REG - Rights and Issues IT - Final Results
21/02/2024 07:00
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RNS Number : 8350D Rights and Issues Inv. Trust PLC 21 February 2024
RIGHTS AND ISSUES INVESTMENT TRUST PLC
Legal Entity Identifier (LEI): 2138002AWAM93Z6BP574
Annual Results for the year to 31st December 2023
The following text is extracted from the Company's financial statements for
the year ended 31st December 2023. Page numbers refer to the full financial
statements.
CHAIRMAN'S STATEMENT
Market backdrop
Market conditions throughout 2023 proved to be very challenging. We saw
significant changes in sentiment over the course of the year and this was
combined with a sustained lack of appetite for investing in smaller industrial
companies and trusts. From time to time, when confidence did return to the
market this proved to be short-lived. This led to substantial changes in
valuations throughout the year. Policy response to energy price-led inflation
was to increase bank base interest rates to fifteen-year highs. Towards the
end of the calendar year these inflationary factors seemed to be easing and
the markets finished the year in positive territory. These macro-economic
factors as well as the global political environment have tested our investee
companies' market positioning and can be measured by their success in passing
on prices to their customers and their ability to maintain market share and
margins.
Company performance
The Company's overall performance should be seen against this backdrop. The
Company's investments generated a positive return in 2023. Although behind our
chosen benchmark, the FTSE All-Share index, the share price improved over the
year from 1890.0p to 2130.0p and the discount to net asset value per share
reduced from 17.2% to 8.9%. Overall shareholders achieved a return of 2.4%
compared to 3.8% for our chosen benchmark.
Jupiter
Our Portfolio Managers at Jupiter, Dan Nickols and Matt Cable, have been in
place for just over twelve months. The Board carried out its first review of
the Investment Manager following our meeting in November. We noted the
continuity of investment style, the changes that had been made to reduce the
concentration of the portfolio and the interesting new positions that have
been taken. These are more fully described in the Investment Manager's Report.
We will continue to keep these under regular review. The Board was encouraged
to note the increase in marketing activities for the Company. These were
carried out to raise awareness to a much wider audience of potential
investors. Over the course of the year events were held that included wealth
managers, professional fund managers and private individuals via a number of
traditional and digital marketing tools.
Discount
At December 2023 the discount stood at 8.9%. During the year the Company
bought back 545,305 shares in the market at a total cost of £10.6m. The share
buyback programme is an important tool that the Board uses to try to narrow
the discount between the Company's share price and net asset value per share
or reduce its volatility. Buybacks at the margin provide an increase in
liquidity for those shareholders seeking to realise their investment and at
the same time deliver an economic uplift for those shareholders wishing to
remain invested in the Company. The Company's current buyback programme runs
until July 2024.
Shareholder consultations
Over the course of 2023 the Board consulted with a number of major
shareholders to hear their views on a potential share split. Whilst there was
some support for this initiative as it was thought it might help increase
liquidity, the clear and significant majority thought that at this stage of
the Company's life the costs of such an exercise far outweighed any potential
benefits to shareholders. Consequently, the Board has decided to call an
indefinite pause on these plans.
Board Changes
In August of 2023 David Best retired from the Board after over 13 years of
service. I would like to take this opportunity to thank him for his sage
advice and guidance over the years. We wish him a long and enjoyable
retirement.
Dividends
The Directors are aware of the appetite our shareholders have for income and
are proposing a final dividend of 31.25p per Ordinary share which, if
approved at the upcoming AGM, would result in total dividend payments of
43.00p per Ordinary share in respect of the year ended 31st December 2023, an
increase of 7.5% over the prior year's dividend. Subject to shareholder
approval at the AGM the dividend will be paid on 5th April 2024 to
shareholders on the register at 8th March 2024. The ex-dividend date will be
7th March 2024.
Outlook
As we look forwards into 2024 it is fair to say that we expect to see
continued volatility in the markets. Noting that it is an election year in the
UK and USA, that potentially causes greater short-term volatility in share
prices. That said, there are some signs that energy prices, inflation and
interest rates may have peaked. Whilst we are mindful of these factors, we
will continue to encourage our Investment Manager to seek opportunities to
invest in differentiated companies operated by good managers that they believe
to be fundamentally underpriced. As noted above, there may also be conditions
in place for a reassessment of the pricing of the smaller companies sector.
The Board believes that our team at Jupiter has the skills and knowledge to
identify these and so continue to be well placed to deliver for your Company
into the future.
Dr Andrew J Hosty
Chairman
20th February 2024
INVESTMENT MANAGER'S REVIEW
Introduction
We are pleased to present our investment report to shareholders of Rights and
Issues following our first full year as managers of the Company. As we said
in our interim report, it has been a year of significant uncertainty and
volatility in markets. In that context we are pleased to report a modest
positive investment return from the portfolio, alongside a significantly
stronger share price performance.
In the following paragraphs we discuss the current market backdrop, update
shareholders on performance and changes to the portfolio over the year and
provide an outlook for the year ahead.
Market backdrop
The Russian invasion of Ukraine in early 2022 sparked a surge in inflation
around the world that has dominated markets ever since. As the direct effects
of energy prices fed through into goods, services and wages, central banks
reacted by sharply tightening monetary policy. This resulted in interest rates
that have not been seen since before the financial crisis a decade and a half
ago.
At the macro level this led to the market questioning whether monetary policy
could tame inflation without causing a painful recession. For individual
companies it was a test of both pricing power (the ability to pass on
inflation to customers) and balance sheet strength (through the cost of debt
finance). Meanwhile the implied market 'discount rate', or cost of equity,
caused valuations to decline, especially in the case of higher-growth
companies whose cash- flows are assumed to be higher further into the future.
The combination of these factors has resulted in both weak returns and
heightened volatility in markets around the world.
The UK has been no exception, with the FTSE All-Share index experiencing a
series of dramatic swings throughout the year as market sentiment shifted from
relative optimism to doom and gloom and back again. While it is clearly too
early to definitively say that this phase is over, it is reassuring to note
that global inflationary indicators were starting to look more benign towards
the end of the year. As a result, the outlook for interest rates has started
to come down while economic activity seems to be holding up. This combination
suggests an increasing chance that inflation can be bought under control
without the need for a damaging recession.
Under these circumstances it is no surprise that equity markets performed well
into the end of the year, with the FTSE All-share index ultimately posting a
positive return for 2023 as a whole.
Performance
The Company's portfolio of investments delivered a positive return for the
year, which was pleasing in the context of the volatility noted above. This
return was, however, modestly lower than that of the Company's benchmark, the
FTSE All-Share index. Pleasingly the Company's shares performed significantly
better than this as the discount to NAV declined over the year. Ultimately
shareholders experienced a total share price return (including dividends) of
15.0% compared to 7.9% for the Company's benchmark. (Source: Morningstar)
Given the concentrated nature of the portfolio, relative performance is
largely a result of individual stock returns. Some of the most significant
contributors and detractors to performance for the year included:
Renold (+64%)
Manufacturer of industrial chains and transmissions Renold has continued to
see positive trading through the year, issuing a series of upgrades to profit
expectations. The increase in interest rates has helped to reduce the
company's pension deficit to a level which should be seen as largely
immaterial by the stock market. We view the stock's valuation as depressed and
are therefore pleased to the see strong operating performance translating into
excellent stock returns.
Hill & Smith (+67%)
As a provider of infrastructure-related products and services, Hill &
Smith has begun to see the benefit of both increased government spending and
a trend to 'onshoring' of manufacturing, especially in the USA. With upgraded
profit expectations through the year and some modestly-sized but attractive
acquisitions, the market has taken a positive view of the shares.
Macfarlane Group (+16%)
As the market leading distributor of value-added packaging in the UK, as well
as a packaging manufacturer in its own right, Macfarlane has delivered a
resilient operating performance in 2023 against soft end markets. We believe
that the business is well placed to benefit from improving economic
conditions and that this is still not reflected in the shares' modest
valuation.
Videndum (-66%)
As we reported at the half-year, Videndum has endured an extremely challenging
period. As a manufacturer of products used in content creation, they have been
hit especially hard by the writers' and actors' strikes in the USA, as well as
weak demand from consumers. Given relative high levels of debt coming into the
year, the company ultimately needed to raise funding from the equity market in
the second half of the year, significantly diluting existing shareholders.
With that process now complete, the company is in a significantly better
positioned to benefit from a recovery in demand.
Treatt (-18%)
After a difficult prior year it was pleasing to see flavour specialist Treatt
deliver a resilient operating performance in its financial year to September
2023. It did, however, experience some weaker demand later in that period and
this probably accounts for the weak share price performance. Although the loss
of the company's long-standing and highly regarded CEO may be seen as a
negative, we continue to view the business as well positioned for the future
given recent investments in state-of-the-art facilities in the USA and UK.
Telecom Plus (-23%)
Multi-utility provider Telecom Plus (which trades as Utility Warehouse)
delivered a robust operating performance over the year but the shares
underperformed as the market appeared to fret over future growth prospects. We
think this may reflect a misunderstanding: the company's growth rate has
accelerated recently due to the removal from the market of weak,
undercapitalised competitors, rather than high energy prices per se. As such
we think prospects from here look attractive, while valuation now looks
depressed.
Portfolio changes
As we said in our last annual and interim reports, we have been working to
reduce the level of concentration in the portfolio by bringing down some of
the largest position sizes. We also set out to dispose some of the very
smallest companies in the portfolio and introduce some new positions based on
our team's well established investment process.
At the start of the year the Company held positions in 22 stocks with the top
five positions accounting for 50% of NAV and the top ten for 76%. As at the
end of December 2023, the Company had investments in 22 stocks, but the top
five positions accounted for 43% of NAV and the top ten for 68%. While
portfolio construction is always a dynamic process and further changes are
likely, we are now broadly happy with the shape of the portfolio.
