Final Results

RNS Number : 7965H

RIT Capital Partners PLC

03 June 2011

 



FINAL RESULTS FOR THE YEAR ENDED 31 MARCH 2011

FINANCIAL HIGHLIGHTS

	31 March 2011	31 March 2010	Change
Total Net Assets (£ million)	1,984.0	1,815.7	9.3%
Net Asset Value per Share	1,289.4p	1,180.1p	9.3%
Share Price	1,307.0p	1,082.0p	20.8%
Premium/(Discount)	1.4%	(8.3)%

PERFORMANCE

	1 Year	5 Years	10 Years
RIT Capital Partners plc (NAV per Share)	9.3%	31.2%	166.2%
MSCI World Index (in £)	5.2%	8.2%	11.1%
FTSE All-Share Index	5.4%	0.6%	13.1%

The following is derived from the Chairman's Statement which will appear in the Annual Report and Accounts.

CHAIRMAN'S STATEMENT

It is an old market adage: bull markets climb a wall of worry.  The past year certainly saw a bull market develop once early 2010 market weakness was overcome.  But it just as certainly, also, reinforced a wall of worry.

In the year to 31 March 2011, your Company's net asset value per share ("NAV") appreciated by 9.3% to 1,289.4p, marking a new high NAV level. The MSCI World Index in Sterling, the most relevant benchmark, rose by 5.2% and the FTSE All-Share Index rose by 5.4% over this period. 

Our focus remains unchanged: to deliver longer term gains while preserving shareholders' capital. Over the past 5 and 10 years our returns now stand at 31.2% and 166.2% as compared with MSCI World Index returns in Sterling of 8.2% and 11.1%.

The latest available NAV, at 20 May, was 1,265.4p.

The dominant investment development this past year has been the rise in commodity prices accompanied by a decline in the value of the US Dollar against most currencies.  The Thomson Reuters/Jefferies CRB Index of commodities appreciated by over 30%, with gold and oil rising by almost 29% and 25% respectively, while the trade-weighted Dollar declined by more than 6%.

I pointed out last year that, with returns on cash "negligible", money would seek higher-returning asset classes, and thus incur more risk. So the continued advance in the prices of most financial assets has not come as a surprise.  There was renewed faith in the persistent growth of the BRICs (Brazil, Russia, India and China). But inflationary pressures grew there too.  Two things resulted from this: commodities and related equity sectors generated the highest returns.  Yet, overall, emerging markets appreciated only modestly more than developed markets because fear of inflation made valuations seem reasonably full.

The gathering flight from the Dollar served only to exacerbate the search for investment refuges safe from currency devaluation.  The very success of US and other governments' policies in printing money to refloat financial assets has contributed to the strength of commodity prices and exacerbated inflationary pressures.

Whatever the current uncertainties, we remain clear as to what we will do.  We will stay liquid and nimble enough to respond to financial crises when they occur; and we will continue to seek out investments that create fundamental, lasting value.  To serve both these aims, in January we took out a US $400 million credit facility which we drew in full, locking in historically low borrowing rates.

ASSET ALLOCATION

We set out below our asset allocation, shown as a percentage of your Company's total net assets.

	% of  net assets      at 31 March 2011	% of net assets   at 31 March 2010
Quoted equities	14.7	19.5
Long equity funds	39.1	40.9
Hedge funds	6.4	7.8
Unquoted direct investments	11.6	10.2
Unquoted fund investments	11.0	10.5
Real assets	14.1	11.6
Absolute return, fixed income and currency	0.6	2.3
Liquidity	15.4	14.6
Borrowings	(12.6)	(16.8)
Other assets/(liabilities)	(0.3)	(0.6)
Total net assets	100.0	100.0

Our level of public market exposure has stayed broadly between 50% and 70% over the year.  We maintained above-average exposure to the commodity and related sectors as well as a significant exposure to emerging markets, in particular to sectors aimed at growing domestic demand within these economies.  Some US-orientated growth and large capitalisation stock funds also performed well for us.  Recently, we have started to build modest exposure to "frontier markets" in the belief that many of the factors that made the BRICs attractive some years ago are today present in these markets.

Real assets too were a major contributor to performance with a return of around 28% on our average exposure of 13% to these strategies. Funds invested in oil and gold shares, as well as exposure to gold and oil via futures, were the primary drivers of return.  More recently, we have made some reductions to our exposure in these areas.

