Half-year Report

RNS Number : 9782W

RIT Capital Partners PLC

07 August 2018

 

07 August 2018

RIT Capital Partners plc

Results for the half year ended 30 June 2018

RIT Capital Partners plc today published its results for the half year ended 30 June 2018.

Financial Highlights:

·      Total net assets at 30 June 2018 reached £2.9 billion

·      Growth in net assets of £92 million (before distributions) for the period

·      Net asset value (NAV) total return of 3.2% for the period

·      NAV per share 1,882 pence at 30 June 2018

·      Market value of the Company now exceeds £3.2 billion

Performance Highlights:

·      Cautious portfolio positioning with an emphasis on capital preservation

·      Returns achieved with prudent net quoted equity exposure, averaging 47% over the period

·      Strong contribution from the Private Investments portfolio

·      Single stocks and equity hedge funds performed ahead of the relevant market index

·      Continued steady returns from Absolute Return and Credit portfolio

Dividends:

·      Dividend paid in April of 16.5 pence per share

·      The Board has declared a dividend of 16.5 pence per share for October

·      This represents an increase of 3.1% over the previous year's dividend

Summary:

·      Over the last five years, net assets have grown by over £1 billion (before dividends)

·      Over the same five-year period, the share price total return was 96%

·      Since inception, RIT has now participated in 75% of market upside but only 39% of market declines

·      Over the same period, total shareholder return has compounded at 12.6% per annum compared to the MSCI ACWI of 7.0%

·      £10,000 invested in RIT at inception in 1988 would be worth £350,000 today compared to the same amount invested in the MSCI ACWI which would be worth £76,000

Commenting, Lord Rothschild, Chairman of RIT Capital Partners plc, said:

"Your Company's net asset value at the end of June had risen to 1,882 pence per share. This represents a total return, including the 16.5 pence interim dividend, of 3.2% for the half year. Over the same period, your Company's share price increased by 6.2% on a total return basis, resulting in the market value of the Company exceeding £3.2 billion.

During a volatile six months for markets, we maintained our cautious approach, with a net quoted equity exposure averaging 47%...

Many of the world's economies have enjoyed a broad-based acceleration not seen since the aftermath of the financial crisis of 2008, with as many as 120 countries seeing stronger growth last year. Advanced economies and the corporate sector continue to do well, particularly in the US with full employment, growth of around 2%, and with its corporate sector likely to show profit growth in excess of 20% in the second quarter of the year. Emerging markets in Asia, including China and India, are expected to grow strongly at around 6.5% in 2018/19.

However, we continue to believe that this is not an appropriate time to add to risk. Current stock market valuations remain high by historical standards, inflated by years of low interest rates and the policy of quantitative easing which is now coming to an end.

The cycle is in its tenth positive year, the longest on record. We are now seeing some areas of weaker growth emerge; indeed the IMF has recently predicted some slowdown. The problems confronting the Eurozone are of concern - both political and economic - given the potentially destructive levels of debt in a number of countries. The likelihood of trade wars has increased tension and the impact on equities has been marked… Problems are likely to continue in emerging markets, compounded by rising interest rates and the US Fed's monetary policy which has drained global dollar liquidity…

The resolution of these problems in this unpredictable era will surely be difficult. In 9/11 and in the 2008 financial crisis, the powers of the world worked together with a common approach. Co-operation today is proving much more difficult. This puts at risk the post-war economic and security order."

Please click here to view the Company's Half-Yearly Financial Report:
http://www.rns-pdf.londonstockexchange.com/rns/9782W_1-2018-8-6.pdf

ENQUIRIES:

Brunswick Group LLP:

Tom Burns / Patrick Rutherford [phone]

About RIT Capital Partners plc:

RIT Capital Partners plc is an investment company listed on the London Stock Exchange.  Its net assets have grown from £280 million on listing to over £2.9 billion today.  It is chaired by Lord Rothschild, whose family interests retain a significant holding.  www.ritcap.com

THE FOLLOWING IS EXTRACTED FROM THE COMPANY'S HALF-YEARLY FINANCIAL REPORT

FINANCIAL SUMMARY

			30 June 2018	31 December 2017	Change
Net assets			£2,925m	£2,858m	£67m
NAV per share1			1,882p	1,839p	43p
Share price			2,065p	1,962p	103p
Premium			9.7%	6.7%	3.0%
First interim dividend paid			16.5p	16.0p	3.1%
Second interim dividend declared/paid			16.5p	16.0p	3.1%
Total dividend			33.0p	32.0p	3.1%
Gearing2			16.7%	13.0%	3.7%
NAV per share total return2					3.2%
Share price total return2					6.2%
RPI3 plus 3.0% per annum					3.2%
MSCI All Country World Index4					1.4%
Performance History	6 Months	1 Year	3 Years	5 Years	10 Years
NAV per share total return	3.2%	7.4%	27.3%	54.4%	100.3%
Share price total return	6.2%	10.5%	40.8%	95.9%	117.6%
RPI plus 3.0% per annum	3.2%	6.4%	18.5%	30.2%	73.2%
MSCI All Country World Index	1.4%	10.0%	39.4%	73.7%	130.7%

¹ Diluted net asset value per share with debt held at fair value.

