REG - RIT Cap. Partners - Final Results
05/03/2024 07:00
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RNS Number : 5430F RIT Capital Partners PLC 05 March 2024
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5 March 2024
RIT Capital Partners plc
("RIT" or the "Company")
Results for the year ended 31 December 2023
RIT's disciplined, flexible model well placed to deliver long-term capital
growth
FINANCIAL HIGHLIGHTS
· Net Asset Value (NAV) per share of 2,426 pence at 31 December 2023.
· NAV per share total return of +3.2% for the year.
· Total net assets stood at £3.6 billion at year end.
· Quoted equities delivered strong performance, returning +18.1% for the year.
· Uncorrelated strategies produced solid returns, led by credit positions
returning double digits.
· Private investments declined modestly, partly due to lagged valuations for
funds in respect of Q4 2022. Private investments are by their nature long term
- over five years, this book has yielded a +145.7% return, enhancing NAV by
+28.8%.
· Currencies detracted modestly, due to translation effects from sterling's rise
in the year.
· Profit for the year of £66.1 million.
· Balance sheet remained robust. Gearing was 3.5% at year end, versus 6.2% in
2022. Repaid £150 million credit facility and reduced overall debt amid
higher interest rates.
· Ongoing Charges Figure (OCF) of 0.77% in 2023, compared to 0.89% in 2022.
CAPITAL ALLOCATION
· Returned £220 million of capital to shareholders through dividends and
buybacks.
· Bought back £163 million or 8.6 million RIT shares, adding +1.2% to the NAV
per share.
· Board intends to pay a dividend of 39 pence per share in 2024 in two equal
instalments, in April and October, a 2.6% increase over the previous year.
GENERAL
· The discount widened to -22%, alongside much of the investment company sector.
The Board is intently focused on narrowing this discount over time.
· In the last 10 years, RIT has generated a NAV per share total return of
approximately +109%, more than doubling shareholders' capital.
· Since listing, the share price total return has compounded at 10.6% per annum,
and the NAV per share total return at 10.5% per annum, compared to the ACWI at
7.3%.
· Over the same period, RIT has participated in 74% of monthly market increases
but only 41% of market declines.
· £10,000 invested in RIT at inception in 1988 would be worth £351,000 today
compared to the same amount invested in the ACWI which would be worth
£123,000.
· Maggie Fanari joined the Manager as its new CEO on 1 March. She brings an
exceptional track record and joins an experienced team, including CIO Nick
Khuu, who are well placed to continue RIT's long-term track record of success.
FINANCIAL SUMMARY
2023 2022 Return / Change
NAV per share(1) 2,426 pence 2,388 pence 3.2%(2)
Share price 1,882 pence 2,125 pence -9.6%(2)
Premium/(discount) -22.4% -11.0% -11.4% pts
Net assets £3,573 million £3,722 million -4.0%
Gearing 3.5% 6.2% -2.7% pts
OCF for the year 0.77% 0.89% -0.12% pts
Total dividend in year 38.0 pence 37.0 pence 2.7%
Total buybacks in year £163 million £11 million 1,382%
(1) The final audited NAV per share as 31 December 2023 is unchanged from the
preliminary unaudited NAV per share published by the Company on 7 February
2024.
(2) Total return for the year, with dividends reinvested.
PORTFOLIO SUMMARY
A diversified, global portfolio invested for the long term across three key
pillars:
Quoted equities: 38.4% of NAV
· Strong performance from the book, returning +18.1%.
· Significant outperformance versus the MSCI ACWI Equal Weighted Index, which
rose +9.4%, and the MSCI World excluding the 'magnificent seven', which gained
+12%.
· Returns driven by strong stock selection, including Builders FirstSource and
Talen Energy.
· Solid performance from specialist managers focused on Japan and healthcare.
Private investments: 35.9% of NAV
· Private investments declined -6.0%, partly due to lagged Q4 2022 valuations
received for our private funds. This follows exceptional gains for the book in
recent years.
· Continued focus on liquidity. Sales from three direct holdings - Infinity
(final cash received in early 2024), Paxos and Animoca - all at prices at or
above our carrying value.
· We expect allocation to this book to reduce further over time through
realisations. Several large holdings are actively exploring IPOs and/or
secondary sales.
· Majority of our largest direct holdings are profitable with growing revenues
and earnings. Majority also benefit from structural protection for our
capital.
· Private investments remain an exceptional contributor. In last 10 years, new
direct investments have generated a +29% compound return. Over the same
period, new direct investments and fund commitments have delivered a compound
return of +20% per annum.
Uncorrelated strategies: 25.6% of NAV
· Uncorrelated strategies delivered healthy performance of +6.8%, led by credit
funds returning double digits against a backdrop of significant volatility.
· Absolute return and credit (more than 80% of this book at year end) returned a
healthy +9.2%.
· Strong performance of gold, held through derivatives, added +0.4% to NAV,
serving as an asymmetric hedge against the increasing probability of
broad-based market dislocation.
· New investment in California carbon credits also delivered healthy returns
during the year.
OUTLOOK
· In 2024, we are navigating conflicting macro signs. US GDP estimates are
rising, but some credit indicators are declining. Geopolitical risks persist
and many assets appear fully valued.
· Despite these conditions, we believe numerous individual assets trade at
appealing prices.
· In quoted equities, we see numerous areas to deploy long-term capital, such as
small to medium-capitalisation stocks that are often overlooked, or in
'event-driven' stocks.
· In private investments, we see strong operating performance, and broader
tailwinds driven by the digital transition. The reopening of the IPO markets
may also serve as a near-term catalyst.
· In uncorrelated strategies, we see opportunities in corporate credit markets,
with the potential to generate double-digit returns via quality credits, with
limited risk to our capital.
· RIT's competitive edge, which combines in-house expertise, a flexible capital
structure, and access to unique, compelling investment opportunities globally,
leaves us well positioned to deliver healthy capital appreciation with
attractive risk-reward characteristics.
Sir James Leigh-Pemberton, Chairman of RIT Capital Partners plc, said:
"Our net asset value per share finished the year at 2,426 pence, representing
a total return (including dividends) of 3.2%... This brings our 10-year
performance to 109%, a more than doubling of shareholders' capital over the
period… Our portfolio is made up of high-conviction investments with
differing characteristics and return drivers…
While the most important driver of our share price performance over the long
term is our NAV, the Board is also intensely focused on the rating of our
shares... Discounts for investment trusts widened considerably, and our
discount was no exception ending the year at -22%... The Board and our Manager
have been, and continue to be, acutely focused on closing the discount...
I would like to thank my colleagues on the Board, and our talented and
dedicated employees for their hard work and commitment throughout the year.
This diverse group shares a single aim - creating long-term value for RIT's
shareholders... We have the flexibility to select the best investments across
any asset class, sector or geography, coupled with the strength of our network
which opens doors to opportunities that others cannot access. These remain
important differentiators on which we will continue to build for the future."
