guide
only, are not exhaustive, and do not constitute legal or tax
advice, are based on current UK legislation and published HMRC
practice, both of which are subject to change possibly with
retrospective effect. They summarise certain limited aspects of the
UK tax treatment of the cash distributions made to Shareholders in
connection with the Members’ Voluntary Liquidation of the Company,
and they relate only to the position of individual and corporate
Shareholders who hold their Ordinary Shares beneficially as an
investment and (except in so far as express reference is made to
the treatment of non-UK residents) who are resident (and in the
case of individuals domiciled) in the UK for UK tax purposes.
Shareholders are advised to take independent advice in relation
to the tax implications of any matters set out in this document and
to consult an appropriate professional tax adviser.
A Shareholder who receives a distribution of cash in the course
of the Members’ Voluntary Liquidation should be treated as making a
disposal or part disposal of his Ordinary Shares for the purposes
of UK taxation of chargeable gains which may, depending on such
Shareholder’s individual circumstances (including the availability
of exemptions, reliefs and allowable losses), give rise to a
chargeable gain or allowable loss for the purposes of UK taxation
of chargeable gains.
Shareholders who are not resident in the UK (excluding, in the
case of an individual Shareholder, shareholders who are only
temporarily non-resident in the UK) for UK tax purposes should not
be subject to UK tax on chargeable gains on a disposal, or part
disposal, of Ordinary Shares unless such Ordinary Shares are used,
held or acquired for the purposes of a trade, profession or
vocation carried on in the UK through a branch or agency or, in the
case of a corporate Shareholder, through a permanent establishment.
Such Shareholders may be subject to foreign tax on any gain under
local law.
Action to be taken
Shareholders will find enclosed with this document a Form of
Proxy for use in relation to the General Meeting.
Whether or not you intend to be present at the General Meeting,
you are asked to complete and sign the accompanying Form of Proxy
in accordance with the instructions printed thereon and to return
it to Link Asset Services, The Registry, 34 Beckenham Road,
Beckenham, Kent, BR3 4TU, United
Kingdom, as soon as possible and, in any event, so as to
arrive by not later than 11.35 a.m. on
Tuesday, 3 December 2019. A
reply paid envelope is enclosed with this document for your
convenience.
The completion and return of the Form of Proxy will not prevent
you from attending the General Meeting and voting in person if you
wish to do so.
Recommendation
The Board considers the Members’ Voluntary Liquidation to be in
the best interests of the Company and Shareholders as a whole.
Accordingly, the Board unanimously recommends Shareholders to
vote in favour of the Resolution to be proposed at the General
Meeting, as the Directors intend to do in respect of their own
beneficial and non-beneficial holdings which, in aggregate, amount
to 736,818 Ordinary Shares (representing 1.47 per cent. of the
Company’s issued share capital).
Yours faithfully
Rupert Barclay
Chairman
Sanditon Investment Trust plc
(a public limited company incorporated under the laws of
England
and Wales with registered
number 09040176)
Notice of General Meeting
Notice is hereby given that a General Meeting of Sanditon
Investment Trust plc (the “Company”) will be held at the offices of
Northern Trust, 50 Bank Street, Canary Wharf, London E14 5NT at 11.35
a.m. (or as soon thereafter as the immediately preceding
Annual General Meeting shall have been concluded or adjourned) on
Thursday, 5 December 2019 for the
purpose of considering and, if thought fit, passing the following
resolution which will be proposed as a special resolution:
| 1 |
That: |
| 1.1 |
the Company be and is hereby wound
up voluntarily pursuant to section 84(1)(b) of the Insolvency Act
1986, and that Gareth Rutt Morris and Andrew Martin Sheridan of FRP
Advisory LLP of Kings Orchard, 1 Queen Street, Bristol, England,
BS2 0HQ, having consented to act, be and are hereby appointed as
joint liquidators (the “Liquidators”) with the power to act jointly
and severally for the purposes of such winding-up including
realising and distributing the Company’s assets and any power
conferred on them by law or by this resolution; and |
| 1.2 |
the Liquidators be and are hereby
authorised to distribute, amongst the Shareholders, in specie all
or any part of the assets of the Company; and |
| 1.3 |
the remuneration of the Liquidators
be determined by reference to the time properly given by them and
their staff in attending to matters prior to and during the
winding-up of the Company and they be and are hereby authorised to
draw such remuneration monthly or at such longer intervals as they
may determine and to pay any expenses properly incurred by them;
and |
| 1.4 |
the Company’s books and records be
held by the Company Secretary to the order of the Liquidators until
the expiry of twelve (12) months after the date of dissolution of
the Company, when they may be disposed of, save for financial and
trading records which will be kept for a minimum of six years
following the vacation of the Liquidators from office. |
Save where the context requires otherwise, the definitions
contained in the circular to Shareholders dated 31 October 2019 shall have the same meanings
where used in this Notice of General Meeting.
| Registered office: |
By order of the Board |
| Fifth Floor, 33 Cannon Street,
London, EC4M 5SB |
Sanditon Asset Management
Limited |
| Registered in England and Wales, No.
