Please click here to view the Company's Report and
Accounts
http://www.rns-pdf.londonstockexchange.com/rns/5430F_1-2024-3-4.pdf
5 March
2024
RIT Capital Partners
plc
("RIT" or
the "Company")
Results for the year ended 31
December 2023
RIT's disciplined, flexible
model well placed to deliver long-term capital
growth
FINANCIAL HIGHLIGHTS
·
|
Net Asset Value (NAV) per share of
2,426 pence at 31 December 2023.
|
·
|
NAV per share total return of +3.2%
for the year.
|
·
|
Total net assets stood at £3.6
billion at year end.
|
·
|
Quoted equities delivered strong
performance, returning +18.1% for the year.
|
·
|
Uncorrelated strategies produced
solid returns, led by credit positions returning double
digits.
|
·
|
Private investments declined
modestly, partly due to lagged valuations for funds in respect of
Q4 2022. Private investments are by their nature long term - over
five years, this book has yielded a +145.7% return, enhancing NAV
by +28.8%.
|
·
|
Currencies detracted modestly, due
to translation effects from sterling's rise in the year.
|
·
|
Profit for the year of £66.1
million.
|
·
|
Balance sheet remained robust.
Gearing was 3.5% at year end, versus 6.2% in 2022. Repaid £150
million credit facility and reduced overall debt amid higher
interest rates.
|
·
|
Ongoing Charges Figure (OCF) of
0.77% in 2023, compared to 0.89% in 2022.
|
CAPITAL ALLOCATION
·
|
Returned £220 million of capital to
shareholders through dividends and buybacks.
|
·
|
Bought back £163 million or 8.6
million RIT shares, adding +1.2% to the NAV per share.
|
·
|
Board intends to pay a dividend of
39 pence per share in 2024 in two equal instalments, in April and
October, a 2.6% increase over the previous year.
|
GENERAL
·
|
The discount widened to -22%,
alongside much of the investment company sector. The Board is
intently focused on narrowing this discount over time.
|
·
|
In the last 10 years, RIT has
generated a NAV per share total return of approximately +109%, more
than doubling shareholders' capital.
|
·
|
Since listing, the share price total
return has compounded at 10.6% per annum, and the NAV per share
total return at 10.5% per annum, compared to the ACWI at
7.3%.
|
·
|
Over the same period, RIT has
participated in 74% of monthly market increases but only 41% of
market declines.
|
·
|
£10,000 invested in RIT at inception
in 1988 would be worth £351,000 today compared to the same amount
invested in the ACWI which would be worth £123,000.
|
·
|
Maggie Fanari joined the Manager as
its new CEO on 1 March. She brings an exceptional track record and
joins an experienced team, including CIO Nick Khuu, who are well
placed to continue RIT's long-term track record of
success.
|
FINANCIAL SUMMARY
|
2023
|
2022
|
Return /
Change
|
NAV per share1
|
2,426
pence
|
2,388
pence
|
3.2%2
|
Share price
|
1,882
pence
|
2,125
pence
|
-9.6%2
|
Premium/(discount)
|
-22.4%
|
-11.0%
|
-11.4%
pts
|
Net assets
|
£3,573
million
|
£3,722
million
|
-4.0%
|
Gearing
|
3.5%
|
6.2%
|
-2.7%
pts
|
OCF for the year
|
0.77%
|
0.89%
|
-0.12%
pts
|
Total dividend in year
|
38.0
pence
|
37.0
pence
|
2.7%
|
Total buybacks in year
|
£163
million
|
£11
million
|
1,382%
|
1 The final audited NAV per share as 31 December 2023 is
unchanged from the preliminary unaudited NAV per share published by
the Company on 7 February 2024.
2 Total return for the year, with dividends
reinvested.
PORTFOLIO SUMMARY
A diversified, global portfolio
invested for the long term across three key pillars:
Quoted equities: 38.4% of NAV
·
|
Strong performance from the book,
returning +18.1%.
|
·
|
Significant outperformance versus
the MSCI ACWI Equal Weighted Index, which rose +9.4%, and the MSCI
World excluding the 'magnificent seven', which gained
+12%.
|
·
|
Returns driven by strong stock
selection, including Builders FirstSource and Talen
Energy.
|
·
|
Solid performance from specialist
managers focused on Japan and healthcare.
|
Private investments: 35.9% of NAV
·
|
Private investments declined -6.0%,
partly due to lagged Q4 2022 valuations received for our private
funds. This follows exceptional gains for the book in recent
years.
|
·
|
Continued focus on liquidity. Sales
from three direct holdings - Infinity (final cash received in early
2024), Paxos and Animoca - all at prices at or above our carrying
value.
|
·
|
We expect allocation to this book to
reduce further over time through realisations. Several large
holdings are actively exploring IPOs and/or secondary
sales.
|
·
|
Majority of our largest direct
holdings are profitable with growing revenues and earnings.
Majority also benefit from structural protection for our
capital.
|
·
|
Private investments remain an
exceptional contributor. In last 10 years, new direct investments
have generated a +29% compound return. Over the same period, new
direct investments and fund commitments have delivered a compound
return of +20% per annum.
|
Uncorrelated strategies: 25.6% of NAV
·
|
Uncorrelated strategies delivered
healthy performance of +6.8%, led by credit funds returning double
digits against a backdrop of significant volatility.
|
·
|
Absolute return and credit (more
than 80% of this book at year end) returned a healthy
+9.2%.
|
·
|
Strong performance of gold, held
through derivatives, added +0.4% to NAV, serving as an asymmetric
hedge against the increasing probability of broad-based market
dislocation.
|
·
|
New investment in California carbon
credits also delivered healthy returns during the year.
|
OUTLOOK
·
|
In 2024, we are navigating
conflicting macro signs. US GDP estimates are rising, but some
credit indicators are declining. Geopolitical risks persist and
many assets appear fully valued.
|
·
|
Despite these conditions, we believe
numerous individual assets trade at appealing prices.
|
·
|
In quoted equities, we see numerous
areas to deploy long-term capital, such as small to
medium-capitalisation stocks that are often overlooked, or in
'event-driven' stocks.
|
·
|
In private investments, we see
strong operating performance, and broader tailwinds driven by the
digital transition. The reopening of the IPO markets may also serve
as a near-term catalyst.
|
·
|
In uncorrelated strategies, we see
opportunities in corporate credit markets, with the potential to
generate double-digit returns via quality credits, with limited
risk to our capital.
|
·
|
RIT's competitive edge, which
combines in-house expertise, a flexible capital structure, and
access to unique, compelling investment opportunities globally,
leaves us well positioned to deliver healthy capital appreciation
with attractive risk-reward characteristics.
|
Sir
James Leigh-Pemberton, Chairman of RIT Capital Partners plc,
said:
"Our net asset value per share finished the year at 2,426
pence, representing a total return (including dividends) of 3.2%...
This brings our 10-year performance to 109%, a more than doubling
of shareholders' capital over the period… Our portfolio is made up
of high-conviction investments with differing characteristics and
return drivers…
While the most important driver of our share price performance
over the long term is our NAV, the Board is also intensely focused
on the rating of our shares... Discounts for investment trusts
widened considerably, and our discount was no exception ending the
year at -22%... The Board and our Manager have been, and continue
to be, acutely focused on closing the discount...
I
would like to thank my colleagues on the Board, and our talented
and dedicated employees for their hard work and commitment
throughout the year. This diverse group shares a single aim -
creating long-term value for RIT's shareholders... We have the
flexibility to select the best investments across any asset class,
sector or geography, coupled with the strength of our network which
opens doors to opportunities that others cannot access. These
remain important differentiators on which we will continue to build
for the future."
Nick Khuu, Chief Investment Officer of JRCM,
said:
"In the face of challenges posed by rising interest rates
early in the year, geopolitical unrest, and bank collapses, major
indices recorded robust gains in 2023. A substantial portion of
these gains was attributable to a select few mega-cap technology
companies, overshadowing more modest returns in other
sectors...
The positive drivers of our portfolio's performance in 2023,
including high-quality stock picking, strategic geographic
exposure, and the agility of our credit managers, is illustrative
of how our portfolio can perform. Whatever the market challenges,
our proactive approach to navigate these complexities sets the
stage for continued thoughtful and resilient portfolio management
in the coming period...