Nick Khuu, Chief Investment Officer of JRCM, said:
"In the face of challenges posed by rising interest rates early in the year,
geopolitical unrest, and bank collapses, major indices recorded robust gains
in 2023. A substantial portion of these gains was attributable to a select few
mega-cap technology companies, overshadowing more modest returns in other
sectors...
The positive drivers of our portfolio's performance in 2023, including
high-quality stock picking, strategic geographic exposure, and the agility of
our credit managers, is illustrative of how our portfolio can perform.
Whatever the market challenges, our proactive approach to navigate these
complexities sets the stage for continued thoughtful and resilient portfolio
management in the coming period...
We believe RIT's competitive edge is derived from our in-house expertise, our
capital structure - enabling a nimble and flexible investment approach - as
well as our unique access and ability to foster deep, long-term specialist
partnerships. As the market enters a more idiosyncratic phase, we recognise
that careful stock picking and asset selection exercised within our robust
risk management framework, will be key to delivering performance."
About RIT Capital Partners plc
RIT's corporate objective is to deliver long-term capital growth, while
preserving shareholders' capital; to invest without the constraints of a
formal benchmark, but to deliver for shareholders increases in capital value
in excess of the relevant indices over time.
For more information
J. Rothschild Capital Management (Manager):
T: 020 7647 8565
E: investorrelations@ritcap.co.uk (mailto:investorrelations@ritcap.co.uk)
Numis (Joint broker):
David Benda
T: 020 7260 1000
JP Morgan Cazenove (Joint broker):
William Simmonds
T: 020 3493 8000
Brunswick Group LLP (Media enquiries):
Nick Cosgrove, Tom Burns
T: 020 7404 5959
E: RIT@BrunswickGroup.com (mailto:RIT@BrunswickGroup.com)
www.ritcap.com (http://www.ritcap.com)
A description of all terms used above, including further information on the
calculation of Alternative Performance Measures (APMs) is set out in the
Glossary and APMs section at the end of this RNS.
The following is extracted from the Company's Report and Accounts
Company Highlights
Performance for the year 2023
RIT NAV per share total return(1) 3.2%
CPI plus 3.0% 7.0%
MSCI All Country World Index (ACWI) 18.4%
RIT share price total return(1) -9.6%
FTSE 250 Index(2) 8.0%
Key data 2023 2022 Change
NAV per share 2,426 pence 2,388 pence 1.6%
Share price 1,882 pence 2,125 pence -11.4%
Premium/(discount) -22.4% -11.0% -11.4% pts
Net assets £3,573 million £3,722 million -4.0%
Gearing(1) 3.5% 6.2% -2.7% pts
Average net quoted equity exposure 39% 38% 1% pts
Ongoing Charges Figure for the year(1) 0.77% 0.89% -0.12% pts
First interim dividend (April) 19.0 pence 18.5 pence 2.7%
Second interim dividend (October) 19.0 pence 18.5 pence 2.7%
Total dividend in year 38.0 pence 37.0 pence 2.7%
Performance history 3 Years 5 Years 10 Years Since inception
RIT NAV per share total return(1) 10.6% 44.2% 108.8% 3,343%
CPI plus 3.0% per annum 31.7% 42.2% 77.0% 637%
MSCI All Country World Index 23.5% 71.0% 147.4% 1,126%
RIT share price total return(1) -4.1% 7.5% 78.7% 3,407%
FTSE 250 Index(2) 4.3% 28.3% 61.2% 1,607%
A description of the terms used in this report, including further information
on the calculation of Alternative Performance Measures (APMs), is set out in
the Glossary and APMs section.
(1) The Group's designated APMs are the NAV per share total return, share price
total return, gearing and the ongoing charges figure.
(2) RIT's shares are a constituent of the FTSE 250 Index, which is not considered
a Key Performance Indicator (KPI).
CHAIRMAN'S STATEMENT
Sir James Leigh-Pemberton
In the first half of 2023, most major indices traded in a relatively narrow
range, punctuated by periods of weakness and recovery. As the year progressed,
a belief that interest rates may have peaked led to a rebound in developed
world equity markets, which was particularly marked in the fourth quarter. US
equity markets finished the year strongly, buoyed by a small number of very
large technology companies. These so-called 'magnificent seven' tech stocks
accounted for the majority of the S&P 500's gains. Excluding these few
companies, the overall market returns were more modest.
Our net asset value per share finished the year at 2,426 pence, representing a
total return (including dividends) of 3.2%, lagging our investment hurdles of
CPI+3%, which was up 7.0%, and the MSCI ACWI (50% sterling) which rose 18.4%.
This brings our 10-year performance to 109%, a more than doubling of
shareholders' capital over the period. Our investment portfolio is structured
around three core pillars of quoted equities, private investments, and
uncorrelated strategies. During 2023, the portfolio saw good performance from
quoted equities, driven primarily by our successful single stock selection and
exposure to Japan. Uncorrelated strategies also made a positive contribution,
helped by the outperformance of our credit managers, as well as our
investments in carbon credits. However, the value of our private investments
softened, reflecting lower valuations of external funds carried over from the
fourth quarter of 2022 and our carefully considered revaluation of our direct
investments. Currency was also a headwind; the pound's appreciation of some
5% against the US dollar over the year impacting the translated value of our
global investments.
Our portfolio is made up of high-conviction investments with differing
characteristics and return drivers. While there will be times when not all
asset classes meet our long-term expectations, we remain committed to our
diversified approach. Our belief is that utilising a carefully constructed
blend of different assets, overlaid with a top-down risk management function,
remains the best way to manage our investments for the long-term benefit of
shareholders. Our Manager's Report from J. Rothschild Capital Management
(JRCM or the Manager) provides a detailed review of investment performance,
attribution, positioning and risk management.
While the most important driver of our share price performance over the long
term is our NAV, the Board is also intensely focused on the rating of our
shares, and in this regard 2023 was a difficult year. Discounts for investment
trusts widened considerably, and our discount was no exception ending the year
at -22%, resulting in a total shareholder return (including dividends) of
-9.6%. This is a source of frustration to our shareholders, as well as to the
Board and our Manager. Directors' shareholdings are disclosed in this Report
and our colleagues in our Manager also have significant 'skin in the game',
with interests in approximately £18 million RIT shares at the year end,
reinforcing the close alignment with shareholders' interests. The Board and
our Manager have been, and continue to be, acutely focused on closing the
discount.
During 2023, we increased the level of our interactions with shareholders, and
I am very grateful for their candid and thoughtful feedback in these
discussions, which has been very helpful in guiding our plans to reduce the
discount. I address below four core topics: private investments, capital
allocation, costs and marketing.
Private investments are currently out of favour with investors, and discounts
for trusts exposed to these assets have widened significantly in 2023. RIT has
always had private investments as a core part of its approach, and despite
mark-to-market volatility in the short term, over the long term the success of
these investments has been a strong contributor to our returns. Our earlier
successes have, in part, placed us in a challenging position; healthy capital
growth is one of the main reasons why, over the past five years, our private
investments had come to represent a higher proportion of the portfolio than in
the past. We are committed to this asset class and continue to believe that
our long-standing relationships are a source of competitive advantage and
attractive returns to shareholders. This is reflected in our portfolio, which
in aggregate is sitting on sizeable profits, over and above the capital we
invested. The returns generated by our private portfolio are set out in more
detail in the Manager's Report. Most of our largest direct investments are
profitable companies with growing revenues and earnings. Our close manager
relationships and brand strength, often enable us to access a preferred
position in the capital structure of a company, with the majority of our
direct investments having some element of downside protection.