09040176 |
31 October 2019 |
Notes:
| 1 |
The Company, pursuant to Regulation
41 of the Uncertified Securities Regulations 2001, specifies that
only those Members registered in the Register of Members of the
Company at close of business on Tuesday, 3 December 2019 or, in the
event that the meeting is adjourned, close of business on the date
which is two days before the date of the adjourned meeting, shall
be entitled to attend, speak and vote at the aforementioned meeting
in respect of the number of shares registered in their name at the
relevant time. Changes to entries in the Register of Members after
the relevant deadline shall be disregarded in determining the
rights of any person to attend and vote at the meeting. |
| 2 |
If you are a Member of the Company
at the time set out in Note 1 above, you are entitled to appoint a
proxy to exercise all or any of your rights to attend, speak and
vote at the meeting and you should have received a Form of Proxy
with this Notice of General Meeting. You can only appoint a proxy
using the procedures set out in these Notes and the notes to the
Form of Proxy. Appointment of a proxy will not preclude you from
subsequently attending and voting at the meeting should you
subsequently decide to do so. |
| 3 |
A proxy need not also be a Member of
the Company but must attend the meeting to represent you. Details
of how to appoint the Chairman of the meeting or another person as
a proxy using the Form of Proxy are set out in the notes to the
Form of Proxy and in Note 4 below. If you wish your proxy to speak
on your behalf at the meeting, you will need to appoint their own
choice of proxy (not the Chairman) and give your instructions
directly to them. |
| 4 |
You may appoint more than one proxy
provided each proxy is appointed to exercise rights attached to
different shares. You may not appoint more than one proxy to
exercise rights attached to any one share. You should identify, in
the designated box on the Form of Proxy, the number of shares in
relation to which the proxy is authorised to act as your proxy. You
should also indicate by marking an “X” in the box provided if the
proxy instruction is one of multiple instructions being given. To
appoint more than one proxy, you may photocopy your Form of Proxy
or contact the Company’s Registrar, Link Asset Services, by
telephone on 0871 664 0300 (if calling from within the UK) or on
+44 (0) 371 664 0300 (if calling from outside the UK). Lines are
open from 9.00 a.m. to 5.30 p.m. (London time) Monday to Friday
(excluding public holidays in England and Wales). Calls cost 12p
per minute plus your phone company’s access charge. Calls outside
the United Kingdom will be charged at the applicable international
rate. Alternatively, you may contact the Company’s Registrar by
email (enquiries@linkgroup.co.uk) or by post (Link Asset Services,
The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU). |
| 5 |
A vote withheld is not a vote in
law, which means that the vote will not be counted in the
calculation of votes for or against the resolution. If no voting
indication is given, your proxy will vote or abstain from voting at
his or her discretion. Your proxy will vote (or abstain from
voting) as he or she thinks fit in relation to any other matter
which is put before the meeting. |
| 6 |
Members (and any proxies or
corporate representatives appointed) agree, by attending the
meeting, that they are expressly requesting and are willing to
receive any communications relating to the Company’s securities
made at the meeting. |
| 7 |
If you are not a Member of the
Company but you have been nominated by a Member of the Company to
enjoy information rights, you do not have a right to appoint any
proxies under the procedures set out Note 2 to 4 above. Please read
Note 15 below. |
| 8 |
If the Chairman of the meeting, as a
result of any proxy appointments, is given discretion as to how the
votes of those proxies are cast and the voting rights in respect of
those discretionary proxies, when added to the interests of the
Company’s securities already held by the Chairman, result in the
Chairman holding such number of voting rights that he has a
notifiable obligation under the Disclosure Guidance and
Transparency Rules, the Chairman will make the necessary
notifications to the Company and the Financial Conduct Authority.
