Final Results

RNS Number : 6821N

RIT Capital Partners PLC

16 June 2010

 



15 June 2010

AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2010

FINANCIAL HIGHLIGHTS

	31 March 2010	31 March 2009	Change
Total Net Assets (£ million)	1,815.7	1,350.5	34.4%
Net Asset Value per Share	1,180.1p	874.3p	35.0%
Share Price	1,082.0p	831.0p	30.2%
(Discount)/premium	(8.3)%	(5.0)%

PERFORMANCE

	1 Year	5 Years	10 Years
RIT Capital Partners plc (Net Asset Value per Share)	35.0%	65.6%	131.8%
Morgan Stanley Capital International World Index (in £)	40.3%	29.6%	(12.1)%
FTSE All-Share Index	46.7%	18.4%	(6.4)%
Investment Trust Net Assets Index	38.2%	35.8%	20.7%

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

CHAIRMAN'S STATEMENT

Despite the extreme volatility of markets, I am pleased to report the progress made by your Company during the year under review.

In the year to 31 March 2010, your Company's net asset value per share ("NAV") appreciated by 35.0% to 1,180.1p.  This was a new high for our NAV, exceeding our previous NAV high in October 2007.  The Morgan Stanley Capital International World Index in Sterling, the most relevant index, rose by 40.3% over the year. The FTSE All-Share Index and the Investment Trust Net Assets Index rose by 46.7% and 38.2% respectively.

Our returns over the prior five and ten years now stand at 65.6% and 131.8% respectively in comparison with the MSCI World Index's returns in Sterling of 29.6% and -12.1%.

In just over a month since the middle of April, most major world markets slumped some 15%, with particular weakness in Continental Europe and China.  As a consequence, the MSCI World Index in Sterling has fallen by 7.5% and the FTSE All-Share by 9.1% since the end of March. Your Company's NAV per share was 1,140.0p on the 4 June, representing a decline of 3.4% over the same period.

Last year I said that when returns on cash were "negligible" the injection of government money into the system had caused investment in "public equities to become more compelling".  There was, in a sense, nowhere much else for money to go.  We increased our public market exposure to a peak level of 82%, having started the period under review with 37%.  We took positions in commodities and more cyclically exposed companies, as well as developing-economy markets and currencies.  Where we deployed capital, we earned attractive rates of return, generally in excess of relevant market returns. 

Currency positioning was an important and effective part of our strategy over the past year.  Having increased Sterling exposure significantly after its decline in 2008, we then anticipated events by scaling back both Sterling and the Euro, and increasing the US Dollar plus a number of Asian currencies pegged to the US Dollar.  At a time of extreme currency volatility we are sensitive to the impact that currencies can have on good investment decisions.  

Before the setback in May, we had reduced market exposure, with greater focus on cash-rich companies with strong global franchises.  For defensive reasons we had maintained a significant position in gold and gold shares, which at 4 June represented some 9% of our net assets.  We concentrated our emerging-market exposure on more domestically oriented investments.  New investments had previously been made in a number of hedge funds managed with a view to capital preservation.  After taking into account our liquidity, we have throughout remained unlevered, and indeed in May this year we repaid a £150 million bank loan. 

We face, looking to the future, an outlook and an uncertainty unlike much that we have been used to.  The scale of governments' borrowing, and central banks' quantitative easing, remains, as I remarked last year, "without precedent and surely dangerous" and yet it is hard to blame these public bodies for trying to ward off market collapse and recession.  The see-saws of markets derive from inherited debt and the 'cash-plenty' injected by central banks and governments to offset it: yet because there is still all but zero return available on cash, investors take risks as they seek higher returns.  Equity markets therefore swing violently upwards when they rise, and then too fiercely downwards when they fall.  The addiction to public and private debt earlier in the decade is being cured - or perhaps not cured - by still more public debt.  The recessionary threat brings present deflation; countering it with printed money makes future inflation likely. 

These stresses are global.  Every country and every market feels them to a varying degree.  In early summer, the spotlight turned on the Euro whose southern member countries had run levels of borrowing out of kilter with those of Germany and its northern neighbours: a problem exacerbated, indeed in part caused, by a Euro exchange rate more suited to Europe's north than its south.  There is a serious risk that the European Economic Monetary Union, with one central bank and sixteen separate national treasuries, will not be able to maintain the common currency peg.

Beyond Europe, the US economy in particular has shown encouraging signs of recovery.  The worst of the last crisis has passed, but it is an uncomfortable thought that more than 40% of global GDP comes from countries running fiscal deficits of 10% or more.  The printing of money and fiscal stimulus have helped to bring back growth.  Corporate earnings, helped by pent-up demand and the recovery, have been surprisingly good.  The question remains as to whether such profits will turn out to be transitory, rather than sustainable, as the stimulus programme wears off and spending cuts take their toll on growth.  We are of the view, however, that, in comparison with the yields available on government bonds, equities are likely to prove to be the preferred home for long-term investment.

