Final Results

RNS Number : 0820Z

Witan Investment Trust PLC

10 March 2017

 

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WITAN INVESTMENT TRUST PLC

Legal Entity Identifier:  213800XMW68XFT6D1X59

This announcement contains regulated information

          Annual Financial Report for the year ended 31 December 2016

Chairman's Report

Highlights

            ·    NAV total return of 22.9% in line with the benchmark's return of 23.0%

            ·    5 year NAV total return of 108%, 25% ahead of the benchmark

            ·    Share price discount to NAV of 4.0% at year end (2015: discount of 0.2%)

            ·    8.5% Debenture repaid, reducing borrowing costs

            ·    18.9m shares bought back, adding £9.2m to net assets

            ·    Dividend increased by 11.8% to 19.0p, well ahead of the 1.6% rate of inflation and more than double the   
            level paid ten years ago

Summary

Witan has now been operating a multi-manager approach for over twelve years, with the aim of providing superior results for its shareholders. Over this period, decisions by our in-house Executive team and our chosen external managers have enabled Witan to beat the returns on our equity benchmark and raise the dividend significantly faster than the rate of inflation. Whilst there are many uncertainties in the world, and at the best of times future performance can never be firmly predicted, our objective remains to extend this successful record.

2016 proved an unusually testing year for many equity managers. A volatile start to the year saw sizeable falls in equities during January, but the year ended with most equity markets in positive territory, delivering outsize returns for sterling investors as a result of the fall in the pound following the unexpected Brexit referendum result. The other major political surprise of the year was Donald Trump's victory in the US Presidential election. Although the longer-term implications of these events are unknown, the markets believe they will lead to easier fiscal policies, reflected in a divergence between rising equity markets and falling bond markets in the closing months of the year. Further details of the year's events are discussed in the Chief Executive's Report on pages 3 to 5.

After several years of significant outperformance, during 2016 our third party managers slightly underperformed their benchmarks overall, with just three of our ten third party managers, together with the direct holdings portfolio, outperforming their benchmarks. There were significant positive contributions from the use of gearing and from share buybacks.

As a result, Witan shareholders enjoyed a profitable year, though the net asset value (NAV) total return of 22.9 % was very slightly behind our benchmark's total return of 23.0 %. The NAV total return using the par value of our debt was 23.5%, a modest outperformance of the benchmark. The share price total return was 18.4 %, as the share price moved from a 0.2% discount at the end of 2015 to a 4.0 % discount at the end of 2016. The dividend for the year has been increased by 11.8 % to 19.0 pence per share (2015: 17.0 pence). This dividend is more than double the level paid in 2006, and is fully covered by revenue earnings, while we also added £6.5m to our revenue reserves. A fourth interim dividend of 6.25 pence was declared in February 2017, payable on 31 March 2017. This marks the 42^nd consecutive year of rising dividends at Witan.

Taking a longer perspective, over the past 5 years Witan has achieved a NAV total return of 108%, compared with the 83% return from our benchmark over this period. Over the 10 years to the end of 2016, shareholders have enjoyed a NAV total return of 130%, compared with the benchmark's return of 102%.

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WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Chairman's Report continued

Witan's shares in the market

Although our shares ended 2016 on an all-time high, as reported earlier they did not fully match the rise in NAV during the year. In 2015, Witan's shares had traded at a premium to NAV for much of the year but 2016 saw the reappearance of a discount. In response, Witan has bought back shares persistently and purposefully during the year, in accordance with our objective for Witan's shares to trade at a sustainable low discount (or a premium) to NAV, subject to market conditions. This activity was accretive to NAV and helped reduce the discount, which was 4% at the year end.

It remains a long-term objective to create sustainable liquidity in Witan's shares at or near to asset value. We will continue to work to establish this. As I said in last year's report, the challenge is to achieve this objective through the full range of investment conditions.

Benchmark for measuring performance

As announced in December, Witan has reviewed the equity performance benchmark which had been in place since 2007, with the following changes taking effect from 1 January 2017:

	2017	Previously
UK	30%	40%
North America	25%	20%
Asia Pacific	20%	20%
Europe ex-UK	20%	20%
Emerging Markets	5%	-

Further details of the reasons for the change are set out in the Strategic Report on page 8. Our managers select stocks on the basis of their potential to deliver above-average returns and to outperform market indices and this will continue to be the case.

Repayment of Debt

In October 2016, the Company repaid its 8.5% Debenture, originally issued in 1986. This redemption, together with the low cost debt issued in 2015, significantly reduced the average cost of the Company's fixed borrowings from 7% prior to the 2015 issue to 4.6%. Further details are set out in the Strategic Report on page 15.

AGM

Our Annual General Meeting will be held at Merchant Taylors' Hall on Thursday 27 April 2017 at 2.30 pm. Formal notice of the meeting will be sent to shareholders when the Annual Report is published. We look forward to the opportunity to meet you then for the Company's 109th AGM.

I am delighted to welcome two new directors who have joined the Board since the last AGM. Ben Rogoff joined in October 2016 and Jack Perry in January 2017. Each brings valuable skills and experience to Witan's Board and both will be standing for election at this, their first, AGM.

I should like to thank the Chief Executive and the rest of our team for their hard work and achievements this year.

Harry Henderson

Chairman

9 March 2017

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WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Chief Executive's Report

The investment markets in 2016

Equity markets delivered strongly positive returns for UK investors during 2016, although the numbers were flattered by the impact of the weaker pound on overseas market returns and the overseas-exposed companies concentrated in the FTSE 100 index. There was a marked contrast between the hesitant performance seen in the first half of the year and the more sizable gains seen in the period between the Brexit referendum and the end of the year. Although the referendum result and the outcome of the US election were not widely expected, the resolution of these known uncertainties was followed by equity market rallies. Investors appeared to respond to the hope of more stimulative economic policies, putting to one side doubts over the incoming Trump administration's trade policy and the UK government's approach to negotiating an exit from the EU. There was a notable gap between the total return on the UK market and the sterling returns seen from overseas markets. The relative strength of overseas returns for UK investors was attributable to the weakness of the pound, which fell sharply following the Brexit vote.

No account of 2016 would be complete without mention of the extraordinary valuations reached in global government bond markets. Concerns in January over weak growth in the US and China, which led to sharp falls in global equity markets, ushered in further easing moves from the Bank of Japan and the European Central Bank, both of which ended 2016 with negative official interest rates. In the aftermath of the Brexit vote, the view took hold that the resulting economic uncertainty would keep central banks focused on monetary easing and indeed the Bank of England did ease policy further in August.

After several years when government bond yields had been steered lower as a means of stimulating economic growth, the process went into overdrive in 2016, with over a quarter of government bonds at one stage offering negative yields to investors. Paying for the privilege of lending money to governments is a curiosity - akin to paying rent to the tenants of a house you own. Some began to question whether such abnormal rates were more a sign of low confidence than a means of improving it. The most extreme level of bond overvaluation began to reverse from August onwards, with the sell-off in bonds intensifying in the aftermath of the US election, owing to the looser fiscal policies promised by the new President.

There had been fears during 2015 that weakness and instability in commodity-dependent sectors and economies would spread to create a more general global recession. Economic growth was indeed weaker than expected early in 2016 but expectations stabilised by the summer, reflected in a recovery in the price of oil and other commodities from the lows reached in January and improved expectations for corporate earnings, which had been weak since early 2015.

Given the influence of politics on market moves during 2016, active managers, who tend to concentrate on company-specific factors, in general found the going difficult and the majority of our third party managers underperformed during the year, in contrast to 2015. Witan remained fully and actively invested during the year, using periods of market weakness (such as January and June) to add to our market exposure and reducing gearing into subsequent market strength. We also turned the widening in our discount to shareholders' advantage by buying back our shares, boosting the NAV per share as well as mitigating the level of the discount.

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WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Chief Executive's Report continued

A number of our historically strongly performing managers lagged the strong rises in markets, offsetting good performances from value-oriented managers and the direct holdings. However, our active use of gearing and share buybacks meant that, even with a relative performance shortfall from our portfolio we were able to end the year with performance very close to the 23.0% rise in our benchmark, after all costs. The Strategic Report on pages 6 to 25 sets out details of our third party managers' performance during the year as well as decisions made in the areas of gearing, the use of index futures and changes in the portfolio of directly held fund investments.

Outlook

The strength of equity markets during 2016 reflects increased hopes for faster, or more balanced, economic growth in 2017. A significant fiscal stimulus is expected from the new Trump administration in the US, in the form of tax cuts and infrastructure spending. There is a risk of disappointment if this takes longer than expected to implement, or is significantly diluted. Similarly, although some of the more exaggerated fears for UK growth in the aftermath of the referendum have been reset, the fall in sterling is likely to lead to a squeeze on real incomes in 2017. Although the implications for the UK economy remain uncertain, UK quoted companies in the portfolio derive the majority of their earnings from overseas, thus benefiting from the lower value of sterling.

The Company recognises that the UK's eventual departure from EU membership may have both good and bad consequences for the UK's economic performance in coming years, some of which are not currently predictable and will differ from sector to sector. Our assessment is that this is primarily a UK economic and political issue.  Given our flexible global investment remit, it represents one of many factors that both Witan and its external managers take into account in making decisions about where to invest our shareholders' funds.

European politics pose additional threats to the outlook for economic growth, as well as complicating the process of negotiating EU exit terms with the UK - election campaigns are not conducive to making trade deals which may be unpopular with your own electorate. With the Netherlands, France and Germany all facing national elections in 2017 the air may not be clear until September, leaving aside the risk of an upset result in one or another country undermining confidence in the Eurozone's cohesion.

On a more positive note, the bottoming out of commodity prices has removed a destabilising factor from a number of emerging economies. This, allied with improved economic governance, could allow them to build on their strong 2016 performance, which broke a 4 year run of underperformance. Although a strong dollar is often seen as a threat to emerging economies, raising the cost of servicing their dollar debts, the US also tends to have limited tolerance for a strong dollar if it impinges on US economic growth (or the new administration's ambition to bring manufacturing jobs back home). Whilst a strong dollar might offset the benefits to other countries from a growing US economy it seems unlikely to occur in the absence of robust growth in the US. So the balance of risks and opportunities for emerging markets may be more mixed than in past periods of dollar strength.

