RIT Capital Partners Regulatory News (RCP)

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27 February 2018

RIT Capital Partners plc

Results for the year ended 31 December 2017

RIT Capital Partners plc today published its results for the year ended 31 December 2017.

Financial Highlights:

· Growth in net assets in 2017 of £216m (before dividends)

· Total net assets stood at £2.9 billion, a new all-time high

· Net Asset Value (NAV) total return of 8.2% for the year

· NAV per share of 1,839 pence at 31 December 2017

· Total shareholder return over the year of 5.8%

· During the course of the year, the market capitalisation exceeded £3 billion for the first time

Performance Highlights:

· Defensive portfolio positioning with an emphasis on capital preservation

· Positive returns achieved with prudent net quoted equity exposure averaging 44% over the year

· Diversified approach successfully produced distinctive sources of return

· A good year for long-only and equity hedge funds, with the latter outperforming rising markets despite having moderate net equity exposure

· Strong contribution to overall returns from direct private investments

· Healthy contribution from increased allocation to Absolute Return & Credit

· Returns impacted by currency translation

· Profited from increased portfolio exposure to Asia

Dividends:

· Dividends paid in April and October 2017 totalling 32 pence per share

· The Board intends to pay a dividend of 33 pence per share in 2018, comprising 16.5 pence per share in April and 16.5 pence per share in October. This represents an increase of 3.1% over the previous year

Summary:

· Over the past three years, net assets have grown by £702 million (before dividends)

· Over the same three-year period, share price total return was 48.3%

· Over the past five years, net assets have grown by £1.24 billion (before dividends)

· Over the same five-year period, share price total return was 91.5%

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

· Over the same period, total shareholder return has compounded at 12.6% per annum compared to the ACWI of 7.1%

· £10,000 invested in RIT at inception in 1988 would be worth ~£330,000 today (with dividends reinvested) compared to the same amount invested in the ACWI which would be worth ~£75,000

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

"… the geo-political situation remains a cause of concern: the risk of war, terrorism and cyber attacks, come at a time when American policies are highly unpredictable. Europe is enjoying a cyclical recovery but political conditions remain unsettled. Rising populist nationalism may well affect future elections.

… Reflecting these concerns, your Company's net quoted equity exposure averaged around 44%, including significant investments in technology in the USA and Asia … This 'risk averse' approach produced steady progress in your Company's net asset value per share, which increased over the year to 1,839 pence per share, a total return of 8.2%. Over the last three years the NAV total return stands at 31.2%, with shareholder returns of some 48.3%. Our performance reflects diversified sources of return, from the quoted equity portfolio through external managers in addition to individual stocks.

… As I write this, stock markets have experienced a resurgence in volatility and we ask ourselves whether current valuations remain excessive, adequately reflecting the risks which lie ahead. Are we in the last chapter of a bull market, and one which is already the second longest in the post-World War II era? We remain an atypical investment trust in that there are times when our exposure to listed equities will be relatively low, reflecting your Company's priority of preserving shareholders' capital… We seek to identify - through stock selection, talented external managers and special situations - opportunities at attractive levels with a margin of safety. Over time this cautious policy of diversification has rewarded shareholders who have participated in 75% of up-markets and 39% of down-markets, since your Company's inception in 1988."

Commenting, Francesco Goedhuis, Chief Executive of J. Rothschild Capital Management Limited, said:

"The essence of our investing DNA is about protecting and enhancing shareholders' wealth ... the long-term success of your Company has been drawn from a distinctive blend of stocks, private investments, equity funds, absolute return and credit, all overlaid with currency positioning and macro exposure management. We believe the extent of our global reach and unique network allows us to maximise our ability to deploy capital effectively. We seek to capitalise on an in-house investment team working closely with our core external managers investing in funds which are largely closed to new investors, and cannot be accessed by a retail investor. Above all, our approach is long term.

… While there was a sense of complacency in many areas of the market, we remained resolutely long term, consistent with our target of multi-generational wealth creation. Where we deemed the risks too great, we used our flexibility to tilt the portfolio to emphasise capital preservation over and above the pursuit of short-term growth."