² Further information on the calculation of alternative performance measures can be found on page 85 of the Report and Accounts for the year ended 31 December 2017.

³ Retail Price Index.

⁴    The MSCI All Country World Index (ACWI) we have adopted is a total return index and is based on 50% of the ACWI measured in Sterling and 50% measured in local currencies.

CHAIRMAN'S STATEMENT

Your Company's net asset value at the end of June had risen to 1,882 pence per share. This represents a total return, including the 16.5 pence interim dividend, of 3.2% for the half year. Over the same period, your Company's share price increased by 6.2% on a total return basis, resulting in the market value of the Company exceeding £3.2 billion.

During a volatile six months for markets, we maintained our cautious approach, with a net quoted equity exposure averaging 47%. The quoted portfolio saw gains from many of our stocks and managers, offset to some extent by funds exposed to emerging markets. Private investments, particularly those in technology, made a useful contribution. The direct portfolio was particularly active, with the successful completion of the Rockefeller disposal and the Dropbox IPO. In addition, we made a new investment in Coupang, South Korea's leading online consumer business, and we increased our investment into Acorn, the coffee company which recently acquired Dr Pepper Snapple.

Our exposure to absolute return and credit assets continued to generate steady returns and on currencies, the net asset value benefited from the strengthened US Dollar.

Many of the world's economies have enjoyed a broad-based acceleration not seen since the aftermath of the financial crisis of 2008, with as many as 120 countries seeing stronger growth last year. Advanced economies and the corporate sector continue to do well, particularly in the US with full employment, growth of around 2%, and with its corporate sector likely to show profit growth in excess of 20% in the second quarter of the year. Emerging markets in Asia, including China and India, are expected to grow strongly at around 6.5% in 2018/19.

However, we continue to believe that this is not an appropriate time to add to risk. Current stock market valuations remain high by historical standards, inflated by years of low interest rates and the policy of quantitative easing which is now coming to an end.

The cycle is in its tenth positive year, the longest on record. We are now seeing some areas of weaker growth emerge; indeed the IMF has recently predicted some slowdown. The problems confronting the Eurozone are of concern - both political and economic - given the potentially destructive levels of debt in a number of countries. The likelihood of trade wars has increased tension and the impact on equities has been marked, for example by early July the Shanghai Composite Index had dropped some 22% from its peak in January. Problems are likely to continue in emerging markets, compounded by rising interest rates and the US Fed's monetary policy which has drained global dollar liquidity. We have already seen the impact on the Turkish and Argentinian currencies. We remain concerned about geo-political problems including Brexit, North Korea and the Middle East, at a time when populism is spreading globally.

The resolution of these problems in this unpredictable era will surely be difficult. In 9/11 and in the 2008 financial crisis, the powers of the world worked together with a common approach. Co-operation today is proving much more difficult. This puts at risk the post-war economic and security order.

In the circumstances our policy is to maintain our limited exposure to quoted equities and to enter into new commitments with great caution. Doubtless there will be opportunities in stock selection and through identifying gifted investment managers with specialised skills. In this context we are conscious of the economic potential in Asia, notably China, as well as the advances in innovation and technology.

Dividend

We paid a first interim dividend of 16.5 pence per share in April and have declared a second interim dividend of the same amount. This will be paid on 31 October to shareholders registered on 5 October and will provide shareholders with a total dividend in 2018 of 33 pence per share, a 3.1% increase over 2017.

Your Company's Board

As we announced at our AGM, we were delighted to welcome André Perold and Jeremy Sillem to our Board as non-executive Directors. André is the George Gunn Professor of Finance and Banking Emeritus at the Harvard Business School, having served at Harvard for more than thirty years. He is a Co-Founder, Managing Partner and Chief Investment Officer of HighVista Strategies, a Boston based investment firm. He is also a board member of the Vanguard Group and serves on the investment committee of the Partners Healthcare System. Jeremy is Managing Partner and Founder of Spencer House Partners, which provides corporate finance advice to asset and wealth management businesses. He was previously Executive Chairman of Bear Stearns International in London, prior to which he had a long career with Lazard in London and New York.

On shareholders' behalf, I would like to record my thanks to John Cornish, who retired from the Board at the April AGM. John provided over ten years of valuable service to your Company as a non-executive Director, as chair of the Audit and Risk Committee and the Valuation Committee, and as a member of the Conflicts and Remuneration Committees. We wish him well on his retirement.

It was with great sadness that we learnt that Mike Wilson passed away at the end of February this year. Mike was a non-executive Director until his retirement from the Board in October 2017 and I knew him for very many years, having co-founded what became St. James's Place plc with him in 1991. He will be greatly missed.