We
believe RIT's competitive edge is derived from our in-house
expertise, our capital structure - enabling a nimble and flexible
investment approach - as well as our unique access and ability to
foster deep, long-term specialist partnerships. As the market
enters a more idiosyncratic phase, we recognise that careful stock
picking and asset selection exercised within our robust risk
management framework, will be key to delivering
performance."
About RIT Capital Partners plc
RIT's corporate objective is 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.
For
more information
J. Rothschild Capital Management
(Manager):
T: 020 7647 8565
E: investorrelations@ritcap.co.uk
Numis (Joint broker):
David Benda
T: 020 7260 1000
JP Morgan Cazenove (Joint
broker):
William Simmonds
T: 020 3493 8000
Brunswick Group LLP (Media
enquiries):
Nick Cosgrove, Tom Burns
T: 020 7404 5959
E: RIT@BrunswickGroup.com
www.ritcap.com
A description of all terms used
above, including further information on the calculation of
Alternative Performance Measures (APMs) is set out in the Glossary
and APMs section at the end of this RNS.
The
following is extracted from the Company's Report and
Accounts
Company Highlights
Performance for the year
|
2023
|
RIT NAV per share total
return1
|
3.2%
|
CPI plus 3.0%
|
7.0%
|
MSCI All Country World Index
(ACWI)
|
18.4%
|
RIT share price total
return1
|
-9.6%
|
FTSE 250
Index2
|
8.0%
|
Key
data
|
2023
|
2022
|
Change
|
NAV per share
|
2,426
pence
|
2,388
pence
|
1.6%
|
Share price
|
1,882
pence
|
2,125
pence
|
-11.4%
|
Premium/(discount)
|
-22.4%
|
-11.0%
|
-11.4%
pts
|
Net assets
|
£3,573
million
|
£3,722
million
|
-4.0%
|
Gearing1
|
3.5%
|
6.2%
|
-2.7%
pts
|
Average net quoted equity
exposure
|
39%
|
38%
|
1%
pts
|
Ongoing Charges Figure for the
year1
|
0.77%
|
0.89%
|
-0.12%
pts
|
First interim dividend
(April)
|
19.0
pence
|
18.5
pence
|
2.7%
|
Second interim dividend
(October)
|
19.0
pence
|
18.5
pence
|
2.7%
|
Total dividend in year
|
38.0
pence
|
37.0
pence
|
2.7%
|
Performance history
|
3 Years
|
5 Years
|
10 Years
|
Since
inception
|
RIT NAV per share total
return1
|
10.6%
|
44.2%
|
108.8%
|
3,343%
|
CPI plus 3.0% per annum
|
31.7%
|
42.2%
|
77.0%
|
637%
|
MSCI All Country World
Index
|
23.5%
|
71.0%
|
147.4%
|
1,126%
|
RIT share price total
return1
|
-4.1%
|
7.5%
|
78.7%
|
3,407%
|
FTSE 250
Index2
|
4.3%
|
28.3%
|
61.2%
|
1,607%
|
A
description of the terms used in this report, including further
information on the calculation of Alternative Performance Measures
(APMs), is set out in the Glossary and APMs
section.
|
1
|
The Group's designated APMs are the NAV per share total
return, share price total return, gearing and the ongoing charges
figure.
|
2
|
RIT's shares are a constituent of the FTSE 250 Index, which is
not considered a Key Performance Indicator (KPI).
|
CHAIRMAN'S STATEMENT
Sir
James Leigh-Pemberton
In the
first half of 2023, most major indices traded in a relatively
narrow range, punctuated by periods of weakness and recovery. As
the year progressed, a belief that interest rates may have peaked
led to a rebound in developed world equity markets, which was
particularly marked in the fourth quarter. US equity markets
finished the year strongly, buoyed by a small number of very large
technology companies. These so-called 'magnificent seven' tech
stocks accounted for the majority of the S&P 500's gains.
Excluding these few companies, the overall market returns were more
modest.
Our net
asset value per share finished the year at 2,426 pence,
representing a total return (including dividends) of 3.2%, lagging
our investment hurdles of CPI+3%, which was up 7.0%, and the MSCI
ACWI (50% sterling) which rose 18.4%. This brings our 10-year
performance to 109%, a more than doubling of shareholders' capital
over the period. Our investment portfolio is structured around
three core pillars of quoted equities, private investments, and
uncorrelated strategies. During 2023, the portfolio saw good
performance from quoted equities, driven primarily by our
successful single stock selection and exposure to Japan.
Uncorrelated strategies also made a positive contribution, helped
by the outperformance of our credit managers, as well as our
investments in carbon credits. However, the value of our private
investments softened, reflecting lower valuations of external funds
carried over from the fourth quarter of 2022 and our carefully
considered revaluation of our direct investments. Currency was also
a headwind; the pound's appreciation of some 5% against the US
dollar over the year impacting the translated value of our global
investments.
Our
portfolio is made up of high-conviction investments with differing
characteristics and return drivers. While there will be times when
not all asset classes meet our long-term expectations, we remain
committed to our diversified approach. Our belief is that utilising
a carefully constructed blend of different assets, overlaid with a
top-down risk management function, remains the best way to manage
our investments for the long-term benefit of shareholders.
Our Manager's Report from J. Rothschild Capital Management
(JRCM or the Manager) provides a detailed review of investment
performance, attribution, positioning and risk
management.
While
the most important driver of our share price performance over the
long term is our NAV, the Board is also intensely focused on the
rating of our shares, and in this regard 2023 was a difficult year.
Discounts for investment trusts widened considerably, and our
discount was no exception ending the year at -22%, resulting in a
total shareholder return (including dividends) of -9.6%. This is a
source of frustration to our shareholders, as well as to the Board
and our Manager. Directors' shareholdings are disclosed in this
Report and our colleagues in our Manager also have significant
'skin in the game', with interests in approximately £18 million RIT
shares at the year end, reinforcing the close alignment with
shareholders' interests. The Board and our Manager have been, and
continue to be, acutely focused on closing the discount.
During
2023, we increased the level of our interactions with shareholders,
and I am very grateful for their candid and thoughtful feedback in
these discussions, which has been very helpful in guiding our plans
to reduce the discount. I address below four core topics:
private investments, capital allocation, costs and
marketing.
Private
investments are currently out of favour with investors, and
discounts for trusts exposed to these assets have widened
significantly in 2023. RIT has always had private investments as a
core part of its approach, and despite mark-to-market volatility in
the short term, over the long term the success of these investments
has been a strong contributor to our returns. Our earlier successes
have, in part, placed us in a challenging position; healthy capital
growth is one of the main reasons why, over the past five years,
our private investments had come to represent a higher proportion
of the portfolio than in the past. We are committed to this asset
class and continue to believe that our long-standing relationships
are a source of competitive advantage and attractive returns to
shareholders. This is reflected in our portfolio, which in
aggregate is sitting on sizeable profits, over and above the
capital we invested. The returns generated by our private portfolio
are set out in more detail in the Manager's Report. Most of our
largest direct investments are profitable companies with growing
revenues and earnings. Our close manager relationships and brand
strength, often enable us to access a preferred position in the
capital structure of a company, with the majority of our direct
investments having some element of downside protection.
Nevertheless, over the next two years we will look to reduce
the proportion of the portfolio represented by private investments
to a level of between around a quarter and a third of NAV. This
will be achieved by organic exits and the continuation of a very
high return bar for any new investments. Where we see realisations
from this portfolio, we expect to deploy the capital to buy back
our shares or to make new investments in the liquid portfolio,
depending on the level of discount, the opportunity set and general
portfolio management needs. What we will not do is accelerate exits
or engage in sales at discounts to fair value to the detriment of
long-term shareholder value.
During
2023, we undertook one of the largest buybacks in the investment
trust industry, acquiring some 8.6 million shares at a cost of £163
million, our largest single allocation of capital in the year. This
generated a strong return on investment, increasing the NAV per
share return for shareholders; the buyback also reinforced the
confidence that we have both in our NAV and our approach. If
compelling returns from allocating our capital in this way continue
to be available, we will retain the flexibility to act.
Over
the year, we also paid dividends of 38 pence per share, an increase
of almost 3% over 2022, and totalling £57 million. Our
approach remains to maintain or increase the dividend, subject to
the overriding capital preservation objective. In 2024, we intend
to pay a dividend of 39 pence per share, an increase of 2.6% over
2023. The dividend will be paid as normal in equal instalments in
April and October, funded from our significant reserves.