Over the course of the year we sold five stocks and added five new
investments. Sales included Titon Holdings (£8m market cap) and Coral
Products (£14m market cap) on the grounds of size. We also sold the Company's
tiny residual holding in Costain and some preference shares issued by
Santander which we felt did not fit the fund's stated objectives. Finally, we
disposed of the holding in Castings which we felt offered limited valuation
upside.
The five new holdings are:
OSB Group (£1.7bn market cap1)
OSB is the UK's largest specialist buy-to-let mortgage lender. It benefits
from a state of the art lending platform, strong deposit base and a balance
sheet free of legacy pre-financial crisis loans. OSB is very well capitalised
and has consistently generated excellent returns, allowing the company to
return capital to shareholders through ordinary and special dividends as well
as a share buyback. As well as a compelling growth and valuation case, OSB
brings exposure to financial services and UK consumer cyclicality, which was
previously a significant underweight in the portfolio.
Spirent (£682m market cap1)
Spirent is a global provider of testing equipment and software for the
telecommunications industry. Its structural growth drivers include the
expansion of 5G technology and the ever-higher demands for speed in networks
and data centres. Some short-term disruption to the 5G market, especially in
the US, has resulted in a moderation to immediate growth expectations, but we
see the long-term drivers as fully intact. Spirent is very well capitalised,
with over $200m of net cash on its balance sheet2.
Gresham Technologies (£97m market cap1)
Gresham is a software business tightly focused on the market for advanced data
reconciliation. Selling primarily into the financial services sector, Gresham
addresses the ever-increasing need to fully reconcile large, complex
data-sets, often across multiple systems and in real time. This has allowed
them to consistently take share with their long-term subscription-based
products around the world. We see the growth and valuation case as highly
attractive, and along with Spirent (above) an important source of exposure to
technology for the portfolio.
Marshalls (£659m market cap1)
Marshalls is one of the UK's leading providers of heavy building materials
such as blocks, stone and concrete roofing tiles. It sells into the new-build
housing, commercial, infrastructure and repair and maintenance markets. The
well publicised challenges in some of these markets in recent months have led
to a significant decline in Marshalls's share price which we believe now
represents a significant opportunity for long-term investors to invest in an
excellent business at a very attractive valuation. The inherent uncertainty in
timing the bottom of the cycle means we have started the holding at a modest
position size, with a view to building it as the path of recovery becomes
clearer.
Oxford Instruments (£1.3bn market cap1)
Oxford Instruments is a global leader in the design and manufacture of highly
specialist electronic equipment used in research and advanced manufacturing.
It benefits from decades of experience in niche areas such as microscopy,
cryogenics and chemical deposition. An updated strategy of taking a more
commercial approach to its markets is starting bear fruit, which we think will
afford the company opportunities to grow rapidly for many years to come.
Oxford Instruments adds exposure to long term structural growth to the
portfolio.
Summary and Outlook
It has been a busy year for the Company and we are pleased that the investment
portfolio is now broadly in the shape we intended. We believe we have added
some attractive long-term investments which will complement the existing
collection of quality businesses the Company owns and add thematic balance. We
continue to look for potential new holdings and will add to the portfolio as
appropriate and according to the team's established investment process.
While it is too early to say for certain that inflation is under control,
there have been encouraging recent signs of a return towards central bank
targets. This in turn should allow interest rates to moderate towards
long-term norms and hence remove a source of significant uncertainty for
companies and markets alike. While we are more confident in this outlook than
we were six months ago, we do not expect a straight-line recovery and
recognise the scope for significant bumps along the road. As such we continue
to feel that a degree of balance is appropriate in portfolios and will
continue to reflect this in the Company's holdings.
Looking further ahead, we believe that the UK mid- and small-cap equity market
is attractively valued and hence offers an exciting opportunity for long-term
investors as it emerges from this period of volatility.
Dan Nickols
Lead Manager
Matt Cable
Fund Manager
20th February 2024
1 Market cap as at 10/1/24
2 As at the end of 2022
PORTFOLIO STATEMENT
Details of the investments held within the portfolio as at 31st December 2023
are given below by market value:
31st December 2023 31st December 2022
UK Investments Holdings Market Value % of Net Assets Holdings Market Value % of Net Assets
Vp 2,404,250 14,906 11.35 2,450,000 16,170 11.49
Macfarlane 11,680,653 13,666 10.40 17,250,000 17,509 12.44
Hill & Smith 522,465 9,969 7.59 1,246,286 14,606 10.37
Renold 28,745,000 9,802 7.46 30,000,000 6,240 4.43
Telecom Plus 459,113 7,401 5.63 263,070 5,774 4.10
Colefax 1,055,952 7,286 5.55 1,606,500 9,639 6.85
Gamma Communications 640,919 7,204 5.48 640,919 6,935 4.93
OSB 1,401,694 6,501 4.95 - - -
Treatt 1,281,009 6,444 4.91 2,012,000 12,535 8.90
Spirax-Sarco Engineering 59,668 6,268 4.77 94,415 10,022 7.12
Alpha Group International 336,513 5,721 4.36 98,611 1,824 1.30
IMI 292,263 4,922 3.75 292,263 3,764 2.67
Carr's 4,750,000 4,617 3.51 4,750,000 5,629 4.00
Marshalls 1,545,642 4,319 3.29 - - -
Morgan Advanced Materials 1,500,000 4,245 3.23 1,500,000 4,718 3.35
RS 464,401 3,806 2.90 838,870 7,512 5.34
Eleco 4,520,781 3,617 2.75 4,520,781 3,029 2.15
Videndum 959,582 3,339 2.54 500,000 5,370 3.81
Gresham Technologies 2,360,303 2,714 2.07 - - -
Spirent Communications 1,516,091 1,869 1.42 - - -
Oxford Instruments 58,268 1,337 1.02 - - -
Dyson 1,000,000 41 0.03 1,000,000 41 0.03
Castings* - - - 400,000 1,384 0.98
Titon* - - - 1,265,000 886 0.63
Santander UK 10.375% Non Cumulative Preferred* - - - 400,000 540 0.38
Coral Products* - - - 2,000,000 320 0.23
Costain* - - - 41 - -
Total Investments 129,994 98.96 134,447 95.50
Net current assets 1,365 1.04 6,336 4.50
Net Assets 131,359 100.00 140,783 100.00
Unless otherwise specified, the actual holdings are, in each case, of
ordinary shares or stock units and of the nominal value for which listing has
been granted.
*Sold during the year to 31st December 2023.
STRATEGIC REPORT
The Strategic Report is designed to provide information primarily about the
Company's business and results for the year ended 31st December 2023 and
should be read in conjunction with the Chairman's Statement and the Investment
Manager's Review.
PERFORMANCE STATISTICS 31st December 31st December % change
2023 2022
NAV per Ordinary Share 2,337.1p 2,283.2p 2.4%
Discount to NAV (8.9%) (17.2%) 8.3%
Closing mid-market price per Ordinary Share 2,130.0p 1,890.0p 12.7%
Dividends per Ordinary Share1 43.00p 40.00p
Dividend yield* 2.0% 2.1%
Ongoing Charges* 0.9% 0.5%
Earnings per Ordinary Share - basic
Revenue 50.4p 38.9p
Capital 11.0p -818.2p
NAV return* 2.4% -24.8%
FTSE All-Share Index 3.8% -3.2%
*These are Alternative Performance Measures.
(1)Assumes shareholder approval of the proposed final dividend of 31.25p per
Ordinary share at the forthcoming AGM.
Explanation of Alternative Performance Measures ("APMS")
An alternative performance measure is a financial measure of historical or
future financial performance, financial position or cash flow that is not
prescribed by the relevant accounting standards. The APMs are the dividend
yield, ongoing charges and NAV return as defined below.
Dividend Yield
The dividend yield is a financial ratio which indicates how much the Company
pays out in dividends each year relative to its share price. The figure is
calculated by dividing the aggregate value of dividends per share in a given
year by the closing share price as at 31st December each year and is
represented as a percentage.
The dividend yield was calculated as follows:
2023 2022
Total Dividends paid per Ordinary Share1 (a) 43.00p 40.00p
Closing mid-market price Ordinary Share (b) 2,130.0p 1,890.0p
Dividend Yield (a)/(b)*100 2.0% 2.1%
(1)Assumes shareholder approval of the proposed final dividend of 31.25p per
Ordinary share at the forthcoming AGM.
Ongoing Charges
Ongoing charges are expenses charged to revenue or capital that relate to the
operation of the Company as an investment trust and are deemed likely to recur
in the foreseeable future. They do not include the costs of acquisition or
disposal of investments, financing costs and gains or losses arising on
investments. Ongoing charges are calculated on the basis of the annualised
ongoing charge as a percentage of the average net asset value in the period.
The calculation methodology for ongoing charges is set out by the Association
of Investment Companies ("AIC") and was calculated as follows:
2023 2022
£'000 £'000
Investment management fee(†) 670 175
Other expenses 470 767
Total Expenses (a) 1,140 942
Average NAV (b) 133,930 174,479
Ongoing Charge (a)/(b)*100 0.9% 0.5%
†Following the appointment of Jupiter Unit Trust Managers as Investment
Manager on 3rd October 2022, a management fee is payable quarterly to the
Investment Manager. For more information see Note 3 on page 55.
NAV Return
The NAV return is the percentage change in closing NAV per share compared with
opening NAV per share. The NAV return is calculated as follows:
NAV per Ordinary Share 31st December 2023 (a) 2,337.1p
NAV per Ordinary Share 31st December 2022 (b) 2,283.2p
NAV return (a/b-1)*100 2.4%
Status
The Company is registered as an investment company as defined in section 833
of the Companies Act 2006 and operates as such. The Company is not a close
company within the meaning of the provisions of the Corporation Tax Act 2010.