Nevertheless, over the next two years we will look to reduce the proportion of
the portfolio represented by private investments to a level of between around
a quarter and a third of NAV. This will be achieved by organic exits and the
continuation of a very high return bar for any new investments. Where we see
realisations from this portfolio, we expect to deploy the capital to buy back
our shares or to make new investments in the liquid portfolio, depending on
the level of discount, the opportunity set and general portfolio management
needs. What we will not do is accelerate exits or engage in sales at discounts
to fair value to the detriment of long-term shareholder value.
During 2023, we undertook one of the largest buybacks in the investment trust
industry, acquiring some 8.6 million shares at a cost of £163 million, our
largest single allocation of capital in the year. This generated a strong
return on investment, increasing the NAV per share return for shareholders;
the buyback also reinforced the confidence that we have both in our NAV and
our approach. If compelling returns from allocating our capital in this way
continue to be available, we will retain the flexibility to act.
Over the year, we also paid dividends of 38 pence per share, an increase of
almost 3% over 2022, and totalling £57 million. Our approach remains to
maintain or increase the dividend, subject to the overriding capital
preservation objective. In 2024, we intend to pay a dividend of 39 pence per
share, an increase of 2.6% over 2023. The dividend will be paid as normal in
equal instalments in April and October, funded from our significant reserves.
Our long-standing investment approach covers multiple asset classes, sectors
and geographies, and provides shareholders with access to investments,
including specialist funds, which are not typically accessible to individual
shareholders. This approach is in line with our Investment Policy and has been
deployed consistently year on year. It is a key driver of RIT's strong
long-term performance. By design, it will not be the cheapest approach to
managing investments, but whenever we allocate capital, we do so only if the
anticipated risk-adjusted return, net of all costs (both internal costs and
any fees paid to external managers) delivers value to shareholders.
We continue to look for ways to reduce costs, and enhance our communications,
with a portion of the savings made over the year reinvested into improving our
marketing and investor relations efforts. We will continue to invest in more
regular and informative direct contact with shareholders.
Our environmental, social, and governance (ESG) initiatives remain an area of
particular focus, with our Manager, JRCM, submitting its first report during
the year as a signatory of the UN Principles for Responsible Investment
(UN PRI). We also include our first Sustainability Report within the Annual
Report, where we have collated in one location, all of the activities we
undertake in respect of our wider commitments to society and the environment.
Governance and employees
Following an extensive international search process, Maggie Fanari retired
from the Board on 29 February, joining JRCM on 1 March as its CEO. Maggie has
an outstanding track record of successfully leading teams investing across
different asset classes and geographies at one of the largest and most
respected investment companies in the world - Ontario Teachers' Pension Plan -
where she was the Senior Managing Director and Global Group Head High
Conviction Equities. We are delighted that Maggie has joined the exceptional
team at JRCM, and we look forward to working closely with her in the execution
of the important initiatives outlined above.
Maggie succeeds Francesco Goedhuis, who retired as JRCM's CEO in December as a
result of an illness in his immediate family. Francesco joined JRCM in 2010
and was appointed CEO in 2014. During his 13 years with the Manager, Francesco
has provided outstanding leadership, continuously strengthening both the team
in JRCM and our exceptional network of investment partners. The Board was very
pleased to announce recently that he will continue his association with RIT in
his new role as Senior Adviser to JRCM.
After 11 years, Ron Tabbouche (latterly the co-CIO at JRCM) retired to join
his family in Israel, with Nick Khuu appointed to the role of CIO. Nick is a
very experienced investor across multiple asset classes, having worked at
leading investment firms in New York and San Francisco. He has been with JRCM
for over four years operating in senior investment roles, and we are delighted
with his appointment.
On behalf of the Board, I would like to express our gratitude to Francesco and
Ron for their very significant contributions to the Manager and to your
Company's performance over more than a decade.
At the end of September, after more than three years as a Director of RIT,
Maxim Parr retired from the Board to take on the position of Chair of JRCM,
providing valuable leadership and additional resources during a period of
transition of its senior leadership team.
I would like to thank my colleagues on the Board, and our talented and
dedicated employees for their hard work and commitment throughout the year.
This diverse group shares a single aim - creating long-term value for RIT's
shareholders. At a time when the outlook for global economies and markets and
the geopolitical environment are particularly complicated, these colleagues,
together with our investment partners and advisers, are the key to our future
success. We have the flexibility to select the best investments across any
asset class, sector or geography, coupled with the strength of our network
which opens doors to opportunities that others cannot access. These remain
important differentiators on which we will continue to build for the future.
Nathaniel Charles Jacob Rothschild 1936 - 2024
Finally, it is with great sadness that we mourn the recent death of our
founder and former chairman, Lord Jacob Rothschild. Jacob was chairman of the
Rothschild Investment Trust, subsequently renamed RIT Capital Partners plc,
from 1971 to 2019. He devised, developed, and led the growth of the Company,
including its listing on the London Stock Exchange in 1988. During his tenure,
the net asset value increased from £5 million to over £3 billion by the time
he retired from the Board in September 2019 and was granted the title of
Honorary President. Our thoughts and condolences are with Hannah Rothschild,
his daughter and current Director, and the rest of the Rothschild family at
this time. He will be missed.
Sir James Leigh-Pemberton
Chairman
4 March 2024
MANAGER'S REPORT - EXTRACTS
Summary
In the face of challenges posed by rising interest rates early in the year,
geopolitical unrest, and bank collapses, major indices recorded robust gains
in 2023. A substantial portion of these gains was attributable to a select few
mega-cap technology companies, overshadowing more modest returns in other
sectors. November and December saw substantial market returns, when
indications by the US Federal Reserve of a path to lower rates, together with
falling inflation over the course of the year, caused 10-year US treasury
yields to tighten from 4.9% to 3.9%. The majority of annual returns for
indices globally came during this end of year rally, including our reference
hurdle, ACWI (50% £). Our portfolio produced positive returns and trailed
just behind this index for most of the year, but lagged strongly rising
markets in the last two months of the year.
Despite the headwinds faced in 2022 and 2023, we remain confident in our
long-term investment approach. Our careful portfolio construction is
disciplined, diversified, and carefully risk managed such that, over time, we
believe we can deliver capital appreciation to shareholders with attractive
risk-reward characteristics.
Portfolio positioning
Within a tried and tested investment risk framework, our investment "reach" is
unconstrained. Having a flexible investment mandate enables us to invest
across capital structures, asset classes and geographies. Nevertheless, our
portfolio has historically maintained a core equity bias and will continue to
do so.