Our
long-standing investment approach covers multiple asset classes,
sectors and geographies, and provides shareholders with access to
investments, including specialist funds, which are not typically
accessible to individual shareholders. This approach is in line
with our Investment Policy and has been deployed consistently year
on year. It is a key driver of RIT's strong long-term
performance. By design, it will not be the cheapest approach to
managing investments, but whenever we allocate capital, we do so
only if the anticipated risk-adjusted return, net of all costs
(both internal costs and any fees paid to external managers)
delivers value to shareholders.
We
continue to look for ways to reduce costs, and enhance our
communications, with a portion of the savings made over the year
reinvested into improving our marketing and investor relations
efforts. We will continue to invest in more regular and informative
direct contact with shareholders.
Our
environmental, social, and governance (ESG) initiatives remain an
area of particular focus, with our Manager, JRCM, submitting its
first report during the year as a signatory of the UN Principles
for Responsible Investment (UN PRI). We also include our first
Sustainability Report within the Annual Report, where we have
collated in one location, all of the activities we undertake in
respect of our wider commitments to society and the
environment.
Governance and
employees
Following an extensive international search process, Maggie
Fanari retired from the Board on 29 February, joining JRCM on 1
March as its CEO. Maggie has an outstanding track record of
successfully leading teams investing across different asset classes
and geographies at one of the largest and most respected investment
companies in the world - Ontario Teachers' Pension Plan - where she
was the Senior Managing Director and Global Group Head High
Conviction Equities. We are delighted that Maggie has joined the
exceptional team at JRCM, and we look forward to working closely
with her in the execution of the important initiatives outlined
above.
Maggie
succeeds Francesco Goedhuis, who retired as JRCM's CEO in December
as a result of an illness in his immediate family. Francesco joined
JRCM in 2010 and was appointed CEO in 2014. During his 13 years
with the Manager, Francesco has provided outstanding leadership,
continuously strengthening both the team in JRCM and our
exceptional network of investment partners. The Board was very
pleased to announce recently that he will continue his association
with RIT in his new role as Senior Adviser to JRCM.
After
11 years, Ron Tabbouche (latterly the co-CIO at JRCM) retired to
join his family in Israel, with Nick Khuu appointed to the role of
CIO. Nick is a very experienced investor across multiple asset
classes, having worked at leading investment firms in New York and
San Francisco. He has been with JRCM for over four years operating
in senior investment roles, and we are delighted with his
appointment.
On
behalf of the Board, I would like to express our gratitude to
Francesco and Ron for their very significant contributions to the
Manager and to your Company's performance over more than a
decade.
At the
end of September, after more than three years as a Director of RIT,
Maxim Parr retired from the Board to take on the position of Chair
of JRCM, providing valuable leadership and additional resources
during a period of transition of its senior leadership
team.
I would
like to thank my colleagues on the Board, and our talented and
dedicated employees for their hard work and commitment throughout
the year. This diverse group shares a single aim - creating
long-term value for RIT's shareholders. At a time when the outlook
for global economies and markets and the geopolitical environment
are particularly complicated, these colleagues, together with our
investment partners and advisers, are the key to our future
success. We have the flexibility to select the best investments
across any asset class, sector or geography, coupled with the
strength of our network which opens doors to opportunities that
others cannot access. These remain important differentiators on
which we will continue to build for the future.
Nathaniel Charles Jacob
Rothschild 1936 - 2024
Finally, it is with great sadness that we mourn the recent
death of our founder and former chairman, Lord Jacob Rothschild.
Jacob was chairman of the Rothschild Investment Trust, subsequently
renamed RIT Capital Partners plc, from 1971 to 2019. He devised,
developed, and led the growth of the Company, including its listing
on the London Stock Exchange in 1988. During his tenure, the net
asset value increased from £5 million to over £3 billion by the
time he retired from the Board in September 2019 and was granted
the title of Honorary President. Our thoughts and condolences are
with Hannah Rothschild, his daughter and current Director, and the
rest of the Rothschild family at this time. He will be
missed.
Sir
James Leigh-Pemberton
Chairman
4
March 2024
MANAGER'S REPORT - EXTRACTS
Summary
In the
face of challenges posed by rising interest rates early in the
year, geopolitical unrest, and bank collapses, major indices
recorded robust gains in 2023. A substantial portion of these gains
was attributable to a select few mega-cap technology companies,
overshadowing more modest returns in other sectors. November and
December saw substantial market returns, when indications by the US
Federal Reserve of a path to lower rates, together with falling
inflation over the course of the year, caused 10-year US treasury
yields to tighten from 4.9% to 3.9%. The majority of annual returns
for indices globally came during this end of year rally, including
our reference hurdle, ACWI (50% £). Our portfolio produced positive
returns and trailed just behind this index for most of the year,
but lagged strongly rising markets in the last two months of the
year.
Despite
the headwinds faced in 2022 and 2023, we remain confident in our
long-term investment approach. Our careful portfolio construction
is disciplined, diversified, and carefully risk managed such that,
over time, we believe we can deliver capital appreciation to
shareholders with attractive risk-reward
characteristics.
Portfolio
positioning
Within
a tried and tested investment risk framework, our investment
"reach" is unconstrained. Having a flexible investment mandate
enables us to invest across capital structures, asset classes and
geographies. Nevertheless, our portfolio has historically
maintained a core equity bias and will continue to do
so.
Decision-making starts with a considered, top-down
macro-economic view. We allocate capital to take advantage of
identified structural themes and market dislocations, drawing upon
our seasoned internal resources and very often leveraging our
extensive global network of managers and partners.
We structure our investment
portfolio by allocating capital across three pillars:
·
|
quoted equities;
|
·
|
private investments; and
|
·
|
uncorrelated strategies.
|
By
design, each pillar serves a distinct purpose within the portfolio,
with investments of differing profiles and return drivers allowing
us to benefit from this broad diversification. Additionally, we
make use of risk management tools and hedging strategies to manage
risk, including currency translation risk.
Performance highlights
Our
results for the year produced a NAV per share total return of 3.2%.
Comparatively, our two reference hurdles, ACWI (50% £) and the
'inflation plus' hurdle CPI+3% returned 18.4% and 7.0%.
Two
noteworthy aspects underscored the strength observed in the
market-capitalised weighted indices. First, the market rally
exhibited an unusual narrowness, primarily propelled by a select
group of stocks termed the 'magnificent seven' (Alphabet, Amazon,
Apple, Meta, Microsoft, Nvidia, and Tesla), which accounted for
approximately 20% of the MSCI World index and demonstrated a
remarkable 74% increase, while the remaining 1,473 stocks
collectively experienced a more modest gain of 12%. Second, a
substantial portion of returns across various asset classes
materialised during the liquidity-fueled surge in November and
December. For instance, the Bloomberg Aggregate Bond index posted
-0.6% returns through October 31 and +9.9% over November and
December. Similarly, the ACWI exhibited +7.0% returns through
October 31, and then +10.6% over November and December.
Asset allocation and portfolio contribution
Asset category
|
% NAV
|
%
Contribution
|
Quoted equities
|
38.4%
|
6.8%
|
Private investments
|
35.9%
|
-2.7%
|
Uncorrelated strategies
|
25.6%
|
2.1%
|
Currency
|
0.9%
|
-2.9%
|
Total investments
|
100.8%
|
3.3%
|
Liquidity, borrowings and
other
|
-0.8%1
|
-0.1%1
|
Total
|
100.0%
|
3.2%
|
1
Including accretion benefit of 1.2% from share
buybacks.
|
|
|
Positive drivers of portfolio
performance for the year were:
·
|
high quality stock picking, driven
by fundamentals;
|
·
|
Japan exposure, which outperformed
all other developed markets. This involved utilising our network
and working closely with specialist managers who focus on value
equities and engage directly with management teams of Japanese
companies;
|
·
|
the performance of our credit
managers, who were able to profitably capitalise on dislocations in
the market;
|
Negative drivers were:
·
|
moderate quoted equities exposure
throughout the year, which meant that our portfolio as a whole,
lagged behind the equity rally;
|
·
|
our exposure to China, which has had
a disappointing recovery following its post-Covid reopening. The
lack of stimulus and global outflows weighed on shares
here;
|
·
|
currency translation effects from
our meaningful US dollar position, as sterling continued to gain
strength against the dollar; and
|
·
|
a decline in the valuation of our
private investments, mostly due to the funds, where the lagged Q4
2022 valuations impacted our returns this year.
|
Outlook
In
2024, we are navigating a landscape characterised by a balance of
conflicting macro indicators. While US GDP estimates are trending
upward, certain credit indicators are exhibiting signs of decline.