Rothschild
6 August 2018

Asset Allocation and Portfolio Contribution, six months to 30 June 2018

Asset Category	30 June 2018 % NAV	Contribution %
Quoted Equities1	56.8%	(0.1%)
Private Investments	22.3%	1.9%
Absolute Return & Credit	23.1%	0.6%
Real Assets	3.0%	0.0%
Government Bonds & Rates	2.0%	0.2%
Currency2	(0.9%)	1.0%
Total Investments	106.3%	3.6%
Liquidity, Borrowings & Other3	(6.3%)	(0.4%)
Total	100.0%	3.2%
Average Net Quoted Equity Exposure3	47%

¹  This category includes stocks, long-only and hedged equity funds, as well as derivatives. The Quoted Equity contribution reflects the average net quoted equity exposure during the period of 47%; this differs from % NAV as it reflects notional exposure through derivatives as well as adjustments for derivatives and/or liquidity held by managers.

²  Currency exposure is managed centrally on an overlay basis with the translation impact and the result of the currency hedging and overlay activity included in this category contribution.

³  The contribution for this category includes interest, mark-to-market movements on the fixed interest notes and expenses.

NET ASSET VALUE BY ASSET CATEGORY (%)

Asset Category	30 June 2018 % NAV	31 December 2017 % NAV
Quoted Equities	57%	56%
Private Investments	22%	22%
Absolute Return & Credit	23%	25%
Real Assets	3%	3%
Government Bonds & Rates	2%	0%
Currency	-1%	1%
Liquidity, Borrowings & Other	-6%	-7%
Net Assets	100%	100%

Note: This table excludes exposure from derivatives.

CURRENCY EXPOSURE AS % OF NAV

Asset Category	30 June 2018 % NAV	31 December 2017 % NAV
US Dollar	29%	30%
Sterling	53%	47%
Euro	1%	12%
Japanese Yen	5%	0%
Other	12%	11%
Net Assets	100%	100%

Note: This table excludes exposure from currency options.

Consolidated Income Statement and Consolidated Statement of Comprehensive Income (unaudited)

Consolidated Income Statement

For the six months ended 30 June				2018			2017
£ million	Notes	Revenue	Capital	Total	Revenue	Capital	Total
Income and Gains
Investment income		11.0	-	11.0	12.3	-	12.3
Other income		2.5	-	2.5	6.3	-	6.3
Gains/(losses) on fair value investments		-	93.7	93.7	-	119.3	119.3
Gains/(losses) on monetary items and borrowings		-	6.7	6.7	-	(7.3)	(7.3)
		13.5	100.4	113.9	18.6	112.0	130.6
Expenses
Operating expenses		(9.2)	(2.7)	(11.9)	(11.1)	(2.5)	(13.6)
Profit/(loss) before finance costs and tax	2	4.3	97.7	102.0	7.5	109.5	117.0
Finance costs		(1.4)	(5.5)	(6.9)	(5.9)	-	(5.9)
Profit/(loss) before tax		2.9	92.2	95.1	1.6	109.5	111.1
Taxation		(1.0)	-	(1.0)	(0.5)	-	(0.5)
Profit/(loss) for the period		1.9	92.2	94.1	1.1	109.5	110.6
Earnings per ordinary share - basic	3	1.2p	59.8p	61.0p	0.7p	71.0p	71.7p
Earnings per ordinary share - diluted	3	1.2p	59.6p	60.8p	0.7p	70.7p	71.4p

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

Consolidated Statement of Comprehensive Income

For the six months ended 30 June			2018			2017
£ million	Revenue	Capital	Total	Revenue	Capital	Total
Profit/(loss) for the period	1.9	92.2	94.1	1.1	109.5	110.6
Other comprehensive income/(expense)
that will not be subsequently reclassified to profit or loss:
Revaluation gain/(loss) on property, plant and equipment	-	(0.3)	(0.3)	-	0.2	0.2
Actuarial gain/(loss) in defined benefit pension plan	1.1	-	1.1	1.0	-	1.0
Deferred tax (charge)/credit allocated to actuarial loss	(0.4)	-	(0.4)	(0.3)	-	(0.3)
Total comprehensive income/(expense) for the period	2.6	91.9	94.5	1.8	109.7	111.5

Consolidated Balance Sheet (unaudited)

