Sandon Capital Activist Fund commentary for the month ended August 31, 2016.

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Sandon Capital Activist Fund Commentary

The Sandon Capital Activist Fund was flat in August, bringing total returns (net of all fees and expenses) since inception to the equivalent of 13.0% per annum. Cash levels ended the month at approximately 13%.

Sandon Capital Activist Fund

The main positive contributions came from Armidale Investment Corporation Ltd (AIK) and Centrepoint Alliance Limited (CAF). AIK announced it had completed the partial acquisitions of three asset finance companies. The cash component of these acquisitions will be funded by a rights issue and placement (both at 11 cents per share). The Fund will exercise all its rights.

The share prices of several companies declined during the month, including those of Fleetwood Corporation Ltd (FWD) and Clarius Group Ltd (CND). FWD delivered what we considered a poor result, though unsurprising. We remain convinced that FWD requires a change in strategy to avoid continuing losses in the underperforming caravan manufacturing business. We advocate exiting loss-making businesses, which current Board and management have failed to turn around, which would allow FWD to return to profitability and focus on becoming a pure-play manufactured accommodation supplier. CND reported another loss, which was disappointing. On a more positive note, it appears CND’s China operations are now cashflow positive, and appear to be growing strongly.

During the month we exited completely from Ardent Leisure Group, having owned the securities since April 2015. The investment in AAD delivered an internal rate of return of approximately 33%, including distributions.

Sandon Capital Activist Fund

Fund Description

The objective of the Fund is to deliver returns to investors through a combination of capital growth and distributions. The Fund aims to achieve this objective by seeking to invest in opportunities that are considered by Sandon Capital to be trading below their intrinsic value and that offer the potential of being positively influenced by investors taking an active role in proposing changes in the areas of corporate governance, capital management, strategic and operational issues, management arrangements and other related activities. Neither returns nor capital are guaranteed.

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