Interim Results
RIT Capital Partners PLC
18 November 2005
PRELIMINARY ANNOUNCEMENT OF INTERIM RESULTS FOR THE SIX MONTHS ENDED 30
SEPTEMBER 2005
The following is derived from the Chairman's Statement which will appear in the
Interim Report
CHAIRMAN'S STATEMENT
During the half year to 30 September, your Company's net asset value per share
increased by 14.8% from 712.7p to 818.1p. We were therefore able to out-perform
the relevant indices during this period, when the Morgan Stanley Capital
International Index (in Sterling), the FTSE All-Share Index and the Investment
Trust Net Assets Index rose by 13.6%, 11.7% and 13.0% respectively.
RITCP's net asset value per share at 11 November, the latest available date, was
807.3p.
QUOTED PORTFOLIO
In my Chairman's Statement in the Annual Report, I commented on the risks posed
by the continuing imbalances in the global economy and the unusually complex
outlook for world markets. I added that we were continuing to find opportunities
in terms of specific stocks, special situations and outstanding new managers.
Although this remains the case, since the end of the reporting period we have
reduced some of our quoted holdings, especially in categories that have enjoyed
strong gains over the preceding period. As a result of this, our portfolio is
now somewhat more cautiously positioned than at the end of September.
In August, to take advantage of low levels of interest rates, we completed a
€150 million seven year loan, at an effective fixed interest rate of 3.732% per
annum. Taken together with our US$150 million loan, which bears an
interest rate of 3.93%, we have total long-term borrowings equivalent to £187
million.
At 30 September, £932.8 million, or 64.9% of the portfolio, was held directly in
quoted investments, compared with 56.3% at 31 March. A further £211.1 million,
or 14.7% of the portfolio, was held in hedge and long equity funds which invest
mainly in quoted securities. Taking these two categories together, some 80% of
the portfolio was invested in quoted or other marketable securities, compared
with 69% at 31 March. £46.5 million, or 3.2% of the portfolio, was invested in
government securities and money market funds, compared with 10% at 31 March.
UNQUOTED PORTFOLIO
In total, your Company's unquoted investments were valued at some £219.5
million, or 15.3% of the portfolio. Of this, £132.7 million, or 9.3%, represents
investments made directly by management and £86.8 million, or 6%, represents
investments in limited partnerships managed by third parties.
The main liquidity event during the period was the repayment of £12.7 million of
part of our investment in Esporta, the health club operator.
Investments in property amounted to £27.5 million, or 1.9% of the portfolio.
INVESTMENT AND CURRENCY EXPOSURE
By the interim stage, your Company's net assets had increased to £1,277.7
million and its portfolio of investments to £1,437.4 million. The difference of
£159.7 million, or 12% of our net assets, represents the extent to which we had
deployed our borrowings to make investments.
During the period, we reduced our exposure to Sterling from 45.7% to 25.8% and
increased our exposure to the US Dollar and Yen to 25.6% and 21.0% respectively.
APPOINTMENTS
I was pleased to announce at the Annual General Meeting in July the appointment
of Christopher Hohn as an additional independent non-executive Director. The
Children's Investment Fund (TCI), where Chris is the founder and principal, has
developed an outstanding investment record. At the AGM, your board also welcomed
the appointment of David Haysey as Chief Investment Officer. David has a
distinguished record in the asset management sector, first at S G Warburg and
most recently at Deutsche Bank Asset Management.
Rothschild
18 November 2005
Consolidated Income Statement
Six months ended
30 September 2005
Notes Revenue Capital Total
return return £'000
£'000 £'000
Income
Investment income 13,604 - 13,604
Other income 871 - 871
Losses on dealing investments
held at fair value (7,829) - (7,829)
___________________________________
Total income 6,646 - 6,646
Gains on portfolio investments
held at fair value - 197,552 197,552
Other capital items - (11,079) (11,079)
___________________________________
6,646 186,473 193,119
Expenses
Administrative expenses (3,748) (4,307) (8,055)
Investment management fees (3,530) (2,813) (6,343)
___________________________________
Profit before finance costs and tax (632) 179,353 178,721
Finance costs (2,510) - (2,510)
___________________________________
Profit before tax (3,142) 179,353 176,211
Taxation (931) (5,901) (6,832)
___________________________________
Profit for the period (4,073) 173,452 169,379
___________________________________
Profit attributable to minority
interests - 9 9
Profit attributable to equity
shareholders (4,073) 173,443 169,370
___________________________________
(4,073) 173,452 169,379
___________________________________
Earnings per ordinary share 2 108.5p
The total column of this statement represents the Group's Income Statement,
prepared in accordance with International Financial Reporting Standards. The
supplementary revenue return and capital return columns are both prepared under
guidance published by the Association of Investment Trust Companies. All items
in the above statement derive from continuing operations.
Consolidated Income Statement (continued)
Six months ended 30 September 2004 Year ended 31 March 2005
---------------------------------- ---------------------------------
Restated Restated
Revenue Capital Revenue Capital
return return Total return return Total
£'000 £'000 £'000 £'000 £'000 £'000
Income
Investment income 11,741 - 11,741 20,838 - 20,838
Other income 214 - 214 350 - 350
Losses on dealing investments held
at fair value (7,630) - (7,630) (12,644) - (12,644)
__________________________________ ________________________________
Total income 4,325 - 4,325 8,544 - 8,544
Gains on portfolio investments
held at fair value - 13,712 13,712 - 146,038 146,038
Other capital items - (3,362) (3,362) - 8,999 8,999
__________________________________ ________________________________
4,325 10,350 14,675 8,544 155,037 163,581
Expenses
Administrative expenses (3,436) (1,548) (4,984) (6,119) (4,042) (10,161)
Investment management fees (2,194) (442) (2,636) (4,860) (5,347) (10,207)
__________________________________ ________________________________
Profit before finance costs and tax (1,305) 8,360 7,055 (2,435) 145,648 143,213
Finance costs (1,688) - (1,688) (3,285) - (3,285)
__________________________________ ________________________________
Profit before tax (2,993) 8,360 5,367 (5,720) 145,648 139,928
Taxation (990) 2,879 1,889 (374) 1,241 867
__________________________________ ________________________________
Profit for the period (3,983) 11,239 7,256 (6,094) 146,889 140,795
__________________________________ ________________________________
Profit attributable to minority interests - 1 1 - 91 91
Profit attributable to equity shareholders (3,983) 11,238 7,255 (6,094) 146,798 140,704
__________________________________ ________________________________
(3,983) 11,239 7,256 (6,094) 146,889 140,795
__________________________________ ________________________________
Earnings per ordinary share 4.7p 90.0p
The total column of this statement represents the Group's Income Statement,
prepared in accordance with International Financial Reporting Standards. The
supplementary revenue return and capital return columns are both prepared under
guidance published by the Association of Investment Trust Companies. All items
in the above statement derive from continuing operations.