		30 June	31 December
£ million	Notes	2018	2017
Non-current assets
Investments held at fair value		3,060.1	2,995.5
Investment property		36.3	36.1
Property, plant and equipment		27.5	27.9
Amounts owed by group undertakings		24.6	-
Deferred tax asset		1.8	3.1
Retirement benefit asset		3.1	1.8
Derivative financial instruments		16.1	6.4
		3,169.5	3,070.8
Current assets
Derivative financial instruments		33.7	49.2
Other receivables		219.7	123.3
Amounts owed by group undertakings		-	0.1
Cash at bank		49.1	122.9
		302.5	295.5
Total assets		3,472.0	3,366.3
Current liabilities
Borrowings		(275.0)	(275.0)
Derivative financial instruments		(47.7)	(9.8)
Other payables		(44.5)	(42.9)
Amounts owed to group undertakings		(11.6)	(11.7)
		(378.8)	(339.4)
Net current assets/(liabilities)		(76.3)	(43.9)
Total assets less current liabilities		3,093.2	3,026.9
Non-current liabilities
Borrowings		(159.5)	(163.2)
Derivative financial instruments		(5.6)	(2.4)
Provisions		(2.6)	(2.5)
Finance lease liability		(0.5)	(0.5)
		(168.2)	(168.6)
Net assets		2,925.0	2,858.3
Equity attributable to owners of the Company
Share capital		155.4	155.4
Share premium		17.3	17.3
Capital redemption reserve		36.3	36.3
Own shares reserve		(12.0)	(17.6)
Share-based payment reserve		-	4.6
Capital reserve		2,711.8	2,648.4
Revenue reserve		(0.1)	(2.7)
Revaluation reserve		16.3	16.6
Total equity		2,925.0	2,858.3
Net asset value per ordinary share - basic	4	1,887p	1,847p
Net asset value per ordinary share - diluted	4	1,882p	1,839p

Consolidated Statement of Changes in Equity (unaudited)

					Share-
			Capital	Own	based
Period ended 30 June 2018	Share	Share	redemption	shares	payment	Capital	Revenue	Revaluation	Other	Total
£ million	capital	premium	reserve	reserve	reserve	reserve	reserve	reserve	reserves	equity
Balance at 1 January 2018	155.4	17.3	36.3	(17.6)	4.6	2,648.4	(2.7)	16.6	-	2,858.3
Profit/(loss) for the period	-	-	-	-	-	92.2	1.9	-	-	94.1
Revaluation gain/(loss) on property, plant
and equipment	-	-	-	-	-	-	-	(0.3)	-	(0.3)
Actuarial gain/(loss) in defined
benefit plan	-	-	-	-	-	-	1.1	-	-	1.1
Deferred tax (charge)/credit
relating to pension plan	-	-	-	-	-	-	(0.4)	-	-	(0.4)
Total comprehensive
income/(expense) for the period	-	-	-	-	-	92.2	2.6	(0.3)	-	94.5
Dividends paid (note 5)	-	-	-	-	-	(25.5)	-	-	-	(25.5)
Movement in Own shares reserve	-	-	-	5.6	-	-	-	-	-	5.6
Movement in Share-based
payment reserve	-	-	-	-	(7.9)	-	-	-	-	(7.9)
Transfer to Capital reserve	-	-	-	-	3.3	(3.3)	-	-	-	-
Balance at 30 June 2018	155.4	17.3	36.3	(12.0)	-	2,711.8	(0.1)	16.3	-	2,925.0
					Share-
			Capital	Own	based
Period ended 30 June 2017	Share	Share	redemption	shares	payment	Capital	Revenue	Revaluation	Other	Total
£ million	capital	premium	reserve	reserve	reserve	reserve	reserve	reserve	reserves	equity
Balance at 1 January 2017	155.4	17.3	36.3	(14.4)	7.5	2,471.6	1.1	17.0	0.3	2,692.1
Profit/(loss) for the period	-	-	-	-	-	109.5	1.1	-	-	110.6
Revaluation gain/(loss) on property, plant
and equipment	-	-	-	-	-	-	-	0.2	-	0.2
Actuarial gain/(loss) in defined
benefit plan	-	-	-	-	-	-	1.0	-	-	1.0
Deferred tax (charge)/credit
relating to pension plan	-	-	-	-	-	-	(0.3)	-	-	(0.3)
Total comprehensive
income/(expense) for the period	-	-	-	-	-	109.5	1.8	0.2	-	111.5
Dividends paid (note 5)	-	-	-	-	-	(24.7)	-	-	-	(24.7)
Movement in Own shares reserve	-	-	-	(4.6)	-	-	-	-	-	(4.6)
Movement in Share-based
payment reserve	-	-	-	-	(3.2)	-	-	-	-	(3.2)
Balance at 30 June 2017	155.4	17.3	36.3	(19.0)	4.3	2,556.4	2.9	17.2	0.3	2,771.1

Consolidated Cash Flow Statement (unaudited)

	Six months	Six months
	ended	ended
	30 June	30 June
£ million	2018	2017
Cash flows from operating activities:
Cash inflow/(outflow) before interest	(38.9)	75.1
Interest paid	(6.9)	(5.9)
Net cash inflow/(outflow) from operating activities	(45.8)	69.2
Cash flows from investing activities:
Purchase of property, plant and equipment	(0.2)	-
Disposal of subsidiary	3.0	-
Net cash inflow/(outflow) from investing activities	2.8	-
Cash flows from financing activities:
Purchase of ordinary shares by Employee Benefit Trust1	(4.6)	(10.9)
Equity dividend paid	(25.5)	(24.7)
Net cash inflow/(outflow) from financing activities	(30.1)	(35.6)
Increase/(decrease) in cash and cash equivalents in the period	(73.1)	33.6
Cash and cash equivalents at the start of the period	122.9	170.5
Effect of foreign exchange rate changes on cash and cash equivalents	(0.7)	(0.3)
Cash and cash equivalents at the period end	49.1	203.8

¹    Shares are disclosed in 'Own shares reserve' on the Consolidated Balance Sheet.