Our approach remains clear: in markets like these our aim of preserving shareholders' capital takes precedence over short-term capital growth.  If that means we miss some periods of market strength we will bear the disappointment.  This is why RIT fared relatively well as markets fell both in the winter of 2008-09 and the past two or so months.  

If, in falling markets, our aim is to preserve capital, in better times I ask shareholders to note that our growth objective is long-term, not short.  We watch and indeed compare our performance with relevant indices like the MSCI World Index, and we reward our investment team in part by reference to it.  But we do not feel tied to a formal benchmark.  The success of this approach is evident from our record over several years rather than a single one.  It lies in caution, in combining a wide range of asset classes that correspond to no specific benchmarks, and in our extreme flexibility and pragmatism of investment approach so that we are positioned to take advantage of opportunities.  We include, for instance, opportunistic investments in unquoted entities from which shareholders have benefited significantly over time.

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 2010	% of  net assets at 31 March 2009
Quoted equities	39.2	29.5
Long equity funds	18.6	13.4
Hedge funds	7.8	1.2
Unquoted direct investments	10.2	17.5
Unquoted fund investments	10.5	11.3
Real assets	9.6	11.5
Absolute return, fixed income and currency	2.4	1.2
Liquidity	19.4	42.1
Borrowings	(16.8)	(28.4)
Other assets/(liabilities)	(0.9)	0.7
Total net assets	100.0	100.0

The table above contains three new categories: "Real assets", "Absolute return, fixed income and currency", and "Liquidity". 

UNQUOTED INVESTMENTS

During the year we reviewed a large number of unquoted investment opportunities.  We chose to invest in only a few of them, and shareholders should be aware of two in particular.

We will invest over time up to £60m in Agora, a newly-established oil and gas exploration and production company focusing on the Norwegian and UK continental shelves.  The company was founded by the team that established Revus, a Norwegian oil and gas exploration and production company.  The company benefits from a supportive tax regime in Norway, where 78% of its Norwegian exploration costs are reimbursed.  An encouraging start has been made in the West and East Tybalt and Catcher prospects.

In December 2009 we agreed to invest up to £18m over four years in Helios Towers Africa, a new pan-African telecommunications towers business alongside Soros Strategic Partners, Albright Capital Management, and Helios Investment Partners. Helios had previously created a successful towers company in Nigeria.  A good start has been made with the company having already been selected as a tower operator in Ghana.

Our main realisation during the year was the sale of our largest investment, Robin Hood Holdings, a generic pharmaceuticals business, to the US firm, Watson Pharmaceuticals.  This was completed in December 2009.  Our total proceeds, including the shares in Watson which we received as part of the transaction, represent a multiple of 5.4x our investment, originally made between 2003 and 2005.  This is the second time that we have made a highly successful investment with Tony Tabatznik in a generic pharmaceuticals company founded by him.  We would like to take this opportunity to express our gratitude to this exceptional entrepreneur. 

DIVIDEND

On 4 March we declared a dividend of 4p per share for the year ending 31 March 2010.  This was paid on 1 April to shareholders on the register at 12 March.  At that time we stated that it was not expected that there would be a subsequent dividend in respect of that period; we have subsequently decided not to pay any additional dividend.

SHARE BUY-BACK

On 2 December 2009 we bought for cancellation 600,000 of our shares at 950p a share.

EU REGULATION

Shareholders need to be aware of a proposed directive being drafted by the European Union - the "Alternative Investment Fund Managers Directive".  This measure is primarily aimed at curbing hedge funds and private equity funds.  Advertently or not, however, investment trusts are also included in its remit.  I am glad to report that the UK government, the Association of Investment Companies, your Company and fellow investment trusts have had some success in limiting the impact of the worst aspects on investment trusts of the Directive in its earlier forms.  However, we will not know for weeks or months the outcome of a negotiating process in Brussels that is far from over, and the risk remains that some of the progress made so far may yet be rolled back.  The Financial Times kindly published an article by me on 20 April which seems to have contributed to the efforts which so many have made to explaining the realities of prudent investing to the protagonists in Brussels and Strasbourg.

BOARD

Charles Bailey has decided not to seek re-election at this year's Annual General Meeting and will therefore be retiring from the Board at that point.  Charles first joined the Board in 1988 and has since then served your Company both as a Director and Chairman of three important Board Committees.  In addition, he has served as your Company's senior independent non-executive director. On your behalf, I would like to thank him for the very substantial contribution which he has made over the years and to wish him well for his retirement.

I am pleased to announce that Lord Douro has agreed to join the Board with effect from the Annual General Meeting.  He has also agreed to become Chairman of the Remuneration and Conflicts Committees and to join the Nominations Committee.  He is currently a non-executive director of Sanofi-Aventis, Pernod-Ricard and Abengoa Bio Energia, and non-executive Chairman of Richemont Holdings (UK) Limited.