Decision-making starts with a considered, top-down macro-economic view. We
allocate capital to take advantage of identified structural themes and market
dislocations, drawing upon our seasoned internal resources and very often
leveraging our extensive global network of managers and partners.
We structure our investment portfolio by allocating capital across three
pillars:
· quoted equities;
· private investments; and
· uncorrelated strategies.
By design, each pillar serves a distinct purpose within the portfolio, with
investments of differing profiles and return drivers allowing us to benefit
from this broad diversification. Additionally, we make use of risk management
tools and hedging strategies to manage risk, including currency translation
risk.
Performance highlights
Our results for the year produced a NAV per share total return of 3.2%.
Comparatively, our two reference hurdles, ACWI (50% £) and the 'inflation
plus' hurdle CPI+3% returned 18.4% and 7.0%.
Two noteworthy aspects underscored the strength observed in the
market-capitalised weighted indices. First, the market rally exhibited an
unusual narrowness, primarily propelled by a select group of stocks termed the
'magnificent seven' (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and
Tesla), which accounted for approximately 20% of the MSCI World index and
demonstrated a remarkable 74% increase, while the remaining 1,473 stocks
collectively experienced a more modest gain of 12%. Second, a substantial
portion of returns across various asset classes materialised during the
liquidity-fueled surge in November and December. For instance, the Bloomberg
Aggregate Bond index posted -0.6% returns through October 31 and +9.9% over
November and December. Similarly, the ACWI exhibited +7.0% returns through
October 31, and then +10.6% over November and December.
Asset allocation and portfolio contribution
Asset category % NAV % Contribution
Quoted equities 38.4% 6.8%
Private investments 35.9% -2.7%
Uncorrelated strategies 25.6% 2.1%
Currency 0.9% -2.9%
Total investments 100.8% 3.3%
Liquidity, borrowings and other -0.8%(1) -0.1%(1)
Total 100.0% 3.2%
(1) Including accretion benefit of 1.2% from share
buybacks.
Positive drivers of portfolio performance for the year were:
· high quality stock picking, driven by fundamentals;
· Japan exposure, which outperformed all other developed markets. This involved
utilising our network and working closely with specialist managers who focus
on value equities and engage directly with management teams of Japanese
companies;
· the performance of our credit managers, who were able to profitably capitalise
on dislocations in the market;
Negative drivers were:
· moderate quoted equities exposure throughout the year, which meant that our
portfolio as a whole, lagged behind the equity rally;
· our exposure to China, which has had a disappointing recovery following its
post-Covid reopening. The lack of stimulus and global outflows weighed on
shares here;
· currency translation effects from our meaningful US dollar position, as
sterling continued to gain strength against the dollar; and
· a decline in the valuation of our private investments, mostly due to the
funds, where the lagged Q4 2022 valuations impacted our returns this year.
Outlook
In 2024, we are navigating a landscape characterised by a balance of
conflicting macro indicators. While US GDP estimates are trending upward,
certain credit indicators are exhibiting signs of decline. Significant
geopolitical risks, such as conflicts in Ukraine and the Middle East, coupled
with the potential repercussions of the USA elections in November, cast a
shadow over the horizon. The market's late upturn in 2023 was driven by the
perception that interest rates may have reached their peak, and that a soft
landing is becoming more probable. This has led to a scenario where many
assets are perceived to be fully valued.
The above notwithstanding, we believe there are individual assets that
currently trade at appealing price points, and therefore provide attractive
opportunities for capital deployment. As investors who integrate a top-down
and bottom-up approach, we would highlight the confidence we have in our own
investment portfolio. Within our private investments book, we see some strong
underlying operating performance, a shift towards prioritising profit over
pure growth, and broader tailwinds driven by digital transition. These factors
underpin our confidence in the long-term intrinsic value of our private
investments. The reopening of the IPO markets may also serve as a near-term
catalyst for validating their valuations.
We are also excited about quoted equities, where the environment is
particularly conducive for bottom-up, fundamental stock picking. We think
there are a multitude of areas to deploy long-term capital with attractive
return potential in areas such as the often overlooked small to
medium-capitalisation stocks, or in 'event-driven' stocks. As such, we will
lean more into stocks that we directly own, with this proportion of the
portfolio set to increase. At the same time, we continue to be excited by
themes such as healthcare and Japan, where our network of specialist external
managers means we are well-positioned to identify and take advantage of these
opportunities.
In uncorrelated strategies, we are enthusiastic about current opportunities in
the corporate credit markets, driven by factors such as the increase in
interest rates, reluctance by traditional banks to lend to mid-sized
businesses, and the maturing of around $0.6 trillion in loans over the next
two years, which were issued at lower rates. Where there is a dislocation in
credit markets, our partnerships with specialist managers provides us with the
potential to generate returns of mid-teens or greater, in quality credits,
with limited risk to our capital due to robust creditor protections. And, even
where there isn't a dislocation, the managers can still earn high single digit
to low double digit returns on quality credits.
The positive drivers of our portfolio's performance in 2023, including
high-quality stock picking, strategic geographic exposure, and the agility of
our credit managers, is illustrative of how our portfolio can perform.
Whatever the market challenges, our proactive approach to navigate these
complexities sets the stage for continued thoughtful and resilient portfolio
management in the coming period.
Although the percentage allocation across our three pillars may see modest
variations over shorter periods of time, our portfolio construction and risk
management principles aim to provide shareholders with a diversified portfolio
that delivers long-term capital appreciation on an attractive risk-adjusted
basis.
To conclude, we believe RIT's competitive edge is derived from our in-house
expertise, our capital structure - enabling a nimble and flexible investment
approach - as well as our unique access and ability to foster deep, long-term
specialist partnerships. As the market enters a more idiosyncratic phase, we
recognise that careful stock picking and asset selection exercised within our
robust risk management framework, will be key to delivering performance.
J. Rothschild Capital Management Limited
PRINCIPAL RISKS - EXTRACT
Risk management and internal control
The principal risks facing RIT are both financial and operational. The ongoing
process for identifying, evaluating and managing these risks, as well as any
emerging risks, is the responsibility of the Board and the Audit and Risk
Committee.
The Board sets the portfolio risk parameters within which JRCM operates. This
involves an assessment of the nature and level of risk within the portfolio
using qualitative and quantitative methods.
The Board is ultimately responsible for the Group's system of internal
controls, and has delegated the supervision of the internal control system to
the Audit and Risk Committee. Such systems are designed to manage, rather than
eliminate, the risk of failure to achieve business objectives and, as such,
can provide only reasonable and not absolute assurance against any material
misstatement or loss.
As an investment company, RIT is exposed to financial risks inherent in its
portfolio, which are primarily market-related and common to any portfolio with
significant exposure to equities and other financial assets. The ongoing
portfolio and risk management includes an assessment of the macroeconomic and
geopolitical factors that can influence market risk, as well as consideration
of investment-specific risk factors.
Your Company's broad and flexible investment mandate allows the Manager to
take a relatively unconstrained approach to asset allocation and utilise
whatever action is considered appropriate in mitigating any attendant risks to
the portfolio.