The unquoted portfolio as a whole produced gains of a little over 15%.  Notable disposals in the period under review included our holding in The Economist Newspaper which was sold for £24.7 million in December 2010.  Taken together with dividends received of £15.1 million, this investment has generated a profit of £38.3 million for your Company over the years, compared with its original cost of £1.5 million in 1988.  This represents a multiple of 27x and an IRR of 21% over this 22-year period.

Shareholders may remember that we were cornerstone investors in a new private equity fund, Darwin, in 2007 which raised committed capital of £217 million, of which we represented £50 million.  In February 2011 Darwin realised their first investment, Maximuscle, at 2.7x their cost, representing an IRR of 37%.  The benefit to us of this transaction amounted to some £12 million. 

Agora Oil and Gas has prospered due to its involvement in the Catcher field in the UK North Sea, where substantial resources of oil have been found.  Although the increased level of tax on UK North Sea profits is a negative factor, Agora will be focusing its exploration on the Norwegian sector of the North Sea.  Therefore, an important development for Agora is the exploration agreement it recently signed with Statoil the leading Norwegian oil company, to co-operate in the Norwegian and UK sectors of the North Sea.

Last year, I emphasised the importance that we place on managing our currency exposure and diversifying our exposure amongst currencies other than Sterling. We continue to believe that this is the right approach. However, as Sterling appreciated during the year against some other currencies, particularly the US Dollar, the value of non-Sterling investments suffered on translation back into Sterling.

Let me look now at the time ahead. I reminded shareholders in my Chairman's Statement last year that our aim of preserving shareholders' capital takes precedence over short-term capital growth if we feel that there remains above-average risk of capital loss.  There is, I believe, a growing awareness of the dangerous position which confronts many countries, particularly those in the developed world.  In spite of these concerns, we continue to take advantage of areas that we believe are attractive, but we will remain cautious in terms of the quantum of capital that we allocate.  For instance, your Company has benefited from the rise in commodity prices.  Yet a noted US strategist has pointed out that commodity returns relative to equity returns are at a 200-year high on a rolling 10-year basis.  We are not alone in having noted the attractive level of valuation of many quality companies, eclipsed till now by commodity and cyclical companies.  After a decade of commodity leadership, a shift to a new regime is a possibility; identifying a new trend, if indeed it comes to pass, will be a major factor in future investment performance.

The risks ahead are glaring and global. The US recovery is fragile, with millions unable to find work. The Dollar has diminished in value and the government deficit has ballooned.  In Europe, the fate of the Monetary Union is in doubt and growth is likely to slow as the European Union seeks to rein in government deficits and spending in a number of their member countries.  Japan's challenge following the earthquake and tsunami is monumental.  The Middle East uprisings have led to a surge in oil prices.  Inflation is threatening in emerging markets.  African and other poor nations are suffering from grain prices which have risen by about 70%.  It is likely that the withdrawal of the fiscal and monetary stimuli which will surely come soon will have an impact on global growth: indeed there is already evidence of some slowing down since your Company's year-end of 31 March.  Stock market performance does not necessarily go hand in hand with economies.  Timing is crucial, at least in the short term, for investment performance. In these uncertain times it means retaining a good quota of liquidity and being eclectic in our investments, picking our stocks and situations well as we long have done.

By way of example, we decided a few years ago to increase our exposure to some of the BRIC countries.  On the unquoted side, our founder investment in Xander Real Estate in India continues to perform well.  In Brazil we have a close relationship with the money manager Sagarmatha, we were cornerstone investors in BR Properties, and we have invested (alongside a number of the world's leading sovereign wealth funds) in Brazil's premier investment bank, Pactual.

In February we announced the creation of a new alternative asset management and advisory company, Renshaw Bay.  Bill Winters, formerly Co-Chief Executive of JP Morgan Investment Bank, is Chairman and Chief Executive and a major shareholder in the new venture. Our co-investor is Reinet Investments SCA, a private investment company connected with Compagnie Financière Richemont, which is chaired by Johann Rupert.

In March we announced our landmark joint venture with the CREAT Group of China, who aim, with help from us, to raise a fund of up to $750 million to invest in private equity opportunities outside China.  I believe that this is the first vehicle that will enable Chinese private sector investors to invest overseas through a private equity fund.

DIVIDEND

We are intending to pay a dividend of 4.0p per share on 19 August 2011 to shareholders on the register at 5 August 2011.  The focus of your Company remains on achieving capital growth rather than increases in dividend income.

BOARD

At the time of the announcement of our investment in Renshaw Bay, we indicated that Bill Winters would be joining our Board as a non-executive director, once his business had been launched.