As a result, any Member holding three (3) per cent. or more of the
voting rights in the Company who grants the Chairman a
discretionary proxy in respect of some or all of those voting
rights and so would otherwise have a notification obligation under
the Disclosure Guidance and Transparency Rules, need not make a
separate notification to the Company and the Financial Conduct
Authority. |
| 9 |
A Form of Proxy is enclosed with
this document. To be valid, it should be lodged with the Company’s
Registrar, together with the power of attorney or other authority,
if any, under which it is signed or a notarially certified copy
thereof, so as to be received no later than 11.35 a.m. on Tuesday,
3 December 2019 or 48 hours (excluding non-working days) before the
time appointed for any adjourned meeting or, in the case of a poll
taken subsequent to the date of the meeting or adjourned meeting,
so as to be received no later than 24 hours before the time
appointed for taking the poll, at the offices of the Company’s
Registrar, Link Asset Services. |
| 10 |
CREST Members who wish to appoint a
proxy or proxies through the CREST electronic proxy appointment
service may do so for the meeting to be held on the above date and
any adjournment(s) thereof by using the procedures described in the
CREST Manual, which can be viewed at the Euroclear website
(www.euroclear.com). CREST Personal Members or other CREST
Sponsored Members, and those CREST Members who have appointed a
voting service provider(s), should refer to their CREST Sponsor or
voting service provider(s), who will be able to take the
appropriate action on their behalf. |
| 11 |
In order for a proxy appointment or
instructions made by means of CREST to be valid, the appropriate
CREST message (a “CREST Proxy Instruction”) must be properly
authenticated in accordance with Euroclear’s specifications and
must contain the information required for such instructions, as
described in the CREST Manual. The message, regardless of whether
it constitutes the appointment of a proxy or an amendment to the
instruction given to a previously appointed proxy must, in order to
be valid, be transmitted so as to be received by the Company’s
agent (ID: RA10) by the latest time(s) for receipt of proxy
appointments specified in Note 9 above. For this purpose, the time
of receipt will be taken to be the time (as determined by the
timestamp applied to the message by the CREST Applications Host)
from which the Company’s agent is able to retrieve the message by
enquiry to CREST in the manner prescribed by CREST. After this
time, any change of instructions to proxies appointed through CREST
should be communicated to the appointee through
other means. |
|
CREST Members and, where applicable,
their CREST Sponsors or voting service providers should note that
Euroclear does not make available special procedures in CREST for
any particular messages. Normal system timings and limitations will
therefore apply in relation to the input of CREST Proxy
Instructions. It is the responsibility of the CREST Member
concerned to take (or, if the CREST Member is a CREST Personal
Member or Sponsored Member or has appointed a voting service
provider(s), to procure that his CREST Sponsor or voting service
provider(s) take(s)) such action as shall be necessary to ensure
that a message is transmitted by means of the CREST system by any
particular time. In this connection, CREST Members and, where
applicable, their CREST Sponsors or voting service providers are
referred, in particular, to those sections of the CREST Manual
concerning practical limitations of the CREST system and
timings. |
|
The Company may treat as invalid a
CREST Proxy Instruction in the circumstances set out in Regulation
35(5)(a) of the Uncertificated Securities Regulations 2001. |
| 12 |
In the case of joint holders, where
more than one of the joint holders purports to appoint a proxy,
only the appointment submitted by the most senior holder will be
accepted. Seniority is determined by the order in which the names
of the joint holders appear in the Company’s Register of Members in
respect of the joint holding (the first name being the most
senior). |
| 13 |
The termination of the authority of
a person to act as proxy must be notified to the Company in
writing. Amended instructions must be received by the Company’s
Registrar, Link Asset Services, by the deadline for receipt of
proxies. |
| 14 |
As at 30 October 2019 (being the
latest practicable date prior to the publication of this Notice),
the Company’s issued voting share capital was 50,000,000 Ordinary
Shares carrying one vote each. |
| 15 |
If you are a person who has been
nominated under section 146 of the Companies Act 2006 to enjoy
information rights (“Nominated Person”), you may have a right under
an agreement between you and the Member of the Company who has
nominated you to have information rights (“Relevant Member”) to be
appointed or to have someone else appointed as a proxy for the
meeting. If you either do not have such a right or if you have such
a right but do not wish to exercise it, you may have a right under
an agreement between you and the Relevant Member to give
instructions to the Relevant Member as to the exercise of voting
rights. Your main point of contact in terms of your investment in
the Company remains the Relevant Member (or, perhaps, your
custodian or broker) and you should continue to contact them (and
not the Company) regarding any changes or queries relating to your
personal details and your interest in the Company (including any
administrative matters). The only exception to this is where the
Company expressly requests a response from you. |
| 16 |
If a corporate Shareholder has
appointed a corporate representative, the corporate representative
will have the same powers as the corporation could exercise if it
were an individual Member of the Company. If more than one
corporate representative has been appointed, on a vote on a show of
hands on a resolution, each representative will have the same
voting rights as the corporation would be entitled to. If more than
one authorised person seeks to exercise a power in respect of the
same shares, if they purport to exercise the power in the same way,
the power is treated as exercised; if they do not purport to
exercise the power in the same way, the power is treated as not
exercised. |
| 17 |
You may not use any electronic
address provided either in this Notice of General Meeting or any
related documents (including the Form of Proxy) to communicate with
the Company for any purpose other than those expressly stated. |
| 18 |
At the meeting, Shareholders have
the right to ask questions relating to the business of the meeting
and the Company is obliged to answer such questions, unless (i)
answering the question would interfere unduly with the preparation
of the meeting or would involve the disclosure of confidential
information; (ii) the information has already been given on the
Company’s website,
http://www.sanditonam.com/Navigate.aspx/Public/1/Sanditon-Investment-Trust/,
in the form of an answer to a question; or (iii) if it is
undesirable in the interests of the Company or the good order of
the meeting that the question be answered. |
| 19 |
Further information regarding the
meeting, including the information required by section 311A of the
Companies Act 2006, is available on the Company’s website,
http://www.sanditonam.com/Navigate.aspx/Public/1/Sanditon-Investment-Trust/. |