Consolidated Statement of Changes in Equity
Share Capital Cash-flow Foreign Capital Retained Minority Total
capital redemption hedging currency reserve earnings interests £'000
Six months ended reserve reserve translation £'000 £'000 £'000
30 September 2005 £'000 £'000 £'000 reserve
----------------- £'000
Balance at 31
March 2005 156,178 33,978 - (52) 914,206 8,812 134 1,113,256
Profit for
the period - - - - 173,443 (4,073) 9 169,379
Cash-flow hedges
Gains/(losses)
taken to equity - - (854) - - - - (854)
Transferred
to the income
statement for
the period - - 157 - - - - 157
Exchange movements
arising on
consolidation - - - 741 - - - 741
Ordinary
dividend paid - - - - - (4,842) - (4,842)
___________________________________________________________________________________________________
Balance at
30 September
2005 156,178 33,978 (697) 689 1,087,649 (103) 143 1,277,837
___________________________________________________________________________________________________
Six months Share Capital Cash-flow Foreign Capital Retained Minority Total
ended capital redemption hedging currency reserve earnings interests £'000
30 September £'000 reserve reserve translation £'000 £'000 £'000
2004 £'000 £'000 reserve
restated £'000
------------
Balance at
31 March 2004 156,848 33,308 - - 771,085 19,768 43 981,052
Profit for
the period - - - - 11,238 (3,983) 1 7,256
Exchange movements
arising on
consolidation - - - 29 - - - 29
Ordinary
dividend paid - - - - - (4,862) - (4,862)
Purchase of
own shares (670) 670 - - (3,677) - - (3,677)
_____________________________________________________________________________________________________
Balance at 30
September 2004 156,178 33,978 - 29 778,646 10,923 44 979,798
_____________________________________________________________________________________________________
Year ended Share Capital Cash-flow Foreign Capital Retained Minority Total
31 March capital redemption hedging currency reserve earnings interests £'000
2005 £'000 reserve reserve translation £'000 £'000 £'000
restated £'000 £'000 reserve
-------- £'000
Balance at
31 March 2004 156,848 33,308 - - 771,085 19,768 43 981,052
Profit for
the period - - - - 146,798 (6,094) 91 140,795
Exchange movements
arising on
consolidation - - - (52) - - - (52)
Ordinary
dividend paid - - - - - (4,862) - (4,862)
Purchase of
own shares (670) 670 - - (3,677) - - (3,677)
_____________________________________________________________________________________________________
Balance at
31 March 2005 156,178 33,978 - (52) 914,206 8,812 134 1,113,256
_____________________________________________________________________________________________________
Consolidated Balance Sheet
Notes 30 September 31 March 30 September
2005 2005 2004
£'000 Restated Restated
£'000 £'000
Non-current assets
Investments held at fair value 4 1,437,440 1,126,244 969,726
Tangible fixed assets 227 214 220
Retirement benefit asset 589 734 -
Deferred tax asset 2,570 8,736 9,374
______________________________________
1,440,826 1,135,928 979,320
Current assets
Dealing investments held at fair value 2,030 - 5,161
Sales for future settlement 65,274 20,026 31,979
Other receivables 12,092 12,365 14,794
Tax receivable 148 26 385
Cash at bank 80,398 70,416 76,860
______________________________________
159,942 102,833 129,179
______________________________________
Total assets 1,600,768 1,238,761 1,108,499
______________________________________
Current liabilities
Bank loans and overdrafts (63,793) (7,829) (1,953)
Securities sold short (9,958) (7,893) (7,815)
Purchases for future
settlement (37,998) (7,596) (15,759)
Other payables (3,929) (8,580) (4,851)
______________________________________
(115,678) (31,898) (30,378)
Net current assets 44,264 70,935 98,801
______________________________________
Total assets less current
liabilities 1,485,090 1,206,863 1,078,121
______________________________________
Non-current liabilities
Bank loans (186,822) (79,304) (82,804)
Provisions (20,431) (14,303) (12,070)
Retirement benefit liability - - (3,448)
______________________________________
(207,253) (93,607) (98,322)
______________________________________
Net assets 1,277,837 1,113,256 979,799
______________________________________
Equity attributable to equity holders
Ordinary share capital 156,178 156,178 156,178
Capital redemption reserve 33,978 33,978 33,978
Cash-flow hedging reserve (697) - -
Foreign currency translation
reserve 689 (52) 29
Capital reserve-realised 809,684 757,544 681,371
Capital reserve-unrealised 277,965 156,662 97,276
Retained earnings (103) 8,812 10,923
______________________________________
Total shareholders' equity 1,277,694 1,113,122 979,755
Minority interest in equity 143 134 44
______________________________________
Total equity 1,277,837 1,113,256 979,799
______________________________________
Net asset value per ordinary share 818.1p 712.7p 627.3p
Consolidated Cash Flow Statement
Notes 30 September 30 September 31 March
2005 2004 2005
£'000 Restated Restated
£'000 £'000
Cash outflow from Operating
Activities 8 (141,210) (2,207) (15,769)
______________________________________
Investing Activities
Purchase of fixed assets (105) (34) (81)
Sale of fixed assets 46 13 19
______________________________________
Net cash outflow from
Investing Activities (59) (21) (62)
______________________________________
Financing Activities - (3,676) (3,677)
Buy-back of ordinary shares
Increase in term loan 103,358 - -
Equity dividend paid (4,842) (4,862) (4,862)
Minority interests - - 91
______________________________________
Net cash inflow/(outflow)
from Financing Activities 98,516 (8,538) (8,448)
______________________________________
Decrease in cash and cash
equivalents in the period (42,753) (10,766) (24,279)
Cash and cash equivalents at
the start of the period 77,443 101,925 101,925
Effect of foreign exchange
rate changes (3,481) 124 (203)
______________________________________
Cash and cash equivalents at
the period end 31,209 91,283 77,443
______________________________________
Reconciliation:
Cash at bank 80,398 76,860 70,416
Money market funds (included
in portfolio investments) 14,604 16,376 14,856
Bank loans and overdrafts (63,793) (1,953) (7,829)
______________________________________
Cash and cash equivalents at
the period end 31,209 91,283 77,443
______________________________________
Notes to the Financial Statements
1. ACCOUNTING POLICIES
BASIS OF ACCOUNTING
All listed companies in the European Union ('EU') are required to present their
consolidated financial statements for accounting periods beginning on or after 1
January 2005 in accordance with International Financial Reporting Standards
('IFRS') as adopted by the EU. Therefore, the Group's consolidated financial
statements for the year ending 31 March 2006 will be presented on this basis
with IFRS comparatives. These interim financial statements have been prepared on
the basis of the IFRS accounting polices expected to be adopted in the year end
consolidated financial statements. Reconciliations have been provided on certain
key figures to UK Generally Accepted Accounting Principles ('UK GAAP'), and
these, together with the explanation of the resulting changes in accounting
policies, are set out in notes 5, 6 and 7.