ENQUIRIES:

Brunswick Group LLP:

Tom Burns / Patrick Rutherford 020 7404 5959

About RIT Capital Partners plc:

RIT Capital Partners plc is an investment company listed on the London Stock Exchange. Its net assets have grown from £280 million on listing in 1988 to almost £2.9 billion today. RIT is chaired by Lord Rothschild, whose family interests retain a significant holding. www.ritcap.com

FINANCIAL SUMMARY

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

2 RIT's own Ongoing Charges Figure (OCF), excluding costs incurred in externally managed funds.

3 Retail Price Index.

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

CHAIRMAN'S STATEMENT

In the year under review global stock markets rose to extraordinarily high levels, stimulated by low interest rates and unprecedented monetary policy initiatives of central banks, at a time when major economies of the world have been enjoying significant growth. In addition, the USA has brought in tax cuts and reduced regulation, unemployment has been lower, inflation has remained subdued and geo-political concerns have been shrugged off by stock markets.

The world has undoubtedly recovered from the global economic crisis of a few years ago. The question is whether such benign conditions are sustainable. Quantitative easing is in the course of being phased out, and interest rates are rising. Debt levels are higher - indeed significantly higher than at the time of the financial crisis of 2008. The World Bank and other luminaries are highlighting the risks to the present growth in the global economy, in particular over the medium term.

In addition, the geo-political situation remains a cause of concern: the risk of war, terrorism and cyber attacks, come at a time when American policies are highly unpredictable. Europe is enjoying a cyclical recovery but political conditions remain unsettled. Rising populist nationalism may well affect future elections. In the UK, we struggle with the problems and complexities of Brexit and a minority government.

Reflecting these concerns, your Company's net quoted equity exposure averaged around 44%, including significant investments in technology in the USA and Asia. This was complemented by approximately 22% in private investments, 25% in absolute return and credit, and 7% in real assets, including gold. Currency holdings ended the year spread between Sterling, the Euro and the US Dollar.

This 'risk averse' approach produced steady progress in your Company's net asset value per share, which increased over the year to 1,839 pence per share, a total return of 8.2%. Over the last three years the NAV total return stands at 31.2%, with shareholder returns of some 48.3%.

Our performance reflects diversified sources of return, from the quoted equity portfolio through external managers in addition to individual stocks. Over the course of the year, profitable sales, subject to regulatory approval, of two of our direct private investments - Rockefeller Financial and GVQ, the UK investment manager specialising in the 'small company' sector - have been announced. Looking ahead to the current year, subject to market conditions, we are expecting initial public offerings of two of our investments - Helios Towers, the telecoms towers company in Africa, and Dropbox, the cloud storage company in Silicon Valley.

Our investments in absolute return and credit focused on stable returns with little correlation to broad markets. The 'real asset' portfolio has also contributed, helped by a timely increase in our holdings of gold. With regard to currencies, the net asset value of your Company was affected in Sterling terms by the appreciation of Sterling against the Dollar of around 10%. The impact was mitigated by the reduction in our Dollar holdings. In the current year we have benefited from short positions in government bonds taken out at a time when we expected interest rates to rise.

As I write this, stock markets have experienced a resurgence in volatility and we ask ourselves whether current valuations remain excessive, adequately reflecting the risks which lie ahead. Are we in the last chapter of a bull market, and one which is already the second longest in the post-World War II era? We remain an atypical investment trust in that there are times when our exposure to listed equities will be relatively low, reflecting your Company's priority of preserving shareholders' capital. Our belief, however in the merits of holding equities over the long term remains unshaken. We seek to identify - through stock selection, talented external managers and special situations - opportunities at attractive levels with a margin of safety. Over time this cautious policy of diversification has rewarded shareholders who have participated in 75% of up-markets and 39% of down-markets, since your Company's inception in 1988.

Dividend

We are intending to pay a dividend of 33 pence per share in 2018, an increase of 3.1% above the previous year. This will be paid in two equal instalments of 16.5 pence in April and October. We recognise the importance that shareholders ascribe to such income, and intend to maintain or increase the dividend in the years ahead, subject to unforeseen circumstances.