John Elkann, given his commitments as Chairman of Fiat and Chairman and Chief Executive Officer of EXOR, has decided he should not seek re-election to the Board at the AGM.  We understand his decision and have been fortunate to have had the benefit of his insights and support on our Board for the last few years. We are most grateful to him for the contribution he has made.

In December 2010 we announced the appointment of Rick Sopher as a non-executive director.  Rick is the Managing Director of LCF Edmond de Rothschild Asset Management and is Chairman of the Board of Management of Leveraged Capital Holdings NV, the flagship investment vehicle of the Edmond de Rothschild Group, as well as several related multi-manager funds. On behalf of shareholders I would like to welcome him to the Board.

Rothschild

2 June 2011

The following tables will appear in the Company's Annual Report and Accounts.

NET ASSET VALUE BY CURRENCY

	% of net assets at  31 March 2011	% of net assets at 31 March 2010
US dollar	33.8	38.8
Sterling	18.9	17.3
Canadian dollar	9.6	8.9
Singapore dollar	9.4	7.1
Swiss franc	1.1	7.6
Chinese renminbi (yuan)	6.3	9.4
Norwegian krone	5.4	1.0
Australian dollar	5.4	0.8
Korean won	3.7	4.6
Japanese yen	1.4	(8.7)
Euro	0.8	7.4
Other	4.2	5.8
Total	100.0	100.0

NET ASSET VALUE BY COUNTRY/REGION

	% of net assets at 31 March 2011	% of net assets at 31 March 2010
North America	31.5	37.8
United Kingdom	11.5	14.5
Europe	13.0	10.2
Emerging Markets	17.6	17.8
Asia	1.3	0.3
Japan	6.0	2.3
Other countries	3.9	5.5
Global	11.3	9.3
Liquidity, borrowings, currency	3.9	2.3
Total	100.0	100.0

ANALYSIS OF CHANGE IN NET ASSET VALUE

Year ended 31 March 2011	£m	£m	Pence per share	Pence per share
Gains/(losses):
Quoted equities	17.7		11.5
Long equity funds	56.7		36.9
Hedge funds	(5.4)		(3.5)
Unquoted direct	30.7		19.9
Unquoted funds	30.0		19.5
Real assets	67.8		44.0
Absolute return, fixed income and currency	13.7		8.9
	------		------
		211.2		137.2
Movements on liquidity/borrowings, and
other income		(1.4)		(0.8)
Administrative expenses	(20.7)		(13.4)
Investment management fees	(6.6)		(4.3)
	------		------
		(27.3)		(17.7)
Finance costs	(14.6)		(9.5)
Taxation	3.9		2.5
	------		------
		(10.7)		(7.0)
Profit for the year		171.8		111.7
Dividend	(6.2)		(4.0)
Other reserve movements	2.7		1.6
	------		------
		(3.5)		(2.4)
Increase in net asset value		168.3		109.3

CONSOLIDATED INCOME STATEMENT

	For the year ended 31 March 2011
		Revenue return £m	Capital return £m	Total £m
Income
Investment income		35.4	-	35.4
Other income		1.1	-	1.1
Gains on dealing investments held at fair value		0.1	-	0.1
Total income		36.6	-	36.6
Gains on portfolio investments held at fair value		-	175.1	175.1
Exchange gains/(losses) on monetary items and borrowings		-	(1.9)	(1.9)
		36.6	173.2	209.8
Expenses
Administrative expenses		(17.2)	(3.5)	(20.7)
Investment management fees		(3.3)	(3.3)	(6.6)
Profit before finance costs and tax		16.1	166.4	182.5
Finance costs		(14.6)	-	(14.6)
Profit before tax		1.5	166.4	167.9
Taxation		3.9	-	3.9
Profit for the year		5.4	166.4	171.8
Earnings per ordinary share		3.5p	108.2p	111.7p

The total column of this statement represents the Group's Income Statement, prepared in accordance with International Financial Reporting Standards (IFRS).  The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies.  All items in the above statement derive from continuing operations.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

	For the year ended 31 March 2011
		Revenue return £m	Capital return £m	Total £m
Profit for the year		5.4	166.4	171.8
Other comprehensive income:
Exchange movements arising on consolidation		(0.2)	-	(0.2)
Actuarial loss in defined benefit pension plan		(0.5)	-	(0.5)
Total comprehensive income for the year		4.7	166.4	171.1

The amounts included above are net of tax where applicable.

