RIT Capital Partners : Half-year Report

5 August 2019

RIT Capital Partners plc

Results for the half year ended 30 June 2019

RIT Capital Partners plc today published its results for the half year ended 30 June 2019.

Financial Highlights:

· Total net assets in excess of £3 billionas at 30 June 2019; a new all-time high

· Growth in net assets of £241 million (before distributions) for the period· Net asset value (NAV) total return of 8.5% forthe period

· NAV per share 1,958 pence at 30 June 2019

· Share price increased by 10.1% on a total return basis over the period

· Average premium over the period was 7.1%

Performance Highlights:

· Cautious portfolio positioning with an emphasis on capital preservation

· Returns achieved with prudent net quoted equity exposure, averaging 45% over the period

· Diversified approach successfully produced distinctive sources of return

· Strong contribution from the single stocks portfolio

· Continued steady returns from the Absolute Return and Credit portfolio

· Useful contribution from gold-related investments

· Capital deployed into several new private investments

Dividends:

· Dividend paid in April of 17 pence per share

· The Board has declared a dividend of 17 pence per share for October

· This represents an increase of 3.0% over theprevious year's dividend

Summary:

· Following RIT's success in preserving capital during a turbulent 2018, the portfolio generated healthy returns over the first six months of 2019

· Over the last five years, net assets have grown by over £1.1 billion (before dividends)

· Over the same five-year period, the share price total return was 73.3% versus 64.2% for our equity index (MSCI ACWI¹)

· Since inception, RIT has now participated in 73% of market upside but only 38% of market declines

· Over the same period, the total shareholder return has compounded at 12.3% per annum compared to the MSCI ACWI of 7.2%

· £10,000 invested in RIT at inception in 1988 would be worth c.£360,000 today (with dividends reinvested) compared to the same amount invested in the MSCI ACWI which would be worth c.£85,000

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

'Total returns for the six-month period under review amounted to 8.5%, with your Company's net asset value per share increasing to 1,958 pence. Net assets reached an all-time high of over £3 billion and your Company's share price increased by 10.1% on a total return basis.

…The last decade has seen a confluence of factors which have benefitted companies' earnings to an unprecedented extent. Lower cost of capital, reduced taxes, stagnant wages and the influence of globalisation contributed to record profit margins. These positive factors are, however, unlikely to be sustained. Trade wars, the weakening of economic growth and the risk of recession are of concern, particularly at a time when stock markets have reached all-time highs.

Against this backdrop we are seeking to invest in situations that either give us a degree of protection in potentially deteriorating conditions or in areas where structural growth rates are sufficiently high for valuations to hold their own or indeed prosper. This approach shapes our asset allocation and security selection. We seek to identify and to invest in companies with strong balance sheets, attractively low valuations and which are likely to exceed GDP growth rates. Many of our recent private investments are designed to benefit from some structural protection. Outside of equities, we look for uncorrelated strategies which are not dependent on economic growth and which we expect to produce positive returns.

…At our AGM, we welcomed Maggie Fanari and Sir James Leigh-Pemberton to our Board as non-executive Directors. James will be taking over as Chairman from 30 September 2019. Our family ties and investments will be represented through my daughter Hannah, who will continue to serve on the Company's Board. Our management company, JRCM, is secure in the hands of its Executive Committee, led by Francesco Goedhuis (CEO) and Ron Tabbouche (CIO), together with Andrew Jones (CFO) and Jonathan Kestenbaum (COO)…'

Please click here to view the Company's Half-Yearly Financial Report:

http://www.rns-pdf.londonstockexchange.com/rns/8135H_1-2019-8-2.pdf

ENQUIRIES:

Brunswick Group LLP

Tom Burns: [phone]

About RIT Capital Partners plc:

RIT Capital Partners plc is an investment company listed on the London Stock Exchange. Its net assets have grown from £280 million on listing to over £3.0 billion today. It is chaired by Lord Rothschild, whose family interests have a significant holding. www.ritcap.com

¹ The MSCI ACWI refers to the MSCI All Country World Index. This is a total return, market capitalisation-weighted equity index covering major developed and emerging markets. The MSCI ACWI is calculated using 50% of the index measured in Sterling and 50% measured in local currencies, other than in relation to performance from inception where it is based on the capital-only index prior to the introduction of total return indices in December 1998.