As recently announced, Ian Wace has resigned from the Board ahead of the Company's year-end, as a result of pressure on his time from other commitments.  I would like to thank him for his contribution to the Company and wish him well for the future.

Many of our Directors devote considerable time and effort to the Board Committees which deal with important aspects of your Company's operations.  During the year, Michael Marks has agreed to join the Nominations, Remuneration and Conflicts Committees and he will succeed Charles Bailey as the senior independent non-executive director.  On behalf of shareholders I would like to thank your Directors for their contribution to these Committees.

Rothschild

15 June 2010

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

NET ASSET VALUE BY CURRENCY

	31 March 2010 % of net assets	31 March 2009 % of net assets
US Dollar	39.5	21.2
Sterling	17.1	12.1
Chinese Renminbi	9.4	0.2
Canadian Dollar	8.9	8.5
Swiss Franc	7.6	1.4
Singapore Dollar	7.1	2.7
Euro	5.8	9.5
Korean Won	4.6	0.0
Indian Rupee	2.4	0.0
Japanese Yen	(8.8)	14.3
Other	4.8	15.9
Net Borrowings/Liquidity	1.6	14.2
Total	100.0	100.0

NET ASSET VALUE BY COUNTRY/AREA

	31 March 2010 % of net assets	31 March 2009 % of net assets
North America	38.0	41.3
UK	13.5	14.1
Europe	10.1	9.7
Emerging Markets	9.8	6.0
Asia	5.5	3.3
Japan	3.3	3.7
Other Countries	5.4	3.1
Global	11.9	4.9
Liquidity, Borrowings, Currency	2.5	13.9
Total	100.0	100.0

NET ASSET VALUE BY SECTOR

	31 March 2010 % of net assets	31 March 2009 % of net assets
Financials	17.2	12.0
Energy	8.6	7.6
Materials	8.1	8.9
Health Care	6.8	9.3
Information Technology	5.7	3.1
Consumer Discretionary	5.4	3.9
Industrials	3.1	5.1
Utilities	2.1	2.7
Consumer Staples	1.4	1.6
Telecommunication Services	0.6	1.2
Diversified/Funds	38.5	30.7
Liquidity, Borrowings, Currency	2.5	13.9
Total	100.0	100.0

CONSOLIDATED INCOME STATEMENT 

For the year ended 31 March 2010

	Revenue   return   £ million	Capital   return   £ million	Total   £ million
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 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 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 2010

	Revenue   return   £ million	Capital return £ million	Total   £ million
Profit for the year	66.8	405.8	472.6
Other comprehensive income
Cash flow hedges	-	-	-
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.

Note:	Dividend in respect of year ended 31 March 2010	£6.2 million
	Dividend per ordinary share	4.0p

CONSOLIDATED INCOME STATEMENT 

For the year ended 31 March 2009 - Restated

	Revenue   return   £ million	Restated Capital   return   £ million	Total   £ million
Income
Investment income	56.6	-	56.6
Other income	1.9	-	1.9
Loss on dealing investments held at fair value	(18.7)	-	(18.7)
Total income	39.8	-	39.8
Loss on portfolio investments held at fair value	-	(290.9)	(290.9)
Exchange loss on monetary items and borrowings	-	(32.2)	(32.2)
	39.8	(323.1)	(283.3)
Expenses
Administrative expenses	(12.8)	1.3	(11.5)
Investment management fees	(7.1)	(0.5)	(7.6)
Loss before finance costs and tax	19.9	(322.3)	(302.4)
Finance costs	(12.7)	-	(12.7)
Loss before tax	7.2	(322.3)	(315.1)
Taxation	(1.7)	1.4	(0.3)
Loss for the year	5.5	(320.9)	(315.4)
Earnings per ordinary share	3.6p	(207.3)p		(203.7)p

Note:	Dividend in respect of year ended 31 March 2009	£11.6 million
	Dividend per ordinary share	7.5p

The total column of this statement represents the Group's Income Statement, prepared in accordance with 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.

In conjunction with the amendments to presentation required by IAS 1, the Directors have reviewed the overall presentation of the Consolidated Income Statement.  To improve the clarity of the presentation to the user, the "Other capital items" line has been replaced by "Exchange gains/(loss) on monetary items and borrowings".  Other capital items of £90.3 million, which are not exchange gains/(loss) on monetary items and borrowings, relate to capital movements on portfolio investments held at fair value and as such have been reclassified under "Gains/(loss) on portfolio investments held at fair value".  The reclassification has no impact on the presentation of the Balance Sheet.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 March 2009

	Revenue   return   £ million	Capital   return   £ million	Total   £ million
Profit/(loss) for the year	5.5	(320.9)	(315.4)
Other comprehensive income
Cash flow hedges	(13.8)	-	(13.8)
Exchange movements arising on consolidation	0.8	-	0.8
Actuarial loss in defined benefit pension plan	(2.3)	-	(2.3)
Total comprehensive income for the year	(9.8)	(320.9)	(330.7)

The amounts included above are net of tax where applicable.