With a high degree of volatility in markets and continued geopolitical
tensions, risk management remains critical. The portfolio risk management
approach undertaken by the Manager, and considered regularly by the Board, is
designed to produce a healthy risk-adjusted return over the long term, through
careful portfolio construction, security selection and the considered use of
hedging.
As an investment business, the vast majority of the day-to-day activities
involve the measurement, evaluation and management of risk and reward. With a
corporate objective which includes an element of capital preservation, the
culture and practice of seeking to protect the NAV from undue participation in
down markets through the cycles is well established. However, it is important
to recognise that a carefully designed risk management and internal control
system can only aim to reduce the probability or mitigate the impact; it
cannot remove the risk. With a global investment portfolio having meaningful
exposure to equities, rather than a pure absolute return mandate, RIT's NAV
will not be immune to either falling markets and/or volatility in currency
markets. Equally, with a diversified set of individual and typically
uncorrelated, high return-seeking drivers, the portfolio could encounter
occasions when the level of volatility results in negative alpha in the short
term.
As a permanent capital vehicle, and unlike open-ended funds, we do not need to
manage the portfolio to meet redemptions. With sizeable assets relative to our
modest borrowings and ongoing liabilities, as confirmed later in this section,
we do not consider the Company's viability or going concern to represent
principal risks. Nevertheless, and in particular at times of market stress,
the Manager utilises a detailed, day-to-day liquidity risk management
framework to help effectively manage the balance sheet, including careful
monitoring of the banking covenants.
Operational and other risks include those related to the legal environment,
regulation, taxation, cyber security, climate and other areas where internal
or external factors could result in financial or reputational loss. These are
also managed by JRCM with regular reporting to, and review by, the Audit and
Risk Committee and the Board.
Principal risks
The Board has carried out a robust assessment of the emerging and principal
risks facing the Company, with input from the Audit and Risk Committee, as
well as the Manager. Following this assessment, the Board has concluded that
there are no material emerging risks, and it is appropriate to reclassify two
risks as separate principal risks. The material widening of the discount at
which the shares trade relative to the NAV, has led us to establish a new
principal risk - Discount risk. In addition, the ongoing developments in cyber
risk, coupled with the potential that AI could enhance fraud attempts, means
we have also reclassified Cyber security as a new principal risk. The
resulting principal risks are as described below:
Risk Mitigation
Investment strategy risk The Board is responsible for monitoring the investment strategy to ensure it
As an investment company, a key risk is that the investment strategy, guided is consistent with the Investment Policy and appropriate to meet the Corporate
by the Investment Policy: Objective. The Directors receive a detailed monthly report from the Manager to
enable them to monitor investment performance, attribution, and exposure. They
"To invest in a widely diversified, international portfolio across a range of also receive a comprehensive investment report from the JRCM CIO in advance of
asset classes, both quoted and unquoted; to allocate part of the portfolio to the quarterly Board meetings.
exceptional managers in order to ensure access to the best external talent
available." The overall risk appetite is set by the Board, with portfolio risk managed by
JRCM within prescribed limits. This involves careful assessment of the nature
Does not deliver the Corporate Objective: and level of risk within the portfolio using qualitative and quantitative
methods.
"To deliver long-term capital growth, while preserving shareholders' capital;
to invest without the constraints of a formal benchmark, but to deliver for The JRCM Investment Committee meets regularly to review overall investment
shareholders increases in capital value in excess of the relevant indices over performance, portfolio exposure and significant new investments.
time."
Discount risk To manage this risk, and to reduce the volatility for shareholders, the Board
Investment trust shares trade at a price which can be at a discount or premium monitors the level of discount/premium at which the shares trade and the Group
relative to their net asset value. If trading at a discount, there is a risk has authority to buy back its existing shares when deemed to be in the best
that a widening of the discount may result in shareholders achieving a return interest of the Company and its shareholders. Buying back shares at a discount
which does not reflect the underlying investment performance of the Company. signals the Board's confidence in the overall approach and the NAV to
shareholders and is accretive to the NAV per share return.
In addition, the Group is investing in developing its investor relations
activity and overall approach to communications to help ensure that
shareholders have the best understanding of the strategy and approach to
investing.
Market risk The Group has a widely diversified investment portfolio which significantly
reduces the exposure to individual asset price risk. Detailed portfolio
Price risk valuations and exposure analysis are prepared regularly and form the basis for
the ongoing risk management and investment decisions. In addition, regular
RIT invests in a number of asset categories including stocks, equity funds, scenario analysis is undertaken to assess likely downside risks and
private investments, absolute return and credit, real assets, government bonds sensitivity to broad market changes, as well as assessing the underlying
and derivatives. The portfolio is therefore exposed to the risk that the fair correlations amongst the separate asset classes.
value of these investments will fluctuate because of changes in market prices.
Currency exposure is managed via an overlay strategy, typically using a
combination of currency forwards and/or options to adjust the natural currency
of the investments in order to achieve a desired net exposure. The geographic
Currency risk revenue breakdown for stocks as well as correlations with other asset classes
Consistent with the Investment Policy, the Group invests globally in assets are also considered as part of our hedging strategy.
denominated in currencies other than sterling as well as adjusting currency
exposure to either seek to hedge and/or enhance returns. This approach exposes
the portfolio to currency risk as a result of changes in exchange rates.
Exposure management is undertaken with a variety of techniques including using
equity index and interest rate futures and options to hedge or to increase
equity and interest rate exposure depending on overall macroeconomic and
market views.
Interest rate risk
In addition, the Group is exposed to the direct and indirect impact of changes
in interest rates.
Liquidity risk The Group manages its liquid resources to ensure sufficient cash is available
Liquidity risk is the risk that the Group will have difficulty in meeting its to meet its expected needs. It monitors the level of short-term funding and
obligations in respect of financial liabilities as they fall due. balances the need for access to such funding and liquidity, with the long-term
funding needs of the Group, and the desire to achieve investment returns.
The Group has significant investments in and commitments to direct private Covenants embedded within the banking facilities and long-term notes are
investments and funds which are inherently illiquid. In addition, the Group monitored on an ongoing basis for compliance, and form part of the regular
holds investments with other third-party organisations which may require stress tests.
notice periods in order to be realised. Capital commitments could, in theory,
be drawn with minimal notice. In addition, the Group may be required to In addition, existing cash reserves, as well as the significant liquidity that
provide additional margin to support derivative financial instruments. could be realised from the sale or redemption of portfolio investments and
undrawn, committed borrowings, could all be utilised to meet short-term
funding requirements if necessary. As a closed-ended company, there is no
requirement to maintain liquidity to service investor redemptions. The
Depositary, BNP Paribas (BNP) has separate responsibilities in monitoring the
Company's cash flow.
Credit risk The majority of the exposure to credit risk within the absolute return and
Credit risk is the risk that a counterparty to a financial instrument held by credit portfolio is indirect exposure as a result of positions held within
the Group will fail to meet an obligation which could result in a loss to the funds managed externally. These are typically diversified portfolios monitored
Group. by the third-party managers themselves, as well as through JRCM's ongoing
portfolio management oversight.