A description of all other terms used above, including further information on the calculation of Alternative Performance Measures (APMs), is set out in the Glossary and APMs section of the Half-Yearly Financial Report.

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

Performance for the Period	30 June 2019
NAV per share total return	8.5%
Share price total return	10.1%
RPI plus 3.0% per annum	2.9%
MSCI All Country World Index	16.3%

Key Data	30 June 2019	31 December 2018	Change
NAV per share	1,958 pence	1,821 pence	7.5%
Share price	2,085 pence	1,910 pence	9.2%
Premium	6.5%	4.9%	1.6%
Net assets	£3,045 million	£2,830 million	7.6%
Gearing	5.8%	11.5%	-5.7%
Average net quoted equity exposure for the period	45%	47%	-2%
First interim dividend (April)	17.0 pence	16.5 pence	3.0%

Performance History	1 Year	3 Years	5 Years	10 Years
NAV per share total return	5.9%	28.1%	53.4%	154.0%
Share price total return	2.6%	33.3%	73.3%	170.4%
RPI plus 3.0% per annum	5.9%	19.9%	30.5%	80.8%
MSCI All Country World Index	8.0%	42.7%	64.2%	210.8%

CHAIRMAN'S STATEMENT

Total returns for the six-month period under review amounted to 8.5%, with your Company's net asset value per share increasing to 1,958 pence. Net assets reached an all-time high of over £3 billion and your Company's share price increased by 10.1% on a total return basis.

Single stocks performed well. We also achieved strong returns from our China-related investments, where we increased exposure at the time of last year's volatility. We deployed additional capital to a number of new private investments, including a $50 million investment into 'KeepTruckin', a US-based logistics business, as well as other investments in early stage growth companies and funds in the US and Asian markets. These follow on from our investment last year of a similar amount into Coupang, the South Korean online consumer business which continues to grow strongly.

Our exposure to absolute return and credit assets continued to generate returns, while our gold-related investments appreciated during June. On currencies, we reduced our US Dollar exposure in the expectation of the Federal Reserve lowering interest rates.

We remain cautiously positioned with net quoted equity exposure of 43% and private investments of 26%. Valuations are, on many metrics, at the upper end of historical ranges at a time when geopolitical risks abound; credit quality is deteriorating; and global economic growth is weakening.

Of particular concern is whether the current high level of corporate profitability is sustainable. The last decade has seen a confluence of factors which have benefitted companies' earnings to an unprecedented extent. Lower cost of capital, reduced taxes, stagnant wages and the influence of globalisation contributed to record profit margins. These positive factors are, however, unlikely to be sustained. Trade wars, the weakening of economic growth and the risk of recession are of concern, particularly at a time when stock markets have reached all-time highs.

Against this backdrop we are seeking to invest in situations that either give us a degree of protection in potentially deteriorating conditions or in areas where structural growth rates are sufficiently high for valuations to hold their own or indeed prosper. This approach shapes our asset allocation and security selection. We seek to identify and to invest in companies with strong balance sheets, attractively low valuations and which are likely to exceed GDP growth rates. Many of our recent private investments are designed to benefit from some structural protection. Outside of equities, we look for uncorrelated strategies which are not dependent on economic growth and which we expect to produce positive returns.

Dividend

We paid a first interim dividend of 17 pence per share in April and have declared a second interim dividend of the same amount. This will be paid on 31 October 2019 to shareholders registered on 4 October and will provide shareholders with a total dividend in 2019 of 34 pence per share, a 3.0% increase over 2018.

Governance

At our AGM, we welcomed Maggie Fanari and Sir James Leigh-Pemberton to our Board as non-executive Directors. James will be taking over as Chairman from 30 September 2019. Our family ties and investments will be represented through my daughter Hannah, who will continue to serve on the Company's Board. Our management company, JRCM, is secure in the hands of its Executive Committee, led by Francesco Goedhuis (CEO) and Ron Tabbouche (CIO), together with Andrew Jones (CFO) and Jonathan Kestenbaum (COO).

The consolation of retirement is to have every confidence that your Company will continue to prosper in the years ahead, guided by James Leigh-Pemberton as Chairman, a strong and committed Board and an excellent and cohesive management team, which has already succeeded on your behalf over a number of years.