The Company is an "alternative investment fund" ("AIF") for the purposes of
the EU Alternative Investment Fund Managers ("AIFM") Directive, as adopted in
the UK. In the opinion of the Directors the Company has conducted its affairs
during the year under review so as to qualify as an investment trust for the
purposes of Chapter 4 of Part 24 of the Corporation Tax Act 2010 and continues
to meet the eligibility conditions set out in section 1158 of the Corporation
Tax Act 2010.
The Board is directly accountable to shareholders. The Company is listed on
the London Stock Exchange and is subject to the Listing Rules, Prospectus
Rules and Disclosure Guidance and Transparency Rules published by the
Financial Conduct Authority ("FCA"). The Company is governed by its articles
of association, amendments to which must be approved by shareholders by
special resolution. The Company is a member of the Association of Investment
Companies ("AIC").
The FCA rules in relation to non-mainstream pooled investments do not apply to
the Company.
Strategy for Meeting the Objectives
The Company's objective is to exceed the benchmark index over the long-term
whilst managing risk.
To achieve this objective, the Board appointed Jupiter on 3rd October 2022 to
continue the Company's long-term strategy of seeking out undervalued
investments. This is supported by the five-yearly review that addresses the
above objective. The most recent review was conducted in January 2021, at
which the Board concluded that the continuation of the Company for the period
until July 2026 was in the best interests of shareholders.
The Company fulfils its investment objective and policy by operating as an
investment company. The Board delegates operational matters to specialist
third-party service providers. The closed-ended nature of the Company allows a
longer-term view on investments because liquidity issues as a result of
redemptions are less likely to arise. The Board has closely monitored
performance in 2023 to ensure the Company's strategic objectives are
continuing to be met.
In pursuing its strategy, close attention is also paid to the control of
costs. Further information on this is contained in the Key Performance
Indicators on page 21.
Investment Selection
There is a rigorous process of risk analysis at the level of the individual
investment, based on the characteristics of the investee company. This
controls the overall risk profile of the investment portfolio.
Since its appointment the Investment Manager has taken steps to balance risk
and improve performance by reducing the Company's largest holdings and
investing in additional holdings at similar weights. The Investment Manager
also plans to invest in companies from a broader range of industries and
sectors over time.
The investment portfolio is managed on a medium-term basis with a low level of
investment turnover. This minimises transaction costs and ensures medium-term
consistency of the investment approach.
The Company's investment activities are subject to the following limitations
and restrictions:
The policy does not envisage hedging either against price or currency
fluctuations. Whilst performance is compared against major UK indices, the
composition of indices has no influence on investment decisions or the
construction of the portfolio. As a result, it is expected that the Company's
investment portfolio and performance will deviate from comparator indices.
Full details of the Company's portfolio are set out on page 13 and further
information is set out in Notes 9 to 11 inclusive.
Sustainability of Business Model and promoting the success of the Company
The Board is responsible for the overall strategy of the Company and decisions
regarding corporate governance, asset allocation, risk and control. The
day-to-day management of the investments is delegated to the Investment
Manager and the management of the operations to specialist third-party
suppliers.
The Directors are conscious of their duties under section 172 of the Companies
Act 2006 and, in particular, the overarching duty to promote the success of
the Company for the benefit of the shareholders, with careful attention paid
to wider stakeholders' interests. The Board is aware of the importance of
ensuring that the Company has a sustainable, well-governed business model to
achieve its strategy and objectives.
As part of discharging its section 172 duties, the Company, through the
Investment Manager, uses its influence, where possible, as a shareholder to
encourage the companies in which it invests to adopt best practice on
environmental, social and corporate governance ("ESG") matters. Further
related information can be found on pages 18 to 20.
The third-party service providers are a key element of ensuring the success of
the business model. The Board monitors the chosen service providers closely to
ensure that they continue to deliver the expected level of service. The Board
also receives regular reporting from them, evaluates the control environment
and governing contract in place at each service provider and formally assesses
their appointment annually.
Culture & Values
All the Directors seek to discharge their responsibilities and meet
shareholder expectations in an open and transparent manner. The Board seeks to
recruit Directors who have diverse business experience including managing the
types of companies in which the Company invests. The industry experience on
the Board ensures that there is detailed knowledge and constructive challenge
in the decision-making process. This helps the Company achieve its overarching
aim of enhancing shareholder value. The Directors are mindful of costs and
seek to ensure that the best value is achieved in managing the Company.
The Company's values of skill, knowledge and integrity are aligned to the
delivery of its investment objective and are monitored closely by the Board.
The Board seeks to employ third party providers who share the Company's values
and, importantly, will work with the Directors openly and transparently to
achieve the Company's aims. As detailed in the Business Ethics section below,
the Board expects and seeks assurance that the companies with which it works
adopt working practices that are of a very high standard.
The Responsibilities as an Institutional Shareholder section below describes
the Company's approach to managing its investments, including ESG matters.
Business Ethics
The Company maintains a zero-tolerance policy towards the provision of illegal
services, bribery and corruption in its business activities, including the
facilitation of tax evasion. As the Company has no employees and the Company's
operations are delegated to third-party service providers, the Board seeks
assurances from those providers that they comply with the provisions of the
Modern Slavery Act 2015 and maintain adequate safeguards in keeping with the
provisions of the Bribery Act 2010 and Criminal Finances Act 2017.
As an investment vehicle the Company does not provide goods or services in the
normal course of business, and does not have customers. Accordingly, the
Directors consider that the Company is not within the scope of the Modern
Slavery Act 2015.
Board Diversity
Mr D Best retired as a Director of the Company on 31st August 2023. Upon Mr
Best's retirement Dr A Hosty became Chairman of the Company. The Company's
affairs are overseen by a Board comprising four non-executive Directors, one
of whom is female, three of whom are male. None of the Directors is from an
ethnic minority background. The FCA Listing Rules on board diversity targets
are as follows: at least 40% of board members should be women, at least one
board member should be from an ethnic minority background and at least one of
the senior positions on the board should be held by a woman. The role of
Audit, Risk and Compliance Committee Chair is held by a woman, however, the
first two of these targets are currently not met by the Company. In terms of
progress in achieving diversity, the Board is committed to ensuring that
vacancies arising are filled by the best qualified candidates, whilst
recognising the benefits of diversity in the composition of the Board.
Improving the Board's gender and ethnic diversity will be a key focus when the
Board undertakes any further recruitment. Further details on the gender and
ethnic background of the Directors are included in the Corporate Governance
Statement on page 31.
The Directors have broad experience, bringing knowledge of investment markets,
business, financial services, accounting and regulatory expertise to
discussions on the Company's business. The Directors regularly consider the
leadership needs and specific skills required to achieve the Company's
investment objective. Whilst appointments are based on skills and experience,
the Board is mindful of the importance of diversity of gender, social and
ethnic backgrounds, cognitive and personal strengths and experience. All
appointments are based on objective criteria and merit and are made following
a formal, rigorous and transparent process.
Responsibilities as an Institutional Shareholder
The Board has delegated authority to the Investment Manager for monitoring the
corporate governance of investee companies. The Board has delegated to the
Investment Manager responsibility for selecting the portfolio of investments
within investment guidelines established by the Board and for monitoring the
performance and activities of investee companies. On behalf of the Company the
Investment Manager carries out detailed research on investee companies and
possible future investee companies through internally generated research. The
research includes an evaluation of fundamental details such as financial
strength, quality of management, market position and product differentiation.
Other aspects of research include an appraisal of social, ethical and
environmentally responsible investment policies.
The Board has delegated authority to the Investment Manager to vote on behalf
of the Company in accordance with the Company's best interests. The primary
aim of the use of voting rights is to address any issues which might impinge
on the creation of a satisfactory return from investments. The Company's
policy is, where appropriate, to enter into engagement with an investee
company in order to communicate its views and allow the investee company an
opportunity to respond.
In such circumstances the Investment Manager would not normally vote against
investee company management but would seek, through engagement, to achieve its
aim. The Investment Manager would, however, vote against resolutions it
considers would damage the Company's shareholder rights or economic interests.
The Company has a procedure in place such that where the Investment Manager,
on behalf of the Company, has voted against an investee company resolution, it
is reported to the Board.
The Board considers that it is not appropriate for the Company to formally
adopt the UK Stewardship Code. However, many of the UK Stewardship Code's
principles on good practice on engagement with investee companies are used by
the Company, as described above.
Corporate and Social Responsibility
When investments are made, the primary objective is to achieve the best
investment return while allowing for an acceptable degree of risk. In pursuing
this objective, various factors that may impact on the performance are
considered and these may include socially responsible investment issues.
As an investment trust, the Company's own direct environmental impact is
minimal. The Company has no greenhouse gas emissions to report from its
operations, nor does it have responsibility for any other emissions-producing
sources under the Companies Act 2006 (Strategic Report and Directors' Reports)
Regulations 2013 for the year to 31st December 2023 (2022: same). The
Directors receive and use electronic meeting packs only. The Company provides
electronic copies of the annual and half-yearly reports and other shareholder
information on its website. All printed material, wherever possible, is on
recycled material. The Investment Manager attempts to minimise the Company's
carbon footprint. The Company's indirect impact occurs through the investments
it makes.
The Company does not purchase electricity, heat, steam or cooling for its own
use nor does it have responsibility for any other emissions producing sources.
Environmental, Social & Governance ("ESG") Reporting
Overview
As a high-conviction active asset manager, the Investment Manager recognises
that it has an important role to play in the allocation of capital, both as
active owners and long-term stewards of the assets in which it invests on
behalf of clients. The investment team has a defined investment process, and
consideration of material ESG issues is integrated into both investment
analysis and decision-making, influencing asset allocation, portfolio
construction, security selection, position sizing, stewardship, engagement and
subsequent decisions on whether to remain invested or exit.
The Investment Manager's Responsible Investment Policy and Stewardship Report,
available on its website
(https://www.jupiteram.com/board-and-governance/#our-approach-to-stewardship),
(http://www.jupiteram.com/board-and-governance/#our-approach-to-stewardship))
describes how it supports the Company's integration of environmental, social
and governance (ESG) responsibilities, setting out its sustainability
governance and oversight, its approach to ESG integration and materiality and
core material ESG issues.