Certain investments held within the absolute return and credit portfolio are
exposed to credit risk, including in relation to underlying positions held by Listed transactions are settled on a delivery versus payment basis using a
funds. wide pool of brokers. Cash holdings and margin balances are also divided
between a number of different financial institutions, whose credit ratings are
Substantially all of the listed portfolio investments capable of being held in regularly monitored.
safe custody, are held by BNP as custodian and depositary. Bankruptcy or
insolvency of BNP may cause the Group's rights with respect to securities held All assets held directly by the custodian are in fully segregated client
by BNP to be delayed. accounts. Other than where local market regulations do not permit it, these
accounts are designated in RIT's name. The custodian's most recent credit
Unrealised profit on derivative financial instruments held by counterparties rating was A+ from Standard & Poor's (S&P).
is potentially exposed to credit risk in the event of the insolvency of a
broker counterparty.
Key person dependency This risk is closely monitored by the Board, through its oversight of the
In common with other investment trusts, investment decisions are the Manager's incentive schemes (on which it has received external advice) as well
responsibility of a small number of key individuals within the Manager. If for as the succession plans for key individuals. The potential impact is also
any reason the services of these individuals were to become unavailable, there reduced by an experienced Board of Directors, with distinguished backgrounds
could be a significant impact on our business. in financial services and business.
Climate-related risks We do not consider climate-related risks to have material, specific impacts on
Ongoing climate changes may impact either our own business, the external our own asset management businesses as distinct from the investment portfolio.
managers with whom we invest, and/ or the underlying portfolio investments. Our Manager continues to monitor, and minimise, the climate-related impacts of
For our own business this could result in increased costs of complying with our internal operations; we offset the carbon emissions of this business -
new regulations and/or changes to the way we operate. Portfolio companies categorised as Scope 1 and Scope 2 emissions by the Greenhouse Gas (GHG)
could see demand pressures, an increased cost of capital, tighter regulation Protocol - through participation in an accredited scheme and we are taking
or increased taxation, all impacting profitability. steps to further develop our understanding of our indirect emissions impact
(categorised as Scope 3 emissions).
Our ability to make climate-change disclosures may be impacted by our
investment approach if the external fund managers with whom we invest do not JRCM is a signatory to the UN PRI, and the Board has worked with our Manager
provide the desired information. to develop JRCM's Responsible Investment Framework & Policy, which
incorporates environmental factors into our investment approach. This allows
More frequent extreme weather could disrupt businesses, travel, global supply us to consider the potential wider impacts of climate change risks to our
chains and profitability. investments.
JRCM is working with an external adviser to consider our ability to make
additional climate disclosures in relation to our investment portfolio, while
acknowledging the likely challenges caused by having investments in external
funds.
We monitor developments in regulation and disclosures and seek as far as
possible to prepare for future changes.
The Group's adoption of fair value in relation to its investments means that
the climate-related risks recognised by market participants are incorporated
in the valuations.
Legal and regulatory risk The Operational Risk Committee of JRCM provides oversight of all legal,
As an investment trust, RIT's operations are subject to wide-ranging laws and regulatory and other operational risks across the Group. This Committee
regulations including in relation to the Listing Rules and Disclosure, reports key findings to the JRCM Executive Committee and the Audit and Risk
Guidance and Transparency Rules of the FCA's Primary Markets function, the Committee.
Companies Act 2006, corporate governance codes, as well as continued
compliance with relevant tax legislation, including ongoing compliance with JRCM employs a general counsel and a compliance officer as well as other
the rules for investment trusts. JRCM is authorised and regulated by the FCA personnel with experience of legal, regulatory, disclosure and taxation
and acts as Alternative Investment Fund Manager. matters. In addition, specialist external advisers are engaged in relation to
complex, sensitive or emerging matters. For example, during 2023 the Group has
The financial services sector continues to experience regulatory change at again engaged external advisers in supporting its consideration of ESG
national and international levels, including in relation to climate change. matters.
Failure to act in accordance with these laws and regulations could result in
fines, censure or other losses including taxation or reputational loss. Where necessary, co-investments and other transactions are subject to review
by the Conflicts Committee.
Co-investments and other arrangements with related parties may result in
conflicts of interest.
Operational risk Systems and control procedures are the subject of continued development and
Operational risks are those arising from inadequate or failed processes, regular review. During the year the Audit and Risk Committee reviewed, and
people and systems or other external factors. satisfied itself with, the Manager's approach to due diligence as part of its
investment decision making.
Key operational risks include reliance on third-party managers and suppliers,
dealing errors, processing failures, pricing or valuation errors, fraud and Processes are in place to ensure the recruitment and ongoing training of
reliability of core systems. appropriately skilled staff within key operational functions. Suitable
remuneration policies are in place to encourage staff retention and the
delivery of the Group's objectives over the medium term. Independent pricing
sources are used where available, and performance is subject to regular
monitoring. In relation to more subjective areas such as private investments
and property, the valuations are estimated by experienced staff and specialist
external managers and valuers using industry standard approaches, with the
final decisions taken by the independent Valuation Committee, and subject to
external audit as part of the year-end financial statements.
A business continuity and disaster recovery plan is maintained and includes
the ability to use a combination of an offsite facility and cloud resources to
mirror our production systems in the event of any business disruption. This
was satisfactorily tested during the year.
Cyber security risk Cyber security continues to receive an enhanced focus, with policies, systems
RIT is dependent on technology to support key business functions and the and processes designed to combat the ongoing risk developments in this area.
safeguarding of sensitive information. As a result, RIT is exposed to the Such processes are kept under regular review including multi-factor
increasingly sophisticated nature of cyber attacks, and given the growth in AI authorisation, ensuring effective firewalls, internet and email gateway
and the ability to utilise this for attempts at fraud and data breaches. security and anti-virus software.
RIT is therefore at risk of potential loss or harm as a result of significant This is complemented with staff awareness programmes (including periodic
disruption to information technology systems, including from a potential cyber mock-phishing exercises) which monitor and test both the robustness of our
attack, which may result in financial losses, the inability to perform systems as well as the effectiveness of our staff at identifying potential
business-critical functions, loss or theft of confidential data, and resulting risks. We also test our IT business continuity plan at least once every year.
legal or reputational damage. The process for assessing, identifying and managing cybersecurity risks is
managed on a day-to-day by the Manager's IT team and overseen by the JRCM
Operational Risk Committee. Any material risks are reported to the Audit and
Risk Committee.
The Manager maintains the 'Cyber Essentials Plus' security certification, the
highest level of certification offered by the National Cyber Security Centre,
the UK Government's technical authority for cyber threats. This review is
performed on an annual basis, the most recent completed in November 2023.
Additionally, the Group has specific insurance cover in place to cover
information security and cyber risks. The Manager periodically also engages
external consultants to assess the robustness of its IT systems.