May I end by taking the opportunity of thanking shareholders for their support and trust over many years. It has been a privilege to chair your Company.

Rothschild
2 August 2019

Asset Allocation and Portfolio Contribution, six months to 30 June 2019

	30 June 2019	Contribution
Asset Category	% NAV	%
Quoted Equity	43.8%	7.8%1
Private Investments	26.1%	0.7%
Absolute Return and Credit	23.7%	1.0%
Real Assets	3.2%	0.6%
Government Bonds andRates	(0.0%)	0.0%
Currency	(0.3%)	(0.7%)2
Total Investments	96.5%	9.4%
Liquidity, Borrowings and Other	3.5%	(0.9%)3
Total	100.0%	8.5%
Average Net Quoted Equity Exposure1	45%

¹ The Quoted Equity contribution reflects the profits from the net quoted equity exposure during the period, which averaged 45%. This can differ from the % NAV as it reflects notional exposure through derivatives as well as estimated adjustments for derivatives and/or liquidity held by managers. As at 30 June 2019, net quoted equity exposure stood at 43%.

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

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

NET ASSET VALUE BY ASSET CATEGORY (%)

Asset Category	30 June 2019 % NAV	31 December 2018 % NAV
Quoted Equity	44%	47%
Private Investments	26%	26%
Absolute Return and Credit	24%	24%
Real Assets	3%	3%
Government Bonds and Rates	0%	0%
Currency	0%	0%
Liquidity, Borrowings and Other	3%	0%
Net Assets	100%	100%

Note: This table excludes exposure from derivatives.

CURRENCY EXPOSURE AS % OF NAV

Asset Category	30 June 2019 % NAV	31 December 2018 % NAV
Sterling	56%	44%
US Dollar	16%	30%
Euro	10%	6%
Japanese Yen	6%	6%
Swiss Franc	3%	5%
Other	9%	9%
Net Assets	100%	100%

Note: This table excludes exposure from currency options.

CONDENSED INTERIM FINANCIAL STATEMENTS

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

Consolidated Income Statement

For the six months ended 30 June

				2019			2018
£ million	Notes	Revenue	Capital	Total	Revenue	Capital	Total
Income and Gains
Investment income		14.6	-	14.6	11.0	-	11.0
Other income		4.1	-	4.1	2.5	-	2.5
Gains/(losses) on fair value investments		-	250.7	250.7	-	93.7	93.7
Gains/(losses) on monetary items and borrowings		-	(1.3)	(1.3)	-	6.7	6.7
		18.7	249.4	268.1	13.5	100.4	113.9
Expenses
Operating expenses		(10.3)	(2.9)	(13.2)	(9.2)	(2.7)	(11.9)
Profit/(loss) before finance costs and tax	2	8.4	246.5	254.9	4.3	97.7	102.0
Finance costs		(1.8)	(7.3)	(9.1)	(1.4)	(5.5)	(6.9)
Profit/(loss) before tax		6.6	239.2	245.8	2.9	92.2	95.1
Taxation		(0.2)	-	(0.2)	(1.0)	-	(1.0)
Profit/(loss) for the period		6.4	239.2	245.6	1.9	92.2	94.1
Earnings per ordinary share - basic	3	4.1p	154.7p	158.8p	1.2p	59.8p	61.0p
Earnings per ordinary share - diluted	3	4.1p	154.4p	158.5p	1.2p	59.6p	60.8p

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

Consolidated Statement of Comprehensive Income

For the six months ended 30 June

			2019			2018
£ million	Revenue	Capital	Total	Revenue	Capital	Total
Profit/(loss) for the period	6.4	239.2	245.6	1.9	92.2	94.1
Other comprehensive income/(expense) that will not be subsequently reclassified to profit or loss:
Revaluation gain/(loss) on property, plant and equipment	-	(0.7)	(0.7)	-	(0.3)	(0.3)
Actuarial gain/(loss) in defined benefit pension plan	(0.1)	-	(0.1)	1.1	-	1.1
Deferred tax (charge)/credit allocated to actuarial loss	-	-	-	(0.4)	-	(0.4)
Total comprehensive income/(expense) for the period	6.3	238.5	244.8	2.6	91.9	94.5

The notes are an integral part of these condensed interim financial statements.