The Group's transition date for the adoption of IFRS, including the
implementation of IAS 32 and IAS 39 dealing with financial instruments, is 1
April 2004. This transition date has been selected in accordance with IFRS 1,
First-time Adoption of International Financial Reporting Standards.
Although there is now a fairly stable platform, standards continue to evolve and
those currently in issue and endorsed by the EU are subject to interpretation by
the International Financial Reporting Interpretations Committee ('IFRIC') and
further standards may be issued and endorsed by the EU before 31 March 2006.
These uncertainties could result in the need to change the basis of accounting
or presentation of certain financial information from that applied in the
preparation of this document.
The Group is required to apply its IFRS accounting policies retrospectively to
determine its opening IFRS balance sheet as at the transition date of 1 April
2004 and the comparative information for the periods ended 30 September 2004 and
31 March 2005.
The financial statements have been prepared on the historical cost basis, except
for the revaluation of certain financial instruments and investment properties.
The principal accounting policies adopted are set out below. Where the
presentational guidance set out in the Statement of Recommended Practice
('SORP') for investment trusts issued by the Association of Investment Trust
Companies ('AITC') in January 2003 is consistent with the requirements of IFRS,
the Directors have sought to prepare the financial statements on a basis which
complies with the recommendation of the SORP.
BASIS OF CONSOLIDATION
The consolidated financial statements incorporate the financial statements of
the Company and entities controlled by the Company (its subsidiaries) made up to
31 March each year. Control is achieved where the Company has the power to
govern the financial and operating policies of an investee entity so as to
obtain benefits from its activities. All intra-group transactions, balances,
income and expenses are eliminated on consolidation.
PRESENTATION OF INCOME STATEMENT
In order to reflect better the activities of an investment trust company, and in
accordance with guidance issued by the AITC, supplementary information which
analyses the income statement between items of a revenue and capital nature has
been presented alongside the income statement. In accordance with the Company's
status as an investment trust, net capital returns may not be distributed by way
of dividend. Additionally, the net revenue is the measure the Directors believe
appropriate in assessing the Company's compliance with certain requirements set
out in Section 842 of the Income and Corporation Taxes Act 1988.
INCOME
Dividend income from investments is recognised when the shareholder's right to
receive payment has been established and this is normally the ex-dividend date.
Provision is made for any dividends not expected to be received.
Where the Group has elected to receive dividends in the form of additional
shares rather than cash, the amount of the cash dividend foregone is recognised
as income. The excess, if any, in the value of shares received over the amount
of the cash dividend foregone is recognised as a gain in the income statement.
UK dividend income is recorded at the amount receivable without any attributable
tax credit. Overseas dividend income is shown gross of withholding tax.
Interest income is accrued on a time basis, by reference to the principal
outstanding at the effective interest rate applicable, which is the rate that
discounts estimated future cash receipts through the expected life of the
financial asset to that asset's net carrying amount.
Underwriting commission is recognised as earned.
EXPENSES
All expenses and interest costs are accounted for on an accruals basis. In
respect of the analysis between revenue and capital items presented within the
income statement, all expenses have been presented as revenue items except those
items listed below:
• Expenses are allocated to capital where a direct connection with the
maintenance or enhancement of the value of the investments can be
demonstrated. Expenses are allocated to revenue where there is an indirect
connection.
• Investment management fees are considered to be indirect costs and are
therefore allocated to revenue. Performance fees are allocated to capital as
they arise as a result of the capital performance of the relevant investment
portfolio.
• The Group has in force certain incentive arrangements whereby fees
payable are based entirely on the increase in the values of certain unquoted
investments. The cost of these incentive arrangements is considered to be a
direct cost of enhancing the value of these investments and is therefore
allocated to capital.
• The Group has in force long-term incentive arrangements for Lord
Rothschild and Duncan Budge, both executive Directors of RITCP, and for
other senior executives, whereby they receive additional remuneration based
entirely on any increase in the Company's share price subject to a
performance condition. The primary objective of the Company is to deliver
long-term capital growth for its investors. The costs of these arrangements
derive principally from the capital performance of the Group and
consequently the Directors consider it appropriate to allocate the costs of
these arrangements in their entirety to capital.