Significant geopolitical risks, such as conflicts in Ukraine and
the Middle East, coupled with the potential repercussions of the
USA elections in November, cast a shadow over the horizon. The
market's late upturn in 2023 was driven by the perception that
interest rates may have reached their peak, and that a soft landing
is becoming more probable. This has led to a scenario where many
assets are perceived to be fully valued.
The
above notwithstanding, we believe there are individual assets that
currently trade at appealing price points, and therefore provide
attractive opportunities for capital deployment. As investors who
integrate a top-down and bottom-up approach, we would highlight the
confidence we have in our own investment portfolio. Within our
private investments book, we see some strong underlying operating
performance, a shift towards prioritising profit over pure growth,
and broader tailwinds driven by digital transition. These factors
underpin our confidence in the long-term intrinsic value of our
private investments. The reopening of the IPO markets may also
serve as a near-term catalyst for validating their
valuations.
We are
also excited about quoted equities, where the environment is
particularly conducive for bottom-up, fundamental stock picking. We
think there are a multitude of areas to deploy long-term capital
with attractive return potential in areas such as the often
overlooked small to medium-capitalisation stocks, or in
'event-driven' stocks. As such, we will lean more into stocks
that we directly own, with this proportion of the portfolio set to
increase. At the same time, we continue to be excited by themes
such as healthcare and Japan, where our network of specialist
external managers means we are well-positioned to identify and take
advantage of these opportunities.
In
uncorrelated strategies, we are enthusiastic about current
opportunities in the corporate credit markets, driven by factors
such as the increase in interest rates, reluctance by traditional
banks to lend to mid-sized businesses, and the maturing of around
$0.6 trillion in loans over the next two years, which were issued
at lower rates. Where there is a dislocation in credit markets, our
partnerships with specialist managers provides us with the
potential to generate returns of mid-teens or greater, in quality
credits, with limited risk to our capital due to robust creditor
protections. And, even where there isn't a dislocation, the
managers can still earn high single digit to low double digit
returns on quality credits.
The
positive drivers of our portfolio's performance in 2023, including
high-quality stock picking, strategic geographic exposure, and the
agility of our credit managers, is illustrative of how our
portfolio can perform. Whatever the market challenges, our
proactive approach to navigate these complexities sets the stage
for continued thoughtful and resilient portfolio management in the
coming period.
Although the percentage allocation across our three pillars
may see modest variations over shorter periods of time, our
portfolio construction and risk management principles aim to
provide shareholders with a diversified portfolio that delivers
long-term capital appreciation on an attractive risk-adjusted
basis.
To
conclude, we believe RIT's competitive edge is derived from our
in-house expertise, our capital structure - enabling a nimble and
flexible investment approach - as well as our unique access and
ability to foster deep, long-term specialist partnerships. As the
market enters a more idiosyncratic phase, we recognise that careful
stock picking and asset selection exercised within our robust risk
management framework, will be key to delivering
performance.
J.
Rothschild Capital Management Limited
PRINCIPAL RISKS - EXTRACT
Risk management and internal control
The
principal risks facing RIT are both financial and operational. The
ongoing process for identifying, evaluating and managing these
risks, as well as any emerging risks, is the responsibility of the
Board and the Audit and Risk Committee.
The
Board sets the portfolio risk parameters within which JRCM
operates. This involves an assessment of the nature and level of
risk within the portfolio using qualitative and quantitative
methods.
The
Board is ultimately responsible for the Group's system of internal
controls, and has delegated the supervision of the internal control
system to the Audit and Risk Committee. Such systems are designed
to manage, rather than eliminate, the risk of failure to achieve
business objectives and, as such, can provide only reasonable and
not absolute assurance against any material misstatement or
loss.
As an
investment company, RIT is exposed to financial risks inherent in
its portfolio, which are primarily market-related and common to any
portfolio with significant exposure to equities and other financial
assets. The ongoing portfolio and risk management includes an
assessment of the macroeconomic and geopolitical factors that can
influence market risk, as well as consideration of
investment-specific risk factors.
Your
Company's broad and flexible investment mandate allows the Manager
to take a relatively unconstrained approach to asset allocation and
utilise whatever action is considered appropriate in mitigating any
attendant risks to the portfolio.
With a
high degree of volatility in markets and continued geopolitical
tensions, risk management remains critical. The portfolio risk
management approach undertaken by the Manager, and considered
regularly by the Board, is designed to produce a healthy
risk-adjusted return over the long term, through careful portfolio
construction, security selection and the considered use of
hedging.
As an
investment business, the vast majority of the day-to-day activities
involve the measurement, evaluation and management of risk and
reward. With a corporate objective which includes an element of
capital preservation, the culture and practice of seeking to
protect the NAV from undue participation in down markets through
the cycles is well established. However, it is important to
recognise that a carefully designed risk management and internal
control system can only aim to reduce the probability or mitigate
the impact; it cannot remove the risk. With a global investment
portfolio having meaningful exposure to equities, rather than a
pure absolute return mandate, RIT's NAV will not be immune to
either falling markets and/or volatility in currency markets.
Equally, with a diversified set of individual and typically
uncorrelated, high return-seeking drivers, the portfolio could
encounter occasions when the level of volatility results in
negative alpha in the short term.
As a
permanent capital vehicle, and unlike open-ended funds, we do not
need to manage the portfolio to meet redemptions. With sizeable
assets relative to our modest borrowings and ongoing liabilities,
as confirmed later in this section, we do not consider the
Company's viability or going concern to represent principal risks.
Nevertheless, and in particular at times of market stress, the
Manager utilises a detailed, day-to-day liquidity risk management
framework to help effectively manage the balance sheet, including
careful monitoring of the banking covenants.
Operational and other risks include those related to the legal
environment, regulation, taxation, cyber security, climate and
other areas where internal or external factors could result in
financial or reputational loss. These are also managed by JRCM with
regular reporting to, and review by, the Audit and Risk Committee
and the Board.
Principal
risks
The
Board has carried out a robust assessment of the emerging and
principal risks facing the Company, with input from the Audit and
Risk Committee, as well as the Manager. Following this assessment,
the Board has concluded that there are no material emerging risks,
and it is appropriate to reclassify two risks as separate principal
risks. The material widening of the discount at which the shares
trade relative to the NAV, has led us to establish a new principal
risk - Discount risk. In addition, the ongoing developments in
cyber risk, coupled with the potential that AI could enhance fraud
attempts, means we have also reclassified Cyber security as a new
principal risk. The resulting principal risks are as described
below:
Risk
|
Mitigation
|
Investment strategy risk As
an investment company, a key risk is that the investment strategy,
guided by the 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."
Does not deliver the 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."
|
The Board is responsible for monitoring the investment strategy to
ensure it is consistent with the Investment Policy and appropriate
to meet the Corporate Objective. The Directors receive a detailed
monthly report from the Manager to enable them to monitor
investment performance, attribution, and exposure. They also
receive a comprehensive investment report from the JRCM CIO in
advance of the quarterly Board meetings.
The overall risk appetite is set by
the Board, with portfolio risk managed by JRCM within prescribed
limits. This involves careful assessment of the nature and level of
risk within the portfolio using qualitative and quantitative
methods.
The JRCM Investment Committee meets
regularly to review overall investment performance, portfolio
exposure and significant new investments.
|
Discount risk Investment
trust shares trade at a price which can be at a discount or premium
relative to their net asset value. If trading at a discount, there
is a risk that a widening of the discount may result in
shareholders achieving a return which does not reflect the
underlying investment performance of the Company.
|
To manage this risk, and to reduce the volatility for shareholders,
the Board monitors the level of discount/premium at which the
shares trade and the Group has authority to buy back its existing
shares when deemed to be in the best interest of the Company and
its shareholders. Buying back shares at a discount signals the
Board's confidence in the overall approach and the NAV to
shareholders and is accretive to the NAV per share
return.