The shift in the emphasis of economic policy, from stimulating private sector growth via low interest rates towards governments borrowing at low rates to boost demand via tax cuts and investment spending is a potentially significant turning point. Inflation risks are rising, albeit from a very low base. Government bond issuance is set to rise, at a time when central bank buying is slowing down or stopping. These are factors against which the level of bond yields offers very

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WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Chief Executive's Report continued

limited protection - yields remain generally lower than at the start of 2016, despite rising since the summer.

Although equities are capable of making progress even if bond yields are rising, this depends on the extent of any change in yields and its cause. If a rise is driven by higher inflation expectations (reflecting better economic growth and improved corporate pricing power) it would potentially be viewed as positive for equities. If it reflected higher post-inflation yields it would represent a rise in the real cost of capital, which would be a headwind.  Either way, a major further rise in yields could undermine equities, even if underlying economic growth improved. With index levels offering few windfalls, 2017 seems likely to require a more selective approach to equities after the landmark returns enjoyed in 2016.

Andrew Bell

Chief Executive

9 March 2017

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WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Strategic Report

Strategy and business model

Companies are required to publish a Strategic Report, which should provide a description of the objectives which its strategy is designed to deliver for shareholders, the business model and the outlook for the year ahead. It should also include analysis of the Company's performance during the year, relative to the key elements of its business strategy. This Strategic Report has been prepared solely to provide additional information to shareholders to assess the Company's strategies and the potential for those strategies to succeed.

The Strategic Report contains certain forward-looking statements. These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

This report falls into four main sections:

1. Strategy

2. Business model

3. Performance and principal developments in 2016

4. Corporate and operational structure

Witan is an Investment Trust, which was founded in 1909 and has been listed on the London Stock Exchange since 1924. It is managed by the Executive team of Witan Investment Services Limited (WIS), its Alternative Investment Fund Manager (AIFM), under the control and supervision of the Company's Board of directors.

1. Strategy

The Company's strategy is to create value for shareholders by addressing its investment objective and to communicate effectively with existing and potential shareholders.

The Company invests its shareholders' funds primarily in individual companies across a broad spread of global equity markets. The objective is to profit from opportunities created by global economic growth and to outperform a representative equity benchmark, thereby generating long-term capital growth for shareholders, together with an income that rises faster than the rate of inflation.

The Company employs an active multi-manager approach, allocating funds for investment by selected managers with differing styles and specialisations. The aim is to access the best available managers, including those not accessible on the same terms (or at all) to UK investors.

Witan's multi-manager approach was adopted in 2004, in the belief that no single manager was likely to excel in all markets and at all points in the economic cycle. Employing managers to invest in their areas of greatest competence has the potential to improve returns and to reduce risk relative to using a single manager across the investment waterfront.

Our approach is to blend different factors (such as quality, value or growth approaches and differing geographical exposures), aiming to profit from asset allocation and from our managers' combined ability to outperform over time. We seek managers who can capture the longer-term growth rewards from equity investment by focusing on fundamental share values rather than chasing short-term momentum.

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WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Strategic Report continued

2. Business model

The Company has appointed Witan Investment Services Limited as its Alternative Investment Fund Manager under the Alternative Investment Fund Managers Directive ('AIFMD'). As AIFM, WIS has responsibility for operating the Company's portfolio and risk management processes. WIS delegates certain portfolio management responsibilities to third party portfolio managers. In addition, the Company uses an outsourced model for other corporate functions, such as fund accounting, custody and specialist professional services. These activities are overseen by the WIS and Witan Executive team, covering Investment, Operations and Marketing, headed by the Chief Executive Officer, who is a director of the Company.

Whilst the third party managers appointed are responsible for stock selection in their individual portfolios, WIS and the Company's Board are responsible for the overall delivery of performance to shareholders, through the following means:

·        Setting the overall investment objective;

·        Selecting competent managers, who are expected to outperform a suitable benchmark relating to the investment remit set by the Company;

·        Operating appropriate portfolio, corporate governance and risk management arrangements for effective corporate management and to meet the requirements of the AIFMD;

·        Adjusting asset allocation according to opportunities that arise;

·        The judicious use of borrowings with the aim of adding to performance;

·        Direct investment in funds exposed to specialist asset categories;

·        Controlled and selective use of exchange-traded derivatives to adjust asset allocation; and

·        Clear communication of Witan's objective and its results to shareholders and potential investors.

The Board's and the Executive's role in investment management

As noted above, the Company has appointed its wholly-owned subsidiary WIS as its AIFM. WIS has responsibility for ensuring that portfolio and risk management are properly carried out, with appropriate safeguards to ensure the functional and hierarchical independence of those with portfolio and risk management responsibilities. The Board remains responsible for setting the investment strategy, policy and guidelines of the Company and the AIFM operates within these.

The selection of individual investments is largely delegated to third party managers, subject to investment limits and guidelines which reflect the particular mandate (e.g. UK or global equities) and the specific investment approach which the Company and its AIFM have selected (e.g. value, higher dividend yield, special situations). The managers are chosen by the Witan and WIS Boards after a disciplined selection process focused on the managers' scope to add value and their fit with the overall portfolio.

The overwhelming majority of the portfolio is managed in segregated accounts, held by the Company's depositary (via the custodian to whom it delegates safekeeping responsibilities). This enables the Company to analyse the risks and opportunities of the portfolio as a whole as well as of each manager's portfolio. The operations of the custodian and the safeguarding of the Company's assets are supervised by the depositary, appointed by Witan and its AIFM, in accordance with the AIFMD's requirements.

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WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Strategic Report continued

At the end of 2016, the Company had 10 third party investment managers, covering a range of investment remits. Information regarding the proportion of Witan's assets managed by each and of their performance during the year is set out on page 13. Following an extensive search during 2016, since the year end an additional manager, Global Quality Growth LLC, has been appointed to manage an Emerging Markets portfolio.

Up to 10% of the portfolio (at the time of investment) may be invested in collective funds selected by the Executive team, with the objective of outperforming Witan's equity benchmark. This portfolio is managed subject to limits set by the Board, and in accordance with portfolio and risk management processes established by Witan and the Company's AIFM. These investments may represent asset categories that are temporarily undervalued or funds which are viewed as attractive longer-term generators of superior returns.

The WIS Executive seeks to add to the third party managers' performance by adjusting the level of gearing employed, by the selective use of exchange-traded derivatives to alter the asset allocation and by the use of specialist funds to gain exposure to areas viewed as offering attractive returns. These activities are overseen by the Board, with the Executive operating within delegated parameters that are periodically reviewed to take account of prevailing investment conditions. In essence, the Company seeks to have sufficient levers to pull to take advantage of investment opportunities that may arise, in addition to the total returns arising from the investment managers' portfolios, which are expected to be the driver of performance.

Our selected benchmark

The Company's benchmark is used as a reference point for comparing performance and is a combination of global equity markets, which reflect the investment universe from which most of the portfolio holdings are chosen.  The benchmark was reviewed during the year, with the resulting new weights, set out in the Chairman's Report on page 2, taking effect from 1 January 2017. The UK weighting has reduced from 40% to 30%, with the North American component rising from 20% to 25% and a 5% Emerging Markets weighting introduced. The weightings in Asia Pacific and Europe ex-UK remain at 20% each.

The benchmark provides a transparent way of measuring the results of an investment policy that is designed to access a comprehensive range of investment opportunities in the global economy. The introduction of emerging markets to the benchmark recognises their increased importance in the investment universe available to investors. An increased weighting in North America (albeit well below that in leading global indices) reflects the enduring leadership of the US economy in a number of influential growth sectors (such as information technology and pharmaceuticals). The benchmark weighting in the UK has been reduced from 40% to 30%. Although still high relative to the significance of the UK in the world's economy, the UK stock market derives a significant majority of its earnings from overseas and is the listing domicile for many globally-significant companies.

The component weightings reflect the Board's belief that opportunities are related to the importance of economic regions as they evolve over time, more than the market capitalisation of regional equity markets. It should be emphasised that the portfolio is actively managed and not designed to track any index or combination of market indices. Performance can be expected to vary, sometimes considerably, from that of the benchmark, while aiming for outperformance in the longer term.

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WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Strategic Report continued

Performance information for other commonly used indices is also given in the key performance indicators summary section below.

3. Performance and principal developments in 2016

The financial statements (on pages 29 to 37) set out the required statutory reporting measures of the Company's financial performance. In addition, the Board assesses the Company's performance against a range of criteria which are viewed as particularly relevant for investment trusts.

Success in implementing the Company's strategy is monitored against a range of Key Performance Indicators ('KPI's) which are viewed as significant measures of success over the longer term. Although performance relative to the KPIs is also monitored over shorter periods, success over the long term is viewed as more important, given the inherent volatility of short-term investment returns

Aside from the statutory accounting measures, the principal financial KPIs are set out below, with a report (in italics) of Witan's performance against them during 2016. With respect to non-financial measures, details of the Company's policies and performance in relation to its obligations under the UK Corporate Governance Code are set out in the Corporate Governance Statement in the Annual Report.

Key Performance Indicators

A.      Investment performance

             ●          Outperformance compared with Witan's equity benchmark.  The Company seeks to achieve at least 2% p.a. outperformance in NAV total return and shareholder total return terms over the long term.

                   In 2016, Witan achieved an NAV total return of 22.9%, slightly below that of its combined global equity benchmark (see page 8), with a shareholder total return of 18.4% which lagged the benchmark by 4.6% owing to the wider discount. Returns over the longer term are set out on page 27 and indicate that outperformance has been achieved over the 3 year (1.7% p.a.) and 5 year (4.6% p.a.) periods to the end of 2016.

          ●       A positive long-term total return, after inflation, for shareholders.

                   In 2016, the NAV total return and shareholder total returns enjoyed by Witan shareholders were well ahead of inflation of 1.6% for the year to December 2016. Returns over the longer term are set out on page 27 and indicate that this objective has also been met over the past 3 and 5 year periods.

          ●      Long-term investment outperformance by the individual managers relative to the relevant benchmark.

                   In 2016, three of the ten third party managers, together with the internally-managed direct holdings portfolio outperformed their benchmarks, with seven underperforming. The managers' returns since appointment are set out in the table on page 13. Further details are set out on pages 12 and 13.

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WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Strategic Report continued

B.      Annual growth in the dividend per share ahead of the rate of inflation.  In 2016, the dividend increased by 11.8%, compared with an inflation rate of 1.6% in the year to December 2016. Further details are set out on pages 13 and 14.