Notes to the Financial Statements

1. Basis of Accounting

These condensed financial statements are the half-yearly consolidated financial statements of RIT Capital Partners plc (RIT or the Company) and its subsidiaries (together, the Group) for the six months ended 30 June 2018. They are prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority, and with International Accounting Standard (IAS) 34, Interim Financial Reporting, as adopted by the European Union, and were approved on 6 August 2018. These half-yearly consolidated financial statements should be read in conjunction with the Report and Accounts for the year ended 31 December 2017, which were prepared in accordance with IFRSs, as adopted by the European Union, as they provide an update of previously reported information.

The half-yearly consolidated financial statements have been prepared in accordance with the accounting policies set out in the notes to the consolidated financial statements for the year ended 31 December 2017 except as described below.

IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers became mandatory for the period beginning on 1 January 2018. Adoption of these standards has had no impact on the Group's financial performance or position for the reasons disclosed in the Report and Accounts for the year ended 31 December 2017.

During the period under review the movement in equity arising under IFRS 2 Share-based Payment has been applied to the capital reserve, to better reflect the nature of the Group's share-based payment awards and to simplify disclosure. There is no change to the Group's financial performance or position as a result of this treatment.

During the period under review the Board has decided to alter the allocation of finance costs between the revenue and the capital columns in the income statement to better reflect the expected split of future returns between income and capital.

Whereas previously all finance costs were allocated to the revenue column, from 1 January 2018 the proportional split is:

●              Revenue 20%

●              Capital 80%

The change in allocation is not a change in accounting policy.

Critical Accounting Assumptions and Judgements

As further described in the Report and Accounts for the year ended 31 December 2017, areas requiring a higher degree of judgement or complexity and areas where assumptions and estimates are significant to the consolidated financial statements, are in relation to:

●              The valuation of property;

●              Share-based payments; and

●              The valuation of private investments.

Direct private investments are valued at management's best estimate of fair value in accordance with IFRSs, having regard to International Private Equity and Venture Capital Valuation Guidelines as recommended by the British Private Equity & Venture Capital Association. The inputs into the valuation methodologies adopted include observable historical data such as earnings or cash flow as well as more subjective data such as earnings forecasts or discount rates. As a result of this, the determination of fair value requires significant management judgement.

2. Business and Geographical Segments

For the six months ended 30 June 2018, the Group is considered to have three principal operating segments as follows:

		AUM1
Segment	Business	£ million	Employees1
RIT	Investment trust	-	-
JRCM2	Asset manager/administration	2,925	47
SHL3	Events/premises management	-	13

For the six months ended 30 June 2017, the Group was considered to have four principal operating segments as follows:

		AUM1
Segment	Business	£ million	Employees1
RIT	Investment trust	-	-
JRCM2	Asset manager/administration	2,771	44
SHL3	Events/premises management	-	13
GVQ4	Asset manager	709	10

¹    At 30 June.

²    J. Rothschild Capital Management Limited.

³    Spencer House Limited.

⁴    GVQ Investment Management Limited.

Key financial information for the six months ended 30 June is as follows:

		2018			2017
	Income/	Operating		Income/	Operating
£ million	Gains1	Expenses1	Profit2	Gains1	Expenses1	Profit2
RIT	114.1	(17.6)	96.5	126.2	(17.9)	108.3
JRCM	15.1	(9.7)	5.4	15.7	(9.0)	6.7
SHL	1.8	(1.7)	0.1	1.8	(1.5)	0.3
GVQ	-	-	-	4.4	(2.7)	1.7
Adjustments3	(17.1)	17.1	-	(17.5)	17.5	-
Total	113.9	(11.9)	102.0	130.6	(13.6)	117.0

¹    Includes intra-group income and expenses.

²    Profit before finance costs and tax.

³    Consolidation adjustments in accordance with IFRS 10 Consolidated Financial Statements.

The Group's operations are all based in the UK.

Of the Income/Gains reported above, the amount of revenue arising from contracts with external customers is £1.2 million (six months ended 30 June 2017: £5.8 million).

3. Earnings/(Loss) Per Ordinary Share - Basic and Diluted

The basic earnings per ordinary share for the six months ended 30 June 2018 is based on the profit of £94.1 million (six months ended 30 June 2017: profit of £110.6 million) and the weighted average number of ordinary shares in issue during the period of 154.4 million (six months ended 30 June 2017: 154.2 million). The weighted average number of shares is adjusted for shares held in the Employee Benefit Trust in accordance with IAS 33.