Your Company's Board

I would like to take the opportunity of thanking Jean Laurent-Bellue for his support as a Director of the Company over the last few years. He will be much missed. Earlier in 2017, we regrettably announced that Mike Wilson had to retire from the Board for health reasons. Again, I would like to place on record our gratitude for Mike's significant contribution, both as a Director, as well as a member of the Audit and Risk Committee and Remuneration Committee.

Rothschild26 February 2018

EXTRACT FROM STRATEGIC REPORT

Strategic Aims

Our strategic aims are best illustrated by our Corporate Objective:

"to deliver long-term capital growth, while preserving shareholders' capital; to invest without the constraints of a formal benchmark, but to deliver for shareholders increases in capital value in excess of the relevant indices over time."

We believe this accurately reflects our long-term aims. However, we have sought to provide further clarification to assist shareholders in understanding what we are trying to achieve for them over time - in particular because we differ from many other large trusts who always aim to be fully invested in quoted equities.

The most important objective is long-term capital growth while preserving shareholders' capital. The essence of our investing DNA is about protecting and enhancing shareholders' wealth.

There may be times when we will deliberately place protection of shareholders' funds ahead of growth - as happened during the latter stages of the dot-com era and also in the run up to the most recent financial crisis. However, we also recognise that such 'market timing' is unlikely to be sustainable in the long term.

We believe that our active management of equity exposure, combined with early identification of opportunities and themes across multiple asset classes, is more likely to lead to long-term outperformance. We would hope to display healthy participation in up markets, and reasonable protection in down markets. Over time, this should allow us to compound ahead of markets throughout the cycles. Indeed, since your Company's listing in 1988, we have participated in 75% of the market upside but only 39% of the market declines. This has resulted in our NAV per share total return compounding at 11.4% per annum, a meaningful outperformance of global equity markets. Over the same period the total return to shareholders was 12.6% per annum.

 Investment Approach

The strategic aims are expressed in more practical terms in our Investment Policy:

"to invest in a widely diversified, international portfolio across a range of asset classes, both quoted and unquoted; to allocate part of the portfolio to exceptional managers in order to ensure access to the best external talent available."

It is this policy which guides us as we manage your portfolio. So, while we retain at our core an equity bias, we nonetheless have the freedom to invest your portfolio across multiple asset classes, geographies, industries and currencies. This has been the basis of our style over many years - combining thematic investing with individual securities, and private investments with public stocks. The long-term success of your Company has been drawn from a distinctive blend of stocks, private investments, equity funds, absolute return and credit, all overlaid with currency positioning and macro exposure management.

We believe the extent of our global reach and unique network allows us to maximise our ability to deploy capital effectively. We seek to capitalise on an in-house investment team working closely with our core external managers, investing in funds which are largely closed to new investors and cannot be accessed by a retail investor.

Above all, our approach is long term. For example, in relation to private investments, we are not constrained by the typical industry model of a limited life partnership. This means we can hold such investments over an extended period and choose to realise at an optimum time. On quoted investments, we aim to avoid being forced sellers of stocks if we are comfortable with their underlying fundamentals, even if it means incurring short-term losses. 

2017 Performance

Overall the portfolio delivered steady performance in 2017, in no small measure reflecting our cautious stance, at a time when developed equity markets marched to historical highs.

While there was a sense of complacency in many areas of the market, we remained resolutely long term, consistent with our target of multi-generational wealth creation. Where we deemed the risks too great, we used our flexibility to tilt the portfolio to emphasise capital preservation over and above the pursuit of short-term growth. Over 2017, one of our key portfolio measures - net quoted equity exposure - averaged 44% of NAV.

Reflecting this approach, our NAV total return for the year was 8.2%. This outperformed our absolute KPI (RPI plus 3.0%) of 7.1%, while our relative KPI (the ACWI), returned 16.5% over the year. Our Chief Investment Officer (CIO), Ron Tabbouche, provides a more detailed analysis of the portfolio returns in the Investment Review.