Corporate Governance Report - Extract
Statement of Directors' responsibilities
The Directors are responsible for preparing the Annual Report and Accounts in
accordance with applicable United Kingdom law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare the Group
and Parent Company financial statements in accordance with UK adopted
international accounting standards (UK adopted IAS). Under company law the
Directors must not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the Group and
the Parent Company and of the profit or loss of the Group and the Parent
Company for that period.
In preparing these financial statements the directors are required
to:
· select suitable accounting policies in accordance with IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors and then apply them
consistently;
· make judgements and accounting estimates that are reasonable and prudent;
· present information, including accounting policies, in a manner that provides
relevant, reliable, comparable and understandable information;
· provide additional disclosures when compliance with the specific requirements
in UK adopted IAS is insufficient to enable users to understand the impact of
particular transactions, other events and conditions on the Group and Parent
Company financial position and financial performance;
· in respect of the Group financial statements, state whether UK adopted IAS
have been followed, subject to any material departures disclosed and explained
in the financial statements;
· in respect of the Parent Company financial statements, state whether UK
adopted IAS have been followed, subject to any material departures disclosed
and explained in the financial statements; and
· prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Parent Company and the Group will continue
in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Parent Company's and Group's transactions
and disclose with reasonable accuracy at any time the financial position of
the Parent Company and the Group and enable them to ensure that the Parent
Company and the Group financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Group and Parent
Company and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors' Report, Directors' Remuneration
Report and corporate governance statement that comply with that law and those
regulations. The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the Parent Company's
website.
The Directors confirm, to the best of their
knowledge:
· that the consolidated financial statements, prepared in accordance with UK
adopted IAS give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Parent Company and undertakings included in
the consolidation taken as a whole;
· that the Annual Report, including the Strategic Report, includes a fair review
of the development and performance of the business and the position of the
Parent Company and undertakings included in the consolidation taken as a
whole, together with a description of the principal risks and uncertainties
that they face; and
· that they consider the Annual Report and Accounts, taken as a whole, is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Parent Company's position, performance, business
model and strategy.
FINANCIAL STATEMENTS - EXTRACTS
Consolidated income statement
Year ended 31 December 2023 2022
£ million Revenue Capital Total Revenue Capital Total
Investment income 29.3 - 29.3 19.1 - 19.1
Other income 3.2 - 3.2 7.6 - 7.6
Gains/(losses) on fair value investments - 109.9 109.9 - (555.5) (555.5)
Gains/(losses) on monetary items and borrowings - 0.8 0.8 - 20.2 20.2
32.5 110.7 143.2 26.7 (535.3) (508.6)
Expenses
Operating expenses (28.5) (14.2) (42.7) (36.0) (7.6) (43.6)
Profit/(loss) before finance costs and taxation 4.0 96.5 100.5 (9.3) (542.9) (552.2)
Finance costs (6.9) (27.5) (34.4) (5.0) (20.0) (25.0)
Profit/(loss) before taxation (2.9) 69.0 66.1 (14.3) (562.9) (577.2)
Taxation - - - - - -
Profit/(loss) for the year (2.9) 69.0 66.1 (14.3) (562.9) (577.2)
Earnings/(loss) per ordinary share - basic (1.9p) 46.1p 44.2p (9.2p) (362.1p) (371.3p)
Earnings/(loss) per ordinary share - diluted (1.9p) 45.7p 43.8p (9.2p) (362.1p) (371.3p)
The total column of this statement represents the Group's consolidated income
statement, prepared in accordance with UK adopted international accounting
standards (UK adopted IAS). The supplementary revenue and capital columns are
both prepared under guidance published by the Association of Investment
Companies (AIC). All items in the above statement derive from continuing
operations.
Consolidated statement of comprehensive income
Year ended 31 December 2023 2022
£ million Revenue Capital Total Revenue Capital Total
Profit/(loss) for the year (2.9) 69.0 66.1 (14.3) (562.9) (577.2)
Revaluation gain/(loss) on property, plant and equipment - 0.9 0.9 - (2.1) (2.1)
Actuarial gain/(loss) in defined benefit pension plan (0.4) - (0.4) (4.5) - (4.5)
Deferred tax (charge)/credit allocated to actuarial gain/(loss) 0.2 - 0.2 1.1 - 1.1
Total comprehensive income/(expense) for the year (3.1) 69.9 66.8 (17.7) (565.0) (582.7)
Consolidated balance sheet
At 31 December
£ million 2023 2022
Non-current assets
Investments held at fair value 3,499.4 3,586.3
Investment property 34.1 37.9
Property, plant and equipment 21.6 20.7
Retirement benefit asset 0.1 0.5
Derivative financial instruments 5.9 1.0
3,561.1 3,646.4
Current assets
Derivative financial instruments 65.4 57.3
Other receivables 71.2 245.3
Amounts owed by group undertakings 0.1 4.5
Cash at bank 204.3 218.0
341.0 525.1
Total assets 3,902.1 4,171.5
Current liabilities
Borrowings (142.9) (236.2)
Derivative financial instruments (2.8) (10.4)
Other payables (39.2) (63.5)
Amounts owed to group undertakings (0.1) (0.1)
(185.0) (310.2)
Net current assets/(liabilities) 156.0 214.9
Total assets less current liabilities 3,717.1 3,861.3
Non-current liabilities
Borrowings (137.9) (134.4)
Derivative financial instruments (0.0) -
Deferred tax liability (0.0) (0.2)
Provisions (3.0) (1.8)
Lease liability (2.9) (3.2)
(143.8) (139.6)
Net assets 3,573.3 3,721.7
Equity attributable to owners of the Company
Share capital 156.8 156.8
Share premium 45.7 45.7
Capital redemption reserve 36.3 36.3
Own shares reserve (36.7) (46.3)
Capital reserve 3,393.1 3,548.9
Revenue reserve (32.2) (29.1)
Revaluation reserve 10.3 9.4
Total equity 3,573.3 3,721.7
Net asset value per ordinary share - basic 2,449p 2,414p
Net asset value per ordinary share - diluted 2,426p 2,388p
The financial statements were approved by the Board and authorised for issue
on 4 March 2024.