Consolidated Balance Sheet (unaudited)

		30 June	31 December
£ million	Notes	2019	2018
Non-current assets
Investments held at fair value		2,907.1	2,808.0
Investment property		35.2	35.4
Property, plant and equipment		25.4	26.2
Deferred tax asset		1.8	2.0
Retirement benefit asset		1.4	1.3
Derivative financial instruments		5.2	8.3
		2,976.1	2,881.2
Current assets
Derivative financial instruments		27.4	24.6
Other receivables		217.5	248.9
Cash at bank		238.2	210.9
		483.1	484.4
Total assets		3,459.2	3,365.6
Current liabilities
Borrowings		(175.0)	(275.0)
Derivative financial instruments		(26.8)	(38.2)
Other payables		(39.6)	(51.7)
Amounts owed to group undertakings		(3.6)	(11.8)
		(245.0)	(376.7)
Net current assets/(liabilities)		238.1	107.7
Total assets less current liabilities		3,214.2	2,988.9
Non-current liabilities
Borrowings		(165.0)	(155.1)
Derivative financial instruments		(1.0)	(0.6)
Provisions		(2.4)	(2.5)
Finance lease liability		(0.5)	(0.5)
		(168.9)	(158.7)
Net assets		3,045.3	2,830.2
Equity attributable to owners of the Company
Share capital		155.4	155.4
Share premium		17.3	17.3
Capital redemption reserve		36.3	36.3
Own shares reserve		(10.7)	(13.4)
Capital reserve		2,831.1	2,624.3
Revenue reserve		1.3	(5.0)
Revaluation reserve		14.6	15.3
Total equity		3,045.3	2,830.2
Net asset value per ordinary share - basic	4	1,963p	1,827p
Net asset value per ordinary share - diluted	4	1,958p	1,821p

The notes are an integral part of these condensed interim financial statements.

Consolidated Statement of Changes in Equity (unaudited)

					Share-
			Capital	Own	based
Six months ended 30 June 2019	Share	Share	redemption	shares	payment	Capital	Revenue	Revaluation	Total
£ million	capital	premium	reserve	reserve	reserve	reserve	reserve	reserve	equity
Balance at 1 January 2019	155.4	17.3	36.3	(13.4)	-	2,624.3	(5.0)	15.3	2,830.2
Profit/(loss) for the period	-	-	-	-	-	239.2	6.4	-	245.6
Revaluation gain/(loss) on property, plant and equipment	-	-	-	-	-	-	-	(0.7)	(0.7)
Actuarial gain/(loss) in defined benefit plan	-	-	-	-	-	-	(0.1)	-	(0.1)
Deferred tax (charge)/credit relating to pension plan	-	-	-	-	-	-	-	-	-
Total comprehensive income/(expense) for the period	-	-	-	-	-	239.2	6.3	(0.7)	244.8
Dividends paid (note 5)	-	-	-	-	-	(26.3)	-	-	(26.3)
Movement in Own shares reserve	-	-	-	2.7	-	-	-	-	2.7
Movement in Share-based payments	-	-	-	-	-	(6.1)	-	-	(6.1)
Transfer to Capital reserve	-	-	-	-	-	-	-	-	-
Balance at 30 June 2019	155.4	17.3	36.3	(10.7)	-	2,831.1	1.3	14.6	3,045.3

					Share-
			Capital	Own	based
Six months ended 30 June 2018	Share	Share	redemption	shares	payment	Capital	Revenue	Revaluation	Total
£ million	capital	premium	reserve	reserve	reserve	reserve	reserve	reserve	equity
Balance at 1 January 2018	155.4	17.3	36.3	(17.6)	4.6	2,648.4	(2.7)	16.6	2,858.3
Profit/(loss) for the period	-	-	-	-	-	92.2	1.9	-	94.1
Revaluation gain/(loss) on property, plant and equipment	-	-	-	-	-	-	-	(0.3)	(0.3)
Actuarial gain/(loss) in defined benefit plan	-	-	-	-	-	-	1.1	-	1.1
Deferred tax (charge)/credit relating to pension plan	-	-	-	-	-	-	(0.4)	-	(0.4)
Total comprehensive income/(expense) for the period	-	-	-	-	-	92.2	2.6	(0.3)	94.5
Dividends paid (note 5)	-	-	-	-	-	(25.5)	-	-	(25.5)
Movement in Own shares reserve	-	-	-	5.6	-	-	-	-	5.6
Movement in Share-based payment reserve	-	-	-	-	(7.9)	-	-	-	(7.9)
Transfer to Capital reserve	-	-	-	-	3.3	(3.3)	-	-	-
Balance at 30 June 2018	155.4	17.3	36.3	(12.0)	-	2,711.8	(0.1)	16.3	2,925.0

The notes are an integral part of these condensed interim financial statements.