• The Group has an Executive Bonus Plan for Lord Rothschild and Duncan
Budge, whereby they receive a bonus calculated by reference to the Company's
three-year moving average outperformance over three key total return
indices. The amount of the bonus depends principally on the capital
performance of the Group and therefore the Directors consider it appropriate
to charge the whole of the bonus to capital.
• Expenses which are incidental to the disposal of an investment are
deducted from the disposal proceeds of the investment.
• Costs incurred in connection with abortive portfolio investment
transactions are also allocated to capital.
FINANCE COSTS
Finance costs are accounted for on an effective yield basis. Since these costs
are considered to be an indirect cost of maintaining the value of the
investments they are allocated in full to revenue.
FOREIGN CURRENCIES
The individual financial statements of each Group entity are presented in the
currency of the primary economic environment in which the entity operates, i.e.
its functional currency. For the purpose of the consolidated financial
statements, the results and financial position of each entity are expressed in
pounds sterling ('sterling') which is the functional currency of the Company,
and the presentational currency of the Group. Transactions in currencies other
than sterling are recorded at the rate of exchange prevailing on the dates of
the transactions. At each balance sheet date, monetary items and non-monetary
assets and liabilities that are fair valued and are denominated in foreign
currencies are retranslated at the rates prevailing on the balance sheet date.
Gains and losses arising on retranslation are included in net profit or loss for
the period in respect of those investments which are classified as fair value
through profit or loss. All foreign exchange gains and losses, except those
arising from the translation of foreign subsidiaries, are recognised in the
income statement. In accordance with IFRS, a foreign currency translation
reserve has been established in respect of the exchange movements arising on
consolidation since 31 March 2004.
TAXATION
The tax expense represents the sum of the tax currently payable and deferred
tax.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from profit before tax as reported in the income statement
because it excludes items of income or expense that are taxable or deductible in
other years and it further excludes items that are not subject to tax or are not
deductible for tax purposes. The Group's liability for current tax is calculated
using tax rates that have been enacted or substantively enacted by the balance
sheet date.
Investment trusts which have approval under Section 842 of the Income and
Corporation Taxes Act 1988 are not subject to tax on capital gains. In view of
the Company's status as an investment trust, and its intention to continue
meeting the conditions required to obtain approval for the foreseeable future,
the Company has not provided current or deferred tax on any capital gains or
losses arising on the revaluation or disposal of investments.
The carrying amount of the deferred tax asset is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised. Deferred tax is
charged or credited in the income statement, except when it relates to items
charged or credited directly to equity, in which case the deferred tax is also
dealt with in equity.
INVESTMENTS
Investments are recognised and de-recognised on the trade date where a purchase
or sale is made under a contract whose terms require delivery within the
timeframe established by the market concerned, and are initially measured at
fair value.
All of the Group's investments are defined by IFRS as investments designated at
fair value through profit and loss but are also described in these financial
statements as investments held at fair value.
All investments are designated upon initial recognition as held at fair value
and, except as noted below, are measured at subsequent reporting dates at fair
value. Fair value is either the bid price or the last traded price, depending on
the convention of the exchange on which the investment is quoted. Investments in
hedge funds and long equity funds are valued at the closing price, the bid price
or the single price as appropriate, released by the relevant investment manager.
Changes in the fair value of all investments held at fair value are recognised
in the income statement. On disposal, realised gains and losses are also
recognised in the income statement. Transaction costs, including bid-offer
spreads, are included within gains on investments held at fair value.
In respect of unquoted instruments, or where the market for a financial
instrument is not active, fair value is established by using valuation
techniques, which may include using recent arm's length market transactions
between knowledgeable, willing parties, if available, reference to the current
fair value of another instrument that is substantially the same and discounted
cash flow analysis. Where there is a valuation technique commonly used by market
participants to price the instrument and that technique has been demonstrated to
provide reliable estimates of prices obtained in actual market transactions,
that technique is utilised. Where no reliable fair value can be estimated for
such unquoted equity instruments, they are carried at cost, subject to any
provision for impairment.
Where securities are designated upon initial recognition as fair value through
profit or loss, gains and losses arising from changes in fair value are included
in net profit or loss for the period as a capital item.
Foreign exchange gains and losses arising on investments held at fair value are
included within the changes in their fair values.
Investment properties are measured initially at cost, including related
transaction costs. After initial recognition at cost, investment properties are
carried at their fair values based on the professional valuation made as of each
reporting date. Valuation surpluses and deficits arising in the period are
included in the income statement. The gain or loss arising on the disposal of a
property is determined as the difference between the sales proceeds and the
carrying amount of the asset at the beginning of the period and is recognised in
the income statement.
DEALING INVESTMENTS
Current asset investments held by the dealing subsidiary undertaking, including
futures, options and other derivative instruments, are stated in the balance
sheet at fair value. The movements in fair value of trading positions are
included in the revenue return column of the income statement. Securities sold
short are valued at their offer prices in accordance with IFRS.
CASH AND CASH EQUIVALENTS
Cash at bank in the consolidated balance sheet comprises cash balances and
deposits held at call and short notice with banks. Bank overdrafts that are
repayable on demand and which form an integral part of the Group's cash
management are included as a component of cash and cash equivalents for the
purposes of the consolidated cash flow statement. Short-term highly liquid
investments with original maturities of three months or less are also included
as a component of cash and cash equivalents for the purposes of the consolidated
cash flow statement.
PROVISIONS
A provision is recognised in the balance sheet when the Group has a constructive
or legal obligation as a result of a past event and it is probable that an
outflow of economic benefits will be required to settle the obligation. If the
effect is material, provisions are determined by discounting the expected future
cash flows at a pre-tax rate that reflects current market assessments of the
time value of money and, where appropriate, the risks specific to the liability.
SHARE-BASED PAYMENTS
In accordance with IFRS 2, Share-based payment, a charge is required for all
share-based payments which includes the long-term incentives provided under the
Company's Share Appreciation Rights Plan ('SARs'). The cost of granting these
SARs to employees and Directors is recognised through the income statement. The
Company has used the binomial option valuation model and the resulting value is
amortised through the income statement over the vesting periods of the relevant
SARs. The charge is reversed if it appears likely that the performance criteria
will not be met.