ESG in a UK small and mid-cap context
The Company's investment universe comprises small and mid-size companies which
may be exposed to important sustainability risks and opportunities that can
have material impacts on value. As an active investment manager, the
Investment Manager believes that effective ESG integration cannot be
outsourced to third parties, but must be incorporated into the fundamental
analysis conducted by the investment team.
In particular, smaller companies remain under-researched by ESG rating
agencies relative to their larger listed peers. Where they are covered at all,
smaller companies are often penalised by rating agencies, either due to their
corporate governance arrangements or a relative lack of detailed corporate
disclosure about ESG issues. These factors present challenges but also, in the
Investment Manager's view, opportunities to identify ESG risks or
opportunities affecting companies which are not priced efficiently by
financial markets.
Corporate Governance
To grow successfully, the leadership of smaller companies must not only
execute strategically, they must also lay the foundations for future growth by
creating appropriate corporate governance structures. The Investment Manager
believes that as corporate culture is set at an early stage, the relationships
formed with key stakeholders such as customers, the workforce and suppliers at
this point in a company's development can be fundamental to long-term success.
The Investment Manager fully endorses the principles of the UK Corporate
Governance Code and, while it acknowledges the need for pragmatism with
smaller companies, it still expects high standards of governance at investee
companies to support their growth in a sustainable manner.
The Investment Manager assesses company governance on a range of issues. These
issues may include but are not limited to:
■ Boards and executive leadership: The Investment Manager builds an
understanding of the quality of leadership teams and boards through assessment
of i) board and committee composition and independence, ii) board and
executive tenure and succession planning, iii) Diversity, Equity and Inclusion
("DE&I") oversight and actions at board level and throughout an
enterprise, iv) oversight and management of corporate culture.
■ Remuneration: Management incentivisation structures should be aligned with
shareholder interests. The Investment Manager considers KPIs governing short
and long-term incentivisation, as well as the overall quantum, when assessing
remuneration packages. It seeks to understand how remuneration structures
encourage correct behaviours and how management compensation decisions are
linked to the wider employee and sustainability agenda.
■ Protection of minority rights and related party transactions: The
Investment Manager will escalate engagement where it believes that minority
rights have been compromised.
■ Systemic risks: The environment in which companies operate continues to
change rapidly and the Investment Manager considers where businesses are
exposed to wider systemic risks, including through the assessment of global
standards, such as the UN Global Compact.
■ Conduct, litigation and relations with policy makers and regulators: Poor
relations with regulators can severely hamper corporate success and result in
value destruction for investors. The Investment Manager seeks to understand
board oversight of regulatory matters and how a company guards against
malpractice.
■ Corporate culture: The Investment Manager may engage with boards to
understand how corporate culture is being led, developed, and monitored and to
highlight strengths and areas for development. Where relevant, it seeks to
understand how management is advancing culture and where and how culture
challenges emerge.
■ Audit and control environment: The Investment Manager considers quality
and independence of auditors. It may escalate engagement with Audit Committee
chairs where it believes that audit standards are not in line with its
expectations.
Environmental
Climate
Limiting global temperature rises to 1.5 degrees above preindustrial levels,
in line with the Paris Agreement, is an urgent challenge facing the global
economy. The Investment Manager uses its influence as an investor through
stewardship and active ownership to encourage companies to identify, manage
and mitigate climate change risks or opportunities. It believes that the scale
of climate change will impact all sectors, industries and asset classes and it
acknowledges the positive role that investors can play in tackling it through
its investment decisions and capital allocation.
Biodiversity
The Investment Manager considers biodiversity impacts in its ESG analysis of
companies, in line with its approach and commitments. It engages with investee
companies where it believes their practices are unsustainable, with the goal
of achieving change, reversing biodiversity loss, while preserving and
enhancing the value of the Company's assets.
Social
Human Rights
Companies with poor management of human rights can face a range of issues
including fines, workforce issues and supply chain challenges which may
affect their licence to operate. The Investment Manager monitors and assesses
human rights policies and procedures for its investee companies to ensure that
they are promoting good governance and management of human rights issues. It
expects companies to comply with internationally-recognised human rights codes
and standards.
Human Capital
Good human capital management supports both value creation and business
resilience, and the Investment Manager believes that investing in human
capital correlates with longer-term business success. Promoting Diversity,
Equity and Inclusion (DE&I) enables companies to attract talent from a
wider talent pool. It also contributes to better decision-making, performance,
innovation and employee satisfaction and retention. The Investment Manager
understands that approaches to human capital management, including DE&I,
will differ and, as an active owner, it seeks to understand an investee
company's operating model and engage to advise on best practice and potential
improvements.
Health and safety
Where a company fails to meet health and safety standards, the Investment
Manager will engage and encourage the company to improve its practices and to
disclose health and safety indicators. Good health and safety should be
embedded in a business and the Investment Manager promotes a zero-harm ethos.
Engagement
Engagement is central to the Investment Manager's active ownership approach.
The investment team maintains a dialogue with companies to inform its
investment decisions and carry out strategic engagement, based on ESG
materiality. The Investment Manager regularly engages with companies to
monitor material ESG issues that will impact the long-term success of an
investment. The Investment Manager is committed to long-term engagement goals;
however, to protect shareholders' interests it reserves the right to exit an
investment if the investment team concludes that progress is insufficient or
does not meet the Company's strategic objectives. The Investment Manager also
engages in collective engagement where such action aligns with its own
objectives.
Proxy Voting
Exercising its shareholder voice through active proxy voting is central to the
Investment Manager's stewardship approach to represent the Company's
interests, hold boards to account and support investee companies. Its
investment managers are accountable for the exercise of their shareholder
votes supported by the Stewardship team, which is responsible for proxy voting
operations, the monitoring of meeting ballots and providing an initial
assessment of each meeting's agenda, including an assessment of independent
proxy advisory research.
Data Science and third-party data resource
The Investment Manager's in-house data science team has built a proprietary
desktop tool, known as ESG Hub, which allows the investment teams to apply
multi-factor ESG screening to their investment universe and to build custom
reports. The data science team also works with third-party ESG data providers
to challenge and provide constructive feedback to enhance the quality and
integrity of the ESG data sets it uses.
Screening
The Investment Manager does not exclude, except i) where required by law, ii)
in line with the specifications of the Company's mandate, or iii) if a
company is involved in banned activities under the following international
conventions:
■ The 1997 Ottawa Convention (Anti-Personnel Mine Ban Treaty)
■ The 2008 Convention on Cluster Munitions (CCM)
It uses third party vendors to screen for involvement in controversial and
banned weaponry.
Streamlined Energy and Carbon Reporting
The Company is categorised as a lower energy user under the HMRC Environmental
Reporting Guidelines March 2019 and is therefore not required to make the
detailed disclosures of energy and carbon information set out within the
guidelines. The Company's energy and carbon information is therefore not
disclosed in this Report.
Review of the Business
A review of the year and commentary on the future outlook is provided in the
Chairman's Statement on pages 8 and 9.
During the year under review, the assets of the Company were invested in
accordance with the Company's investment policy.
During the year the Company's net assets have decreased from £140.8m to
£131.4m, largely as a result of the ongoing share buyback programme, offset
by a modest increase in the value of investments. At 31st December 2023 the
net asset value per Ordinary share was 2,337.1p (2022: 2,283.2p).
Key Performance Indicators
The Board is provided with detailed information on the Company's performance
at every Board meeting. Key Performance Indicators are:
■ Shareholders' funds equity return compared to the FTSE All-Share Index
(the Company's benchmark index).
■ Dividends per Ordinary share.
■ Ongoing Charges ratio (formerly titled the Total Expense Ratio).
Shareholders' funds equity return
In reviewing the performance of the Company, the Board monitors shareholders'
funds in relation to the FTSE All- Share Index. During the year shareholders'
funds increased by 2.4% compared to an increase of 3.8% in the FTSE All- Share
Index. Over the five years ended 31st December 2023 shareholders' funds
increased by 10.3% compared with an increase of 15.1% in the FTSE All-Share
Index.
Dividends per Ordinary share
The total dividend per Ordinary share paid and proposed is 43.0p (2022:
40.0p).
Ongoing Charges
Ongoing charges are expenses charged to revenue or capital that relate to the
operation of the Company as an investment trust and are deemed likely to recur
in the foreseeable future. They include the investment management fee but do
not include the costs of acquisition or disposal of investments, financing
costs and gains or losses arising on investments. Ongoing charges are
calculated on the basis of the annualised ongoing charges as a percentage of
the average net asset value in the period. The Ongoing Charges for the year
ended 31st December 2023 were 0.9% (2022: 0.5%). Under the terms of the
Investment Management Agreement, an operating expenses cap will be applied to
the Company's annual ordinary operating expenses at 0.8 per cent. of the
Company's average daily NAV during each financial year for a period of five
years with effect from 3rd October 2022. Further details are given on page 29.
Principal Risks
The Board of Directors has a process for identifying, evaluating and managing
the key risks of the Company. This process operated during the year and has
continued to the date of this report. The Directors confirm that during the
year they have carried out a robust assessment of the principal risks facing
the Company, including those that would threaten its business model, future
performance, solvency or liquidity. The Company's principal risks and how they
are being managed or mitigated are described below.
Investment in an individual smaller company inherently carries a higher risk
than investment in an individual large company. In a diversified portfolio,
the portfolio risk of a smaller company portfolio is only slightly greater
than the portfolio risk of a large company portfolio. The Company's portfolio
is diversified. Additionally, the Company invests overwhelmingly in smaller
UK listed and AIM traded companies and has no exposure to derivatives. The
principal risks are therefore market price risk and liquidity risk. Further
details on these risks and how they are managed may be found in Note 18 to the
financial statements on pages 63 and 64.