Consolidated Cash Flow Statement (unaudited)

Six months ended	30 June	30 June
£ million	2019	2018
Cash flows from operating activities:
Cash inflow/(outflow) before interest	163.4	(38.9)
Interest paid	(9.1)	(6.9)
Net cash inflow/(outflow) from operating activities	154.3	(45.8)
Cash flows from investing activities:
Purchase of property, plant and equipment	(0.2)	(0.2)
Disposal of subsidiary1	-	3.0
Net cash inflow/(outflow) from investing activities	(0.2)	2.8
Cash flows from financing activities:
Purchase of ordinary shares by Employee Benefit Trust2	(7.1)	(4.6)
Repayment of borrowings	(100.0)	-
Dividends paid	(26.3)	(25.5)
Net cash inflow/(outflow) from financing activities	(133.4)	(30.1)
Increase/(decrease) in cash and cash equivalents in the period	20.7	(73.1)
Cash and cash equivalents at the start of the period	210.9	122.9
Effect of foreign exchange rate changes on cash and cash equivalents	6.6	(0.7)
Cash and cash equivalents at the period end	238.2	49.1

¹ Deferred consideration.

² Shares are disclosed in 'Own shares reserve' on the consolidated balance sheet.

The notes are an integral part of these condensed interim financial statements.

Notes to the Financial Statements (UNAUDITED)

1. Basis of Accounting

These condensed financial statements are the half-yearly consolidated financial statements of RIT Capital Partners plc (RIT or the Company) and its subsidiaries (together, the Group) for the six months ended 30 June 2019. They are prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority, and with International Accounting Standard (IAS) 34, Interim Financial Reporting, as adopted by the European Union, and were approved on 2 August 2019. These half-yearly consolidated financial statements should be read in conjunction with the Report and Accounts for the year ended 31 December 2018, which were prepared in accordance with IFRS, as adopted by the European Union, as they provide an update of previously reported information.

The half-yearly consolidated financial statements have been prepared in accordance with the accounting policies set out in the notes to the consolidated financial statements for the year ended 31 December 2018 except as described below.

IFRS 16 Leases became mandatory for the period beginning on 1 January 2019. The adoption of this standard has had no material impact on the Group's financial performance or position for the period ending 30 June 2019.

Critical Accounting Assumptions and Judgements

As further described in the Report and Accounts for the year ended 31 December 2018, areas requiring a higher degree of judgement or complexity and areas where assumptions and estimates are significant to the consolidated financial statements, are in relation to the valuation of private investments and property.

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

2. Business and Geographical Segments

For both the six months ended 30 June 2019 and the six months ended 30 June 2018, the Group is considered to have three principal operating segments as follows:

		AUM1
Segment	Business	£ million	Employees1
RIT	Investment trust	-	-
JRCM2	Asset manager/administration	3,045	43
SHL3	Events/premises management	-	13

¹At 30 June 2019.

²J. Rothschild Capital Management Limited.

³Spencer House Limited.

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

		2019			2018
	Income/	Operating		Income/	Operating
£ million	Gains1	Expenses1	Profit2	Gains1	Expenses1	Profit2
RIT	267.7	(20.4)	247.3	114.1	(17.6)	96.5
JRCM	18.0	(10.8)	7.2	15.1	(9.7)	5.4
SHL	2.0	(1.6)	0.4	1.8	(1.7)	0.1
Adjustments3	(19.6)	19.6	-	(17.1)	17.1	-
Total	268.1	(13.2)	254.9	113.9	(11.9)	102.0

¹Includes intra-group income and expenses.

²Profit before finance costs and tax.