C.      A positive contribution to investment returns from the use of borrowings.  The Company employed average gearing of 10.7% during the year, which directly contributed 2.3% to returns. After allowing for the (mostly fixed) costs of borrowing there was a contribution, after interest, of 1.7 %. Further details are set out on pages 14 to 15.

D.      A share price trading at a sustainable low discount (or a premium) to NAV (including income, with debt at fair value), taking account of prevailing investment conditions.  The shares traded at an average discount of 5.8% in 2016, compared with an average 0.1% premium in 2015. The discount at the year end was 4.0% (2015: 0.2% discount). Further details of market conditions and actions taken during the year are set out on pages 16 to 17.

E.      A competitive level of ongoing charges, below the costs of other multi-manager funds, balancing the need to pay for high quality investment management with the aim of keeping the costs of managing the business as low as possible.  In 2016, the ongoing charges figure ('OCF') was 0.75 % excluding performance fees (2015: 0.76%) and 0.65% including performance fees (2015: 1.04%). This compares with the average OCF of 1.52 % in the Investment Association Global equity funds sector and 0.71% (0.74% including performance fees) for the AIC Global sector. Further details are set out on pages 18 to 19.

Performance summary and attribution

The high equity market returns in 2016 were in contrast to the previous two years in which returns were little changed for much of the year and, in the end, only modestly positive. The US was the strongest of the major markets, with a 12% return in dollar terms boosted to 33% in sterling terms. Local currency returns for the Asia-Pacific (+11%) and Emerging Market (+13%) indices translated into strong returns of 32% and 34% respectively for sterling investors. Japan (0%) and Europe ex-UK (+3%) were little changed in local terms but rose 23% and 20% in sterling terms. The UK's performance was competitive with other markets in local terms (+17%) but not after currency effects. Within the UK market, the mid-cap index delivered much lower returns of 7% owing to its greater exposure to the domestic economy where investors have become less optimistic following the Brexit vote.

During the year the Company invested its assets with a view to spreading investment risk and in accordance with the investment policy. It maintained a diversified portfolio in terms of stocks, sectors and geography. The portfolio has been actively managed by the investment managers, in accordance with their individual mandates, with overall asset allocation and risk being managed by the Executive team, within delegated limits from the Board and the Company's AIFM.

Witan's NAV total return (after all costs) was +22.9%, slightly behind the 23.0% return from the composite equity benchmark. Excluding the effect of the rise in the fair value of Witan's debt securities, the NAV total return was 23.5 %, 0.5 % ahead of the benchmark. The shareholder total return was 18.4 %, as the shares closed the year on a 4.0 % discount (2015: 0.2% discount).

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WITAN INVESTMENT TRUST PLC

          Annual Financial Report for the year ended 31 December 2016

Strategic Report continued

In a year when market returns were substantially driven by political and economic events, returns for stock pickers were more elusive than in recent years. Witan's gross underlying portfolio return was 22.1%, 0.9% behind the benchmark. Only three out of our ten third party managers outperformed their benchmarks (in contrast to 2015, when eight had outperformed). The Direct Holdings portfolio also significantly outperformed Witan's composite benchmark during the year. However, the outperformers were not sufficient to offset weaker performances from other managers, particularly during the first half of the year.

Significant value was added by Witan's use of gearing during the year, which averaged 10.7% but was adjusted in response to market conditions, with additions to exposure being made following the market falls in January and June. The contribution from gearing (2.3%) was 1.7% after taking account of the Company's mostly fixed borrowing costs of 0.6%. Share buybacks contributed 0.6% to NAV returns, as the Company actively responded to the widening of the discount. Further details of the portfolio's performance attribution are shown in the table below.

Combined portfolio composition

The sector breakdown and regional exposure for the aggregated portfolio are shown in the Annual Report. The top 50 holdings across the combined Witan portfolio are also set out in the Annual Report. They represented 44% of Witan's portfolio at 31 December 2016 (2015: 42%). These analyses highlight the substantial diversification provided by our range of managers and the portfolio's broad geographical exposure.

It is important that diversification does not unduly dilute returns, since the purpose of using active managers is to outperform, which requires the portfolio to differ from the benchmark. One measure of active management in a portfolio is known as "active share". This indicates the degree to which a portfolio differs from its benchmark, with a portfolio identical to the benchmark having an active share of 0% while one with no holdings in common with its benchmark would have an active share of 100%. Although looking at active share at a particular date is an incomplete measure of the degree to which a portfolio is managed actively (let alone successfully), the active share of our combined portfolio was circa 70% at the end of 2016 (2015: 66%). This level of active share indicates that, even with the diversifying effects of the multi-manager structure, Witan's portfolio retains an active approach, while relative performance in recent years also demonstrates that Witan's aggregated portfolio retains an individual character distinct from the relevant indices.

A breakdown of the performance attribution in 2016 (based on the Company's financial statements) is shown in the table below.

Net asset value total return	+22.9%	Portfolio total return (gross)		+22.1%
Benchmark total return	+23.0%	Benchmark total return		+23.0%
		Relative investment performance		-0.9%
		Gearing impact	+2.3%
		Effect of changed fair value of debt	-0.6%
		Share buybacks	+0.6%
				+2.3%
				+1.4%
		Borrowing costs	-0.6%
		Operating costs and tax	-0.9%
				-1.5%
Relative performance	-0.1%			-0.1%

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WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Strategic Report continued

Investment managers' mandates, benchmarks and investment style

Equity mandate	Investment manager	Benchmark	Investment style
UK	Artemis Investment Management LLP	FTSE All-Share	Recovery/special situations
UK	Heronbridge Investment Management LLP	FTSE All-Share	Intrinsic value growth
UK	Lindsell Train Limited	FTSE All-Share	Long-term growth from undervalued brands
Global	Lansdowne Partners (UK) LLP	DJ Global Titans	Concentrated, benchmark-independent investment in developed markets
Global	MFS International (UK) Limited	FTSE All-World	Growth at an attractive price
Global	Pzena Investment Management LLC	FTSE All-World	Systemic value
Global	Tweedy, Browne Company LLC	FTSE All-World	Fundamental value
Global	Veritas Asset Management LLP	FTSE All-World	Fundamental value, real return objective
Pan-European	Marathon Asset Management LLP	FTSE All-World Developed Europe	Capital cycles
Asia Pacific	Matthews International Capital Management LLC	MSCI Asia Pacific Free	Quality companies with dividend growth
Directly-held investments	Witan's AIFM and Executive team	Witan's combined equity benchmark	Collective funds invested in mispriced or specialist assets, recovery situations

Manager structure and performance

The Company's third party managers have a range of investment approaches and follow differing mandates set by the Company. Details of each manager's mandate, benchmark and investment style are shown above. Further details, including the date of appointment are shown in the manager summaries in the Annual Report.

All of the third party delegated managers at the end of 2016 were in place throughout the year. Pzena and Tweedy, Browne had the strongest performance of our five global managers, benefiting from a broadening of investor interest to areas favoured by value managers. Pzena's return of 32.7% outperformed its global equity benchmark by 3.1%, with Tweedy, Browne outperforming by 0.4% with a return of 30.0%. Lansdowne (with a return of 14.4%) had a relatively weak year, underperforming significantly during the first half of the year although performance was in line with the global equity index in the second half of the year. In the UK, Heronbridge outperformed the UK market by 0.7% with a return of 17.5%. However, Artemis and Lindsell Train materially lagged the UK market, after four years of significant outperformance. Similarly, our European manager, Marathon, underperformed its European benchmark, which was itself weak relative to other global equity regions. We are always attentive to performance but note that the longer-term performance of all the managers who lagged in 2016 remains ahead of their benchmarks while those who had lagged in 2015 outperformed in 2016.

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WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Strategic Report continued

Investment managers' performance

Investment manager	Value of Witan assets managed at 31.12.16 £m	% of Witan's assets under management at 31.12.16 (Note 1)	Performance in 2016 (%)	Benchmark performance in 2016 (%)	Performance since appointment (%) (Note 2)	Benchmark performance since appointment (%)
Artemis	181.7	9.4	9.1	16.8	10.4	6.1
Heronbridge	118.7	6.2	17.5	16.8	11.0	7.9
Lindsell Train	170.4	8.9	10.3	16.8	16.0	9.6
Lansdowne Partners	229.1	11.9	14.4	32.7	23.6	17.3
MFS	148.8	7.7	28.6	29.6	13.1	10.5
Pzena	202.1	10.5	32.7	29.6	13.8	14.4
Tweedy, Browne	66.3	3.4	30.0	29.6	12.2	14.4
Veritas	231.3	12.0	24.8	29.6	14.1	11.9
Marathon	139.5	7.3	13.7	19.7	11.0	9.1
Matthews	240.4	12.5	23.7	25.5	10.5	8.6
Witan Direct Holdings	195.5	10.2	34.4	22.9	10.9	9.2

Note 1: Percentage of Witan's investments managed and cash balances held centrally by Witan.

Note 2: The percentages are annualised where the date of appointment was more than one year ago.

Directly held investments

In 2016, the Direct Holdings portfolio was 11.5% ahead of Witan's composite benchmark with a return of 34.4%. This portfolio held 8.7% of assets at the previous year end and represented 10.2% of the investment portfolio at the end of 2016. The largest holding, in SVG Capital, was sold following the bid for the Company in September. The holding in BlackRock World Mining delivered a total return of close to 100% during 2016, moving our position from loss to a significant profit. We added to the holding in Aberforth Geared Income Trust following post-referendum weakness in UK small and midcap companies. We also made a new investment in the Somerset Emerging Markets Small Cap fund when emerging market sentiment was depressed in January 2016 and late in the year, we made an investment in Syncona (formerly called BACIT Limited) following the change in its investment objective to specialist life sciences investment. The main investments are in listed private equity and related funds, a UK smaller companies fund and specialist regional and sector funds.

Dividend policy and performance in 2016

The Company's policy (subject to circumstances) is to increase its dividend per share in real terms, ahead of the increase in the UK Consumer Price Index ('CPI').

The Company's revenue earnings increased by 19.5% to 22.1 pence per share in 2016. This was driven by an increase in portfolio dividends and by strength in the US dollar and other overseas currencies relative to sterling.

