Final Results

Ruffer Investment Company Limited 03 October 2006 RUFFER INVESTMENT COMPANY LIMITED Chairman's Review For the year ended 30 June 2006 Performance The Company's investment portfolio earned a total return, after all expenses, of just over 7% compared to the objective return of 9.0%, being twice the time weighted Bank of England base rate in the year to 30 June 2006. Details are given in the Investment Manager's Report. Earnings and Dividend Earnings for the year were 5.18p per share, of which 2.15p relates to revenue. A dividend of 0.5p per share was paid on 7 September 2005 to 50,000,000 shareholders. Subsequent to the 'C' Share issue an interim dividend of 0.5p per share was paid to 106,117,074 shareholders on 25 April 2006. The final dividend of 0.5p was declared on 19 September 2006 and will be paid on 13 October 2006. Share Price Throughout the year the shares traded at a premium to their Net Asset Value (NAV). At 30 June 2006 the premium was 6.3% over the NAV. Share Buyback Authority With its shares trading at a premium to NAV throughout the year, the Company had no need to use its share buy back authority. However, renewal of the authority will be sought at the Annual General Meeting with a view to enabling the Directors to minimise any discount to NAV at which the shares may trade in the future. 'C' Share Issue In light of the Company's performance and following discussions with our Investment Manager, the Directors proposed to shareholders that the size of the Company be increased by the issue of up to 75 million shares at NAV. 67,500,000 'C' shares were issued on 29 September 2005 year. The holdings in 'C' shares were then converted into 56,117,074 redeemable participating preference shares on 12 December 2005. The expense of this issue fell solely on the new shareholders. Annual General Meeting The Annual General Meeting of the Company will be held on 30 October 2006 at the Company's registered office at Trafalgar Court, St Peter Port, Guernsey. John de Havilland Chairman 3 October 2006 Investment Manager's Report For the year ended 30 June 2006 Investment Objective The principal objective of the Company is to achieve a positive total annual return, after all expenses, of at least twice the Bank of England base rate (4.5 per cent as at 30 June 2006) by investing in internationally listed or quoted equities or equity related securities (including convertibles) and bonds which are issued by corporate issuers, supra-nationals or government organisations. Investment Review In the twelve month period from 30 June 2005 to 30 June 2006 the NAV rose 7.3% (net of fees and expenses and inclusive of a 1.0p dividend), compared to our objective of a return of 9.0%, being twice the time weighted Bank of England base rate over the period. Since launch on 8 July 2004 the NAV has risen by 23.4% (including dividends paid). The last six months have been disappointing as regards the performance of the Fund, with all the return coming in the first half of the year, up to 31 December 2005. The result has been a barely satisfactory return for investors, and considerably less so for the 'C' Shareholders who converted into the main fund in mid-December. The return to the latter for the nine month period has been only 2.6%. We allowed the portfolio to become too defensive in the early part of the year. Our high water point, on 7 April 2006, saw the portfolio barely 3% higher than at the end of December 2005. The portfolio was considerably more resilient thereafter, but the mischief was done. The lesson learned from this is that if one edges the portfolio too much towards a bullish scenario or (as here) a bearish outlook, one is punished when one is wrong. Some timely sales of commodity shares ahead of the May setback certainly helped the situation, and, looking ahead, we think that we are in a sound position going forward. What is that position? The most striking element of it is our investment in government bonds of three to five year maturity. Eleven percent of the portfolio is in Swiss Franc denominated short dated bonds, a similar amount in Norway and 24.8% in the UK. These are a positive bet, not a mere shrinking from the responsibility of risk. Paper of less than five year maturity has become an almost perfect reverse-correlated investment to protect from dislocative market conditions. Our strong belief is that interest rates will be reduced very sharply, as they were in the Russian debt crisis in the United States in 1988. The rise in short term interest rates means that the difference between today's rates and a post-dislocation level is even greater. The art is to own stocks of a duration where the full effect of the interest rate reduction will come through in enhanced capital value, and the damage done to longer duration bonds as risk assets has not yet taken away that primary advantage. Our next biggest bet is on currencies. Our belief is that the Swiss Franc (nearly 30% of the Fund) and the Norwegian Kroner (11% of the Fund) will be major beneficiaries of a flight to quality (note: one half of the exposure to these currencies is held in short dated government paper - beware of double counting!). Precious metals are a smaller part of the portfolio than they have been in the past, and we have been using the setback in these stocks to build them back up again. Currently about 6% of the portfolio is in these, half in bullion and half in stocks. The other resource play is concentrated into Canadian energy (2.8% of the portfolio) and a couple of exploration companies, adding a further 1.3% to the portfolio. Japan remains our biggest exposure to greed, representing 9.3% of the portfolio, and good stock picking here has meant that we have made more money than the markets imply. The riskiest end of the portfolio has been our foray into Taiwan, representing 4.2% of the portfolio. It got off to a good start, but rather let the side down by falling sharply in the bear phase of the market. We continue to think that the risk/reward is good, since the Taiwanese market is cheap for political reasons, and the semi-conductor opportunities there have more to do with third world usage of mobile telephones than Manhattan gadgetry. Nevertheless, a story which looked as though it was set fair for a burst of