CONSOLIDATED INCOME STATEMENT

	For the year ended 31 March 2010
		Revenue return £m	Capital return £m	Total £m
Income
Investment income		33.5	-	33.5
Other income		1.4	-	1.4
Gains on dealing investments held at fair value		92.6	-	92.6
Total income		127.5	-	127.5
Gains on portfolio investments held at fair value		-	398.1	398.1
Exchange gains/(losses) on monetary items and borrowings		-	13.4	13.4
		127.5	411.5	539.0
Expenses
Administrative expenses		(18.1)	(3.6)	(21.7)
Investment management fees		(5.3)	(2.4)	(7.7)
Profit before finance costs and tax		104.1	405.5	509.6
Finance costs		(23.6)	-	(23.6)
Profit before tax		80.5	405.5	486.0
Taxation		(13.7)	0.3	(13.4)
Profit for the year		66.8	405.8	472.6
Earnings per ordinary share		43.3p	263.0p	306.3p

The total column of this statement represents the Group's Income Statement, prepared in accordance IFRS.  The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies.  All items in the above statement derive from continuing operations.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

	For the year ended 31 March 2010
		Revenue return £m	Capital return £m	Total £m
Profit for the year		66.8	405.8	472.6
Other comprehensive income:
Exchange movements arising on consolidation		(0.2)	-	(0.2)
Actuarial loss in defined benefit pension plan		(0.2)	-	(0.2)
Total comprehensive income for the year		66.4	405.8	472.2

The amounts included above are net of tax where applicable.

CONSOLIDATED BALANCE SHEET

	31 March 2011 £m	31 March  2010 £m
Non-current assets
Investments held at fair value	2,139.7	1,964.4
Investment property	35.5	33.4
Property, plant and equipment	0.4	0.4
Retirement benefit asset	0.5	-
Deferred tax asset	3.1	0.7
	2,179.2	1,998.9
Current assets
Dealing investments held at fair value	12.6	33.5
Sales for future settlement	11.3	4.9
Derivative financial instruments	11.2	8.8
Other receivables	7.6	14.0
Tax receivable	2.8	0.7
Cash at bank	65.6	115.3
	111.1	177.2
Total assets	2,290.3	2,176.1
Current liabilities
Bank loans and overdrafts	(249.0)	(157.6)
Purchases for future settlement	(10.6)	(18.6)
Derivative financial instruments	(25.9)	(25.3)
Provisions	(2.0)	(1.7)
Tax payable	-	(7.1)
Other payables	(7.2)	(3.4)
	(294.7)	(213.7)
Net current (liabilities)/assets	(183.6)	(36.5)
Total assets less current liabilities	1,995.6	1,962.4
Non-current liabilities
Derivative financial instruments	(1.0)	(5.3)
Bank loans	-	(133.6)
Provisions	(10.1)	(7.3)
Finance lease liability	(0.5)	(0.5)
	(11.6)	(146.7)
Net assets	1,984.0	1,815.7
Equity attributable to equity holders
Called up share capital	153.9	153.9
Capital redemption reserve	36.3	36.3
Cash flow hedging reserve	-	(3.4)
Foreign currency translation reserve	0.2	0.4
Capital reserve	1,733.4	1,567.0
Revenue reserve	60.2	61.5
Total shareholders’ equity	1,984.0	1,815.7
Net asset value per ordinary share	1,289.4p	1,180.1p

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 31 March 2011	Share capital £m	Capital redemption reserve £m	Cash flow hedging reserve £m	Foreign currency translation reserve £m	Capital reserve £m	Revenue reserve £m	Total £m
Balance at 31 March 2010	153.9	36.3	(3.4)	0.4	1,567.0	61.5	1,815.7
Profit for the year	-	-	-	-	166.4	5.4	171.8
Cash flow hedges:
Losses taken to equity	-	-	-	-	-	-	-
Transferred to the income   statement for the year	-	-	3.4	-	-	-	3.4
Ordinary dividend paid	-	-	-	-	-	(6.2)	(6.2)
Purchase of own shares	-	-	-	-	-	-	-
Other comprehensive income:
Exchange movements   arising on consolidation	-	-	-	(0.2)	-	-	(0.2)
Actuarial loss in defined   benefit pension plan	-	-	-	-	-	(0.5)	(0.5)
Balance at 31 March 2011	153.9	36.3	-	0.2	1,733.4	60.2	1,984.0