TANGIBLE FIXED ASSETS
Tangible fixed assets are shown at cost less depreciation. Depreciation is
provided on all tangible fixed assets. It is calculated by the Group on a
straight line basis by reference to original cost, estimated useful life and
residual value. The period of estimated useful life for this purpose is between
three and four years.
PENSIONS
J. Rothschild Capital Management Limited, a wholly-owned subsidiary undertaking,
is a participating employer in the Group's non-contributory funded, defined
benefit retirement scheme, which is currently closed to new members and the
assets of which are held in a trustee administered fund.
The Group accounts for its defined benefit retirement scheme by reference to IAS
19, Employee benefits. For the defined benefit retirement scheme, the cost of
benefits accruing during the year in respect of current and past service is
charged to the income statement and allocated to revenue. The expected return on
the scheme's assets, actuarial gains and losses and the increase in the present
value of the scheme's liabilities arising from the passage of time are also
recognised in the income statement. An actuarial valuation of the defined
benefit retirement scheme is undertaken every three years as at 1 January and is
updated as at each 31 March and 30 September during the intervening valuation
dates. The valuation is carried out using the projected unit method of funding
basis. The income statement also includes costs incurred in respect of defined
contribution schemes and these costs comprise the contributions payable in the
year.
OTHER RECEIVABLES
Other receivables do not carry any interest and are short-term in nature: they
are accordingly stated at their nominal value as reduced by appropriate
allowances for estimated irrecoverable amounts.
BANK BORROWINGS
Interest-bearing bank loans and overdrafts are recorded initially at the
proceeds received, net of direct issue costs. Finance charges, including
premiums payable on settlement or redemption and direct issue costs, are
accounted for on an accruals basis in the income statement using the effective
interest method and are added to the carrying amount of the instrument to the
extent that they are not settled in the period in which they arise.
OTHER PAYABLES
Other payables are not interest-bearing and are stated at their nominal value.
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING
The Group's activities expose it primarily to the financial risks of changes in
foreign currency exchange rates and interest rates. From time to time, the Group
uses foreign exchange forward contracts and interest rate swap contracts to
hedge these exposures. The dealing subsidiary may also use derivative financial
instruments for trading purposes.
The Group has adopted trade date accounting. Accordingly, derivative financial
instruments are recognised on the date the Group enters into the relevant
contract, and are de-recognised on the date which it commits to their sale.
Changes in the fair value of derivative financial instruments that are
designated and effective as hedges of future cash flows are recognised directly
in equity and any ineffective portion is recognised immediately in the income
statement. The amount in equity is released to income when the forecast
transaction impacts profit or loss.
Changes in the fair value of derivative financial instruments that do not
qualify for hedge accounting are recognised in the income statement as they
arise. If capital in nature, the associated change in value is presented as a
capital item in the income statement.
Hedge accounting is discontinued when the hedging instrument expires or is sold,
terminated, or exercised, or no longer qualifies for hedge accounting. At that
time, any cumulative gain or loss on the hedging instrument recognised in equity
for cash flow hedges is retained in equity until the forecasted transaction
occurs. If a hedged transaction is no longer expected to occur, the net
cumulative gain or loss recognised in equity is transferred to net profit or
loss in the period.
Derivatives embedded in other financial instruments or non-financial host
contracts are treated as separate derivatives when their economic
characteristics and risks are not closely related to those of the host contracts
and the financial instrument is not classified at fair value through profit or
loss.
ALLOCATION TO CAPITAL
All expenses and interest payable are accounted for on an accruals basis. In
respect of the analysis between revenue and capital items presented within the
income statement and the statement of changes in equity, all expenses have been
presented as revenue items except as listed below:
The following are presented as realised capital items:
• gains and losses on the realisation of investments
• realised exchange differences of a capital nature
• expenses, together with the related taxation effect, allocated to
capital in accordance with the above policies
• realised gains and losses on transactions undertaken to hedge an
exposure of a capital nature
• the cost of purchasing ordinary shares for cancellation.
The following are presented as unrealised capital items:
• increases and decreases in the valuation of investments held at the year
end
• unrealised exchange differences of a capital nature
• unrealised gains and losses on transactions undertaken to hedge an
exposure of a capital nature.
2. EARNINGS PER ORDINARY SHARE
The earnings per ordinary share for the six months ended 30 September 2005 is
based on the net gain of £169.4 million (six months ended 30 September 2004:
£7.3 million as restated; year ended 31 March 2005: £140.7 million as restated)
and the weighted average number of ordinary shares in issue during the period of
156.2 million (six months ended 30 September 2004: 156.7 million; year ended 31
March 2005: 156.4 million).
The earnings per ordinary share figure detailed above can be further analysed
between revenue and capital as set out below:
Six months Six months Year ended
ended ended 31 March
30 September 30 September 2005
2005 2004 Restated
£'000 Restated £'000
£'000
Net revenue loss (4,073) (3,983) (6,094)
Net capital profit 173,443 11,238 146,798
______________________________________
169,370 7,255 140,704
Pence Pence Pence
per share per share per
share
Revenue loss per ordinary share (2.6) (2.5) (3.9)
Capital earnings per ordinary share 111.1 7.2 93.9
______________________________________
108.5 4.7 90.0
3. NET ASSET VALUE PER ORDINARY SHARE
The net asset value per ordinary share as at 30 September 2005 is based on the
net assets attributable to the equity shareholders of £1,277.7 million (30
September 2004: £979.8 million as restated; 31 March 2005: £1,113.1 million as
restated) and the number of ordinary shares in issue at 30 September 2005 of
156.2 million (30 September 2004: 156.2 million; 31 March 2005: 156.2 million).