For 2016, the Board has declared a fourth interim dividend of 6.25 pence per share, to be paid to shareholders on 31 March 2017, making a total distribution for the year of 19.0 pence (2015: 17.0 pence). This represents an increase of 11.8%, well ahead of the 1.6% rate of CPI inflation in the year to December 2016. This is the 42^nd consecutive year that Witan has increased its dividend.

Page 14 of 37

WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Strategic Report continued

Since 2006, Witan's dividend per share has more than doubled, rising 107% compared with 25% for the UK CPI.

In addition to increasing the dividend, the Company has added £6.5m to its revenue reserves. At £54.7m after allowing for 2016's fourth interim dividend payment, the reserves are equivalent to approximately 30 pence per share, over one and a half times the annual dividend. The availability of these reserves enables the Company to maintain or grow its dividends in years when revenue from the portfolio is less buoyant, or falls.

A chart in the Annual Report shows the growth in dividends over the past 10 years, which has been ahead of the rise in the UK CPI in each year.

The Company pays dividends quarterly. The first three payments for 2017 (in June, September and December) will, in the absence of unforeseen circumstances, be paid at a rate of 4.75 pence per share (2016: 4.25 pence), being one quarter of the full year payment for 2016. The fourth payment (in March 2018) will be a balancing amount, reflecting the difference between the three quarterly dividends already paid and the payment decided for the full year.

Policy on gearing and the use of derivatives

Employment of gearing

Purpose

The purpose of using borrowings is to improve (or "gear/ leverage") returns for shareholders, by achieving investment returns higher than the interest cost of the borrowings. Accordingly, attention is paid to using a level of gearing appropriate for market conditions (having more borrowings when markets are attractively valued and borrowing less at times when returns are expected to be poorer). In addition, a blend of long-term and short-term borrowings is used, to balance the certainty of cost associated with locking in fixed rates for longer periods with the flexibility of using short-term facilities which can be readily repaid when they are not required.

Limits

Although the Company has the legal power under its Articles of Association to borrow up to 100% of the adjusted total of shareholders' funds (which is also the maximum level of leverage set by its AIFM), this is subject to practical constraints including a test of prudence. The Board's longstanding policy is not to allow gearing (as defined on page 28) to rise to more than 20%, other than temporarily in exceptional circumstances. Over the past five years it has generally varied between 5% and 15% and where appropriate the Company may hold a small net cash position.

Structure

Following the repayment of the Debenture in 2016, the Company's fixed-rate borrowings reduced from £185m to £140m, principally consisting of £63m 2025 6.125% Secured Bonds, £21m 2035 3.29% Private Placement Notes and £54m 2045 3.47% Private Placement Notes. The average interest rate paid on the Company's fixed-rate borrowings is 4.6%. At the year end, the Company also had a £75m one-year facility, providing additional flexibility over the level of gearing, as well as enabling the Company to borrow in currencies other than sterling, if deemed appropriate.

Page 15 of 37

WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Strategic Report continued

Witan may either invest its borrowings fully, or neutralise their effect with cash balances (or the sale of equity index futures) according to its assessment of the markets. The Company's third party managers are not permitted to borrow within their portfolios but may hold cash if deemed appropriate.

Action taken in 2016

The Company repaid the 8.5% Debenture stock at the end of its 30 year life, in October 2016. This scheduled event had been taken into account in 2015 when the Company issued £75m in 20 and 30 year Private Placement Notes, at an average yield of 3.4%.

The size of the Company's short-term facility was increased to £75m in October 2016. At the end of December, the drawn balance on this facility was £71m (2015: £3m).  Since the year end, this facility has been increased to £125m.

Gearing was adjusted periodically during the year. It was increased in January, when markets had fallen, reduced in March following a recovery in market levels before being increased into the market weakness surrounding the Brexit referendum, as market setbacks created opportunities. Gearing was 10.7% at the end of 2015, 12.2% mid-year and 10.3% at the end of 2016. The calculation of gearing takes account of cash balances and the full nominal value of any derivatives held, since this represents the size of the asset or liability to which the derivative provides exposure.

Gearing benefited performance during the year. The estimated contribution of 2.3% of shareholders' funds was particularly important during a year when our third party managers performed less well and was greater than the interest costs borne (0.6%), although the majority of the finance cost is fixed and would have been incurred irrespective of whether the funds were invested. Following the repayment of the Debenture, greater use was made of the short-term facility, to fund investments and share buybacks.

At the end of 2015, gross gearing (adding together the value of all positions (less cash), irrespective of whether they were an asset or a liability) was 10.7%. This included £37m in index futures (FTSE 100 £23m and MSCI Emerging Markets £14m) equivalent to 2.4% of net assets. Gearing excluding this was 8.3%.

At the end of 2016, gross gearing (on the same basis) was 10.3%. This included £21m in MSCI Emerging Markets index futures equivalent to 1.2% of net assets. Gearing excluding this was 9.1%. Further details of the accounting treatment for these positions are given in the Annual Report.

Use of Derivatives

Policy

Witan's policy on the use of derivatives emphasises simplicity, transparency, cost effectiveness and the minimisation of counterparty risk. Where financial instruments are available that help the Company to implement its investment policy (whether for the purpose of increasing exposure to a particular asset or for portfolio hedging) their use will be considered. In recent years, exchange-traded index futures have been the only instruments used. These give exposure to a particular market index, are relatively liquid to trade and depend upon the creditworthiness of the particular exchange, not an individual firm. The value of the investments (which are traded on official exchanges) is fully marked to market every day.

Page 16 of 37

WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Strategic Report continued

The use of index futures enables Witan to adjust its gearing rapidly, helping investment flexibility. It also provides a means of changing asset allocation (by directing investment to particular markets). In both cases index futures enable the adjustments to be made without interfering with the assigned objectives for our investment managers, which are to pick stocks that will grow in value over the medium to long term and outperform their respective benchmarks. The operation of this investment area is the responsibility of the AIFM, acting under guidelines set by the Board. Transactions are reported to the Board promptly, with the CEO and AIFM being accountable for the financial results. The Company's third party managers are not generally permitted to use derivatives and may not gear their portfolios.

Activity during 2016

In February and March, the holding in FTSE 100 index futures was sold, reducing our UK exposure by 1.5% of assets in favour of allocations to overseas markets.

Approximately 2% of assets was invested into Japanese equity index futures in the spring, following a weak period of performance by the Tokyo market, when sentiment was depressed by strength in the yen. This position was sold down and closed towards the end of 2016, following a recovery in the market, catalysed by weakness in the yen following the US election.

In March 3% of assets was invested in MSCI Emerging Markets Index futures, in order to maintain exposure following the sale of the Trilogy Emerging Markets fund investment. This position was reduced into periods of emerging market strength later in the year.

The realised gain on index futures during the year is shown in the cash flow statement on page 32.

Witan's shares in the market - liquidity and discounts

Witan is a member of the FTSE 250 index, with a market capitalisation of over £1.7 billion. The Board places great importance on the encouragement of a liquid market in Witan's shares on the London Stock Exchange. Considerable effort is devoted to communicating Witan's objective and performance clearly to shareholders and potential investors. There is a wide range of firms and online investment platforms through which the Company's shares may be held and the Company's subsidiary Witan Investment Services Limited also operates a savings plan for investing in Witan shares, details of which are described in the Annual Report.

Whilst delivery of sound investment performance remains the principal focus of the Board, it also pays attention to discount-related issues. The Company has, over many years, made significant use of share buybacks, purchasing shares when they have stood at an unduly wide discount (to the NAV taking debt at fair value). In addition to being accretive to NAV, this had the objective of reducing the discount. Over 49% of our shares were repurchased between 1998 and 2013.

Page 17 of 37

WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Strategic Report continued

The discount trend since 2012 is illustrated in a chart in the Annual Report. Although Witan's shares ended 2016 on an all-time high, they did not fully match the rise in NAV during the year. After trading at a premium for much of 2015, the Company's shares moved to a discount during 2016, ending the year on a discount of 4.0%. The discount was initially prompted by the market's realisation that a subsidiary of Aviva (which had taken over management of an insurance business which held a number of investment trust stakes) was seeking to sell its investment trust holdings, including a 16% holding in Witan. This selling helped push Witan's and other discounts in the sector to wider levels than seen in recent years. Witan proposed to buy back the entire Aviva stake at a 6.5% discount and, having obtained shareholders' permission to do so, purchased approximately 7% of the shares outstanding in late May, the balance having been placed with other investors. Shortly thereafter, the UK Brexit vote ushered in a period of investor uncertainty when investment trust discounts widened further.

Witan bought back shares regularly during the year, starting when a low discount first became persistent in February and at wider discounts throughout the summer and autumn, in accordance with our objective for Witan's shares (subject to market conditions) to trade at a sustainable low discount (or a premium) to NAV. In total, 18.9m shares were bought into treasury at a cost of £143m, resulting in an uplift of £9.2m to net assets, equivalent to a boost of 0.6% in the NAV per share. Our principal objective is to grow the NAV and dividend per share rather than assets under management. We have no conflict in buying back shares when there is a persistent discount, as the process is accretive for shareholder value.

Discounts are affected by many factors outside the Company's control but where it is in shareholders' interests, (taking account of market conditions) the Company remains prepared to buy back shares at a discount to NAV or to issue shares at a premium.

It remains a long-term objective to create sustainable liquidity in Witan's shares at or near to asset value subject to general market conditions. We believe that our proactive steps during 2016 are evidence of our commitment in this area.

Marketing

For an investment trust the purpose of marketing is to communicate the Company's strategy and new developments effectively to existing and potential shareholders, to ensure they are properly informed of our performance as stewards of their capital/savings and to help sustain a liquid market in our shares. Clear communication of the Company's investment objective and its success in executing its strategy makes it easier for investors to decide how Witan fits in with their own investment objectives. Other things being equal, this should help the shares to trade closer to NAV, from which all shareholders benefit. If the shares trade on a premium, this creates the possibility of increasing the size of the Company to meet market demand by issuing new shares, with benefits in terms of greater liquidity as well as spreading costs. When the shares are on a discount, there is an opportunity to create shareholder value by buying back shares.