	Six months	Six months
	ended	ended
£ million	30 June 2018	30 June 2017
Net revenue profit/(loss)	1.9	1.1
Net capital profit/(loss)	92.2	109.5
Total profit/(loss) for the period	94.1	110.6
	Six months	Six months
	ended	ended
pence	30 June 2018	30 June 2017
Revenue earnings/(loss) per ordinary share - basic	1.2	0.7
Capital earnings/(loss) per ordinary share - basic	59.8	71.0
Total earnings per ordinary share - basic	61.0	71.7

The diluted earnings per ordinary share for the period is based on the weighted average number of ordinary shares in issue during the period adjusted for the weighted average dilutive effect of share-based payment awards at the average market price for the period.

	Six months	Six months
	ended	ended
million	30 June 2018	30 June 2017
Weighted average number of shares in issue	154.4	154.2
Weighted average effect of share-based
payment awards	0.4	0.7
Total diluted shares	154.8	154.9
	Six months	Six months
	ended	ended
pence	30 June 2018	30 June 2017
Revenue earnings/(loss) per ordinary share - diluted	1.2	0.7
Capital earnings/(loss) per ordinary share - diluted	59.6	70.7
Earnings per ordinary share - diluted	60.8	71.4

4. Net Asset Value Per Ordinary Share - Basic and Diluted

Net asset value per ordinary share is based on the following data:

	30 June	31 December
	2018	2017
Net assets (£ million)	2,925.0	2,858.3
Number of shares in issue (million)	155.4	155.4
Own shares (million)	(0.3)	(0.6)
Basic shares (million)	155.1	154.8
Effect of share-based payment
awards (million)	0.4	0.6
Diluted shares (million)	155.5	155.4
	30 June	31 December
Pence per share	2018	2017
Net asset value per ordinary share - basic	1,887	1,847
Net asset value per ordinary share - diluted	1,882	1,839

5. Dividends

	Six months	Six months
	ended	ended
	30 June	30 June
	2018	2017
Dividends (£ million)	25.5	24.7
Dividends (pence per share)	16.5	16.0

The Board of Directors declared an interim dividend of 16.5 pence per ordinary share (£25.5 million) on 26 February 2018. This amount was paid on 30 April 2018. The Board has declared the payment of a second interim dividend of 16.5 pence per ordinary share (£25.5 million) in respect of the year ending 31 December 2018. This will be paid on 31 October 2018 to shareholders on the register on 5 October 2018.

A more detailed commentary may be found in the Chairman's Statement in the Report and Accounts for the year ended 31 December 2017.

6. Financial Instruments

IFRS 13 requires the Group to classify its financial instruments held at fair value using a hierarchy that reflects the significance of the inputs used in the valuation methodologies. These are as follows:

●              Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;

●              Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

●              Level 3: Inputs for the asset or liability that are not based on observable market data (i.e. unobservable inputs).

The vast majority of the Group's financial assets and liabilities and the investment properties are measured at fair value on a recurring basis.

The Group's policy is to recognise transfers into and transfers out of fair value hierarchy levels at the end of the reporting period when they are deemed to occur.

A description of the valuation techniques used by the Group with regard to investments categorised in each level of the fair value hierarchy is detailed below. Where the Group invests in a fund or a partnership, which is not itself listed on an active market, the categorisation of such investment between levels 2 and 3 is determined by reference to the nature of the underlying investments. If such investments are categorised across different levels, the lowest level that forms a significant proportion of the fund or partnership exposure is used to determine the reporting disclosure.

If the proportion of the underlying investments categorised between levels changes during the period, these will be reclassified to the most appropriate level.

Level 1

The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. The quoted market price used for financial assets held by the Group is the current bid price or the last traded price depending on the convention of the exchange on which the investment is quoted. Where a market price is available but the market is not considered active, the Group has classified these investments as level 2.

Level 2

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques which maximise the use of observable market data where it is available. Specific valuation techniques used to value OTC derivatives include quoted market prices for similar instruments, counterparty quotes and the use of forward exchange rates to estimate the fair value of forward foreign exchange contracts at the balance sheet date. Investments in externally-managed funds which themselves invest primarily in listed securities are valued at the price or net asset value released by the investment manager/fund administrator as at the balance sheet date.

Level 3

The Group considers all Private Investments, whether direct or funds, as level 3 assets, as the valuations of these assets are not based on observable market data. Where other funds invest into illiquid stocks, these are also considered by the Group to be level 3 assets.

For the private fund investments, fair value is deemed to be the capital statement account balance as reported by the General Partner (GP) of the investee fund, and which represents RIT's proportion of the fund's net asset value. Where such statements are dated prior to the period end, the valuation is adjusted for subsequent investments or distributions. A review is conducted annually in respect of the valuation bases of the investee funds to confirm these are valued in accordance with fair value methodologies.