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

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

Of the Income/Gains reported above, the amount of revenue arising from contracts with external customers is £1.4 million (six months ended 30 June 2018: £1.2 million).

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

The basic earnings per ordinary share for the six months ended 30 June 2019 is based on the profit of £245.6 million (six months ended 30 June 2018: profit of £94.1 million) and the weighted average number of ordinary shares in issue during the period of 154.7 million (six months ended 30 June 2018: 154.4 million). The weighted average number of shares is adjusted for shares held in the Employee Benefit Trust in accordance with IAS 33.

	Six months	Six months
	ended	ended
£ million	30 June 2019	30 June 2018
Net revenue profit/(loss)	6.4	1.9
Net capital profit/(loss)	239.2	92.2
Total profit/(loss) for the period	245.6	94.1

	Six months	Six months
	ended	ended
pence	30 June 2019	30 June 2018
Revenue earnings/(loss) per ordinary share - basic	4.1	1.2
Capital earnings/(loss) per ordinary share - basic	154.7	59.8
Total earnings per ordinary share - basic	158.8	61.0

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

	Six months	Six months
	ended	ended
Weighted average (million)	30 June 2019	30 June 2018
Number of shares in issue	155.4	155.4
Own shares	(0.7)	(1.0)
Basic shares	154.7	154.4
Effect of share-based payment awards	0.3	0.4
Diluted shares	155.0	154.8

	Six months	Six months
	ended	ended
pence	30 June 2019	30 June 2018
Revenue earnings/(loss) per ordinary share - diluted	4.1	1.2
Capital earnings/(loss) per ordinary share - diluted	154.4	59.6
Earnings per ordinary share - diluted	158.5	60.8

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

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

	30 June	31 December
	2019	2018
Net assets (£ million)	3,045.3	2,830.2
Number of shares in issue (million)	155.4	155.4
Own shares (million)	(0.2)	(0.4)
Basic shares (million)	155.2	155.0
Effect of share-based payment awards (million)	0.3	0.4
Diluted shares (million)	155.5	155.4

	30 June	31 December
Pence per share	2019	2018
Net asset value per ordinary share - basic	1,963	1,827
Net asset value per ordinary share - diluted	1,958	1,821

5. Dividends

	Six months	Six months
	ended	ended
	30 June 2019	30 June 2018
Dividends (£ million)	26.3	25.5
Dividends (pence per share)	17.0	16.5

The Board of Directors declared an interim dividend of 17.0 pence per ordinary share (£26.3 million) on 4 March 2019, which was paid on 30 April 2019. The Board has declared the payment of a second interim dividend of 17.0 pence per ordinary share (£26.3 million) in respect of the year ending 31 December 2019. This will be paid on 31 October 2019, to shareholders on the register on 4 October 2019. Both payments are funded from accumulated capital profits.

Additional commentary may be found in the Report and Accounts for the year ended 31 December 2018.

6. Financial Instruments

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

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

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

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

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

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

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

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

Level 1

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

Level 2

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

Level 3

The Group considers all private investments, whether direct or funds (shown in the Investment Portfolio), as level 3 assets, as the valuations of these assets are typically not based on observable market data. Where other funds invest into illiquid positions, these are also considered by the Group to be level 3 assets.

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

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

Borrowings at 30 June 2019 comprise bank loans and senior loan notes. The bank loans are revolving credit facilities, paying floating interest and are typically drawn in tranches with a duration of three months. The loans are therefore short-term in nature, and their fair value approximates their nominal value. Bank loans totaling £100 million were repaid during the period and remained available but undrawn at 30 June 2019. The loan notes were issued in June 2015 with tenors of between 10 and 20 years with a weighted average of 16 years. They are valued on a monthly basis using a discounted cash flow model where the discount rate is derived from the yield of similar tenor UK government bonds, adjusted for any significant changes in either credit spreads or the perceived credit risk of the Company.

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

On a semi-annual basis, the Group engages external, independent and qualified valuers to determine the fair value of the Group's investment properties and property, plant and equipment. These were valued at 30 June 2019 by JLL in accordance with the Valuation - Global Standards 2017 issued by the Royal Institution of Chartered Surveyors on the basis of fair value.