Additional key risks identified by the Company, together with the Board's
approach to dealing with them are as follows:
Investment performance - The performance of the investment portfolio will
deviate from the performance of the benchmark index. The Board's objective is
to exceed the benchmark index over the long-term whilst managing risk. The
Board ensures that the Investment Manager is managing the portfolio within the
scope of the investment policy; the Board monitors the Company's performance
against the benchmark; and the Board also receives detailed portfolio
attribution analyses. The Board has a clearly defined investment philosophy
which requires the Investment Manager to operate a diversified portfolio.
Share price discount - Investment trust shares often trade at a discount to
their underlying net asset values. A disproportionate widening of the discount
comparative to peers could lead to a decrease in value for shareholders. The
Board continually monitors the level of the discount and discusses its
discount management policy with the Investment Manager. On 7th December 2016,
the Company implemented share buy-back arrangements to mitigate the risk of
the discount increasing. In August 2023, the Board announced a further
extension to the share buy-back programme. The Board has authorised the
repurchase of shares up to a rolling £1 million per month until July 2024
(subject to the renewal of the buy-back authority at the forthcoming AGM).
Loss of key personnel - The Investment Manager is crucial to performance and
the loss of key personnel could adversely affect performance in the medium
term. The Board reviews its strategy for this risk annually. The Board has
decreased the risk of having no key personnel available by appointing Jupiter
Unit Trust Managers Limited (JUTM) as Investment Manager, in place of a sole
Investment Director. Jupiter provides two dedicated fund managers to the
Company as part of the Investment Management Agreement. Jupiter also regularly
considers its remuneration packages in order to retain staff and routinely
reviews succession planning.
Regulatory risk - The Company must comply with the requirements of section
1158 of the Corporation Tax Act 2010 to maintain its investment trust status.
This is achieved by the consistent investment policy and is monitored by the
Board. The Board seeks assurance from the Administrator that the investment
trust status is being maintained. The Board reviews a schedule of regulatory
risk items at its Board meetings and takes action to address any regulatory
changes.
Protection of assets - The Company's assets are protected by the use of an
independent custodian, Northern Trust Company. The Board monitors the
custodian to ensure assets remain protected. The Company operates internal
controls to safeguard assets held by the custodian, for example, through the
Administrator which reconciles the Company's cash and stock positions to the
custodian's records on a daily basis.
Political risk - Changes in the political landscape could substantially affect
the Company's prospects and the value of its investment portfolio. Political
risks are discussed at Board meetings. The risks to market stability as a
result of international conflicts are discussed between the Investment
Manager and the Board, including the impact of the ongoing war between Russia
and Ukraine and the escalating hostilities in the Middle East. The Company has
no exposure to Russian stocks within its portfolio and therefore there has
been no need to amend the Company's investment approach.
Climate change risk - Climate change will bring fundamental shifts to economic
activity and human behaviour across the planet. The Board and Investment
Manager regularly consider how climate change could affect the Company's
investment portfolio and shareholder returns.
Pandemic Risk - The COVID-19 pandemic highlighted the speed at and extent to
which a pandemic or health emergency can exert strain on both global and
localised economies and infrastructure. The structural changes that have been
accelerated by the pandemic continue to present risks and opportunities for
different sectors and their products, markets and supply chains. The
Investment Manager mitigates exposure to these risks by carefully monitoring
performance and adaptability of portfolio companies, diversifying investments
and seeking to learn lessons from the COVID-19 pandemic which may be of use in
the event of future pandemics or health crises.
Economic conditions - Changes in economic conditions including, but not
limited to, interest rates, rates of inflation, competition and tax
legislation, could have a significant effect on the Company's prospects and
the value of its investment portfolio. The Board reviews the investment
strategy and the portfolio at each Board meeting, taking into account economic
conditions in the market sectors in which the Company invests. The Board
continually considers economic conditions whilst seeking to meet the Company's
investment objective.
These and other risks facing the Company are reviewed regularly by the Audit,
Risk and Compliance Committee and the Board.
Section 172 Statement
The Board seeks to promote the success of the Company for the benefit of its
shareholders. In doing so it gives consideration to the likely long-term
consequences of any decision with regard to the interests of its business
relationships and the environment in which it operates. As at 31st December
2023, the Company had no employees.
Stakeholder Group Engagement in the year and their material issues
Investors Shareholders play an important role in monitoring and safeguarding the
governance of the Company. They have access to the Board via the Company
Secretary throughout the year. The Board welcomes the opportunity to engage
with shareholders at its Annual General Meeting. The Company continues to
communicate with shareholders via the Company Secretary, its website and the
publication of its financial reports throughout the year.
The Board encourages shareholders to ask questions of the Chairman of the
Board and all other Directors via the Company Secretary and to ask questions
of the Investment Manager. Shareholders may submit questions to
cosec@maitlandgroup.com (mailto:cosec@maitlandgroup.com) or investment
companies@jupiteram.com. (mailto:companies@jupiteram.com) Communication with
shareholders enables the Board to make informed decisions when considering how
to promote the success of the Company over the long term.
Suppliers The Board relies on a number of advisors for support in the successful
operation of the Company and in meeting its obligations. The Board therefore
considers the Investment Manager, Secretary/Administrator, Broker, Registrar,
Custodian and Depository to be stakeholders.
Key suppliers are required to report to the Board on a regular basis and, as
detailed on page 16, there is a robust framework in place to evaluate their
performance annually. The Company employs a collaborative approach and looks
to build long-term partnerships based on open terms of business and fair
payment terms.
The Secretary engages with key suppliers to ensure that services provided are
satisfactory.
Investee Companies The Board recognises the benefits of good communication with and stewardship
of investee companies and the importance of such in meeting the Company's
investment objective.
The Investment Manager meets with the management of companies in which the
Company has a significant interest and reports on findings to the Board
regularly.
Regulators As a company listed on the London Stock Exchange, the Board ensures compliance
with the necessary rules and regulations relevant to the Company in order to
build trust and maintain its reputation in the market.
Community and environment As discussed in more detail on pages 21 to 23 and throughout this report, in
pursuing the Company's objectives, various factors that may impact on
performance are considered. These may include environmental, social and
governance ('ESG') issues. The Board believes that poor practices can have an
impact on the value of investments and potential investments and consideration
of ESG factors as part of the investment process is therefore key.
Factoring Stakeholders into Principal Decisions
The Board defines principal decisions as not only those that are material to
the Company but also those that are significant to any of the Company's key
stakeholders as identified above. In making the following principal
decisions, the Board considered the outcome from its stakeholder engagement as
well as the need to maintain a reputation for high standards of business
conduct and the need to act fairly as between the members of the Company.
Principal Decision 1 Audit Tender
The Company conducted a competitive tender of its audit services during the
year under review led by the Audit, Risk and Compliance Committee. The result
of the tender process, described more fully on page 36, is that the Board
proposes the appointment of Ernst & Young LLP ('EY') as auditor for the
financial year ending 31st December 2024. The appointment is subject to
shareholder approval at the Annual General Meeting to be held on 27th March
2024. Resolutions concerning EY's appointment and remuneration will be
submitted to that meeting.
Principal Decision 2 Board Composition
On 31st August 2023 Mr D Best retired from the Board. Following his retirement
the Board undertook a detailed review of its own composition, including the
knowledge and experience therein. As a result of this review the Board
concluded that it was not necessary to increase the current number of
directors at present. The Board will continue to review its composition
annually or in the event of any further changes.
Principal Decision 3 Share buy-back programme
In August 2023 the Company announced a further extension of the share buyback
programme. The Board has authorised repurchases of shares up to a rolling £1
million per month until July 2024. The continuation of the programme is
designed to address the share price discount.
Principal Decision 4 Dividend Policy
The Board continues to operate a progressive dividend policy. Despite the
political and economic outlook, the Board has increased the annual dividend,
having paid and recommended dividends totalling 43.00p per share to
shareholders for the financial year ended 31st December 2023 (2022: 40.0p).
Principal Decision 5 Remuneration
During the year the Nominations and Remuneration Committee undertook a review
of the level of non-executive Directors' fees. The Committee considered the
level of fees relative to various benchmarks, together with the Company's
performance and the need to attract and retain directors of a high calibre.
The Committee concluded that Directors' fees should be increased by £1,250
for the Chair of the Audit, Risk and Compliance Committee, by £2,000 for the
Chairman and by £1,500 for each of the other non-executive directors with
effect from 1st January 2024 and that the fees should continue to be reviewed
annually to ensure that the levels of remuneration remain attractive to
current and prospective directors. On the recommendation of the Nominations
and Remuneration Committee the Board considered and approved the proposed
increase in Directors' fees.
Principal Decision 6 Management Engagement Committee
The Board monitors the Investment Manager's performance against the Company's
investment objective at each Board meeting. In addition, the Board took the
decision to establish a Management Engagement Committee in early 2023. The
Committee meets annually to review the contractual terms of the Investment
Management Agreement and the performance of the Investment Manager.
Principal Decision 7 Withdrawal of Share Split Resolution
The 2023 notice of Annual General Meeting ('AGM') contained a resolution
proposing that the Company's existing Ordinary shares of 25p each be
sub-divided into 10 new Ordinary shares of 2.5p each. The Directors believed
that the sub-division may improve the liquidity in and marketability of the
Company's shares for the benefit of all shareholders.
Following shareholder consultation subsequent to the AGM notice being
circulated to shareholders, the resolution to sub-divide the shares was
withdrawn from the business of the 2023 AGM. Having completed this further
consultation, the Board concluded that the benefits of the share split would
not be as far-reaching as originally anticipated. Consequently, there is no
intention to propose a sub-division of the shares in the foreseeable future.
Viability Statement
The Board reviews the performance and progress of the Company over five-year
periods and uses these assessments, regular investment performance updates
from the Investment Manager and a continuing programme of risk monitoring to
assess the future viability of the Company. The Directors consider that a
period of five years is a reasonable time horizon to consider the viability
of the Company. The Company also uses this period for its strategic planning.