Our premium averaged 6.7% over the year, compared to 4.5% for 2016, though measured at year ends, it narrowed from 9.0% to 6.7%, with the result that the TSR over the year was 5.8%.

Over the last three years, shareholders have benefited from a TSR of 48.3%, compared to the markets of 41.3%, and over ten years, the figures are 118.6% for our shares and 100.4% for the market.

Francesco Goedhuis

Chief Executive Officer

J. Rothschild Capital Management Limited

ASSET ALLOCATION AND PORTFOLIO CONTRIBUTION

1 The Quoted Equity contribution reflects the average net quoted equity exposure during the year of 44%. This differs from the % NAV as it reflects notional exposure through derivatives as well as adjustments for derivatives and/or liquidity held by managers.

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

3 This category includes interest, mark-to-market movements on the fixed interest notes and expenses.

CURRENCY EXPOSURE OF NET ASSETS

CONSOLIDATED INCOME STATEMENT

Year ended 31 December

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

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

The amounts included above are net of tax where applicable. 

CONSOLIDATED BALANCE SHEET 

At 31 December

The financial statements were approved by the Board of Directors and authorised for issue on 26 February 2018.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 

CONSOLIDATED CASH FLOW STATEMENT

Year ended 31 December

1 Shares are disclosed in 'Own shares reserve' on the consolidated balance sheet.

EARNINGS/(LOSS) PER ORDINARY SHARE - BASIC AND DILUTED

The basic earnings per ordinary share for 2017 is based on the profit of £220.5 million (2016: £302.1 million) and the weighted average number of ordinary shares in issue during the year of 154.3 million (2016: 154.4 million). The weighted average number of shares is adjusted for shares held in the EBT in accordance with IAS 33.

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

NET ASSET VALUE PER ORDINARY SHARE - BASIC AND DILUTED

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

DIVIDEND

The above amounts were paid as distributions to equity holders of the Company in the relevant year from capital profits.

On 28 February 2017 the Board declared a first interim dividend of 16.0 pence per share in respect of the year ended 31 December 2017 that was paid on 28 April 2017. A second interim dividend of 16.0 pence per share was declared by the Board on 14 August 2017 and paid on 31 October 2017.

The Board declares the payment of a first interim dividend of 16.5 pence per share in respect of the year ending 31 December 2018. This will be paid on 30 April 2018 to shareholders on the register on 6 April 2018.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Report and Accounts in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and Parent Company financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs, and of the profit or loss of the Group and Parent Company for that period. In preparing these financial statements, the Directors are required to: 

· select suitable accounting policies and then apply them consistently;

· state whether applicable IFRSs as adopted by the European Union have been followed for both the Group and

Company financial statements, subject to any material departures disclosed and explained in the financial statements;

· make judgements and accounting estimates that are reasonable and prudent; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Parent Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Parent Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of IAS Regulation.

The Directors are also responsible for safeguarding the assets of the Group and Parent Company, and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the Parent Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors consider that the Report and Accounts taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Parent Company's position, performance, business model and strategy.

Each of the Directors, whose names and responsibilities are listed in the Corporate Governance Report confirm that, to the best of their knowledge:

· the Parent Company financial statements, which have been prepared in accordance with IFRSs give a true and

fair view of the assets, liabilities, financial position and profit for the Company;

· the Group financial statements, which have been prepared in accordance with IFRSs give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

· the Strategic Report contains a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

BASIS OF PRESENTATION

The financial information for the year ended 31 December 2017 has been extracted from the statutory accounts for that year. The auditors' report on these accounts was unqualified and did not contain a statement under either Section 498(2) or (3) of the Companies Act 2006. The statutory accounts will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

The financial information for the year ended 31 December 2016 has been extracted from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors' report on these accounts was unqualified and did not contain a statement under either Section 498(2) or (3) of the Companies Act 2006.

REPORT AND ACCOUNTS

The full statutory accounts are available to be viewed or downloaded from the Company's website at www.ritcap.com. Neither the contents of the Company's website nor the contents of any website accessible from the Company's website (or any other website) is incorporated into, or forms part of, this announcement.