In addition, the Group is investing
in developing its investor relations activity and overall approach
to communications to help ensure that shareholders have the best
understanding of the strategy and approach to investing.
|
Market risk
Price risk
RIT invests in a number of asset
categories including stocks, equity funds, private investments,
absolute return and credit, real assets, government bonds and
derivatives. The portfolio is therefore exposed to the risk that
the fair value of these investments will fluctuate because of
changes in market prices.
Currency risk Consistent
with the Investment Policy, the Group invests globally in assets
denominated in currencies other than sterling as well as adjusting
currency exposure to either seek to hedge and/or enhance returns.
This approach exposes the portfolio to currency risk as a result of
changes in exchange rates.
Interest rate risk In
addition, the Group is exposed to the direct and indirect impact of
changes in interest rates.
|
The Group has a widely diversified investment portfolio which
significantly reduces the exposure to individual asset price risk.
Detailed portfolio valuations and exposure analysis are prepared
regularly and form the basis for the ongoing risk management and
investment decisions. In addition, regular scenario analysis is
undertaken to assess likely downside risks and sensitivity to broad
market changes, as well as assessing the underlying correlations
amongst the separate asset classes.
Currency exposure is managed via an
overlay strategy, typically using a combination of currency
forwards and/or options to adjust the natural currency of the
investments in order to achieve a desired net exposure. The
geographic revenue breakdown for stocks as well as correlations
with other asset classes are also considered as part of our hedging
strategy.
Exposure management is undertaken
with a variety of techniques including using equity index and
interest rate futures and options to hedge or to increase equity
and interest rate exposure depending on overall macroeconomic and
market views.
|
Liquidity risk
Liquidity risk is the risk that the Group will have difficulty in
meeting its obligations in respect of financial liabilities as they
fall due.
The Group has significant
investments in and commitments to direct private investments and
funds which are inherently illiquid. In addition, the Group holds
investments with other third-party organisations which may require
notice periods in order to be realised. Capital commitments could,
in theory, be drawn with minimal notice. In addition, the Group may
be required to provide additional margin to support derivative
financial instruments.
|
The Group manages its liquid resources to ensure sufficient cash is
available to meet its expected needs. It monitors the level of
short-term funding and balances the need for access to such funding
and liquidity, with the long-term funding needs of the Group, and
the desire to achieve investment returns. Covenants embedded within
the banking facilities and long-term notes are monitored on an
ongoing basis for compliance, and form part of the regular stress
tests.
In addition, existing cash reserves,
as well as the significant liquidity that could be realised from
the sale or redemption of portfolio investments and undrawn,
committed borrowings, could all be utilised to meet short-term
funding requirements if necessary. As a closed-ended company, there
is no requirement to maintain liquidity to service investor
redemptions. The Depositary, BNP Paribas (BNP) has separate
responsibilities in monitoring the Company's
cash flow.
|
Credit risk
Credit risk is the risk that a counterparty to a financial
instrument held by the Group will fail to meet an obligation which
could result in a loss to the Group.
Certain investments held within the
absolute return and credit portfolio are exposed to credit risk,
including in relation to underlying positions held by
funds.
Substantially all of the listed
portfolio investments capable of being held in safe custody, are
held by BNP as custodian and depositary. Bankruptcy or insolvency
of BNP may cause the Group's rights with respect to securities held
by BNP to be delayed.
Unrealised profit on derivative
financial instruments held by counterparties is potentially exposed
to credit risk in the event of the insolvency of a broker
counterparty.
|
The majority of the exposure to credit risk within the absolute
return and credit portfolio is indirect exposure as a result of
positions held within funds managed externally. These are typically
diversified portfolios monitored by the third-party managers
themselves, as well as through JRCM's ongoing portfolio management
oversight.
Listed transactions are settled on a
delivery versus payment basis using a wide pool of brokers. Cash
holdings and margin balances are also divided between a number of
different financial institutions, whose credit ratings are
regularly monitored.
All assets held directly by the
custodian are in fully segregated client accounts. Other than where
local market regulations do not permit it, these accounts are
designated in RIT's name. The custodian's most recent credit rating
was A+ from Standard & Poor's (S&P).
|
Key
person dependency
In common with other investment trusts, investment decisions are
the responsibility of a small number of key individuals within the
Manager. If for any reason the services of these individuals were
to become unavailable, there could be a significant impact on our
business.
|
This risk is closely monitored by the Board, through its oversight
of the Manager's incentive schemes (on which it has received
external advice) as well as the succession plans for key
individuals. The potential impact is also reduced by an experienced
Board of Directors, with distinguished backgrounds in financial
services and business.
|
Climate-related risks Ongoing climate changes may impact either our own business,
the external managers with whom we invest, and/ or the underlying
portfolio investments. For our own business this could result in
increased costs of complying with new regulations and/or changes to
the way we operate. Portfolio companies could see demand pressures,
an increased cost of capital, tighter regulation or increased
taxation, all impacting profitability.
Our ability to make climate-change
disclosures may be impacted by our investment approach if the
external fund managers with whom we invest do not provide the
desired information.
More frequent extreme weather could
disrupt businesses, travel, global supply chains and
profitability.
|
We do not consider climate-related risks to have material, specific
impacts on our own asset management businesses as distinct from the
investment portfolio. Our Manager continues to monitor, and
minimise, the climate-related impacts of our internal operations;
we offset the carbon emissions of this business - categorised as
Scope 1 and Scope 2 emissions by the Greenhouse Gas (GHG) Protocol
- through participation in an accredited scheme and we are taking
steps to further develop our understanding of our indirect
emissions impact (categorised as Scope 3 emissions).
JRCM is a signatory to the UN PRI,
and the Board has worked with our Manager to develop JRCM's
Responsible Investment Framework & Policy, which incorporates
environmental factors into our investment approach. This allows us
to consider the potential wider impacts of climate change risks to
our investments.
JRCM is working with an external
adviser to consider our ability to make additional climate
disclosures in relation to our investment portfolio, while
acknowledging the likely challenges caused by having investments in
external funds.
We monitor developments in
regulation and disclosures and seek as far as possible to prepare
for future changes.
The Group's adoption of fair value
in relation to its investments means that the climate-related risks
recognised by market participants are incorporated in the
valuations.
|
Legal and regulatory risk
As an investment trust, RIT's operations are subject to
wide-ranging laws and regulations including in relation to the
Listing Rules and Disclosure, Guidance and Transparency Rules of
the FCA's Primary Markets function, the Companies Act 2006,
corporate governance codes, as well as continued compliance with
relevant tax legislation, including ongoing compliance with the
rules for investment trusts. JRCM is authorised and regulated by
the FCA and acts as Alternative Investment Fund Manager.
The financial services sector
continues to experience regulatory change at national and
international levels, including in relation to climate change.
Failure to act in accordance with these laws and regulations could
result in fines, censure or other losses including taxation or
reputational loss.
Co-investments and other
arrangements with related parties may result in conflicts of
interest.
|
The Operational Risk Committee of JRCM provides oversight of all
legal, regulatory and other operational risks across the Group.
This Committee reports key findings to the JRCM Executive Committee
and the Audit and Risk Committee.
JRCM employs a general counsel and a
compliance officer as well as other personnel with experience of
legal, regulatory, disclosure and taxation matters. In addition,
specialist external advisers are engaged in relation to complex,
sensitive or emerging matters. For example, during 2023 the Group
has again engaged external advisers in supporting its consideration
of ESG matters.
Where necessary, co-investments and
other transactions are subject to review by the Conflicts
Committee.
|
Operational risk
Operational risks are those arising from inadequate or failed
processes, people and systems or other external factors.
Key operational risks include
reliance on third-party managers and suppliers, dealing errors,
processing failures, pricing or valuation errors, fraud and
reliability of core systems.
|
Systems and control procedures are the subject of continued
development and regular review. During the year the Audit and Risk
Committee reviewed, and satisfied itself with, the Manager's
approach to due diligence as part of its investment decision
making.
Processes are in place to ensure the
recruitment and ongoing training of appropriately skilled staff
within key operational functions. Suitable remuneration policies
are in place to encourage staff retention and the delivery of the
Group's objectives over the medium term. Independent pricing
sources are used where available, and performance is subject to
regular monitoring. In relation to more subjective areas such as
private investments and property, the valuations are estimated by
experienced staff and specialist external managers and valuers
using industry standard approaches, with the final decisions taken
by the independent Valuation Committee, and subject to external
audit as part of the year-end financial statements.