The directly-held private investments are valued on a semi-annual basis using techniques including a market approach, cost approach and/or income approach. The valuation process involves the finance and investment functions, with the final valuations being reviewed by the Valuation Committee. The specific techniques used will typically include earnings multiples, discounted cash flow analysis, the value of recent transactions and, where appropriate, industry rules of thumb. The valuations will often reflect a synthesis of a number of distinct approaches in determining the final fair value estimate. The individual approach for each investment will vary depending on relevant factors that a market participant would take into account in pricing the asset. These might include the specific industry dynamics, the company's stage of development, profitability, growth prospects or risk as well as the rights associated with the particular security.

Borrowings at 30 June 2018 comprise bank loans and senior loan notes. The bank loans are revolving credit facilities, and are typically drawn in tranches with a duration of three months. The loans are therefore short-term in nature, and their fair value approximates their nominal value. The loan notes were issued in June 2015 with tenors of between 10 and 20 years with a weighted average of 16 years. They are valued on a monthly basis using a discounted cash flow model where the discount rate is derived from the yield of similar tenor UK government bonds, adjusted for any significant changes in either credit spreads or the perceived credit risk of the Company.

The fair value of investments in non-consolidated subsidiaries is considered to be the net asset value of the individual subsidiary as at the balance sheet date. The net asset value comprises various assets and liabilities which are fair valued on a recurring basis and is considered to be level 3.

On a semi-annual basis, the Group engages external, independent and qualified valuers to determine the fair value of the Group's properties, whether classified as investment properties or property, plant and equipment. These were valued at 30 June 2018 by JLL in accordance with the Valuation - Global Standards 2017 issued by the Royal Institution of Chartered Surveyors on the basis of open market value.

The following table analyses the Group's assets and liabilities within the fair value hierarchy at 30 June 2018:

As at 30 June 2018
£ million	Level 1	Level 2	Level 3	Total
Financial assets at fair value through profit or loss:
Portfolio investments	310.8	1,820.1	910.1	3,041.0
Non-consolidated subsidiaries	-	-	19.1	19.1
Investments held at fair value	310.8	1,820.1	929.2	3,060.1
Derivative financial instruments	5.2	44.7	-	49.9
Total financial assets at fair value through profit or loss	316.0	1,864.8	929.2	3,110.0
Non-financial assets measured at fair value:
Investment property	-	-	36.3	36.3
Total non-financial assets measured at fair value	-	-	36.3	36.3
Financial liabilities at fair value through profit or loss:
Borrowings	-	-	(434.5)	(434.5)
Derivative financial instruments	(7.6)	(45.7)	-	(53.3)
Total financial liabilities at fair value through profit or loss	(7.6)	(45.7)	(434.5)	(487.8)
Total net assets measured at fair value	308.4	1,819.1	531.0	2,658.5

The realised and unrealised gains and losses shown in the table below for level 3 assets are included in gains/(losses) on fair value investments in the Consolidated Income Statement.

Movement in level 3 assets

	Investments
Period ended 30 June 2018	held at fair	Investment
£ million	value	Property	Total
Opening Balance	912.8	36.1	948.9
Purchases	97.5	-	97.5
Sales	(122.4)	-	(122.4)
Realised gains/(losses) through profit or loss	5.6	-	5.6
Unrealised gains/(losses) through profit or loss	72.8	0.2	73.0
Reclassifications	(37.1)	-	(37.1)
Closing Balance	929.2	36.3	965.5

During the period, a directly-held private investment with a fair value of £37.1 million was reclassified from level 3 to level 1 as a result of an IPO thereby giving a quoted price. There were no reclassifications into or out of level 2.

Level 3 Assets - Direct Private Investments and Investment Property

Further information in relation to the directly-held private investments and investment property is set out in the following table. This summarises the portfolio by the primary method used in fair valuing the asset. As we seek to employ a range of valuation methods and inputs in the valuation process, selection of a primary method is subjective, and designed primarily to assist the subsequent sensitivity analysis.

Primary valuation method	30 June	31 December
£ million	2018	2017
Third-party valuations1	156.2	108.8
Earnings multiple	92.7	131.5
Third-party offer/Agreed sale	20.9	48.6
Discounted cash flow (DCF)	10.4	8.3
Other industry metrics	49.4	34.1
Total	329.6	331.3

¹    Included within third-party valuations is the investment property with a fair value of £36.3 million (2017: £36.1 million), valued by JLL.

For companies with positive earnings, we seek to utilise an earnings multiple approach, typically using EBITDA or similar. The earnings multiple is assessed by reference to similar listed companies or transactions involving similar companies. When an asset is undergoing a sale and the price has been agreed but not yet completed, we use the agreed price, often with a discount to reflect the risks associated with the transaction completing and/or any price adjustments. Other methods employed include DCF analysis and industry metrics such as multiples of assets under management or revenue, where market participants use these approaches in pricing assets. Where we have co-invested alongside a GP, we typically utilise the GP's valuation in a similar vein to the private funds.

In addition to the above assets, the non-consolidated subsidiaries are held at their fair value of £19.1 million (2017: £18.5 million) representing £30.3 million of portfolio investments (2017: £5.4 million) and £11.2 million of remaining net liabilities (2017: £13.1 million net assets).