The following facts support the Directors' view of the viability of the
Company:
■ The Company's portfolio comprises marketable smaller UK-listed and AIM
traded securities and has short term cash on deposit.
■ The Company does not use gearing.
■ The expenses of the Company were covered 3.5 times by investment income in
2023.
In order to maintain viability, the Company has a robust risk control
framework for the identification and mitigation of risk which is reviewed
regularly by Board. Consideration was also given to the principal risks and
uncertainties faced by the Company, as detailed on pages 21 to 23. The
Directors seek assurances from suppliers that their operations are well
managed and that they are taking appropriate action to monitor and mitigate
risk. The Board also considered the political and economic environment in
relation to the Company's investment positions, its future income streams and
its ability to continue trading.
Based on the above, the Directors confirm that they have a reasonable
expectation that the Company will be able to continue in operation and meet
its liabilities as they fall due over the period of their assessment.
Shareholder Communication
The Board is committed to maintaining open channels of communication with
shareholders. It is the Chairman's role to ensure effective communication with
the Company's shareholders and it is the responsibility of the Board to ensure
that satisfactory dialogue takes place, based on the mutual understanding of
objectives. The Board remains cognisant of the importance of clear
communications with shareholders and will respond to all reasonable requests
for information or meetings.
The Investment Manager maintains a regular dialogue with major shareholders
and reports to the Board. In the event that shareholders wish to raise issues
or concerns with the Directors, they are welcome to do so at any time via the
Company Secretary at cosec@maitlandgroup.com. (mailto:cosec@maitlandgroup.com)
The Annual Report and half-year results are circulated to shareholders wishing
to receive them and are available on the Company's website. These provide
shareholders with a clear understanding of the Company's portfolio and
financial position. This information is supplemented by the daily calculation
and publication of the NAV per share. Shareholders are encouraged to ask
questions either at the Annual General Meeting or via the Company Secretary.
Company's Directors and Employees
The number of directors at 31st December 2023 was four (2022: five).
2023 2022
Male Female Male Female
Directors (non-executive) 3 1 5 0
Other Employees 0 0 0 0
The Directors have considered the Strategic Report and believe that taken as a
whole it is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's performance and strategy.
The Strategic Report was approved by the Board and signed on its behalf by:
Dr Andrew J. Hosty
Chairman
20th February 2024
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and financial
statements in accordance with applicable United Kingdom law and UK adopted
International Accounting Standards.
The Directors are required to prepare the financial statements for each
financial year which present fairly the financial position, the financial
performance and cash flows of the Company for that period. In preparing those
financial statements the Directors are required to:
■ select suitable accounting policies in accordance with UK adopted
International Accounting Standard 8 Accounting Policies, Changes in Accounting
Estimates and Errors and then apply them consistently;
■ make judgments and 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 of UK adopted International Accounting Standards is insufficient
to enable users to understand the impact of particular transactions, other
events and conditions on the Company's financial position and financial
performance;
■ state that the Company has complied with UK adopted International
Accounting Standards 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 Company will continue in business.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the financial statements comply
with the Companies Act 2006. They are also responsible for safeguarding the
assets of the 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 Directors' Report, Strategic Report and Directors' Remuneration
Report 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 Company's website.
Visitors to the website need to be aware that legislation in the UK governing
the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
The Directors consider that the Annual Report and financial statements taken
as a whole are fair, balanced and understandable and provide shareholders with
the information necessary to assess the Company's position and performance,
business model and strategy.
The Directors confirm that to the best of their knowledge:
■ the financial statements, prepared in accordance with applicable
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
■ the Strategic Report includes a fair review of the development and
performance of the business and the position of the Company, together with a
description of the principal risks and uncertainties that it faces.
Dr A. J. Hosty
Chairman
20th February 2024
Statement of Comprehensive Income
for the year ended 31st December 2023
Notes
Year ended 31st December 2023 Year ended 31st December 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment income 2 3,999 - 3,999 3,633 - 3,633
Other operating income 2 94 - 94 19 - 19
Total income 4,093 - 4,093 3,652 - 3,652
Gains/(losses) on fair value through profit or loss assets 10 - 797 797 - (56,774) (56,774)
4,093 797 4,890 3,,652 (56,774) (56,774)
Expenses
Investment management fee 3 670 - 670 175 - 175
Other expenses 4 470 156 626 767 181 948
1,140 156 1,296 942 181 1,123
Profit/(losses) before finance costs and taxation 2,953 641 3,594 2,710 (56,955) (54,245)
Finance costs - - - - - -
Profit/(losses) before taxation 2,953 641 3,594 2,710 (56,955) (54,245)
Tax 6 - - - - - -
Profit/(losses) after taxation 2,953 641 3,594 2,710 (56,955) (54,245)
Return per Ordinary share 8 50.4p 11.0p 61.4p 38.9p (818.2)p (779.3)p
The total column represents the statement of comprehensive income of the
Company.
The revenue and capital columns, including the revenue and capital earnings
per Ordinary Share, are supplementary information prepared under guidance
published by the AIC.
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued during the period. All
income is attributable to the equity holders of the Company.
The Company does not have any other comprehensive income. Therefore no
separate Statement of Comprehensive Income has been presented.
Statement of Financial Position
as at 31st December 2023
31st December 31st December
2023 2022
Notes £'000 £'000
Non-current assets
Investments - fair value through profit or loss 10 129,994 134,447
Current assets
Other receivables 12 556 561
Cash and cash equivalents 1,051 6,039
1,607 6,600
Total assets 131,601 141,047
Current liabilities
Other payables 13 242 264
Total assets less current liabilities 131,359 140,783
Net assets 131,359 140,783
Equity attributable to equity holders
Called up share capital 14 1,405 1,542
Capital redemption reserve 15 850 713
Retained reserves:
Capital reserve 15 84,416 67,191
Revaluation reserve 15 41,873 69,032
Revenue reserve 15 2,815 2,305
Total equity shareholders' funds 131,359 140,783
Net asset value per share
Ordinary shares 16 2,337.1p 2283.2p
The accompanying notes form part of these financial statements.
The financial statements were approved by the Board and authorised for issue
on 20th February 2024. They were signed on its behalf by:
Dr A. J. Hosty
Chairman
Statement of Changes in Equity
for the year ended 31st December 2023
Share capital Capital Redemption Capital reserve Revaluation reserve Revenue reserve Total
£'000 reserve £'000 £'000 £'000 £'000
£'000
For the year ended 31st December 2023
Balance at 31st December 2022 1,542 713 67,191 69,032 2,305 140,783
Profit/(loss) for the year - - 27,800 (27,159) 2,953 3,594
Ordinary shares bought back and cancelled (137) 137 (10,575) - - (10,575)
Dividends (Note 7) - - - - (2,443) (2,443)
Balance at 31st December 2023 1,405 850 84,416 41,873 2,815 131,359
Share capital Capital Redemption Capital reserve Revaluation reserve Revenue reserve Total
£'000 reserve £'000 £'000 £'000 £'000
£'000
For the year ended 31st December 2022
Balance at 31st December 2021 1,842 413 81,410 137,959 2,108 223,732
Profit/(loss) for the year - - 11,972 (68,927) 2,710 (54,245)
Ordinary shares bought back and cancelled (300) 300 (10,838) - - (10,838)
Tender offer - - (15,111) - - (15,111)
Tender offer costs - - (242) - - (242)
Dividends (Note 7) - - - - (2,513) (2,513)
Balance at 31st December 2022 1,542 713 67,191 69,032 2,305 140,783
The accompanying notes form part of these financial statements.
Dividends paid were paid from the revenue reserve.
Cash Flow Statement
for the year ended 31st December 2023
Notes 31st December 2023 31st December 2022
£'000 £'000
Cashflows from operating activities
(Profit/(loss) before tax 3,594 (54,245)
Adjustments for:
Gains/(losses) on investments (797) 56,774
Purchases of investments 10 (30,042) (24,439)
Proceeds on disposal of investments 10 35,292 29,615
Operating cash flows before movements in working capital 8,047 7,705
Decrease in receivables 5 80
(Decrease)/increase in payables (22) 197
Net cash from operating activities before income taxes 8,030 7,982
Income taxes received - -
Net cashflows from operating activities 8,030 7,982
Cashflows from financing activities
Ordinary shares bought back (10,575) (10,838)
Tender offer - (15,111)
Tender costs paid - (242)
Dividends paid 7 (2,443) (2,513)
Net cash used in financing activities (13,018) (28,704)
Net decrease in cash and cash equivalents (4,988) (20,722)
Cash and cash equivalents at beginning of year 6,039 26,761
Cash and cash equivalents at end of year 1,051 6,039
The accompanying notes form part of these financial statements.
Notes to the Financial Statements
for the year ended 31st December 2023
1. Reporting Entity
Rights and Issues Investment Trust PLC is a closed-ended investment company,
registered in England and Wales on 2nd October 1962 with Company number
00736898. The Company's registered office is Hamilton Centre, Rodney Way,
Chelmsford CM1 3BY. Business operations commenced on 28th July 1966 when the
Company's shares were admitted to trading on the London Stock Exchange. The
Company invests primarily in a portfolio of equity securities with an emphasis
on smaller companies. UK smaller companies will normally constitute at least
80% of the investment portfolio. UK smaller companies include both listed
securities and those admitted to trading on the Alternative Investment Market
("AIM").
Details of the Directors, Investment Manager and Advisors can be found on page
4 of the Annual Report.
The financial statements of the Company are presented for the year ended 31st
December 2023 and were authorised for issue by the Board on 20th February
2024.
Basis of Accounting
The financial statements have been prepared in accordance with UK-adopted
international standards and the applicable legal requirements of the Companies
Act 2006.
In preparing these Financial Statements, the Directors have considered the
impact of climate change risk and concluded there was no impact as the values
of investments are based on market quoted prices. None of the Company's other
assets and liabilities are considered to be potentially impacted by climate
change.