4. MOVEMENTS IN INVESTMENTS
Quoted Unquoted Funds and Other Total
£'000 and partnerships securities £'000
property
£'000 £'000 £'000
At 31 March 2005
(restated) 633,656 163,950 215,596 113,042 1,126,244
Additions 415,834 33,990 51,634 176,704 678,162
Disposals (228,940) (50,957) (12,930) (242,731) (535,558)
Revaluation 112,212 13,220 43,650 (490) 168,592
______________________________________________________________
At 30 September 932,762 160,203 297,950 46,525 1,437,440
2005
5. RESTATEMENT OF BALANCES AS AT 31 MARCH 2005
(a) Restatement of balances as at 31 March 2005
On 1 April 2005 the Group adopted International Financial Reporting Standards.
In accordance with IFRS 1, First-time Adoption of International Financial
Reporting Standards, the following analysis shows a reconciliation of net assets
and profit as previously reported under the applicable UK Accounting Standards
and the SORP as at 31 March 2005 to the restated net assets and profit under
IFRS as reported in these financial statements.
Notes Previously Effect of Restated
reported transition 31 March
31 March 2005 to IFRS 2005
£'000 £'000 £'000
Non-current assets
Investments held at fair
value 1 1,127,346 (1,102) 1,126,244
Tangible fixed assets 214 - 214
Retirement benefit asset 2 - 734 734
Deferred tax asset 3 - 8,736 8,736
______________________________________
1,127,560 8,368 1,135,928
______________________________________
Current assets
Sales for future settlement 20,026 - 20,026
Other receivables 12,365 - 12,365
Tax receivable 26 - 26
Deferred tax asset 3 9,205 (9,205) -
Cash at bank 70,416 - 70,416
______________________________________
112,038 (9,205) 102,833
______________________________________
Total assets 1,239,598 (837) 1,238,761
______________________________________
Current liabilities
Bank loans and overdrafts (7,829) - (7,829)
Securities sold short 1 (7,879) (14) (7,893)
Purchases for future settlement (7,596) - (7,596)
Other payables (8,580) - (8,580)
Proposed dividend 4 (4,842) 4,842 -
______________________________________
(36,726) 4,828 (31,898)
______________________________________
Net current assets 75,312 (4,377) 70,935
______________________________________
Total assets less current
liabilities 1,202,872 3,991 1,206,863
______________________________________
Non-current liabilities
Bank loans (79,304) - (79,304)
Provisions 5 (14,738) 435 (14,303)
______________________________________
(94,042) 435 (93,607)
______________________________________
Pension asset 2 514 (514) -
Net assets 1,109,344 3,912 1,113,256
______________________________________
Equity attributable to equity
holders
Ordinary share capital 156,178 - 156,178
Capital redemption reserve 33,978 - 33,978
Foreign currency translation
reserve 6 - (52) (52)
Capital reserve-realised 757,544 - 757,544
Capital reserve-unrealised 1,5 157,578 (916) 156,662
Retained earnings 1,4,6 3,932 4,880 8,812
______________________________________
Total shareholders' equity 1,109,210 3,912 1,113,122
Minority interest in equity 134 - 134
______________________________________
Total equity 1,109,344 3,912 1,113,256
Notes to the reconciliation:
1. Quoted investments are designated as held at fair value under IFRS and are
carried at bid prices whereas previously, under UK GAAP, they were carried at
mid prices. The aggregate difference is a downward revaluation of £1.1 million
and this also decreases retained earnings by the same amount.
2. In accordance with UK GAAP, the retirement benefit asset was previously
disclosed in the balance sheet net of attributable deferred taxation. The rules
contained in IAS 19, Employee benefits, now require the deferred taxation to be
recorded separately. In addition, actuarial gains and losses were previously
recorded in the Consolidated Statement of Total Recognised Gains and Losses:
under IAS 19, these items are now recognised in the Consolidated Income
Statement.
3. The deferred tax asset was previously included in current assets. In
accordance with IFRS, it has now been reclassified as a non-current asset and
the restated amount now includes the deferred tax liability attributable to the
retirement benefit asset. The deferred tax balance has also been reduced because
of a reduction in the SAR provision referred to below.
4. Under UK company law, companies were required to provide for their proposed
dividend in advance of the dividend being declared and approved at the Annual
General Meeting. Under IAS 37, Provisions, contingent liabilities and
contingent assets, the proposed dividend can no longer be provided for in the
year end balance sheet since, at that date,the dividend did not represent a
liability of the Company. At 31 March 2005 accrued dividends of £4.8 million
were removed from other liabilities.
5. Under IFRS 2, Share-based payment, a charge is required for all share-based
payments which includes the long-term incentives provided under the Company's
Share Appreciation Rights Plan ('SARs').The charge in the Consolidated Income
Statement is now based on the difference between the fair value of the SARs from
one balance sheet date to the next. Under UK GAAP, the profit and loss charge
was based on the difference between the exercise price and the market price of
RITCP's shares at the relevant balance sheet date.
6. In accordance with IFRS, a foreign currency translation reserve has now been
recognised in respect of the exchange movements arising on consolidation since
31 March 2004.
(b) Reconciliation of the Statement of Total Return to the Consolidated Income
Statement for the year ended 31 March 2005
Under IFRS, the Consolidated Income Statement is the equivalent of the
Consolidated Statement of Total Return reported previously.
2005 Earnings per
share
Notes £'000 (impact in pence)
Total transfer to reserves per the
Consolidated Statement of Total Return 138,267
Add back dividends paid and proposed 1 4,842 -
Investments held at fair value changed from
mid to bid basis at 31 March 2004 2 (693) (0.4)
Investments held at fair value changed from
mid to bid basis at 31 March 2005 2 (1,116) (0.7)
Adjustment to SAR provision 3 30 -
Actuarial gain on pension scheme 4 558 0.4
Deferred tax adjustment attributable to the
above 5 (1,184) (0.8)
_______________________________
Net profit per the Consolidated Income
Statement 140,704 (1.5)
Notes to the reconciliation:
1. Ordinary dividends declared and paid during the period are dealt with through
the Consolidated Statement of Changes in Equity.
2. The investment portfolios are required to be valued at fair value under IFRS.
In previous periods certain discounts were applied to the valuation of some
quoted investments to take account of their illiquidity: these discounts have
now been removed in accordance with IAS 39. The restated values differ from the
previous valuations by £0.7 million and £1.1 million respectively.