Year ended 31 March 2010	Share capital £m	Capital redemption  reserve £m	Cash flow hedging reserve £m	Foreign currency translation reserve £m	Capital reserve £m	Revenue reserve £m	Total £m
Balance at 31 March 2009	154.5	35.7	(13.7)	0.6	1,166.9	6.5	1,350.5
Profit for the year	-	-	-	-	405.8	66.8	472.6
Cash flow hedges:
Losses taken to equity	-	-	-	-	-	-	-
Transferred to the income   statement for the year	-	-	10.3	-	-	-	10.3
Ordinary dividend paid	-	-	-	-	-	(11.6)	(11.6)
Purchase of own shares	(0.6)	0.6	-	-	(5.7)	-	(5.7)
Other comprehensive income:
Exchange movements arising   on consolidation	-	-	-	(0.2)	-	-	(0.2)
Actuarial loss in defined   benefit pension plan	-	-	-	-	-	(0.2)	(0.2)
Balance at 31 March 2010	153.9	36.3	(3.4)	0.4	1,567.0	61.5	1,815.7

CONSOLIDATED CASH FLOW STATEMENT

	Year ended    31 March 2011  £m	Year ended  31 March 2010  £m
Cash (outflow)/inflow from operating activities	(35.3)	71.2
Investing activities:
Purchase of property, plant and equipment	(0.3)	(0.3)
Sale of property, plant and equipment	-	-
Net cash outflow from investing activities	(0.3)	(0.3)
Financing activities:
Buy-back of ordinary shares	-	(5.7)
Decrease in term loans	(133.6)	(171.7)
Equity dividend paid	(6.2)	(11.6)
Net cash outflow from financing activities	(139.8)	(189.0)
Decrease in cash and cash equivalents in the year	(175.4)	(118.1)
Cash and cash equivalents at the start of the year	27.4	149.6
Effect of foreign exchange rate changes	(1.9)	(4.1)
Cash and cash equivalents at the year-end	(149.9)	27.4
Reconciliation:
Cash at bank	65.6	115.3
Money market funds (included in investments held at fair value)	33.5	69.7
Bank loans and overdrafts	(249.0)	(157.6)
Cash and cash equivalents at the year-end	(149.9)	27.4

 

NOTES

EARNINGS PER ORDINARY SHARE

The earnings per ordinary share for the year ended 31 March 2011 is based on the net profit of £171.8 million (31 March 2010: £472.6 million) and the weighted average number of ordinary shares in issue during the period of 153.9 million (31 March 2010: 154.3 million).

The earnings per ordinary share figure detailed above can be further analysed between revenue and capital as set out below:

	Year ended 31 March 2011 £m	Year ended 31 March 2010 £m
Net revenue profit	5.4	66.8
Net capital profit	166.4	405.8
	171.8	472.6
	Pence per share	Pence per share
Revenue earnings per ordinary share	3.5	43.3
Capital earnings per ordinary share	108.2	263.0
	111.7	306.3

 

NET ASSET VALUE PER ORDINARY SHARE

The net asset value per ordinary share as at 31 March 2011 of 1,289.4p (31 March 2010: 1,180.1p) is based on the net assets attributable to the equity shareholders of £1,984.0 million (31 March 2010: £1,815.7 million) and the number of ordinary shares in issue at 31 March 2011 of 153.9 million (31 March 2010: 153.9 million).

DIVIDEND

Years ended 31 March	2011 Pence per share	2010 Pence per share	2011 £m	2010 £m
Interim and final dividends paid in year	4.0	7.5	6.2	11.6

BASIS OF PRESENTATION

The financial information contained in this announcement has been prepared on the basis of the accounting policies set out in the statutory accounts for the year ended 31 March 2011.  Whilst the financial information included in this announcement has been computed in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRS.  The financial information does not constitute the Company's statutory accounts for the years ended 31 March 2011 or 31 March 2010, but is derived from those accounts. Statutory accounts for the year ended 31 March 2010 have been delivered to the Registrar of Companies and those for the year ended 31 March 2011 will be delivered following the Company's annual general meeting.  The auditors have reported on those accounts: their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498(2) or (3) of the Companies Act 2006.

ANNUAL REPORT

It is intended that the Company's Annual Report and Accounts for the year ended 31 March 2011 will be posted to shareholders on or around Friday 10 June.  Copies of this announcement and the Annual Report and Accounts will be available to the public at the Company's registered office at 27 St James's Place, London SW1A 1NR.

A copy of the Company's Annual Report and Accounts is available on the Company's website at www.ritcap.co.uk.

Contact: Mikael Breuer-Weil, Investment Director - 020 7647 8589.

 

END

 

 

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