Under UK-adopted International Accounting Standards, the AIC Statement of
Recommended Practice "Financial Statements of Investment Trust Companies and
Venture Capital Trusts" ("SORP") issued in April 2021 has no formal status,
but the Company adheres to the guidance of the SORP.
Going concern
The financial statements have been prepared on a going concern basis. In
forming this opinion, the Directors have considered the general economic
backdrop, the potential impact of the war in Ukraine and the escalating
hostilities in the Middle East on the going concern and viability of the
Company. In making their assessment, the Directors have reviewed income and
expense projections and the liquidity of the investment portfolio, and
considered the mitigation measures which key service providers, including the
Investment Manager, have in place to maintain operational resilience.
The Directors have a reasonable expectation that the Company has adequate
operational resources to continue in operational existence for at least twelve
months from the date of approval of these financial statements. Further
information on the Company's going concern can be found on page 29.
Significant accounting policies
a. Accounting convention
The accounts are prepared under the historical cost basis, except for the
measurement of fair value of investments.
b. Adoption of new IFRS standards
In accordance with IFRS 10 (Investment Entities Amendments), the Company
measured its subsidiary at fair value through profit and loss and did not
consolidate it. The subsidiary was dissolved on 26th April 2022.
There have been minor amendments to IAS 1 and 8 and IFRS 4 and 17 which were
effective for annual periods beginning on or after 1st January 2023 and have
not had any material impact on the accounts. Amendments to IAS 1 (Non-current
Liabilities with Covenants), IAS 7 and IFRS 7 (Supplier Finance Arrangements)
and IFRS 16 (Lease Liability in a Sale and Leaseback) are effective for annual
periods beginning on or after 1st January 2024 and are not anticipated to have
any material impact on the accounts.
c. Income
Dividend income is included in the financial statements on the ex-dividend
date. All other income is included on an accruals basis.
d. Expenses
All expenses are accounted for on an accruals basis. Expenses are charged
through the revenue account except as follows:
■ Expenses which are incidental to the acquisition of an investment are
included within the cost of the investment.
■ Expenses which are incidental to the disposal of an investment are
deducted from the disposal proceeds of the investment.
e. Taxation
The charge for taxation is based on the net revenue for the year. Deferred
taxation is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date. Investment trusts which
have approval under section 1158 of the Corporation Tax Act 2010 are not
liable for taxation on capital gains.
f. Dividends
Dividends payable to shareholders are recognised in the financial statements
when they are paid or, in the case of final dividends, when they are approved
by the shareholders.
g. Cash and cash equivalents
Cash comprises cash in hand and deposits payable on demand. Cash equivalents
are short-term highly liquid investments that are readily convertible to known
amounts of cash.
h. Investments
Investments are classified as fair value through profit or loss as the
Company's business is investing in financial assets with a view to profiting
from their total return in the form of interest, dividends or capital growth.
Changes in the value of investments held at fair value through profit or loss
and gains and losses on disposal are recognised in the Income Statement as
"Gains or losses on investments held at fair value through profit or loss".
Also included within this heading are transaction costs in relation to the
purchase or sale of investments.
All investments, classified as fair value through profit or loss, are
further categorised into the following fair value hierarchy:
Level 1 - Unadjusted prices quoted in active markets for identical assets and
liabilities.
Level 2 - Having inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (ie as prices) or
indirectly (ie derived from prices).
Level 3 - Having inputs for the asset or liability that are not based on
observable data.
Investments traded on active stock exchange markets are valued at their fair
value, which is determined by the quoted market bid price at the close of
business at the balance sheet date. Where trading in a security is suspended,
the investment is valued at the Board's estimate of its fair value.
Unquoted investments are valued by the Board at fair value using the
International Private Equity and Venture Capital Valuation Guidelines.
Judgments, estimates or assumptions
The Directors have reviewed matters requiring judgments, estimates or
assumptions. The preparation of the financial statements require management
to make judgments, estimates or assumptions that affect the amounts reported
for assets and liabilities as at the year end date and the amounts reported
for revenue and expenses during the year. However, the nature of the estimate
means that actual outcomes could differ from those estimates. No significant
judgments, estimates or assumptions have been made in the preparation of these
financial statements.
2. Income
2023 2022
£'000 £'000
Income from investments
Franked investment income 3,999 3,633
Other operating income
Deposit interest 94 19
Total income 4,093 3,652
Income from investments
UK 3,990 3,617
Unlisted stock 9 16
Total 3,999 3,633
3. Investment Management fee
2023 2022
£'000 £'000
Investment management fee 804 210
Operating expenses rebate (134) (35)
Total 670 175
Following the appointment of Jupiter as Investment Manager on 3rd October 2022
a management fee is payable quarterly to the Investment Manager on the
following basis:
0.60% per cent per annum on the Company's NAV up to and including £200
million.
0.50% per cent per annum on the Company's NAV in excess of £200 million.
An operating expenses cap (rebate) will be applied, in respect of each
financial year by means of a balancing charge, which will reduce the
management fee payable to the Investment Manager with respect to the quarter
ending 31st March of the following financial year. It will apply for a period
of 5 years with effect from 3rd October 2022. The operating expenses cap will
not apply to the extent that the management fee would be less than 0.50% of
the Company's average daily NAV during any financial year. The Manager and
the Board will review the operating expenses cap at least annually to
determine whether the level of the cap remains appropriate.
4. Other Expenses
2023 2022
£'000 £'000
Staff costs (note 5) 4 227
Non-executive Directors' fees 147 136
Administration fees 94 122
Auditor's remuneration
- Audit 19 18
- Review of the half yearly report - 5
Secretarial services 42 42
Other 164 217
470 767
Capital expenses 156 181
Total 626 948
5. Staff Costs and Directors' Remuneration
2023 2022
£'000 £'000
Wages and salaries - 191
Social security costs 4 36
Total 4 227
2023 2022
number number
The average number of staff employed by the Company was - 1
2023 2022
£'000 £'000
Directors' emoluments 139 327
Payments to former directors 8 -
147 327
The Company has not had any employees since the appointment of JUTM as
Investment Manager on 3rd October 2022. Prior to this the highest paid
Director, being the Investment Director, received total emoluments of
£191,250 covering the period 1st January 2022 to 3rd October 2022.
5. Taxation
2023 2022
2022 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Corporation tax at 23.5% (2022: 19.00%) - - - - - -
Profit before tax 2,953 641 3,594 2,710 (56,955) (54,245)
Tax on profit at effective rate 23.5% (2022:19.0%) 694 151 845 515 (10,821) (10,306)
Factors affecting the recovery/charge for the year:
Income not taxable (940) - (940) (690) - (690)
Capital items not taxable - (187) (187) - 10,787 10,787
Unutilised losses 246 36 282 175 34 209
Current tax charge for the year - - - - - -
At the year end there is a potential deferred tax asset of £2,214,810 (2022:
£1,953,135) in relation to surplus management expenses of £8,859,238 (2022:
£7,812,538). It is unlikely that the Company will generate sufficient taxable
profits in the future to utilise these expenses and therefore no deferred tax
asset has been recognised in the year. The Company has not provided for
deferred tax on capital gains or losses arising on the revaluation or disposal
of investments as it is exempt from tax on these items because of its status
as an investment trust company.
Factors that may affect future tax charges
The Company has not recognised any deferred tax asset arising as a result of
having unutilised management expenses. These expenses will only be utilised if
the tax treatment of the Company's income and capital gains changes or if the
Company's investment profile changes.
7. Dividends
Amounts recognised as distributions to equity holders in the year:
2023 2022
£'000 £'000
Paid
Final dividend for the year ended 31st December 2022 of 29.25p per share 1,767 1,752
(year ended 31st December 2021: 24.0p)
Interim dividend for the year ended 31st December 2023 of 11.75p per share 676 761
(year ended 31st December 2022: 10.75p)
2,443 2,513
2023 2022
£'000 £'000
Proposed
Final dividend payable for the year ended 31st December 2023 of 31.25p 1,720 1,781
per share (year ended 31st December 2022: 29.25)
The final dividend is subject to approval by shareholders at the Annual
General Meeting and has not been included as a liability in these financial
statements.
Set out below is the total dividend paid and payable in respect of the
financial year, which is the basis on which the requirements of section 1158
of the Corporation Tax Act 2010 are considered.
2023 2022
£'000 £'000
Revenue available for distribution by way of dividend for the year 2,953 2,710
Interim dividend for the year ended 31st December 2023 of 11.75p per share (676) (761)
(year ended 31st December 2022: 10.75p)
Proposed final dividend for the year ended 31st December 2023 of 31.25p per (1,720) (1,781)
share
(year ended 31st December 2022: 29.25p)
Net addition to Revenue reserve 557 168
8. Return per Ordinary Share
2023 2022
Income Income
£'000 £'000
Return attributable to equity shareholders
Revenue return 2,953 2,710
Capital return 641 (56,955)
3,594 (54,245)
p p
Revenue return per share 50.4 38.9
Capital return per share 11.0 (818.2)
61.4 (779.3)
Return per Ordinary share is calculated using the weighted average number of
Ordinary shares in issue during the year of 5,854,307 (2022: 6,960,445).
9. Investments
Analysis of the investments
The number of companies or institutions in which equities, convertibles or
fixed interest securities were held was 22 (2022: 22).
2023 2022
£'000 % £'000 %
Equity Groups
Basic Materials
Chemicals 6,444 4.96 12,535 9.32
Industrial Metals and Mining 9,969 7.67 14,606 10.86
Consumer Staples
Food Producers 4,617 3.55 5,629 4.19
Financials
Finance and Credit Services 6,501 5.00 - -
Industrials
Construction and Materials 4,319 3.32 - -
Electronic and Electrical Equipment 10,504 8.08 8,482 6.31
General Industrials 13,666 10.51 17,509 13.02
Industrial Engineering 9,607 7.39 16,776 12.48
Industrial Support Services 3,806 2.93 7,512 5.59
Industrial Transportation 14,906 11.47 16,170 12.03
Technology
Software and Computer Services 2,714 2.09 - -
Telecommunications
Telecommunications Equipment 1,869 1.44 - -
Telecommunications Service Providers 7,401 5.69 5,774 4.29
AIM Traded Stocks 33,630 25.87 28,873 21.48
Unlisted 41 0.03 41 0.03
Fixed Interest
Preference - - 540 0.40
Total UK 129,994 100.00 134,447 100.00
The figures for 2022 have been reworked based on the latest categories as per
the latest FTSE categorization.