Page 18 of 37

WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Strategic Report continued

In view of these potential benefits, the Company has for many years operated a marketing programme in order to disseminate information about our investment strategy and performance more widely. We communicate with private and professional investors, financial advisers and intermediaries using a range of media (including direct meetings, press interviews and advertising through traditional media and the internet). The Company also provides an informative and easy to use website (www.witan.com), to enable investors to make informed decisions about including Witan shares in their investment portfolios. The website, which was redesigned in 2016, is regularly refreshed with new information and includes a section focused on the requirements of financial advisers as well as an investor disclosure document required by the AIFMD and information about the Witan Wisdom and Jump savings schemes operated by the Company's subsidiary, Witan Investment Services Limited.

Costs

Investment management fees

Each of the third party managers is entitled to a base management fee rate, levied on the assets under management. In some cases, a performance fee may be payable, calculated according to investment performance relative to an appropriate benchmark. Four managers, covering 33% of Witan's portfolio, have performance-related fees. They have lower base fees than the managers without performance-related fees.

The agreements can be terminated on one month's notice (except one, for which three months' notice applies). The base management fee rates for managers in place at the end of 2016 ranged from 0.2% to 0.8% per annum. The average base management fee, weighted according to the value of the funds under management, was 0.49% as at 31 December 2016 (2015: 0.49%). Across the third party managers the average performance fee (with performance fees ranging from nil to 20% of the relevant outperformance) is 5% of the outperformance of the relevant benchmark (2015: 6%), subject to capping of payments for any particular year.

As an illustration, if our managers uniformly outperformed their benchmarks by 3% after base management fees, this would generate a performance fee of 0.15% of net assets, giving total investment management fees of 0.64% (including a 0.49% base fee). The comparable estimate in 2015 was 0.66%. The actual fees payable will of course vary according to the level of performance and the variation in performance between managers with higher or lower fees.

Witan takes care to ensure the competitiveness of the fee rates it pays and that where higher fees are incurred they are linked to good performance, from which shareholders benefit. A majority of the managers have base fees alone (without performance fees) and a majority of the fee structures incorporate a "taper" whereby the average fee rate reduces as the portfolio grows.

The Company's investment managers may use certain services which are paid for, or provided by, various brokers. In return, they may place business, including transactions relating to the Company, with those brokers.

Page 19 of 37

WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Strategic Report continued

Ongoing charges and costs

The ongoing charges figure ('OCF') (which is the recurring operating and investment management costs of the Company, expressed as a percentage of average net assets) was 0.75% in 2016 (2015: 0.76%). Increased investment management costs (arising from the growth on net assets) were offset by a rise in the average level of net assets, while other expenses were little changed. When performance fees due to the relevant third party managers are included, the OCF was 0.65% in 2016 (2015: 1.04%). The lower figure including performance fees for 2016 arises because accruals for performance fee liabilities at the end of 2015 were reduced owing to some external managers' underperformance in 2016.

For comparison, the average OCF for 2016 was 1.52% in the Investment Association Global equity funds sector (source: IA, Morningstar) and 0.71% (0.74% including performance fees) for the AIC Global sector (source: Morningstar).

Category of cost	2016 £m	2016 % of average net assets	2015 £m	2015 % of average net assets*
Other expenses (excluding investment management expenses)	5.21	0.33	5.41	0.36
Less expenses relating to the subsidiary (whose expenses do not relate to the operation of the investment company).	(0.89)	(0.06)	(0.84)	(0.06)
Investment management base fees (note 4)	7.62	0.48	6.99	0.46
Ongoing Charges Figure (including investment management base fees)	11.94	0.75	11.56	0.76
Investment management performance fees (note 4)	(1.46)	(0.10)	4.30	0.28
Ongoing charges (including performance fees)	10.48	0.65	15.86	1.04
Portfolio transaction costs	2.00	0.12	1.75	0.12
Relative performance during the year (valuing debt at fair value)		-0.1%		+2.9%

* 2015 OCF % figures have been restated to reflect a revised number for average net assets during 2015. The cash numbers remain the same as in the 2015 Annual Report.

The Company exercises strict scrutiny and control over costs. This will not always result in the lowest absolute costs, since the Board believes that it is in shareholders' interests to pay for managers who add value. The Board believes that the OCF during the year represented good value for money for shareholders, taking account of recent and longer-term performance.

There is continuing debate over the most appropriate measure of investment company costs, to enable investors to assess value for money and to make comparisons between funds. Consensus on how best to present a single figure for costs remains elusive, partly because of concerns that oversimplification might distort comparisons rather than facilitating them.

In the meantime, the Company will continue to focus on the OCF (which is prepared in accordance with the AIC's recommended methodology) as a readily-understood measure of the underlying expenses of running the business. As in previous years, the information on costs is presented in a single table above. This indicates the main cost headings in money terms and as a percentage of net assets. The figures for relative NAV total return performance are also included, for comparison purposes.

Page 20 of 37

WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Strategic Report continued

Priorities for the year ahead

In 2017, the key priorities for Witan include:

·    Investment. Seek to build on the good returns achieved for shareholders in recent years, setting an appropriate strategic asset allocation to reflect changing opportunities in the world economy. Make use of a range of active managers to deliver our strategic objectives through a multi-manager structure. Continue to deliver dividend growth ahead of inflation;

·    Communication. Communicate Witan's distinct and active investment approach and achievements effectively to existing and potential shareholders. Continue to increase the focus on improving information for personal investors and financial advisers, where direct meetings are less practicable;

·    Regulatory change. Continue to operate risk and investment management processes in compliance with the AIFMD, liaising closely with the Company's AIFM, Witan Investment Services Limited. Ensure compliance with other regulatory changes;

·    Client service. Provide good service to the corporate and individual clients of Witan Investment Services Limited.

4. Corporate and operational structure

As described earlier (page 6) Witan is an Investment Trust with a Premium Listing on the London Stock Exchange. It has a single, wholly-owned, subsidiary, Witan Investment Services Limited ('WIS') which acts as the Company's AIFM.

Operational management arrangements

In addition to the appointment of delegated investment managers, Witan and WIS contract with third parties for the supporting services required, including:

·    BNP Paribas Securities Services London Branch for global depositary services, custody, investment accounting and administration;

·    Frostrow Capital LLP for company secretarial services;

·    International Financial Data Services Ltd. ('IFDS') as the WIS savings plan administrators of Witan Wisdom and Jump Savings;

·    Specialist advisers used for investment manager research;

·    The Company also takes specialist advice on regulatory compliance issues and, as required, procures legal, investment consulting, financial and tax advice.

As with investment management, the contracts governing the provision of these services are formulated with legal advice and stipulate clear objectives and guidelines for the level of service required.

Premises and staffing

Since November 2005 the Company has had a lease on office premises at 14 Queen Anne's Gate, London SW1H 9AA, which is also the Company's registered office.  The current lease has a 5 year term, commencing in October 2015.

Page 21 of 37

WITAN INVESTMENT TRUST PLC

Annual Financial Report for the year ended 31 December 2016

Strategic Report continued

The Company's policy towards its employees is to attract and retain staff with the particular skills and expertise required to manage the affairs of an investment trust company. Details of the Company's remuneration policies and required disclosures are set out in the Directors' Remuneration Report in the Annual Report. Employees and those who seek to work within the Group are treated equally regardless of sex, marital status, creed, colour, race or ethnic origin. The Company has seven direct employees, four men and three women. The Board currently consists of eight non-executive directors (six men and two women) and the Chief Executive Officer, Andrew Bell, who is an employee. Given its outsourced model and small number of direct employees, the Group has no specific policies in respect of environmental or social and community affairs.

Witan Investment Services Limited ('WIS')

WIS is a wholly-owned subsidiary of Witan Investment Trust plc ('Witan'). It is authorised and regulated by the Financial Conduct Authority ('FCA').

It was established in March 2005 to provide investment savings accounts and marketing services and to give investment advice to professional investors. Since July 2014 WIS has acted as the Company's AIFM to fulfil the requirements of the AIFMD.

In addition to its responsibilities as Witan's AIFM, WIS's principal activities are to provide executive management services to the Boards of Witan and Witan Pacific Investment Trust plc ('Witan Pacific'), to communicate information about the companies to the market, to increase investor interest in their shares and to operate cost-effective savings plans for investors to hold the shares.

WIS's operational objectives for 2017 are:

·    to fulfil its investment and risk management responsibilities as Witan's AIFM;

·    to provide a reliable and efficient investment savings platform for Witan and Witan Pacific investors;

·    to provide suitable advice to the Boards of its corporate clients;

·    to reduce the net operating costs for Witan; and

·    to seek appropriate business opportunities which can add value for shareholders.

WIS has two principal sources of income. These are savings plan revenues and the fees (as AIFM or Executive Manager and for marketing services) paid by its corporate clients, Witan and Witan Pacific. The main costs incurred by WIS are fees to the savings schemes administrator (IFDS), staff costs to provide the services described above and professional advice to ensure that its regulatory and accounting obligations are properly satisfied.

The savings plans provided for WIS clients are marketed under the Witan Wisdom and Jump Savings brands. They currently have over 22,000 accounts with assets of some £401 million invested.

Principal risks and uncertainties

The directors have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. These risks, and the actions taken to mitigate them, are set out below.

Page 22 of 37

WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Strategic Report continued 

Risks are inherent in investment and corporate management but it is important that their nature and magnitude are understood, in order that risks, particularly those which the Company does not wish to take, can be identified and either avoided or controlled. In accordance with the provisions of the AIFMD, WIS has a Risk Committee in order to comply with its risk management and reporting obligations as Witan's AIFM. The Company has established a detailed framework of the key risks impinging on the business as set out below, with associated policies and processes devised to mitigate or manage those risks. This risk map is reviewed regularly by the Audit Committee along with the WIS Risk Committee, which report on issues arising to their respective boards, for action as necessary. The guiding principles remain watchfulness, proper analysis, prudence and a clear system of risk management.

Where appropriate, the Witan and WIS Boards meet jointly to cover matters of common interest. The WIS Board consists of seven non-executives and one executive director who are also directors of Witan, and one executive director who is a Company employee.

The Group's key risks fall broadly under the following categories:

Market and investment portfolio risks

Witan is set up to invest in UK and overseas equity markets on behalf of its shareholders. Equity exposure is unlikely to drop below 80% of net assets, in normal conditions. Therefore a key risk of investing in Witan is a general fall in equity prices, which could be exacerbated by gearing. Other risks, as with any international equity portfolio, are the investment portfolio's exposure to country, currency, industrial sector and stock specific factors. There are also risks associated with changes in Witan's share price discount or premium to NAV and the performance of its investment managers.

