for the year ended 31 December 2015 Contents Company Highlights 1 Strategic Report Chairman’s Statement 3 Our Strategy & Business Model 5 Investment Review 8 Investment Portfolio 12 Principal Risks & Viability 15 Governance Board of Directors 20 J. Rothschild Capital Management 23 Corporate Governance Report 24 Audit and Risk Committee Report 29 Directors’ Remuneration Report 32 Directors’ Report 39 Financial Statements Consolidated Income Statement and Consolidated Statement of Comprehensive Income 44 Consolidated and Parent Company Balance Sheet 45 Consolidated Statement of Changes in Equity 46 Parent Company Statement of Changes in Equity 47 Consolidated and Parent Company Cash Flow Statement 48 Notes to the Financial Statements 49 Independent Auditors’ Report 74 Other Information Investment Portfolio Reconciliation 84 Historical Information and Financial Calendar 85 Directory 86 | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Company Highlights Corporate Objective Investment Policy To deliver long-term capital growth, while preserving To invest in a widely diversified, international portfolio shareholders’ capital; to invest without the constraints of across a range of asset classes, both quoted and a formal benchmark, but to deliver for shareholders unquoted; to allocate part of the portfolio to exceptional increases in capital value in excess of the relevant indices managers in order to ensure access to the best external over time. talent available. Financial Summary 31 December 2015 31 December 2014 Change Net assets £2,441m £2,300m £141m NAV per share1 1,573p 1,483p 90p Share price 1,681p 1,397p 284p Premium/(Discount) 6.9% -5.8% 12.7% Dividends paid 30.0p 29.4p 0.6p Gearing 12.1% 15.4% -3.3% Ongoing Charges % 0.74% 0.74% – NAV per share total return 8.1% Share price total return 22.7% RPI2 plus 3.0% 4.2% MSCI All Country World Index3 2.3% Performance History 1 Year 3 Years 5 Years 10 Years NAV per share total return 8.1% 40.4% 34.8% 102.3% RPI plus 3.0% 4.2% 15.2% 31.8% 78.9% MSCI All Country World Index 2.3% 38.3% 46.4% 74.0% Performance Since Inception 2,000% RIT NAV per share (TR) ACWI4 RPI plus 3% 1,600% 1,200% 800% 400% 0% 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 1 Diluted net asset value per share with debt held at fair value. 2 Retail Price Index. 3 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. 4 The ACWI index in the chart is based on the capital-only index in Sterling prior to the introduction of total return indices in December 1998. Thereafter we have used the total return index based on 50% of the ACWI measured in Sterling and 50% measured in local currencies. RIT Capital Partners plc Report and Accounts December 2015 1 Strategic Report | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Chairman’s Statement am pleased to report that 2015 has been a Isatisfactory year for your Company with a share price total return of 22.7% and a net asset value per share return of 8.1%. Lord Rothschild, OM GBE I am pleased to report that 2015 has been a satisfactory markets in 2016 on the grounds that the US economy is year for your Company with a share price total return of in decent shape – outside of manufacturing – while they 22.7% and a net asset value per share return of 8.1%. feel that economic conditions may be improving. To The results in large measure reflect the investment them, the decline in these markets may have more to do management and operating skills of your Company’s with sentiment than substance. Others are less wholly-owned subsidiary, J. Rothschild Capital optimistic but feel that the odds remain against these Management (JRCM), under the excellent leadership of potential difficulties materialising in a form which would Francesco Goedhuis, well supported by the management undermine global equity markets. However our view is team of Ron Tabbouche (CIO), Andrew Jones (CFO) and that 2016 is likely to turn out to be more difficult than the Jonathan Kestenbaum (COO). second half of 2015. Our policy will be towards a greater emphasis on seeking absolute returns. We will remain In my half-yearly statement I sounded a note of caution, highly selective when considering public and private ending up by writing that “the climate is one where the investment opportunities. Reflecting this policy, our wind may well not be behind us”; indeed we became quoted equity exposure has been reduced to 43% of net increasingly concerned about global equity markets asset value with private investments at 26%. To take during the last quarter of 2015, reducing our exposure to advantage of low interest rates, in June 2015, your equities as the economic outlook darkened and many Company borrowed an amount of £151 million through companies reported disappointing earnings. Meanwhile