A business continuity and disaster
recovery plan is maintained and includes the ability to use a
combination of an offsite facility and cloud resources to mirror
our production systems in the event of any business disruption.
This was satisfactorily tested during the year.
|
Cyber security risk
RIT is dependent on technology to support key business functions
and the safeguarding of sensitive information. As a result, RIT is
exposed to the increasingly sophisticated nature of cyber attacks,
and given the growth in AI and the ability to utilise this for
attempts at fraud and data breaches.
RIT is therefore at risk of
potential loss or harm as a result of significant disruption to
information technology systems, including from a potential cyber
attack, which may result in financial losses, the inability to
perform business-critical functions, loss or theft of confidential
data, and resulting legal or reputational damage.
|
Cyber security continues to receive an enhanced focus, with
policies, systems and processes designed to combat the ongoing risk
developments in this area. Such processes are kept under regular
review including multi-factor authorisation, ensuring effective
firewalls, internet and email gateway security and anti-virus
software.
This is complemented with staff
awareness programmes (including periodic mock-phishing exercises)
which monitor and test both the robustness of our systems as well
as the effectiveness of our staff at identifying potential risks.
We also test our IT business continuity plan at least once every
year. The process for assessing, identifying and managing
cybersecurity risks is managed on a day-to-day by the Manager's IT
team and overseen by the JRCM Operational Risk Committee. Any
material risks are reported to the Audit and Risk
Committee.
The Manager maintains the 'Cyber
Essentials Plus' security certification, the highest level of
certification offered by the National Cyber Security Centre, the UK
Government's technical authority for cyber threats. This review is
performed on an annual basis, the most recent completed in November
2023. Additionally, the Group has specific insurance cover in place
to cover information security and cyber risks. The Manager
periodically also engages external consultants to assess the
robustness of its IT systems.
|
Corporate Governance Report - Extract
Statement of Directors' responsibilities
The
Directors are responsible for preparing the Annual Report and
Accounts in accordance with applicable United Kingdom law and
regulations.
Company
law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to
prepare the Group and Parent Company financial statements in
accordance with UK adopted international accounting standards (UK
adopted IAS). 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 of the Group and the
Parent Company and of the profit or loss of the Group and the
Parent Company for that period.
In preparing these financial
statements the directors are required
to:
·
|
select suitable accounting policies
in accordance with IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors and then apply them consistently;
|
·
|
make judgements and accounting
estimates that are reasonable and prudent;
|
·
|
present information, including
accounting policies, in a manner that provides relevant, reliable,
comparable and understandable information;
|
·
|
provide additional disclosures when
compliance with the specific requirements in UK adopted IAS is
insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the Group and Parent
Company financial position and financial performance;
|
·
|
in respect of the Group financial
statements, state whether UK adopted IAS have been followed,
subject to any material departures disclosed and explained in the
financial statements;
|
·
|
in respect of the Parent Company
financial statements, state whether UK adopted IAS have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
|
·
|
prepare the financial statements on
the going concern basis unless it is inappropriate to presume that
the Parent Company and the Group will continue in
business.
|
The
Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Parent Company's and
Group's transactions and disclose with reasonable accuracy at any
time the financial position of the Parent Company and the Group and
enable them to ensure that the Parent Company and the Group
financial statements comply with the Companies Act 2006. They 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.
Under
applicable law and regulations, the Directors are also responsible
for preparing a Strategic Report, Directors' Report, Directors'
Remuneration Report and corporate governance statement that comply
with that law and those regulations. The Directors are responsible
for the maintenance and integrity of the corporate and financial
information included on the Parent Company's website.
The Directors confirm, to the best
of their
knowledge:
·
|
that the consolidated financial
statements, prepared in accordance with UK adopted IAS give a true
and fair view of the assets, liabilities, financial position and
profit or loss of the Parent Company and undertakings included in
the consolidation taken as a whole;
|
·
|
that the Annual Report, including
the Strategic Report, includes a fair review of the development and
performance of the business and the position of the Parent Company
and undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties that they face; and
|
·
|
that they consider the Annual Report
and Accounts, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Parent Company's position, performance,
business model and strategy.
|
FINANCIAL STATEMENTS - EXTRACTS
Consolidated income statement
Year ended 31 December
|
|
|
|
2023
|
|
|
2022
|
£ million
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
Investment income
|
|
29.3
|
-
|
29.3
|
19.1
|
-
|
19.1
|
Other income
|
|
3.2
|
-
|
3.2
|
7.6
|
-
|
7.6
|
Gains/(losses) on fair value
investments
|
|
-
|
109.9
|
109.9
|
-
|
(555.5)
|
(555.5)
|
Gains/(losses) on monetary items and
borrowings
|
|
-
|
0.8
|
0.8
|
-
|
20.2
|
20.2
|
|
|
32.5
|
110.7
|
143.2
|
26.7
|
(535.3)
|
(508.6)
|
Expenses
|
|
|
|
|
|
|
|
Operating expenses
|
|
(28.5)
|
(14.2)
|
(42.7)
|
(36.0)
|
(7.6)
|
(43.6)
|
Profit/(loss) before finance costs and
taxation
|
|
4.0
|
96.5
|
100.5
|
(9.3)
|
(542.9)
|
(552.2)
|
Finance costs
|
|
(6.9)
|
(27.5)
|
(34.4)
|
(5.0)
|
(20.0)
|
(25.0)
|
Profit/(loss) before taxation
|
|
(2.9)
|
69.0
|
66.1
|
(14.3)
|
(562.9)
|
(577.2)
|
Taxation
|
|
-
|
-
|
-
|
-
|
-
|
-
|
Profit/(loss) for the year
|
|
(2.9)
|
69.0
|
66.1
|
(14.3)
|
(562.9)
|
(577.2)
|
Earnings/(loss) per ordinary share -
basic
|
|
(1.9p)
|
46.1p
|
44.2p
|
(9.2p)
|
(362.1p)
|
(371.3p)
|
Earnings/(loss) per ordinary share -
diluted
|
|
(1.9p)
|
45.7p
|
43.8p
|
(9.2p)
|
(362.1p)
|
(371.3p)
|
The total column of this statement
represents the Group's consolidated income statement, prepared in
accordance with UK adopted international accounting standards (UK
adopted IAS). The supplementary revenue and capital 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
Year ended 31 December
|
|
|
|
2023
|
|
|
2022
|
£ million
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
Profit/(loss) for the year
|
|
(2.9)
|
69.0
|
66.1
|
(14.3)
|
(562.9)
|
(577.2)
|
Revaluation gain/(loss) on property,
plant and equipment
|
|
-
|
0.9
|
0.9
|
-
|
(2.1)
|
(2.1)
|
Actuarial gain/(loss) in defined
benefit pension plan
|
|
(0.4)
|
-
|
(0.4)
|
(4.5)
|
-
|
(4.5)
|
Deferred tax (charge)/credit
allocated to actuarial gain/(loss)
|
|
0.2
|
-
|
0.2
|
1.1
|
-
|
1.1
|
Total comprehensive income/(expense) for the
year
|
|
(3.1)
|
69.9
|
66.8
|
(17.7)
|
(565.0)
|
(582.7)
|
Consolidated balance sheet
At 31 December
|
|
|
|
£ million
|
|
2023
|
2022
|
Non-current assets
|
|
|
|
Investments held at fair
value
|
|
3,499.4
|
3,586.3
|
Investment property
|
|
34.1
|
37.9
|
Property, plant and
equipment
|
|
21.6
|
20.7
|
Retirement benefit asset
|
|
0.1
|
0.5
|
Derivative financial
instruments
|
|
5.9
|
1.0
|
|
|
3,561.1
|
3,646.4
|
Current assets
|
|
|
|
Derivative financial
instruments
|
|
65.4
|
57.3
|
Other receivables
|
|
71.2
|
245.3
|
Amounts owed by group
undertakings
|
|
0.1
|
4.5
|
Cash at bank
|
|
204.3
|
218.0
|
|
|
341.0
|
525.1
|
Total assets
|
|
3,902.1
|
4,171.5
|
Current liabilities
|
|
|
|
Borrowings
|
|
(142.9)
|
(236.2)
|
Derivative financial
instruments
|
|
(2.8)
|
(10.4)
|
Other payables
|
|
(39.2)
|
(63.5)
|
Amounts owed to group
undertakings
|
|
(0.1)
|
(0.1)
|
|
|
(185.0)
|
(310.2)
|
Net
current assets/(liabilities)
|
|
156.0
|
214.9
|
Total assets less current liabilities
|
|
3,717.1
|
3,861.3
|
Non-current liabilities
|
|
|
|
Borrowings
|
|
(137.9)
|
(134.4)
|
Derivative financial
instruments
|
|
(0.0)
|
-
|
Deferred tax liability
|
|
(0.0)
|
(0.2)
|
Provisions
|
|
(3.0)
|
(1.8)
|
Lease liability
|
|
(2.9)
|
(3.2)
|
|
|
(143.8)
|
(139.6)
|
Net
assets
|
|
3,573.3
|
3,721.7
|
Equity attributable to owners of the Company
|
|
|
|
Share capital
|
|
156.8
|
156.8
|
Share premium
|
|
45.7
|
45.7
|
Capital redemption
reserve
|
|
36.3
|
36.3
|
Own shares reserve
|
|
(36.7)
|
(46.3)
|
Capital reserve
|
|
3,393.1
|
3,548.9
|
Revenue reserve
|
|
(32.2)
|
(29.1)
|
Revaluation reserve
|
|
10.3
|
9.4
|
Total equity
|
|
3,573.3
|
3,721.7
|
Net
asset value per ordinary share - basic
|
|
2,449p
|
2,414p
|
Net
asset value per ordinary share - diluted
|
|
2,426p
|
2,388p
|
The financial statements were
approved by the Board and authorised for issue on 4 March
2024.