10. Investments held at fair value through profit or loss
2023 2022
£'000 £'000
Investments listed on a recognised investment exchange
UK equity listed investments at fair value 96,323 105,533
AIM traded stocks 33,630 28,873
Unlisted stock 41 41
129,994 134,447
Listed Total
2023 AIM traded/ Unlisted 2023
£'000 2023 £'000
£'000
Opening book cost 42,717 22,698 65,415
Opening unrealised appreciation 62,816 6,216 69,032
Opening valuation 105,533 28,914 134,447
Purchases at cost 25,715 4,327 30,042
Sales - proceeds (29,931) (5,361) (35,292)
Sales - realised gains on sales 25,411 2,545 27,956
(Decrease)/increase) in unrealised appreciation (30,405) 3,246 (27,159)
Market value of investments at end of year 96,323 33,671 129,994
Closing book cost 63,912 24,209 88,121
Closing unrealised appreciation 32,411 9,462 41,873
96,323 33,671 129,994
Realised gains on sales 25,411 2,545 27,956
(Decrease)/increase in unrealised appreciation (30,405) 3,246 (27,159)
Gains on investments (4,994) 5,791 797
With the exception of the unlisted stock, the Company's investments are Level
1 assets under the definition of IFRS 13 and comprise equity listed and AIM
traded investments classified as held at fair value through profit or loss.
Investments have been revalued over time and, until they are sold, any
unrealised gains or losses are included in the fair value movement on
investments.
During the year transaction costs of £133,196 were incurred on the
acquisition of investments (2022: £118,699). Costs relating to disposals of
investments during the year amounted to £14,624 (2022: £26,614). All
transaction costs have been included within the capital column of the Income
Statement.
11. Significant Interests
The Company has a holding of 3% or more that is material in the context of the
financial statements in the following investments as at 31st December 2023:
Name % holding
Colefax 16.97
Renold 12.75
Macfarlane 7.35
Vp 5.99
Eleco 5.43
Carr's 5.05
12. Other Receivables
2023 2022
£'000 £'000
Prepayments and accrued income 556 561
13. Other payables
2023 2022
£'000 £'000
Accruals 242 264
14. Share Capital
2023 2022
Allotted, Called Up and Fully Paid £'000 £'000
5,620,684 Ordinary shares of 25p each (2022: 6,165,989) 1,542 1,842
Number of Ordinary
shares
2023
Balance at beginning of year 6,165,989
Ordinary shares bought back and cancelled (545,305)
Balance at end of year 5,620,684
15. Reserves
Capital redemption reserve Capital Revaluation reserve Revenue reserve
reserve
£'000
£'000 £'000
£'000
Beginning of year 713 67,191 69,032 2,305
Ordinary shares bought back and cancelled 137 (10,575) - -
Decrease in unrealised appreciation - - (27,159) -
Net gains on realisation of investments - 27,956 - -
Expenses - (156) - -
Profit for year - - - 2,953
Dividends - - - (2,443)
End of year 850 84,416 41,873 2,815
The capital reserve represents realised profits and losses arising on the
disposal of investments. The revaluation reserve represents unrealised
profits and losses arising on the revaluation of investments held. The
revenue reserve represents accumulated revenue less the distributions paid.
Both the capital reserve and revenue reserve together represent the total
distributable reserves at the year end.
16. Net Asset Value per share
The net asset value per Ordinary share calculated in accordance with the
Articles of Association was as follows:
Net asset value per Net asset value attributable
Ordinary share attributable
2023 2022 2023 2022
p p £'000 £'000
Ordinary shares 2337.1 2283.2 131,359 140,783
The movements during the year were as follows:
Ordinary
shares
£'000
Total net assets attributable at beginning of year 140,783
Shares bought back and cancelled (10,575)
Total recognised gains for the year 641
Transfer to reserves 510
Total net assets attributable at end of year 131,359
Number of Ordinary shares in issue 5,620,684
The Company may repurchase its own shares and then cancel them, reducing the
freely traded shares ranking for dividends and enhancing returns and earnings
per Ordinary Share to the remaining Shareholders. When the Company repurchases
its share, it does so at a total cost below the prevailing NAV per share.
The estimated percentage added to the NAV per share as a result of buybacks of
1.6% (2022: 0.9%) is derived from the repurchase of shares in the market at a
discount to the prevailing NAV at the point of repurchase. The shares were
bought back at a weighted average discount of 16.0% (2022: 12.9%).
2023 2022
Weighted average discount of buybacks 16.0% 12.9% a
Percentage of shares bought back 8.8% 6.7% b
NAV accretion from buyback 1.6% 0.9% (a*b)/(100-b)
17. Related Party Transactions
Fees payable during the year to the Directors and their interests in shares of
the Company are considered to be related party transactions. Details are
disclosed within the Directors' Remuneration Report on pages 38 to 40. The
balance of fees due to Directors at the year end was £nil (2022: £nil).
The Company has an agreement with Jupiter Unit Trust Managers Limited for the
provision of Investment Management services. Details of fees earned during the
year and balances outstanding at the year end are disclosed in note 3.
On 26th April 2022 the Company's only subsidiary, Discretionary Unit Fund
Managers, was dissolved. There were no transactions during the year relating
to the subsidiary.
18. Financial assets and liabilities
The Company's financial instruments comprise securities, cash balances and
debtors and creditors that arise from its operations, for example, in respect
of sales and purchases awaiting settlement and debtors for accrued income.
The investment policy and objectives of the Company are stated on page 1.
As an investment trust, the Company invests in securities for the long term.
Accordingly it is and has been throughout the year under review, the Company's
policy that no short term trading in investments or other financial
instruments should be undertaken.
The main risks arising from the Company's financial instruments are market
price risk, liquidity risk and credit risk. The Board's policy for managing
these risks is summarised below. These policies have remained unchanged since
the beginning of the year to which these financial statements relate.
Market price risk
Market price risk arises from uncertainty about future prices of financial
instruments held. It represents the potential loss the Company might suffer
through holding market positions in the face of price movements. The Board
meets at least quarterly to consider the asset allocation of the portfolio in
order to minimise the risk associated with industry sectors. The Investment
Manager has responsibility for monitoring the existing portfolio selected in
accordance with the Company's investment objectives and seeks to ensure that
individual stocks meet an acceptable risk-reward profile.
The Company's exposure to changes in market prices at 31st December 2023 on
its quoted equity investments was £129,953,000 (2022: £134,406,000).
Liquidity risk
Liquidity risk is the possibility of the Company having difficulties in
realising sufficient assets to meet its financial obligations. All
investments are made in quoted securities, which are normally listed on the
London Stock Exchange or AIM. Transactions in these securities may be subject
to some short-term liquidity constraint, in common with other smaller and
medium sized listed securities, but subject to that they are considered to be
reasonably realisable.
Interest rate risk
The Company has limited exposure to Interest Rate risk on the underlying
investments held. The only exposure to interest rate risk is from cash held at
bank of £1,051,000 (2022: £6,039,000).
Credit risk
Credit risk is the failure of the counterparty to a transaction to discharge
its obligations which could result in the Company suffering a loss. At the
year end the Company's maximum exposure to credit risk was as follows:
2023 2022
£'000 £'000
Receivables 556 561
Cash and cash equivalents 1,051 6,039
1,607 6,600
The risk is managed by dealing only with brokers and banks which have
satisfactory credit ratings and are approved by the Audit, Risk and Compliance
Committee.
Financial assets and liabilities
All assets and liabilities are included at fair value.
Valuation of financial instruments
IFRS 13 requires the Company to classify fair value measurements using a fair
value hierarchy that reflects the significance of inputs used in making the
measurements. The valuation techniques used by the Company are explained in
the accounting policies note 1h Investments.
The fair value hierarchy has the following levels:
Level 1 - Unadjusted prices quoted in active markets for identical assets and
liabilities.
Level 2 - Having inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (ie as prices) or
indirectly (ie derived from prices).
Level 3 - Having inputs for the asset or liability that are not based on
observable data.
31st December 2023 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Financial assets at fair value through profit or loss
UK Equity Listed 96,323 - -
96,323
AIM traded stocks 33,630 - -
33,630
Unlisted stock - 41 -
41
Net fair value 129,953 41 -
129,994
31st December 2022 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Financial assets at fair value through profit or loss
UK Equity Listed 105,533 - -
105,533
AIM traded stocks 28,873 - -
28,873
Unlisted stock - 41 -
41
Net fair value 134,406 41 -
134,447
There were no transfers between Level 1 and Level 2 during the period.
19. Post Balance Sheet Events
Between the year end and 16th February 2024, the latest practicable date
before the publication of the financial statements, the Company has bought
back and cancelled 122,046 Ordinary shares for a cost of £2,547,000.
A copy of the Company's Annual Report for the year ended 31st December 2023
will shortly be available to view and download from the Company's website
www.jupiteram.com/ uk/en/individual/rights-and-issues-investment-trust-plc
Printed copies of the Annual Report will be sent to those shareholders
electing to receive hard copies shortly. Additional copies may be obtained
from the Company Secretary - Apex Fund Administration Services (UK) Limited,
Hamilton Centre, Rodney Way, Chelmsford, Essex CM1 3BY.
The Annual General Meeting of the Company will be held in the Zig Zag
Building, 70 Victoria Street, London SW1E 6SQ on 27th March 2023, at 12 noon.
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