The following table analyses the Group's assets and liabilities within the fair value hierarchy, at 30 June 2019:

As at 30 June 2019
£ million	Level 1	Level 2	Level 3	Total
Financial assets at fair value through profit or loss:
Portfolio investments	325.2	1,403.9	1,126.6	2,855.7
Non-consolidated subsidiaries	-	-	51.4	51.4
Investments held at fair value	325.2	1,403.9	1,178.0	2,907.1
Derivative financial instruments	9.7	22.9	-	32.6
Total financial assets at fair value through profit or loss	334.9	1,426.8	1,178.0	2,939.7
Non-financial assets measured at fair value:
Investment property	-	-	35.2	35.2
Property, plant and equipment	-	-	25.4	25.4
Total non-financial assets measured at fair value	-	-	60.6	60.6
Financial liabilities at fair value through profit or loss:
Borrowings	-	-	(340.0)	(340.0)
Derivative financial instruments	(0.1)	(27.7)	-	(27.8)
Total financial liabilities at fair value through profit or loss	(0.1)	(27.7)	(340.0)	(367.8)
Total net assets measured at fair value	334.8	1,399.1	898.6	2,632.5
Other non-current assets				3.2
Cash at bank				238.2
Other current assets				217.5
Other current liabilities				(43.2)
Other non-current liabilities				(2.9)
Net assets				3,045.3

Movement in level 3 assets

	Investments
Period ended 30 June 2019	held at fair
£ million	value	Properties	Total
Opening balance	1,029.0	61.6	1,090.6
Purchases	95.3	0.1	95.4
Sales	(49.2)	-	(49.2)
Realised gains/(losses) through profit or loss	2.5	-	2.5
Unrealised gains/(losses) through profit or loss	39.2	(0.2)	39.0
Unrealised gains/(losses) through other comprehensive income	-	(0.7)	(0.7)
Reclassifications	61.2	-	61.2
Other	-	(0.2)	(0.2)
Closing balance	1,178.0	60.6	1,238.6

During the period, investments in funds with a fair value of £61.2 million were reclassified from level 2 to level 3, as a result of new financial information received during the period in respect of the underlying investments of the funds. There were no reclassifications into or out of level 1.

Level 3 Assets

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

Primary valuation method	30 June	31 December
£ million	2019	2018
Third-party valuations	130.8	137.2
Earnings multiple1	152.9	101.2
Recent financing round	77.0	59.4
Discounted cash flow (DCF)1	27.9	15.1
Other industry metrics	4.9	2.2
Agreed sale/offer	-	14.5
Total	393.5	329.6

¹ Included within these methods are directly-held private investments held within the non-consolidated subsidiaries with a total of £2.9 million (2018: £2.9 million).

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

The investment property and property, plant and equipment with a total fair value of £60.6 million (2018: £61.6 million) were valued using a third-party valuation provided by JLL. The valuation method used freehold/freehold equivalent weighted average capital values of £2,419 per sq ft (2018: £2,472) developed from rental yields and supported by recent sales. A £25 per sq ft increase/decrease in capital values would result in a £0.6 million increase/decrease in fair value (2018: £0.6 million increase/decrease).

The non-consolidated subsidiaries are held at their fair value of £51.4 million (2018: £47.9 million) representing £46.1 million of portfolio investments (2018: £34.8 million) and £5.3 million of remaining assets and liabilities (2018: £13.1 million). A 5% change in the value of these net assets would result in £2.6 million or 0.08% (2018: £2.4 million, 0.08%) change in total NAV.

The remaining investments classified as level 3 were valued using third-party valuations from a GP, administrator or fund manager of £736.0 million (2018: £654.4 million). A 5% change in the value of these assets would result in a £36.8 million or 1.21% (2018: £32.7 million, 1.16%) change in NAV.

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

Primary valuation method	Sensitivity analysis
Third-party valuations	A 5% change in the value of these assets would result in a £6.5 million or 0.21% (2018: £6.9 million, 0.24%) change in NAV.
Earnings multiple	Assets in this category are valued using a multiple in the range of 1.8x - 5.4x for EV/Sales and a range of 10.2x - 10.8x for EV/EBITDA. If the multiple used for valuation purposes is increased or decreased by 5% then the NAV would increase/decrease by £9.0 million or 0.30% (2018: £5.1 million, 0.18%).
Recent financing round	A 5% change in the value of these assets would yield a £3.8 million change or 0.13% (2018: £3.0 million, 0.10%).
DCF	Assets in this category are valued using a weighted average cost of capital range of 8% - 30%. A 1% increase/decrease in this underlying discount rate would result in a decrease/increase in the NAV of £2.4 million or 0.08% (2018: £0.4 million, 0.02%).
Other industry metrics	A 5% change in the value of these assets would result in a £0.2 million or a 0.01% (2018: £0.1 million, 0.004%) change in NAV.
Agreed sale/offer	A 5% change in the value of these assets would impact the NAV by nil (2018: £0.7 million, 0.03%).