Consolidated statement of changes in equity
|
|
|
Capital
|
Own
|
|
|
|
|
|
Share
|
Share
|
redemption
|
shares
|
Capital
|
Revenue
|
Revaluation
|
Total
|
£ million
|
capital
|
premium
|
reserve
|
reserve
|
reserve
|
reserve
|
reserve
|
equity
|
Balance at 1 January 2022
|
156.8
|
45.7
|
36.3
|
(23.0)
|
4,174.4
|
(11.4)
|
11.5
|
4,390.3
|
Profit/(loss) for the
year
|
-
|
-
|
-
|
-
|
(562.9)
|
(14.3)
|
-
|
(577.2)
|
Revaluation gain/(loss) on property,
plant and equipment
|
-
|
-
|
-
|
-
|
-
|
-
|
(2.1)
|
(2.1)
|
Actuarial gain/(loss) in defined
benefit plan
|
-
|
-
|
-
|
-
|
-
|
(4.5)
|
-
|
(4.5)
|
Deferred tax (charge)/credit
allocated to actuarial gain/(loss)
|
-
|
-
|
-
|
-
|
-
|
1.1
|
-
|
1.1
|
Total comprehensive income/(expense) for the
year
|
-
|
-
|
-
|
-
|
(562.9)
|
(17.7)
|
(2.1)
|
(582.7)
|
Dividends paid
|
-
|
-
|
-
|
-
|
(57.6)
|
-
|
-
|
(57.6)
|
Purchase of treasury
shares
|
-
|
-
|
-
|
-
|
(11.0)
|
-
|
-
|
(11.0)
|
Movement in own shares
reserve
|
-
|
-
|
-
|
(23.3)
|
-
|
-
|
-
|
(23.3)
|
Movement in share-based
payments
|
-
|
-
|
-
|
-
|
6.0
|
-
|
-
|
6.0
|
Balance at 31 December 2022
|
156.8
|
45.7
|
36.3
|
(46.3)
|
3,548.9
|
(29.1)
|
9.4
|
3,721.7
|
Balance at 1 January 2023
|
156.8
|
45.7
|
36.3
|
(46.3)
|
3,548.9
|
(29.1)
|
9.4
|
3,721.7
|
Profit/(loss) for the
year
|
-
|
-
|
-
|
-
|
69.0
|
(2.9)
|
-
|
66.1
|
Revaluation gain/(loss) on property,
plant and equipment
|
-
|
-
|
-
|
-
|
-
|
-
|
0.9
|
0.9
|
Actuarial gain/(loss) in defined
benefit plan
|
-
|
-
|
-
|
-
|
-
|
(0.4)
|
-
|
(0.4)
|
Deferred tax (charge)/credit
allocated to actuarial gain/(loss)
|
-
|
-
|
-
|
-
|
-
|
0.2
|
-
|
0.2
|
Total comprehensive income/(expense) for the
year
|
-
|
-
|
-
|
-
|
69.0
|
(3.1)
|
0.9
|
66.8
|
Dividends paid
|
-
|
-
|
-
|
-
|
(56.7)
|
-
|
-
|
(56.7)
|
Purchase of treasury
shares
|
-
|
-
|
-
|
-
|
(163.1)
|
-
|
-
|
(163.1)
|
Movement in own shares
reserve
|
-
|
-
|
-
|
9.6
|
-
|
-
|
-
|
9.6
|
Movement in share-based
payments
|
-
|
-
|
-
|
-
|
(5.0)
|
-
|
-
|
(5.0)
|
Balance at 31 December 2023
|
156.8
|
45.7
|
36.3
|
(36.7)
|
3,393.1
|
(32.2)
|
10.3
|
3,573.3
|
Consolidated cash flow statement
Year ended 31 December
|
|
Consolidated cash flow
|
£ million
|
|
2023
|
2022
|
Cash flows from operating activities:
|
|
|
|
Cash inflow/(outflow) before
taxation and interest
|
|
328.6
|
57.7
|
Interest paid
|
|
(34.4)
|
(25.0)
|
Net
cash inflow/(outflow) from operating activities
|
|
294.2
|
32.7
|
Cash flows from investing activities:
|
|
|
|
Sale/(purchase) of property, plant
and equipment
|
|
(0.3)
|
(0.1)
|
Investments in subsidiary
undertakings
|
|
-
|
-
|
Divestments of subsidiary
undertakings
|
|
-
|
-
|
Net
cash inflow/(outflow) from investing activities
|
|
(0.3)
|
(0.1)
|
Cash flows from financing activities:
|
|
|
|
Repayment of borrowings
|
|
(699.9)
|
(591.6)
|
Drawing of borrowings
|
|
618.6
|
555.4
|
Purchase of ordinary shares by
EBT1
|
|
(9.8)
|
(40.4)
|
Purchase of ordinary shares into
treasury
|
|
(163.1)
|
(11.0)
|
Dividends paid
|
|
(56.7)
|
(57.6)
|
Net
cash inflow/(outflow) from financing activities
|
|
(310.9)
|
(145.2)
|
Increase/(decrease) in cash in the
year
|
|
(17.0)
|
(112.6)
|
Cash at the start of the year
|
|
218.0
|
325.9
|
Effect of foreign exchange rate
changes on cash
|
|
3.3
|
4.7
|
Cash at the year end
|
|
204.3
|
218.0
|
1 Shares
are disclosed in the own shares reserve on the consolidated balance
sheet.
NOTES TO THE FINANCIAL STATEMENTS - EXTRACTS
Earnings per ordinary share - basic and
diluted
The
basic earnings per ordinary share for 2023 is based on the profit
of £66.1 million (2022: loss of £577.2 million) and the weighted
average number of ordinary shares in issue during the period of
149.5 million (2022: 155.5 million). The weighted average number of
shares is adjusted for shares held in the EBT and in treasury in
accordance with IAS 33 - Earnings per share.
£ million
|
2023
|
2022
|
Net revenue profit/(loss)
|
(2.9)
|
(14.3)
|
Net capital profit/(loss)
|
69.0
|
(562.9)
|
Total profit/(loss) for the year
|
66.1
|
(577.2)
|
|
|
|
Weighted average
(million)
|
2023
|
2022
|
Number of shares in issue
|
156.8
|
156.8
|
Shares held in EBT
|
(1.8)
|
(1.0)
|
Shares held in treasury
|
(5.5)
|
(0.3)
|
Basic shares
|
149.5
|
155.5
|
pence
|
2023
|
2022
|
Revenue earnings/(loss) per ordinary
share - basic
|
(1.9)
|
(9.2)
|
Capital earnings/(loss) per ordinary
share - basic
|
46.1
|
(362.1)
|
Total earnings per share - basic
|
44.2
|
(371.3)
|
The
diluted earnings per ordinary share for the period is based on the
basic shares (above) adjusted for the effect of share-based
payments awards for the period.