CONSOLIDATED BALANCE SHEET

	31 March   2010   £ million	31 March   2009   £ million
Non-current assets
Investments held at fair value	1,964.4	1,593.2
Investment property	33.4	28.5
Property, plant and equipment	0.4	0.4
Deferred tax asset	0.7	0.3
	1,998.9	1,622.4
Current assets
Dealing investments held at fair value	33.5	11.3
Sales for future settlement	4.9	14.7
Derivative financial instruments	8.8	6.0
Other receivables	14.0	13.5
Tax receivable	0.7	0.9
Cash at bank	115.3	98.5
	177.2	144.9
Total assets	2,176.1	1,767.3
Current liabilities
Bank loans and overdrafts	(157.6)	(0.1)
Purchases for future settlement	(18.6)	(19.5)
Derivative financial instruments	(25.3)	-
Provisions	(1.7)	-
Tax payable	(7.1)	(1.8)
Other payables	(3.4)	(4.9)
	(213.7)	(26.3)
Net current (liabilities)/assets	(36.5)	118.6
Total assets less current liabilities	1,962.4	1,741.0
Non-current liabilities
Derivative financial instruments	(5.3)	(13.7)
Bank loans	(133.6)	(369.3)
Provisions	(7.3)	(7.0)
Retirement benefit liability	-	(0.5)
Finance lease liability	(0.5)	-
	(146.7)	(390.5)
Net assets	1,815.7	1,350.5
Equity attributable to equity holders
Called up share capital	153.9	154.5
Capital redemption reserve	36.3	35.7
Cash flow hedging reserve	(3.4)	(13.7)
Foreign currency translation reserve	0.4	0.6
Capital reserve	1,567.0	1,166.9
Revenue reserve	61.5	6.5
Total shareholders' equity	1,815.7	1,350.5
Net asset value per ordinary share	1,180.1p	874.3p

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 31 March 2010		Share capital £ million	Capital redemption reserve £ million	Cash flow hedging reserve £ million	Foreign currency translation reserve £ million	Capital reserve £ million	Revenue reserve £ million	Total £ million
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

Year ended 31 March 2009		Share capital £ million	Capital redemption reserve £ million	Cash flow hedging reserve £ million	Foreign currency translation reserve £ million	Capital reserve £ million	Revenue reserve £ million	Total £ million
Balance at 31 March 2008		154.8	35.4	0.1	(0.2)	1,490.4	9.5	1,690.0
Loss for the year		-	-	-	-	(320.9)	5.5	(315.4)
Cash flow hedges
	Losses taken to equity	-	-	(13.8)	-	-	-	(13.8)
	Transferred to the income
	statement for the year	-	-	-	-	-	-	-
Ordinary dividend paid		-	-	-	-	-	(6.2)	(6.2)
Purchase of own shares		(0.3)	0.3	-	-	(2.6)	-	(2.6)
Other Comprehensive Income
	Exchange movements arising
	on consolidation	-	-	-	0.8	-	-	0.8
	Actuarial loss in defined benefit
	pension plan	-	-	-	-	-	(2.3)	(2.3)
Balance at 31 March 2009		154.5	35.7	(13.7)	0.6	1,166.9	6.5	1,350.5

CONSOLIDATED CASH FLOW STATEMENT

	Year ended   31 March   2010   £ million	Year ended   31 March 2009   £ million
Cash inflow from Operating Activities	71.2	14.8
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)	(2.6)
Increase/(decrease) in term loans	(171.7)	-
Equity dividend paid	(11.6)	(6.2)
Net cash (outflow)/inflow from Financing Activities	(189.0)	(8.8)
Increase/(decrease) in cash and cash equivalents in the year	(118.1)	5.7
Cash and cash equivalents at the start of the year	149.6	130.0
Effect of foreign exchange rate changes	(4.1)	13.9
Cash and cash equivalents at the year-end	27.4	149.6
Reconciliation:
Cash at bank	115.3	98.5
Money market funds (included in investments held at fair value)	69.7	51.2
Bank loans and overdrafts	(157.6)	(0.1)
Cash and cash equivalents at the year-end	27.4	149.6

NOTES

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 2010.  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 2010 or 31 March 2009, but is derived from those accounts. Statutory accounts for the year ended 31 March 2009 have been delivered to the Registrar of Companies and those for the year ended 31 March 2010 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 2010 will be posted to shareholders on or around Wednesday 23 June 2010.  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.

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

 

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