The Board seeks to manage these risks through:

·    appropriate asset allocation decisions, with a broadly diversified equity benchmark;

·    manager diversification and regular reviews of the managers' competence;

·    attention to key economic and political events affecting the global stock market outlook;

·    active management of risk, whether to preserve capital or capitalise on opportunities;

·    the application of relevant policies on gearing and liquidity; and

·    the use of share buybacks and issuance to respond to market supply and demand.

During the year Andrew Bell (the Chief Executive Officer ('CEO') managed the overall business and the investment portfolio in accordance with limits and restrictions determined by the Board and its AIFM. The Board regularly reviews the matters delegated to Executive management, on which the CEO reports at each Board meeting. The Board also regularly reviews investment strategy and performance, supported by comprehensive management information including investment performance data and financial reports.

Page 23 of 37

WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Strategic Report continued

Operational

Many of the Group's financial systems are outsourced to third parties, principally BNP Paribas Securities Services ('BNPSS'). Disruption to the accounting, payment systems or custody records operated by BNPSS could prevent the accurate reporting and monitoring of the Company's financial position. BNPSS as the Company's depositary has a key responsibility for monitoring such issues on behalf of the Company and WIS, its AIFM. IFDS acts as the Administrator for the Witan Wisdom and Jump Savings Plans so the effectiveness of their systems and controls is key for the efficient operation of those plans. Details of how the Board monitors the services provided by its suppliers, and the key elements designed to provide effective internal control, are explained further in the Corporate Governance Statement in the Annual Report.

Corporate governance

The Board takes its own regulatory responsibilities very seriously and regularly reviews the main points of compliance against requirements.

Details of the Company's compliance with corporate governance best practice are set out in the Corporate Governance Statement in the Annual Report. The Board conducts an annual internal assessment of the effectiveness of its governance processes in managing the Company and enabling it to evolve in response to future challenges. There is also a three-yearly independent external review, the most recent of which was conducted in late 2016. See the Annual Report for further details.

Operational and regulatory risks are regularly and extensively reviewed by Witan's Audit Committee, in conjunction with WIS's Risk Committee. WIS is subject to its own operating rules and regulations and is authorised and regulated by the FCA. Since becoming the AIFM for Witan, WIS has become more closely involved in a wide range of Witan's operations. The Company has established a modus operandi for the effective coordination of these responsibilities, which has been adapted to ensure full compliance with the AIFMD's requirements without duplication of effort and will continue to be adapted in the light of experience.

Operationally the multi-manager structure is robust, as the investment managers, the custodian and the fund accountants keep their own records which are regularly reconciled. The depositary, AIFM and the Board provide additional checks and risk management safeguards. Management monitors the activities of all third parties and reports any significant issues to the Board.

Accounting, legal and regulatory

In order to qualify as an investment trust the Company must comply with sections 1158-59 of the Corporation Tax Act 2010 ('CTA'). A breach of these sections could result in the Company losing investment trust status and, as a consequence, capital gains realised within the Company's portfolio would be subject to Corporation Tax. The criteria are monitored by the CEO and AIFM and reviewed at each Board meeting. The Company also carefully and regularly monitors compliance with the accounting rules affecting investment trusts.

The Company is required to comply with the provisions of the Companies Act 2006 ('Companies Act'), and also with the UK Listing Authority's Listing Rules and Disclosure Guidance and Transparency Rules ('UKLA Rules'). A breach of the Companies Act could result in the Company and/or the directors being fined or becoming the subject of criminal proceedings. Breach of the UKLA Rules could result in the suspension of the Company's shares which would in turn lead to a breach of the provisions of the CTA.

Page 24 of 37

WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Strategic Report continued

These legal and regulatory requirements offer significant protection for shareholders. The Board relies on the CEO, the AIFM, the Company Secretary and the Group's professional advisers to ensure compliance with all applicable rules. WIS is authorised and regulated by the FCA to act as the AIFM for Witan, for the marketing and administration of savings plans and the provision of investment advice to professional clients.

Liquidity

The Company's portfolio consists mainly of securities that are readily realisable. The Company and its AIFM regularly review possible liquidity needs (for example to cover operational costs, loan servicing and repayment, shareholder dividends and share buybacks) relative to the Company's portfolio income and the significance of possible liquidity calls relative to the value and tradability of the Company's assets. Given that most of the likely liquidity requirements are readily foreseeable (for example, loan payments and dividends are timetabled), while others (such as share buybacks) are subject to the Company's discretion, the Board is satisfied that unexpected liquidity needs are not significant relative to the size of the Company's portfolio and that they could be readily met without compromising normal portfolio management practice.

Viability Statement

In accordance with the 2014 UK Corporate Governance Code, the Board has assessed the prospects of the Company over a longer period than the 12 months required by the 'Going Concern' provision. The provisions require the Board to explain, taking account of the Company's current position and principal risks, how they have assessed its prospects and over what period and why they consider that period to be appropriate. The directors must state whether they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment.

The Company's current position and prospects are set out in the Chairman's and Chief Executive's Report and the Strategic Report. The principal risks are set out on pages 22 to 24. The Board has considered the Company's financial position and its ability to liquidate its portfolio and meet its expenses as they fall due and notes the following:

·    The portfolio consists of investments traded on major international stock exchanges and there is a spread of investments by size of company. In normal conditions, the current portfolio could be liquidated to the extent of more than 85% within 5 trading days and there is no expectation that the nature of the investments held within the portfolio will be materially different in future;

·    The closed-ended nature of the Company means that, unlike an open-ended fund, it does not need to realise investments when shareholders wish to sell their shares;

·    The Board has considered the viability of the Company under various scenarios and concluded that it would usually be able to take appropriate action to protect the value of the Company's assets. As set out in note 14 to the accounts, the Board has considered price risk sensitivity (the sensitivity of the profit after taxation for the year and the value of the shareholders' funds to changes in the fair value of the Group's investments) and foreign currency sensitivity (the sensitivity to changes in the exchange rates for the £/US dollar, £/Euro and £/Japanese yen.

Page 25 of 37

WITAN INVESTMENT TRUST PLC

Annual Financial Report for the year ended 31 December 2016

Strategic Report continued

·    In addition to its cash balances, which were £50.6m at 31 December 2016 (2015: £57.6m), the Company has a short-term bank facility which can be used to meet its liabilities, and fixed-rate financing in the form of Secured Bonds, Secured Notes and cumulative preference shares. With the exception of the short-term facility, this financing will remain in place until at least 2025. Details of the Company's non-current liabilities are set out in the financial statements.

·    The expenses of the Company are predictable and modest in comparison with the assets and there are no capital commitments currently foreseen which would alter that position.

As well as considering the principal risks on pages 22 to 24 and the financial position of the Company, the Board has taken account of the following assumptions in considering the Company's longer-term viability:

·    The Company's remit of investing in the securities of global listed companies will continue to be an activity to which investors will wish to have exposure;

·    Investors will continue to want to invest in closed-ended investment trusts;

·    The performance of the Company will continue to be satisfactory. The Board is able to replace any of the current investment managers when it considers it appropriate to do so.

·    The Company will continue to have access to adequate capital when required.

·    The Company will continue to be able to fund share buybacks when required. The Company bought back 18.9m ordinary shares in 2016 at a cost of £143m and experienced no difficulty with having sufficient liquidity to do so. It had shareholders' funds in excess of £1.7bn at the end of 2016.

Based on the results of its review, and taking into account the long-term nature of the Company and its financing, the Board has a reasonable expectation that the Company will be able to continue its operations and meet its expenses and liabilities as they fall due for the foreseeable future, taken to mean at least the next five years. The Board has chosen this figure in view of the fact that whilst it has no information to suggest this judgement will need to change in the coming five years, forecasting over longer periods is imprecise. The Board's long-term view of viability will of course be reviewed each year in the Annual Report.

Going concern

In light of the conclusions drawn in the foregoing liquidity and viability statements, the Company has adequate financial resources to continue in operational existence for at least the next 12 months. Therefore, the directors believe that it is appropriate to continue to adopt the going concern basis in preparing the financial statements. In reviewing the position as at the date of this report, the Board has considered the guidance on this matter issued by the Financial Reporting Council.

Approval

This report was approved by the Board of Directors on 9 March 2017 and is signed on its behalf by:

H M Henderson                                 A L C Bell

Chairman                                              Chief Executive

9 March 2017

Page 26 of 37

WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Statement of Directors' Responsibilities

in respect of the Annual Report and the financial statements

Responsibility statement

The directors as at the date of the Annual Report confirm to the best of their knowledge that:

·    the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

·    the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description (on pages 22 to 24) of the principal risks and uncertainties that they face.

The directors also confirm that the financial statements, taken as a whole, are fair, balanced and understandable, and provide the information necessary for shareholders to assess the Company's position, performance, business model and strategy.

By order of the Board

H M Henderson

Chairman

9 March 2017

A L C Bell

Chief Executive

9 March 2017

Page 27 of 37

WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Financial Highlights

Corporate key performance indicators

	2016	2015	% change
Share price	902.0p	780.0p	+15.6
NAV per ordinary share (debt at par value)	952.8p	788.4p	+20.9
NAV per ordinary share (debt at fair value)	939.2p	781.2p	+20.2
Discount (NAV including income, debt at fair value) (A)	4.0%	0.2%
(A) The average discount on this basis in 2016 was 5.8% (2015: average premium 0.1%), (Source: Morningstar)

Total return performance

	1yr % Return	3yrs % Return	5yrs % Return
Total shareholder return(B)	18.4	44.0	125.8
Net asset value total return(C)	22.9	39.4	108.4
Witan Benchmark(D)	23.0	34.3	83.3
FTSE All-Share Index(E)	16.8	19.3	61.8
FTSE World Index(E)	30.4	53.4	110.7
UK CPI Returns	1.6	2.3	7.2

(B)          Source: Morningstar. The movement in ordinary share price adjusted to include the reinvestment of each dividend paid during the respective period's calculation.

(C)          Source: Morningstar/Witan. The movement in the net asset value per share (debt at fair value) adjusted to include the reinvestment of each dividend paid during the respective period's calculation.

(D)          Source: Morningstar/Witan. The benchmark was a composite of four indices: the FTSE All-Share Index 40%, the FTSE All-World North America Index 20%, the FTSE All-World Europe (ex UK) Index 20% and the FTSE All-World Asia Pacific Index 20%.  