This
adjustment was not required for 2022 as an increase in the shares
in issue would have reduced the basic loss per ordinary share. As a
result, there was no difference between the basic and diluted loss
per ordinary share in the prior year.
Weighted average
(million)
|
2023
|
2022
|
Basic shares
|
149.5
|
155.5
|
Effect of share-based payment
awards
|
1.4
|
-
|
Diluted shares
|
150.9
|
155.5
|
|
|
|
pence
|
2023
|
2022
|
Revenue earnings/(loss) per ordinary
share - diluted
|
(1.9)
|
(9.2)
|
Capital earnings/(loss) per ordinary
share - diluted
|
45.7
|
(362.1)
|
Total earnings per ordinary share - diluted
|
43.8
|
(371.3)
|
Net
asset value per ordinary share - basic and
diluted
Net asset value per ordinary share
is based on the following data:
31 December
|
2023
|
2022
|
Net assets (£ million)
|
3,573.3
|
3,721.7
|
Number of shares in issue
(million)
|
156.8
|
156.8
|
Shares held in EBT
(million)
|
(1.6)
|
(2.0)
|
Shares held in treasury
(million)
|
(9.3)
|
(0.7)
|
Basic shares (million)
|
145.9
|
154.1
|
Effect of share-based payment awards
(million)
|
1.4
|
1.7
|
Diluted shares (million)
|
147.3
|
155.8
|
|
|
|
|
2023
|
2022
|
31 December
|
pence
|
pence
|
Net asset value per ordinary share
- basic
|
2,449
|
2,414
|
Net asset value per ordinary share -
diluted
|
2,426
|
2,388
|
Dividends
|
2023
|
2022
|
|
|
|
Pence
|
Pence
|
2023
|
2022
|
|
per
share
|
per
share
|
£
million
|
£
million
|
Dividends paid in year
|
38.0
|
37.0
|
56.7
|
57.6
|
The
above amounts were paid as distributions to equity holders of the
Company in the relevant year from accumulated capital
profits.
Dividends are not paid on shares held in treasury and the EBT
waives its rights to all dividends.
On 27
February 2023 the Board declared a first interim dividend of 19.0
pence per share in respect of the year ended 31 December 2023 that
was paid on 28 April 2023. A second interim dividend of 19.0 pence
per share was declared by the Board on 31 July 2023 and paid on 27
October 2023.
The
Board declares the payment of a first interim dividend of 19.5
pence per share in respect of the year ending 31 December
2024. This will be paid on 26 April 2024 to shareholders on the
register on 5 April 2024, and funded from the accumulated capital
profits.
Glossary and Alternative
Performance Measures
Glossary
Within
the Annual Report and Accounts, we publish certain financial
measures common to investment trusts. Where relevant, these are
prepared in accordance with guidance from the AIC, and this
glossary provides additional information in relation to
them.
Alternative performance
measures (APMs): APMs are numerical
measures of the Company's current, historical or future financial
performance, financial position or cash flows, other than financial
measures defined or specified in the Company's applicable financial
framework - namely UK adopted IAS and the AIC SORP. They are
denoted with an * in this section.
CPI:
The CPI refers to the United Kingdom Consumer
Price Index as calculated by the Office for National Statistics and
published monthly. It is the UK Government's target measure of
inflation and, from 1 January 2022, is used as a measure of
inflation in one of the Company's KPIs, CPI plus 3.0% per
annum.
Gearing*:
Gearing is a measure of the level of debt deployed
within the portfolio. The ratio is calculated in accordance with
AIC guidance as total assets, net of cash, divided by net assets
and expressed as a 'net' percentage, e.g. 110% would be shown as
10%.
£ million
|
2023
|
2022
|
Total assets
|
3,902.1
|
4,171.5
|
Less: cash
|
(204.3)
|
(218.0)
|
Sub total
|
3,697.8
|
3,953.5
|
Net assets
|
3,573.3
|
3,721.7
|
Gearing
|
3.5%
|
6.2%
|
Leverage:
Leverage, as defined by the UK Alternative
Investment Fund Managers Directive (AIFMD), is any method which
increases the exposure of the portfolio, whether through borrowings
or leverage embedded in derivative positions or by any other
means.
MSCI All Country World
Index: The MSCI All Country World
Index is a total return, market capitalisation-weighted equity
index covering major developed and emerging markets. Described in
this report as the ACWI or the ACWI (50% £), this is one of
the Company's KPIs or reference hurdles and, since its introduction
in 2013, has incorporated a 50% sterling measure. This is
calculated using 50% of the ACWI measured in sterling and therefore
exposed to translation risk from the underlying foreign currencies.
The remaining 50% uses a sterling-hedged ACWI from 1 January
2015 (from when this is readily available). This incorporates
hedging costs, which the portfolio also incurs, to protect against
currency risk and is an investable index. Prior to this date it
uses the index measured in local currencies. Before December 1998,
when total return indices were introduced, the index is measured
using a capital-only version.
Net asset value (NAV) per
share: The NAV per share is
calculated by dividing the total value of all the assets of the
trust less its liabilities (net assets) by the number of shares
outstanding. Unless otherwise stated, this refers to the diluted
NAV per share, with debt held at fair value.
NAV total
return*: The NAV total return for a
period represents the change in NAV per share, adjusted to reflect
dividends paid during the period. The calculation assumes that
dividends are reinvested in the NAV at the month end following the
NAV going ex-dividend. The NAV per share at 31 December 2023 was
2,426 pence, an increase of 38 pence, or 1.6%, from 2,388
pence at the previous year end. As dividends totalling 38 pence per
share were paid during the year, the effect of reinvesting the
dividends in the NAV is 1.6%, which results in a NAV total return
of +3.2%.
Net quoted equity
exposure: This is the estimated
level of exposure that the trust has to listed equity markets.
It includes the assets held in the quoted equity category of
the portfolio adjusted for the notional exposure from quoted equity
derivatives, as well as estimated cash balances held by
externally-managed funds and estimated exposure levels from hedge
fund managers.
Notional:
In relation to derivatives, this represents the
estimated exposure that is equivalent to holding the same
underlying position through a cash security.
Ongoing charges figure
(OCF): As a self-managed investment
trust with operating subsidiaries, the calculation of the Company's
OCF requires adjustments to the total operating expenses. In
accordance with AIC guidance, the main adjustments are to remove
non-recurring costs as well as direct performance-related
compensation from JRCM, as this is analogous to a performance fee
for an externally-managed trust.
£ million
|
2023
|
2022
|
Operating expenses
|
42.7
|
43.6
|
Adjustments
|
(15.0)
|
(7.6)
|
Ongoing charges
|
27.7
|
36.0
|
Average net assets
|
3,614
|
4,045
|
OCF
|
0.77%
|
0.89%
|
In
addition to the above, managers charge fees within the external
funds (and in a few instances directly to RIT in relation to
segregated accounts). We have estimated that, based on average net
assets across the year and annual management fee rates per fund
(excluding performance fees), these represent an additional 0.94%
of average net assets (2022: 0.88%).
Premium/discount: The premium
or discount (or rating) is calculated by taking the closing share
price on 31 December 2023 and dividing it by the NAV per share
at 31 December 2023, expressed as a net percentage. If the share
price is above/below the NAV per share, the shares are said to be
trading at a premium/ discount.
Share price total return or
total shareholder return (TSR)*: The
TSR for a period represents the change in the share price adjusted
to reflect dividends paid during the period. Similar to calculating
a NAV total return, the calculation assumes the dividends are
notionally reinvested at the daily closing share price following
the shares going ex-dividend. The share price on 31 December 2023
closed at 1,882 pence, a decrease of 243 pence, or 11.4%, from
2,125 pence at the previous year end. Dividends totalling 38 pence
per share were paid during the year, and the effect of reinvesting
the dividends in the share price is 1.8%, which results in a TSR of
-9.6%. The TSR is one of the Company's KPIs.
Basis of
presentation
The
financial information for the year ended 31 December 2023 has been
extracted from the statutory accounts for that year. The auditor's
report on these accounts is unqualified and does 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 2022 has been
extracted from the statutory accounts for that year which have been
delivered to the Registrar of Companies. The auditor's report on
these accounts is unqualified and does 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.