3. As mentioned above, the charge in respect of the SAR incentive plan has been
reduced pursuant to the new IFRS 2 accounting treatment.
4. The actuarial gain on the pension scheme was previously recorded in the
Consolidated Statement of Recognised Gains and Losses.
5. This adjustment comprises the aggregate of the deferred tax adjustment
relating to the SARs provision and the movement in deferred tax relating to the
pension scheme (which was previously recorded in the Consolidated Statement of
Recognised Gains and Losses).
6. RESTATEMENT OF BALANCES AS AT 30 SEPTEMBER 2004
(a) Restatement of balances as at 30 September 2004
On 1 April 2005 the Group adopted International Financial Reporting Standards.
In accordance with IFRS 1, First-time Adoption of International Financial
Reporting Standards, the following analysis shows a reconciliation of net assets
and profit as previously reported under the applicable UK Accounting Standards
and the SORP as at 30 September 2004 to the restated net assets and profit under
IFRS as reported in these financial statements.
Previously Effect of Restated
reported transition 30 September
30 September to IFRS 2004
2004 £'000 £'000
Notes £000's
Non-current assets
Investments held at fair value 1 970,263 (537) 969,726
Tangible fixed assets 220 - 220
Deferred tax asset 2 - 9,374 9,374
______________________________________
970,483 8,837 979,320
______________________________________
Current assets
Dealing investments held at fair value 5,161 - 5,161
Sales for future settlement 31,979 - 31,979
Other receivables 14,794 - 14,794
Tax receivable 385 - 385
Deferred tax asset 2 8,736 (8,736) -
Cash at bank 76,860 - 76,860
______________________________________
137,915 (8,736) 129,179
______________________________________
Total assets 1,108,398 101 1,108,499
______________________________________
Current liabilities
Bank loans and overdrafts (1,953) - (1,953)
Securities sold short 1 (7,800) (15) (7,815)
Purchases for future settlement (15,759) - (15,759)
Other payables (4,851) - (4,851)
______________________________________
(30,363) (15) (30,378)
______________________________________
Net current assets 107,552 (8,751) 98,801
______________________________________
Total assets less current
liabilities 1,078,035 86 1,078,121
Non-current liabilities
Bank loans (82,804) - (82,804)
Provisions 3 (12,838) 768 (12,070)
Retirement benefit liability 4 - (3,448) (3,448)
______________________________________
(95,642) (2,680) (98,322)
______________________________________
Net assets 982,393 (2,594) 979,799
______________________________________
Equity attributable to equity holders
Ordinary share capital 156,178 - 156,178
Capital redemption reserve 33,978 - 33,978
Foreign currency translation reserve 5 - 29 29
Capital reserve-realised 681,371 - 681,371
Capital reserve-unrealised 1,2,3 97,678 (402) 97,276
Retained earnings 1,3,4,5 13,144 (2,221) 10,923
______________________________________
Total shareholders' equity 982,349 (2,594) 979,755
Minority interest in equity 44 - 44
______________________________________
Total equity 982,393 (2,594) 979,799
Notes to the reconciliation:
1. Quoted investments are designated as held at fair value under IFRS and are
carried at bid prices whereas previously, under UK GAAP, they were carried at
mid prices. The aggregate difference is a downward revaluation of £0.5 million
and this also decreases retained earnings by the same amount.
2. The deferred tax asset was previously included in current assets. In
accordance with IFRS, it has now been reclassified as a non-current asset and
the restated amount now includes the deferred tax asset attributable to the
retirement benefit liability. The deferred tax balance has also been reduced
because of a reduction in the SAR provision referred to below.
3. Under IFRS 2, Share-based payment, a charge is required for all share-based
payments including long-term incentives provided under the Group's Share
Appreciation Rights Plan ('SARs').The charge in the Consolidated Income
Statement is now based on the difference between the fair value of the SARs from
one balance sheet date to the next. Under UK GAAP, the profit and loss charge
was based on the difference between the exercise price and the market price of
RITCP's shares at the relevant balance sheet date.
4. The Group adopted FRS 17, Retirement Benefits as at 31 March 2005 but the
interim financial statements for the six months ended 30 September 2004 had been
drawn up in accordance with SSAP 24. It has therefore been necessary to restate
the balance sheet as at 30 September 2004 in accordance with IAS 19, Employee
benefits.
5. In accordance with IFRS, a foreign currency translation reserve has now been
recognised in respect of the exchange movements arising on consolidation since
31 March 2004.
(b) Reconciliation of the Statement of Total Return to the Consolidated Income
Statement for the six months ended 30 September 2004
Under IFRS, the Consolidated Income Statement is the equivalent of the
Consolidated Statement of Total Return reported previously.
2004 Earnings per
share
Notes £'000 (impact in pence)
Total transfer to reserves per the Consolidated
Statement of Total Return 8,526 -
Investments held at fair value changed from mid
to bid basis at 31 March 2004 1 (693) (0.4)
Investments held at fair value changed from mid
to bid basis at 30 September 2004 1 (552) (0.3)
Adjustment to SAR provision 2 24 -
Actuarial loss on pension scheme 3 (75) -
Deferred tax adjustment attributable to the
above 4 25 -
____________________________
Net profit per the Consolidated Income Statement 7,255 (0.7)
Notes to the reconciliation:
1. The investment portfolios are required to be valued at fair value under IFRS.
In previous periods certain discounts were applied to the valuation of some
quoted investments to take account of their illiquidity: these discounts have
now been removed in accordance with IAS 39. The restated values differ from the
previous valuations by £0.7 million and £0.6 million respectively.
2. As mentioned above, the charge in respect of the SAR incentive plan has been
reduced pursuant to the new IFRS 2 accounting treatment.
3. The Group adopted FRS l7, Retirement Benefits as at 31 March 2005 but the
interim financial statements for the six months ended 30 September 2004 had been
drawn up in accordance with SSAP 24. It has therefore been necessary to restate
the balance sheet as at 30 September 2004 in accordance with IAS 19, Employee
benefits. The actuarial loss on the pension scheme has been charged to the
income statement in accordance with IAS 19.