(E)           Source: Morningstar.  See also FTSE International for conditions of use (www.ftse.com).

Dividend information

	2016	2015	% change
Revenue per share	22.1p	18.5p	+19.5%
Dividend per share	19.0p	17.0p	+11.8%

2017 dividend schedule*

Ex-Dividend Date	Pay date	Dividend type	Dividend payable per share
2 March 2017	31 March 2017	Fourth interim (2016)	6.25p
18 May 2017	16 June 2017	First interim	4.75p
24 August 2017	18 September 2017	Second interim	4.75p
16 November 2017	18 December 2017	Third interim	4.75p

* Please note that the dates and amounts for the first, second and third interim dividends could be subject to change.

Page 28 of 37

WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Financial Highlights (continued)

Other financial information

	2016	2015	% change
Net assets	£1,726,637,000	£1,577,330,000	+9.5
Number of ordinary shares in issue (A)	200,071,000	200,071,000	-
Gearing(B)	10.3%	10.7%
Ongoing charge excluding performance fee	0.75%	0.76%
Ongoing charge including performance fee(B)	0.65%	1.04%

(A)          Of which 18,860,261 are held in treasury (2015: nil).

(B)           The difference between shareholders' funds and the total market value of the investments (including the face value of futures positions) expressed as a percentage of shareholders' funds.

(B)           Includes reversal of performance fees over-accrued at 31 December 2015.

Page 29 of 37

WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2016

	Year ended 31 December 2016			Year ended 31 December 2015
	Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000	Total £'000
Investment income (note 2)	52,452	-	52,452	45,818	-	45,818
Other income (note 3)	1,475	-	1,475	1,460	-	1,460
Gains on investments held at fair value through profit or loss	-	297,032	297,032	-	64,786	64,786
Foreign exchange losses on cash and cash equivalents	-	(417)	(417)	-	(223)	(223)
	----------	----------	----------	----------	----------	----------
Total income	53,927	296,615	350,542	47,278	64,563	111,841
Expenses
Management and performance fees (note 4)	(1,905)	(4,252)	(6,157)	(1,747)	(9,539)	(11,286)
Other expenses	(5,109)	(101)	(5,210)	(5,309)	(101)	(5,410)
	----------	----------	----------	----------	----------	----------
Profit before finance costs and taxation	46,913	292,262	339,175	40,222	54,923	95,145
Finance costs	(2,467)	(7,148)	(9,615)	(2,484)	(7,199)	(9,683)
	----------	----------	----------	----------	----------	----------
Profit before taxation	44,446	285,114	329,560	37,738	47,724	85,462
Taxation	(2,415)	-	(2,415)	(1,779)	-	(1,779)
	----------	----------	----------	----------	----------	----------
Profit attributable to equity shareholders of the parent company	42,031	285,114	327,145	35,959	47,724	83,683
	----------	----------	----------	----------	----------	----------
Earnings per ordinary share (note 5)	22.11p	149.95p	172.06p	18.49p	24.54p	43.03p
	======	======	======	======	======	======

The total column of this statement represents the Group's Statement of Comprehensive Income, prepared in accordance with IFRSs as adopted by the European Union.

The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.

The Group does not have any other comprehensive income and hence the total profit, as disclosed above, is the same as the Group's total comprehensive income.

All items in the above statement derive from continuing operations.

All income is attributable to the equity holders of Witan Investment Trust plc, the parent company. There are no non-controlling interests.

Page 30 of 37

WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Consolidated and Individual Company Statements of Changes in Equity

for the year ended 31 December 2016

Group: Year ended 31 December 2016
			Ordinary	Share	Capital	Other
			share	premium	redemption	capital	Revenue
			capital	account	reserve	reserves	reserve	Total
			£'000	£'000	£'000	£'000	£'000	£'000
Total equity at 31 December 2015			50,018	99,251	46,498	1,321,909	59,654	1,577,330
Total comprehensive income:
Profit for the year			-	-	-	285,114	42,031	327,145
Transactions with owners,
recorded directly to equity:
Ordinary dividends paid (note 7)			-	-	-	-	(34,920)	(34,920)
Buybacks of ordinary shares (held in treasury)			-	-	-	(142,918)	-	(142,918)
			--------	---------	---------	------------	---------	------------
Total equity at 31 December 2016			50,018	99,251	46,498	1,464,105	66,765	1,726,637
Company: Year ended 31 December 2016
			Ordinary	Share	Capital	Other
			share	premium	redemption	capital	Revenue
			capital	account	reserve	reserves	reserve	Total
			£'000	£'000	£'000	£'000	£'000	£'000
Total equity at 31 December 2015			50,018	99,251	46,498	1,322,517	59,046	1,577,330
Total comprehensive income:
Profit for the year			-	-	-	285,316	41,829	327,145
Transactions with owners,
recorded directly to equity:
Ordinary dividends paid (note 7)			-	-	-	-	(34,920)	(34,920)
Buybacks of ordinary shares (held in treasury)			-	-	-	(142,918)	-	(142,918)
			--------	---------	---------	------------	---------	------------
Total equity at 31 December 2016			50,018	99,251	46,498	1,464,915	65,955	1,726,637
Group: Year ended 31 December 2015
			Ordinary	Share	Capital	Other
			share	premium	redemption	capital	Revenue
			capital	account	reserve	reserves	reserve	Total
			£'000	£'000	£'000	£'000	£'000	£'000
Total equity at 31 December 2014			47,390	18,106	46,498	1,274,185	55,068	1,441,247
Total comprehensive income:
Profit for the year			-	-	-	47,724	35,959	83,683
Transactions with owners,
recorded directly to equity:
Ordinary dividends paid (note 7)			-	-	-	-	(31,373)	(31,373)
Issue of ordinary shares			2,628	81,145	-	-	-	83,773
			--------	---------	---------	------------	---------	------------
Total equity at 31 December 2015			50,018	99,251	46,498	1,321,909	59,654	1,577,330
Company: Year ended 31 December 2015
			Ordinary	Share	Capital	Other
			share	premium	redemption	capital	Revenue
			capital	account	reserve	reserves	reserve	Total
			£'000	£'000	£'000	£'000	£'000	£'000
Total equity at 31 December 2014			47,390	18,106	46,498	1,274,479	54,774	1,441,247
Total comprehensive income:
Profit for the year			-	-	-	48,038	35,645	83,683
Transactions with owners,
recorded directly to equity:
Ordinary dividends paid (note 7)			-	-	-	-	(31,373)	(31,373)
Issue of ordinary shares			2,628	81,145	-	-	-	83,773
			--------	---------	---------	------------	---------	------------
Total equity at 31 December 2015			50,018	99,251	46,498	1,322,517	59,046	1,577,330

Page 31 of 37

WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Consolidated and Individual Company Balance Sheets

for the year ended 31 December 2016

	Group	Company	Group	Company
	31 December	31 December	31 December	31 December
	2016	2016	2015	2015
	£'000	£'000	£'000	£'000
Non current assets
Investments held at fair value through profit or loss	1,884,037	1,885,747	1,708,728	1,710,236
	--------------	--------------	--------------	--------------
Current assets
Other receivables	11,638	11,038	7,255	6,547
Cash and cash equivalents	50,556	49,155	57,587	56,582
	-----------	-----------	-----------	-----------
	62,194	60,193	64,842	63,129
	-----------	-----------	-----------	-----------
Total assets	1,946,231	1,945,940	1,773,570	1,773,365
	---------------	---------------	---------------	---------------
Current liabilities
Other payables	(8,102)	(7,811)	(8,265)	(8,060)
8½ per cent. Debenture Stock 2016	-	-	(44,583)	(44,583)
Bank loans	(71,000)	(71,000)	(3,000)	(3,000)
	----------	----------	----------	----------
	(79,102)	(78,811)	(55,848)	(55,643)
	----------	----------	----------	----------
Total assets less current liabilities	1,867,129	1,867,129	1,717,722	1,717,722
Non current liabilities
At amortised cost:
6.125 per cent. Secured Bonds due 2025	(63,434)	(63,434)	(63,354)	(63,354)
3.29 per cent. Secured Notes due 2035	(20,864)	(20,864)	(20,491)	(20,491)
3.47 per cent. Secured Notes due 2045	(53,639)	(53,639)	(53,992)	(53,992)
3.4 per cent. cumulative preference shares of £1	(2,055)	(2,055)	(2,055)	(2,055)
2.7 per cent. cumulative preference shares of £1	(500)	(500)	(500)	(500)
	----------	----------	----------	----------
	(140,492)	(140,492)	(140,392)	(140,392)
	----------	----------	----------	----------
Net assets	1,726,637	1,726,637	1,577,330	1,577,330
Equity attributable to equity holders
Ordinary share capital	50,018	50,018	50,018	50,018
Share premium account	99,251	99,251	99,251	99,251
Capital redemption reserve	46,498	46,498	46,498	46,498
Retained earnings:
Other capital reserves	1,464,105	1,464,915	1,321,909	1,322,517
Revenue reserve	66,765	65,955	59,654	59,046
	----------	----------	----------	----------
Total equity	1,726,637	1,726,637	1,577,330	1,577,330
Net asset value per ordinary share	952.83p	952.83p	788.39p	788.39p

As permitted by section 408 of the Companies Act 2006, the Company has not presented its own income statement. The profit of the Company dealt with in the accounts of the Group amounted to £ 327,145,000 (2015: £ 83,683,000).