The following table provides a sensitivity analysis of the valuation of directly-held private investments and investment property, and the impact on NAV:

Primary valuation method	Sensitivity analysis
Third-party valuations	A 5% change in the value of these assets would result in a £7.8 million (2017: £5.4 million) or 0.27% (2017: 0.19%) change in NAV.
Earnings multiple	If the multiple used for valuation purposes is increased or decreased by 5% then the NAV would increase/decrease by £4.6 million (2017: £6.6 million) or 0.16% (2017: 0.23%).
Third-party offer/ Agreed sale	A 5% change in the value of these assets would impact the NAV by £1.0 million (2017: £2.4 million) or 0.04% (2017: 0.08%).
DCF	A 1% increase/decrease in the underlying discount rate would result in a decrease/increase in the NAV of £0.5 million (2017: £0.3 million) or 0.02% (2017: 0.01%).
Other industry metrics	A 5% change in the value of these assets would result in a £2.5 million (2017: £1.7 million) or a 0.08% (2017: 0.06%) change in NAV.

The following table analyses the Group's assets and liabilities within the fair value hierarchy at 31 December 2017:

As at 31 December 2017
£ million	Level 1	Level 2	Level 3	Total
Financial assets at fair value through profit or loss:
Portfolio investments	218.9	1,863.8	899.7	2,982.4
Non-consolidated subsidiaries	-	-	13.1	13.1
Investments held at fair value	218.9	1,863.8	912.8	2,995.5
Derivative financial instruments	7.5	48.1	-	55.6
Total financial assets at fair value through profit or loss	226.4	1,911.9	912.8	3,051.1
Non-financial assets measured at fair value:
Investment property	-	-	36.1	36.1
Total non-financial assets measured at fair value	-	-	36.1	36.1
Financial liabilities at fair value through profit or loss:
Borrowings	-	-	(438.2)	(438.2)
Derivative financial instruments	(3.6)	(8.6)	-	(12.2)
Total financial liabilities at fair value through profit or loss	(3.6)	(8.6)	(438.2)	(450.4)
Total net assets measured at fair value	222.8	1,903.3	510.7	2,636.8

Movement in level 3 assets

	Investments
Year ended 31 December 2017	held at fair	Investment
£ million	value	Property	Total
Opening Balance	977.7	35.5	1,013.2
Purchases	71.9	-	71.9
Sales	(158.5)	-	(158.5)
Realised gains/(losses) through profit or loss	9.5	-	9.5
Unrealised gains/(losses) through profit or loss	(93.6)	0.6	(93.0)
Reclassifications	105.8	-	105.8
Closing Balance	912.8	36.1	948.9

7. Comparative Information

The financial information contained in this Half-Yearly Financial Report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The financial information for the half years ended 30 June 2018 and 30 June 2017 has been neither reviewed nor audited.

The information for the year ended 31 December 2017 has been extracted from the latest published audited financial statements. The audited financial statements for the year ended 31 December 2017 have been filed with the Registrar of Companies and the report of the auditors on those accounts contained no qualification or statement under section 498(2) or (3) of the Companies Act 2006.

Regulatory Disclosures

Statement of Directors' Responsibilities

In accordance with the Disclosure and Transparency Rules 4.2.4R, 4.2.7R and 4.2.8R, we confirm that to the best of our knowledge:

(a)       The condensed set of financial statements has been prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by the European Union, as required by the Disclosure and Transparency Rule 4.2.4R;

(b)       The Chairman's Statement includes a fair review of the information required to be disclosed under the Disclosure and Transparency Rule 4.2.7R, interim management report. This includes an indication of important events that have occurred during the first six months of the financial year, and their impact on the condensed set of financial statements presented in the Half-Yearly Financial Report. A further description of the principal risks and uncertainties for the remaining six months of the financial year is set out below; and

(c)       In addition, in accordance with the disclosures required under the Disclosure and Transparency Rule 4.2.8R, there were no changes in the transactions or arrangements with related parties as described in the Group's Report and Accounts for the year ended 31 December 2017 that would have had a material effect on the financial position or performance of the Group in the first six months of the current financial year.

Principal Risks and Uncertainties

The principal risks and uncertainties facing the Group for the second half of the financial year are substantially the same as those described in the Report and Accounts for the year ended 31 December 2017. These comprise:

●         Investment Strategy Risk;

●         Market Risk;

●         Liquidity Risk;

●         Credit Risk;

●         Key Person Dependency;

●         Legal & Regulatory Risk; and

●         Operational Risk.

As an investment company, the main risk is considered to be market risk.

Going Concern

The factors likely to affect the Group's ability to continue as a going concern were set out in the Report and Accounts for the year ended 31 December 2017. As at 30 June 2018, there have been no significant changes to these factors. Having reviewed the Company's forecasts and other relevant evidence, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half-yearly condensed financial statements.

Rothschild

6 August 2018

For and on behalf of the Board.

END OF HALF-YEARLY FINANCIAL REPORT EXTRACTS

 

END

 

 

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