the issue of fixed rate notes for between ten and twenty central banks’ policy makers became more pessimistic in years, at a weighted average interest rate of 3.5%. their economic forecasts for, despite unprecedented monetary stimulus, growth remained anaemic. Not On investments, as always, the two pillars on which surprisingly, market conditions have deteriorated further. success depends are intelligent and correct forecasting of So much so that the wind is certainly not behind us; the macroeconomic situation, combined with the analysis indeed we may well be in the eye of a storm. of specific companies and stock selection; but in today’s difficult conditions we will put a greater emphasis on The litany of problems which confronts investors is creating value by searching out opportunities in daunting: the QE tap is in the course of being turned off dislocated credit situations, currency fluctuations and and in any event its impact in stimulating asset prices is merger arbitrage. In this context we also look forward to coming to an end. There’s the slowing down to an working closely with Ed Eisler of Eisler Capital, in which unknown extent in China. The situation in the Middle East we are making an important investment. Ed had a is likely to be unresolvable at least for some time ahead. distinguished career at Goldman Sachs where he was Progress of the US and European economies is Global co-Head of the Securities Division and also a disappointing. The Greek situation remains fraught with member of the firm's Management and Risk the country now having to cope with the challenge of Committees. His fund, with its focus on global macro unprecedented immigration. Over the last few years we investment opportunities, has been established to target have witnessed an explosion in debt, much of it returns over the cycle, with a capital preservation focus. repayable in revalued dollars by emerging market Ed has now joined JRCM's Investment Committee. In countries at the time of a collapse in commodity prices. turbulent and volatile conditions, these skills could be of Countries like Brazil, Russia, Nigeria, Ukraine and particular relevance and value. Kazakhstan are, as a result, deeply troubled. In the UK we have an unsettled political situation as we attempt to deal There’s an old saying that in difficult times the return of with the possibility of Brexit in the coming months. The capital takes precedence over the return on capital. Our risks that confront investors are clearly considerable at a principle will therefore be to exercise caution in all things time when stock market valuations remain relatively high. in the current year, while remaining agile where opportunities present themselves. Problems have a habit There are, however, some influential and thoughtful of creating opportunities and I remain confident of our investment managers who remain sanguine about ability to identify and profit from them during 2016. RIT Capital Partners plc Report and Accounts December 2015 3 Chairman’s Statement Dividend Your Company’s Board We are intending to pay a dividend of 31 pence per share After serving six years, Lord Myners is not standing for in 2016, an increase above the current rate of inflation. re-election to your Company’s Board. We’re deeply This will be paid in two equal payments of 15.5 pence in grateful to him for the investment intelligence and April and October. We intend to maintain or increase this insights he has contributed to the affairs of your level in the years ahead, subject to unforeseen Company. circumstances. Rothschild 4 Report and Accounts December 2015 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Our Strategy & Business Model Introduction This section aims to provide a clear and succinct ince your Company’s listing in 1988, we overview of our strategy and business model, in Shave participated in 76% of the market particular: upside but only 39% of the market declines. • what we are trying to achieve (Strategic Aims); This has resulted in our NAV per share total return compounding at 11.4% per annum; a • how we go about it (Investment Approach); meaningful outperformance of global equity • how well we have done (Measuring Performance markets. Over the same period the total and KPIs); return to shareholders was 12.8% per annum. • how we structure our remuneration (Incentive opportunities and themes across asset classes, is more Structure); and likely to lead to long-term outperformance. We would • our Governance and Group Structure. hope to display healthy participation in up markets, and reasonable protection in down markets. Over time, this Strategic Aims should allow us to compound ahead of markets Our strategic aims are best illustrated by our Corporate throughout the cycles.