4. This adjustment comprises the aggregate of the deferred tax adjustment
relating to the SARs provision and the movement in deferred tax relating to the
pension scheme.
7. SUMMARY RECONCILIATION OF THE CHANGE IN EQUITY AT 1 APRIL 2004
1 April 2004
Notes £'000
UK GAAP equity (as previously reported) 975,389
_____________
Proposed dividend 1 4,862
Investments held at fair value changed from mid to bid basis 2 693
Adjustment to SAR provision 3 405
Reduction in deferred tax asset arising from the change
to the SAR provision 4 (297)
_____________
IFRS - increase in equity 5,663
_____________
IFRS equity 981,052
Notes to the reconciliation:
1. Under UK company law, companies were required to provide for their proposed
dividend in advance of the dividend being declared and approved at the Annual
General Meeting. Under IAS 37, Provisions, contingent liabilities and contingent
assets, the dividend cannot be provided for in the year end balance sheet since,
at that date, the dividend did not represent a liability. Accrued dividends of
£4.9 million have therefore been removed from other liabilities as at 31 March
2004.
2. Quoted investments are designated as held at fair value under IFRS and are
carried at bid prices whereas previously, under UK GAAP, they were carried at
mid prices. As at 31 March 2004, certain discounts were applied to the valuation
of some quoted investments to take account of their illiquidity: these discounts
have therefore been removed in accordance with IAS 39. The aggregate difference
was an upward revaluation of £0.7 million and this also increased equity by the
same amount.
3. Under IFRS 2, Share-based payment, a charge is required for all share-based
payments which includes the long-term incentives provided under the Company's
Share Appreciation Rights Plan ('SARs'). The SAR provision is now based on the
fair value of the SARs using a binomial option valuation model whereas
previously the provision was calculated by reference to the difference between
the exercise price and the market price of RITCP's shares at the balance sheet
date.
4. The deferred tax attributable to the SARs is calculated by reference to their
intrinsic value (amortised as appropriate during the term of the three year
vesting period).The reduction in the deferred tax asset at 31 March 2004
amounted to £0.3 million.
8. CASH FLOW RECONCILIATIONS
Reconciliation of the Consolidated Cash Flow Statement for the year ended 31
March 2005
Notes Previously Effect of Restated
reported transition 31 March
31 March to IFRS 2005
2005 £'000 £'000
£'000
Cash outflow from operating
activities 1 (3,731) (12,038) (15,769)
Servicing of finance 1 (3,285) 3,285 -
Taxation 1 (860) 860 -
Net cash inflow from financial
investment 1 51,970 (51,970) -
Net cash outflow from capital
expenditure (62) - (62)
Equity dividend paid 2 (4,862) 4,862 -
__________________________________
Net cash inflow before management
of liquid resources and financing 39,170 (55,001) (15,831)
Net cash inflow from management of
liquid resources 3 (63,310) 63,310 -
Net cash outflow from financing 2 (3,586) (4,862) (8,448)
__________________________________
Decrease in cash 4 (27,726) 3,447 (24,279)
Reconciliation of the Consolidated Cash Flow Statement for the six months ended
30 September 2004
Previously Effect of Restated
reported transition 30 September
30 September to IFRS 2004
2004
Notes £'000 £'000 £'000
Cash outflow from operating
activities 1 (845) (1,362) (2,207)
Servicing of finance 1 (1,687) 1,687 -
Taxation 1 (835) 835 -
Net cash inflow from financial
investment 1 71,807 (71,807) -
Net cash outflow from capital
expenditure (21) - (21)
Equity dividend paid 2 (4,862) 4,862 -
__________________________________
Net cash inflow before
management of liquid
resources and financing 63,557 (65,785) (2,228)
Net cash inflow from management
of liquid resources 3 (75,287) 75,287 -
Net cash outflow from financing 2 (3,676) (4,862) (8,538)
__________________________________
Decrease in cash 4 (15,406) 4,640 (10,766)
Notes to the reconciliations:
1. Bank interest paid, tax paid and the cash flows from investments (excluding
money market funds) have now been analysed within operating activities.
2. Ordinary dividends paid are now analysed within financing.
3. The cash flows arising from the purchase and sale of government securities
are now analysed within operating activities.
4. This adjustment represents the inclusion of money market funds in cash and
cash equivalents.
9. LITIGATION
In November 1997 proceedings were issued in the New York Courts against a total
of ten defendants, including the Company, by Richbell Information Services Inc.
('RIS') and certain connected entities. The proceedings relate to the Company's
investment in H-G Holdings Inc. and a loan made to RIS by the Company's
wholly-owned subsidiary, Atlantic and General Investment Trust Limited ('AGIT').
The claim against all of the defendants was for approximately US$240 million. On
15 March 2002 the New York Court dismissed the proceedings in their entirety at
their initial stage for failure to state a claim upon which relief could be
granted. On 1 April 2002 the plaintiffs filed an appeal against that dismissal.
On 23 September 2003 the New York Appellate Court affirmed the dismissal of the
proceedings as to thirty causes of action included in the claim and as to AGIT.
The New York Appellate Court reinstated three of the causes of action as to
seven of the defendants, including the Company, and referred the matter back to
the New York Court for further proceedings with respect to those three causes of
action.
Based upon legal advice received, the Directors do not believe that the
proceedings will have a material effect on the financial position of the
Company.
10. COMPARATIVE INFORMATION
The financial information contained in this interim report does not constitute
statutory accounts as defined in section 240 of the Companies Act 1985. The
financial information for the half years ended 30 September 2005 and 30
September 2004 has not been audited.
The information for the year ended 31 March 2005 has been extracted from the
latest published audited financial statements, as restated to comply with IFRS
(see Note 5). The audited financial statements for the year ended 31 March 2005
have been filed with the Registrar of Companies and the report of the auditors
on those accounts contained no qualification or statement under section 237(2)
or (3) of the Companies Act 1985.
This information is provided by RNS
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