speed skated not so much into thin ice as treacle. Investment Outlook The setback in May and June was difficult for market participants because absolutely nothing went up, so the insurances of short bonds and currencies were both unsatisfactory: they proved to be catastrophe insurance, rather than general insurance policies; a standard market setback was not enough to make manifest their virtues. We have enough wind in our sails to make money if the dislocation is delayed for a longish period of time; if it strikes, we think that the bonds will be the most certain way of making money, that gold will be the best way of making money, and that currencies will be the crucible in which the dislocation will be played out. That is why we have the dispositions described. Ruffer Ruffer LLP 19 July 2006 Top Ten Holdings As at 30 June 2006 Market % of Holding at Value Total Net Stock name Currency 30.06.06 £ Assets Austria 3% 21/08/2009 CHF 24,750,000 11,125,874 8.80 Treasury 4% 07/03/2009 GBP 11,300,000 11,073,887 8.76 Switzerland 3 1/2% 08/04/2033 CHF 16,800,000 8,149,010 6.45 Treasury 5 3/4% 07/12/2009 GBP 7,250,000 7,462,353 5.91 Norway 5 1/2% 15/05/2009 NOK 80,000,000 7,241,631 5.73 Treasury 4 3/4% 07/06/2010 GBP 7,000,000 6,987,330 5.53 Norway 6% 16/05/2011 NOK 70,000,000 6,572,417 5.20 Switzerland 4% 08/04/2028 CHF 12,240,000 6,220,757 4.92 Treasury 2 1/2% Index Linked 23/08/2011 GBP 1,500,000 4,011,585 3.17 Switzerland 4% 06/01/2049 CHF 6,400,000 3,389,683 2.68 Balance Sheet 30.06.06 30.06.05 £ £ ASSETS Cash and cash equivalents 6,190,457 138,396 Receivables 1,483,682 699,050 Financial assets at fair value through profit or loss 119,449,349 55,562,965 --------- --------- Total Assets 127,123,488 56,400,411 --------- --------- EQUITY Capital and reserves attributable to the Company's shareholders Management share capital 2 2 Net assets attributable to holders of redeemable participating preference shares 126,375,613 55,935,077 --------- --------- Total Equity 126,375,615 55,935,079 --------- --------- LIABILITIES Payables 747,873 465,332 --------- --------- Total Liabilities 747,873 465,332 --------- --------- --------- --------- Total Equity and Liabilities 127,123,488 56,400,411 --------- --------- Net assets attributable to holders of redeemable participating preference shares (per share) 1.191 1.119 --------- --------- Statement of Operations 01.07.05 to 01.06.04 to 30.06.06 30.06.05 Revenue Capital Total Total £ £ £ £ Bank interest income 381,418 - 381,418 198,573 Fixed interest income 2,054,836 - 2,054,836 1,099,072 Dividend income 631,541 - 631,541 332,244 Net gains on financial assets at fair value through profit or loss - 3,479,996 3,479,996 6,305,405 Other gains 124,722 138,855 263,577 318,992 --------- -------- --------- --------- Total investment income 3,192,517 3,618,851 6,811,368 8,254,286 --------- -------- --------- --------- Management fees (274,173) (822,518) (1,096,691) (515,733) Expenses (901,770) (135) (901,905) (759,852) --------- -------- --------- --------- Total operating expenses (1,175,943) (822,653) (1,998,596) (1,275,585) --------- -------- --------- --------- --------- -------- --------- --------- Operating profit before taxation 2,016,574 2,796,198 4,812,772 6,978,701 --------- -------- --------- --------- Withholding tax (28,113) - (28,113) (143,624) Operating profit after taxation and increase in net assets attributable to holders of redeemable participating --------- -------- --------- --------- preference shares 1,988,461 2,796,198 4,784,659 6,835,077 --------- -------- --------- --------- Earnings per share * 2.15p 3.03p 5.18p 13.67p *Earnings per share is based on the weighted average number of redeemable participating preference shares. The weighted average number of shares for the year is 92,279,987. Statement of Changes in Equity 01.07.05 to 01.06.04 to 30.06.06 30.06.05 £ £ Net assets attributable to holders of redeemable participating preference shares at the start of the year/period 55,935,077 - Movement due to issues and redemptions of shares: Proceeds from redeemable participating preference shares issued 66,436,462 49,350,000 --------- --------- Net increase from share transactions 66,436,462 49,350,000 --------- --------- Increase in net assets attributable to holders of redeemable participating preference shares from operations 4,784,659 6,835,077 Distributions to holders of redeemable participating preference shares (780,585) (250,000) Increase in net assets attributable to holders of redeemable --------- --------- --------- --------- participating preference shares from operations (after distributions) 4,004,074 6,585,077 --------- --------- Net assets attributable to holders of redeemable participating preference shares at the end of the year/period 126,375,613 55,935,077 --------- --------- Cash Flow Statement 01.07.05 to 01.06.04 to 30.06.06 30.06.05 £ £ Cash flows from operating activities Purchase of financial assets and settlement of financial liabilities (104,059,163) (68,344,103) Proceeds from sale of investments (including realised gains) 43,077,487 19,087,977 Amounts paid to brokers (180,098) (134,210) Bank interest received 355,866 198,573 Fixed interest income received 1,633,111 681,153 Dividends received 612,075 305,847 Withholding tax (28,113) (151,204) Operating expenses paid (1,388,886) (833,291) ----------- ---------- Net cash utilised in operating activities (59,977,721) (49,189,258) ----------- ---------- Cash flows from financing activities Dividends paid (780,585) (250,000) Proceeds from issue of 'C' shares/redeemable participating preference shares 67,500,000 50,000,000 Issue expenses relating to issue of 'C' shares/redeemable participating preference shares (1,044,548) (650,000) ----------- ---------- Net cash flow from financing activities 65,674,146 49,100,000 ----------- ---------- Net increase/(decrease) in cash and cash equivalents 5,697,146 (89,258) Cash and cash equivalents at beginning of year 138,396 - Exchange gains on cash and cash equivalents 354,915 227,654 ----------- ---------- Cash and cash equivalents at end of year/period 6,190,457 138,396 ----------- ---------- This information is provided by RNS The company news service from the London Stock Exchange EES

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