The following table analyses the Group's assets and liabilities within the fair value hierarchy, at 31 December 2018:

As at 31 December 2018
£ million	Level 1	Level 2	Level 3	Total
Financial assets at fair value through profit or loss:
Portfolio investments	250.3	1,528.7	981.1	2,760.1
Non-consolidated subsidiaries	-	-	47.9	47.9
Investments held at fair value	250.3	1,528.7	1,029.0	2,808.0
Derivative financial instruments	8.2	24.7	-	32.9
Total financial assets at fair value through profit or loss	258.5	1,553.4	1,029.0	2,840.9
Non-financial assets measured at fair value:
Investment property	-	-	35.4	35.4
Property, plant and equipment	-	-	26.2	26.2
Total non-financial assets measured at fair value	-	-	61.6	61.6
Financial liabilities at fair value through profit or loss:
Borrowings	-	-	(430.1)	(430.1)
Derivative financial instruments	(0.7)	(38.1)	-	(38.8)
Total financial liabilities at fair value through profit or loss	(0.7)	(38.1)	(430.1)	(468.9)
Total net assets measured at fair value	257.8	1,515.3	660.5	2,433.6
Other non-current assets				3.3
Cash at bank				210.9
Other current assets				248.9
Other current liabilities				(63.5)
Other non-current liabilities				(3.0)
Net assets				2,830.2

Movement in level 3 assets

	Investments
Year ended 31 December 2018	held at fair
£ million	value	Properties	Total
Opening Balance	912.8	64.0	976.8
Purchases	154.1	0.2	154.3
Sales	(195.1)	-	(195.1)
Realised gains/(losses) through profit or loss	25.8	-	25.8
Unrealised gains/(losses) through profit or loss	168.5	(0.7)	167.8
Unrealised gains/(losses) through other comprehensive income	-	(1.3)	(1.3)
Reclassifications	(37.1)	-	(37.1)
Other	-	(0.6)	(0.6)
Closing Balance	1,029.0	61.6	1,090.6

7. Comparative Information

The financial information contained in this Half-Yearly Financial Report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The financial information for the half years ended 30 June 2019 and 30 June 2018 has been neither reviewed nor audited.

The information for the year ended 31 December 2018 has been extracted from the latest published audited financial statements. The audited financial statements for the year ended 31 December 2018 have been filed with the Registrar of Companies and the report of the auditors on those accounts contained no qualification or statement under section 498(2) or (3) of the Companies Act 2006.

Regulatory Disclosures

Statement of Directors' Responsibilities

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

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

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

(c) In addition, in accordance with the disclosures required under the Disclosure and Transparency Rule 4.2.8R, there were no changes in the transactions or arrangements with related parties as described in the Group's Report and Accounts for the year ended 31 December 2018 that would have had a material effect on the financial position or performance of the Group in the first six months of the current financial year.

Principal Risks and Uncertainties

The principal risks and uncertainties facing the Group for the second half of the financial year are substantially the same as those described in the Report and Accounts for the year ended 31 December 2018. These comprise:

● Investment Strategy Risk;

● Market Risk;

● Liquidity Risk;

● Credit Risk;

● Key Person Dependency;

● Legal & Regulatory Risk; and

● Operational Risk.

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

Going Concern

The factors likely to affect the Group's ability to continue as a going concern were set out in the Report and Accounts for the year ended 31 December 2018. As at 30 June 2019, there have been no significant changes to these factors. Having reviewed the Company's forecasts and other relevant evidence, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half-yearly condensed financial statements.

Rothschild

2 August 2019

For and on behalf of the Board.

END OF HALF-YEARLY FINANCIAL REPORT EXTRACTS