Page 32 of 37

WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Consolidated and Individual Company Cash Flow Statements

for the year ended 31 December 2016

	Group	Company	Group	Company
	2016	2016	2015	2015
	£'000	£'000	£'000	£'000
Cash flows from operating activities
Dividend income received	49,178	49,178	44,246	44,246
Interest received	90	87	124	120
Other income received	1,384	291	1,324	178
Operating expenses paid	(14,688)	(13,988)	(19,365)	(17,802)
Taxation on overseas income	(2,883)	(2,883)	(1,745)	(1,745)
Taxation received	371	371	103	103
	----------	-----------	----------	-----------
Net cash inflow from operating activities	33,452	33,056	24,687	25,100
	----------	-----------	----------	-----------
Cash flows from investing activities
Purchases of investments	(525,517)	(525,517)	(545,075)	(545,075)
Sales of investments	641,967	641,967	453,142	453,142
Realised gain on futures	7,548	7,548	1,048	1,048
	----------	-----------	----------	-----------
Net cash inflow/(outflow) from investing activities	123,998	123,998	(90,885)	(90,885)
	----------	-----------	----------	-----------
Cash flow from financing activities
Equity dividends paid	(34,920)	(34,920)	(31,373)	(31,373)
Issue of secured notes net of issue expenses	-	-	74,472	74,472
Buybacks of ordinary shares	(142,081)	(142,081)	-	-
Issue proceeds of ordinary shares	-	-	85,702	85,702
Repayment of debenture	(44,589)	(44,589)	-	-
Interest paid	(10,474)	(10,474)	(9,347)	(9,347)
Drawdown/(repayment) of bank loans	68,000	68,000	(42,000)	(42,000)
	----------	-----------	----------	-----------
Net cash (outflow)/inflow from financing activities	(164,064)	(164,064)	77,454	77,454
	----------	-----------	----------	-----------
(Decrease)/increase in cash and cash equivalents	(6,614)	(7,010)	11,256	11,669
Cash and cash equivalents at the start of the period	57,587	56,582	46,554	45,136
Effect of foreign exchange rate changes	(417)	(417)	(223)	(223)
	----------	-----------	----------	-----------
Cash and cash equivalents at the end of the period	50,556	49,155	57,587	56,582

In 2016 the direct method of cash flow presentation has been adopted as it is considered to provide a clearer presentation of the gross cash flows. As the Company previously presented the cash flow statement using the indirect method, comparative figures have been restated accordingly.

Page 33 of 37

WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Notes to the Financial Statements 

for the year ended 31 December 2016

1.         Accounting policies

The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation. These comprise standards and interpretations approved by the International Accounting Standards Board ('IASB'), together with interpretations of the International Accounting Standards and Standing Interpretations Committee approved by the International Accounting Standards Committee ('IASC') that remain in effect, to the extent that they have been adopted by the European Union.

These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates.

(a) Basis of preparation

The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments. The principal accounting policies adopted are set out below. Where presentational guidance set out in the Statement of Recommended Practice Financial Statements of Investment Trust Companies and Venture Capital Trusts ('the SORP') (issued by the Association of Investment Companies ('the AIC') in November 2014 and updated in January 2017 with consequential amendments) is consistent with the requirements of IFRSs as adopted by the European Union, the directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.

Judgements and sources of estimation uncertainty

In the application of the Group's accounting policies, management is required to make judgements, estimates and assumptions about carrying values of assets and liabilities that are not always readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may vary significantly from these estimates.

(b) Going concern

The financial statements have been prepared on a going concern basis.  The Group's business activities, together with the factors likely to affect its future development and performance, are set out in the Strategic Report on pages 6 to 25. The financial position of the Group as at 31 December 2016 is shown on the balance sheet on page 31. The cash flows of the Group for the year ended 31 December 2016 are not untypical and are set out on page 32. The Company had fixed debt and preference share capital totalling £140,492,000, as set out in the Annual Report; the 8.5% Debenture Stock was repaid in 2016. In 2016, the Group renewed a one-year secured multi-currency borrowing facility for £75 million, of which £71 million was drawn down at 31 December 2016 (2015: £3 million).

(c) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and the entity controlled by the Company (its subsidiary) made up to 31 December each year.

In accordance with IFRS 10 the Company has been designated as an investment entity on the basis that:

·      It obtains funds from investors and provides those investors with investment management services;

·      It commits to its investors that its business purpose is to invest solely for returns from capital appreciation and investment income; and

·      It measures and evaluates performance of substantially all of its investments on a fair value basis.

The subsidiary of the Company was established for the sole purpose of operating or supporting the investment operations of the Company, and is not itself an investment entity.  Therefore, under the principles of IFRS 10, the Company has consolidated its subsidiary as it is a controlled entity that supports the investment activity of the investment entity.

Page 34 of 37

WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Notes to the Financial Statements continued

Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. Where necessary, adjustments are made to the financial statements of the subsidiary to bring the accounting policies used by it into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

(d) Presentation of the Statement of Comprehensive Income    

In order to better reflect the activities of an investment trust company, and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. In accordance with the Company's Articles of Association, net capital returns may not be distributed by way of dividend. Additionally, the net revenue is the measure the directors believe appropriate in assessing the Group's compliance with certain requirements set out in section 1158 of the Corporation Tax Act 2010.

2.         Investment income

	2016	2015
	£'000	£'000
Franked:
UK dividends from listed investments	20,878	19,416
UK stock dividends from listed investments	841	-
UK special dividends from listed investments	1,019	1,124
	-----------	-----------
	22,738	20,540
	-----------	-----------
Unfranked:
Overseas dividends from listed investments	26,433	22,396
Overseas special dividends from listed investments	1,041	716
Property income dividends	186	47
Stock dividends from listed investments	888	1,116
Fixed interest and convertible bonds	1,166	1,003
	-----------	-----------
	29,714	25,278
	-----------	-----------
Total investment income	52,452	45,818
	2016	2015
	£'000	£'000
Analysis of investment income by geographical segment:
United Kingdom	22,739	21,645
North America	7,464	6,685
Continental Europe	13,516	9,244
Japan	2,121	1,666
Asia Pacific (ex Japan)	5,662	5,055
Latin America	108	207
Other	842	1,316
	-----------	-----------
Total investment income	52,452	45,818

Page 35 of 37

WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Notes to the Financial Statements continued

3.         Other income

	2016	2015
	£'000	£'000
Deposit interest	91	127
Underwriting commission	34	-
Stock lending income	242	186
Income from the subsidiary company's third party business	1,108	1,147
	-----------	-----------
	1,475	1,460

4.         Management fees

	Year ended 31 December 2016			Year ended 31 December 2015
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Management fees	1,905	5,715	7,620	1,747	5,241	6,988
Performance fees	-	(1,463)	(1,463)	-	4,298	4,298
	----------	-----------	-----------	----------	-----------	-----------
	1,905	4,252	6,157	1,747	9,539	11,286

5.         Earnings per ordinary share

The earnings per ordinary share figure is based on the net profit for the year of £327,145,000 (2015: £83,683,000) and on 190,131,108 ordinary shares (2015: 194,455,343), being the weighted average number of ordinary shares in issue during the year.

The earnings per ordinary share figure detailed above can be further analysed between revenue and capital, as below. The Company has no securities in issue that could dilute the return per ordinary share. Therefore the basic and diluted earnings per ordinary share are the same.

	2016	2015
	£'000	£'000
Net revenue profit	42,031	35,959
Net capital profit	285,114	47,724
	----------	----------
Net total profit	327,145	83,683
Weighted average number of ordinary shares in issue during the year	190,131,108	194,455,343
	2016	2015
	Pence	Pence
Revenue earnings per ordinary share	22.11	18.49
Capital earnings per ordinary share	149.95	24.54
	----------	----------
Total earnings per ordinary share	172.06	43.03

Page 36 of 37

WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Notes to the Financial Statements continued

6.         Issued share capital

The number of ordinary shares of 25p each in issue at 31 December 2016 was 200,071,000 (2015: 200,071,000), of which 18,860,261 ordinary shares of 25p each were held in treasury (2015: nil).

7.         Dividends

	2016 £'000	2015 £'000
Amounts recognised as distributions to equity holders in the year:
Fourth interim dividend for the year ended 31 December 2015 of 5.45p (2014: 4.6p) per ordinary share	10,895	8,727
First interim dividend for the year ended 31 December 2016 of 4.25p (2015: 3.85p) per ordinary share	8,490	7,450
Second interim dividend for the year ended 31 December 2016 of 4.25p (2015: 3.85p) per ordinary share	7,817	7,550
Third interim dividend for the year ended 31 December 2016 of 4.25p (2015: 3.85p) per ordinary share	7,739	7,670
Refund of unclaimed dividends	(21)	(24)
	----------	----------
	34,920	31,373
	======	======
Fourth interim dividend for the year ended 31 December 2016 of 6.25p (2015: 5.45p) per ordinary share	11,246	10,895
	======	======
Total in respect of the year:
Set out below is the total dividend to be paid in respect of the year.  This is the basis on which the requirements of section 1158 of the Corporation Tax Act 2010 are considered.
	2016 £'000	2015 £'000
Revenue profits available for distribution (Company only)	41,829	35,645
First interim dividend for the year ended 31 December 2016 of 4.25p (2015: 3.85p) per ordinary share	(8,490)	(7,450)
Second interim dividend for the year ended 31 December 2016 of 4.25p (2015: 3.85p) per ordinary share	(7,817)	(7,550)
Third interim dividend for the year ended 31 December 2016 at 4.25p (2015: 3.85p) per ordinary share	(7,739)	(7,670)
Fourth interim dividend for the year ended 31 December 2016 of 6.25p (2015: 5.45p) per ordinary share	(11,246)	(10,895)
	----------	----------
Revenue retained for the year (Company only)	6,537	2,080
	======	======

8.       2016 Accounts

The figures and financial information for 2016 are extracted from the Annual Report and Financial Statements for the year ended 31 December 2016 and do not constitute the statutory accounts for the year.  The Annual Report and Financial Statements include the Report of the Independent Auditor which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.  The Annual Report and Financial Statements have not yet been delivered to the Registrar of Companies.

Page 37 of 37

WITAN INVESTMENT TRUST PLC

            Annual Financial Report for the year ended 31 December 2016

Notes to the Financial Statements continued 

9.       2015 Accounts

The figures and financial information for 2015 are extracted from the published Annual Report and Financial Statements for the year ended 31 December 2015 and do not constitute the statutory accounts for that year.  The Annual Report and Financial Statements have been delivered to the Registrar of Companies and included the Report of the Independent Auditor which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

10.        Annual Report and Financial Statements

Copies of the Annual Report and Financial Statements will be posted to shareholders by the end of March 2017 and will be available on the Company's website (www.witan.com) or in hard copy format from the Registered Office, 14 Queen Anne's Gate, London, SW1H 9AA.

The Annual General Meeting will be held at 2.30 pm on Thursday, 27 April 2017 at Merchant Taylors' Hall, 30 Threadneedle Street, London EC2R 8JB.

For further information please contact:

Andrew Bell

Chief Executive

Witan Investment Trust plc

Telephone:  [phone]

Hannah Philp

Director of Marketing

Witan Investment Trust plc

Telephone:  [phone]

- ENDS -

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

 

END

 

 

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