Consolidated statement of changes in equity
Capital Own
Share Share redemption shares Capital Revenue Revaluation Total
£ million capital premium reserve reserve reserve reserve reserve equity
Balance at 1 January 2022 156.8 45.7 36.3 (23.0) 4,174.4 (11.4) 11.5 4,390.3
Profit/(loss) for the year - - - - (562.9) (14.3) - (577.2)
Revaluation gain/(loss) on property, plant and equipment - - - - - - (2.1) (2.1)
Actuarial gain/(loss) in defined benefit plan - - - - - (4.5) - (4.5)
Deferred tax (charge)/credit allocated to actuarial gain/(loss) - - - - - 1.1 - 1.1
Total comprehensive income/(expense) for the year - - - - (562.9) (17.7) (2.1) (582.7)
Dividends paid - - - - (57.6) - - (57.6)
Purchase of treasury shares - - - - (11.0) - - (11.0)
Movement in own shares reserve - - - (23.3) - - - (23.3)
Movement in share-based payments - - - - 6.0 - - 6.0
Balance at 31 December 2022 156.8 45.7 36.3 (46.3) 3,548.9 (29.1) 9.4 3,721.7
Balance at 1 January 2023 156.8 45.7 36.3 (46.3) 3,548.9 (29.1) 9.4 3,721.7
Profit/(loss) for the year - - - - 69.0 (2.9) - 66.1
Revaluation gain/(loss) on property, plant and equipment - - - - - - 0.9 0.9
Actuarial gain/(loss) in defined benefit plan - - - - - (0.4) - (0.4)
Deferred tax (charge)/credit allocated to actuarial gain/(loss) - - - - - 0.2 - 0.2
Total comprehensive income/(expense) for the year - - - - 69.0 (3.1) 0.9 66.8
Dividends paid - - - - (56.7) - - (56.7)
Purchase of treasury shares - - - - (163.1) - - (163.1)
Movement in own shares reserve - - - 9.6 - - - 9.6
Movement in share-based payments - - - - (5.0) - - (5.0)
Balance at 31 December 2023 156.8 45.7 36.3 (36.7) 3,393.1 (32.2) 10.3 3,573.3
Consolidated cash flow statement
Year ended 31 December Consolidated cash flow
£ million 2023 2022
Cash flows from operating activities:
Cash inflow/(outflow) before taxation and interest 328.6 57.7
Interest paid (34.4) (25.0)
Net cash inflow/(outflow) from operating activities 294.2 32.7
Cash flows from investing activities:
Sale/(purchase) of property, plant and equipment (0.3) (0.1)
Investments in subsidiary undertakings - -
Divestments of subsidiary undertakings - -
Net cash inflow/(outflow) from investing activities (0.3) (0.1)
Cash flows from financing activities:
Repayment of borrowings (699.9) (591.6)
Drawing of borrowings 618.6 555.4
Purchase of ordinary shares by EBT(1) (9.8) (40.4)
Purchase of ordinary shares into treasury (163.1) (11.0)
Dividends paid (56.7) (57.6)
Net cash inflow/(outflow) from financing activities (310.9) (145.2)
Increase/(decrease) in cash in the year (17.0) (112.6)
Cash at the start of the year 218.0 325.9
Effect of foreign exchange rate changes on cash 3.3 4.7
Cash at the year end 204.3 218.0
(1) Shares are disclosed in the own shares reserve on the
consolidated balance sheet.
NOTES TO THE FINANCIAL STATEMENTS - EXTRACTS
Earnings per ordinary share - basic and diluted
The basic earnings per ordinary share for 2023 is based on the profit of
£66.1 million (2022: loss of £577.2 million) and the weighted average number
of ordinary shares in issue during the period of 149.5 million (2022: 155.5
million). The weighted average number of shares is adjusted for shares held in
the EBT and in treasury in accordance with IAS 33 - Earnings per share.
£ million 2023 2022
Net revenue profit/(loss) (2.9) (14.3)
Net capital profit/(loss) 69.0 (562.9)
Total profit/(loss) for the year 66.1 (577.2)
Weighted average (million) 2023 2022
Number of shares in issue 156.8 156.8
Shares held in EBT (1.8) (1.0)
Shares held in treasury (5.5) (0.3)
Basic shares 149.5 155.5
pence 2023 2022
Revenue earnings/(loss) per ordinary share - basic (1.9) (9.2)
Capital earnings/(loss) per ordinary share - basic 46.1 (362.1)
Total earnings per share - basic 44.2 (371.3)
The diluted earnings per ordinary share for the period is based on the basic
shares (above) adjusted for the effect of share-based payments awards for the
period.
This adjustment was not required for 2022 as an increase in the shares in
issue would have reduced the basic loss per ordinary share. As a result, there
was no difference between the basic and diluted loss per ordinary share in the
prior year.
Weighted average (million) 2023 2022
Basic shares 149.5 155.5
Effect of share-based payment awards 1.4 -
Diluted shares 150.9 155.5
pence 2023 2022
Revenue earnings/(loss) per ordinary share - diluted (1.9) (9.2)
Capital earnings/(loss) per ordinary share - diluted 45.7 (362.1)
Total earnings per ordinary share - diluted 43.8 (371.3)
Net asset value per ordinary share - basic and diluted
Net asset value per ordinary share is based on the following data:
31 December 2023 2022
Net assets (£ million) 3,573.3 3,721.7
Number of shares in issue (million) 156.8 156.8
Shares held in EBT (million) (1.6) (2.0)
Shares held in treasury (million) (9.3) (0.7)
Basic shares (million) 145.9 154.1
Effect of share-based payment awards (million) 1.4 1.7
Diluted shares (million) 147.3 155.8
2023 2022
31 December pence pence
Net asset value per ordinary share - basic 2,449 2,414
Net asset value per ordinary share - diluted 2,426 2,388
Dividends
2023 2022
Pence Pence 2023 2022
per share per share £ million £ million
Dividends paid in year 38.0 37.0 56.7 57.6
The above amounts were paid as distributions to equity holders of the Company
in the relevant year from accumulated capital profits.
Dividends are not paid on shares held in treasury and the EBT waives its
rights to all dividends.
On 27 February 2023 the Board declared a first interim dividend of 19.0 pence
per share in respect of the year ended 31 December 2023 that was paid on 28
April 2023. A second interim dividend of 19.0 pence per share was declared by
the Board on 31 July 2023 and paid on 27 October 2023.
The Board declares the payment of a first interim dividend of 19.5 pence per
share in respect of the year ending 31 December 2024. This will be paid on 26
April 2024 to shareholders on the register on 5 April 2024, and funded from
the accumulated capital profits.
Glossary and Alternative Performance Measures
Glossary
Within the Annual Report and Accounts, we publish certain financial measures
common to investment trusts. Where relevant, these are prepared in accordance
with guidance from the AIC, and this glossary provides additional information
in relation to them.
Alternative performance measures (APMs): APMs are numerical measures of the
Company's current, historical or future financial performance, financial
position or cash flows, other than financial measures defined or specified in
the Company's applicable financial framework - namely UK adopted IAS and the
AIC SORP. They are denoted with an * in this section.
CPI: The CPI refers to the United Kingdom Consumer Price Index as calculated
by the Office for National Statistics and published monthly. It is the UK
Government's target measure of inflation and, from 1 January 2022, is used as
a measure of inflation in one of the Company's KPIs, CPI plus 3.0% per annum.
Gearing*: Gearing is a measure of the level of debt deployed within the
portfolio. The ratio is calculated in accordance with AIC guidance as total
assets, net of cash, divided by net assets and expressed as a 'net'
percentage, e.g. 110% would be shown as 10%.
£ million 2023 2022
Total assets 3,902.1 4,171.5
Less: cash (204.3) (218.0)
Sub total 3,697.8 3,953.5
Net assets 3,573.3 3,721.7
Gearing 3.5% 6.2%
Leverage: Leverage, as defined by the UK Alternative Investment Fund Managers
Directive (AIFMD), is any method which increases the exposure of the
portfolio, whether through borrowings or leverage embedded in derivative
positions or by any other means.
MSCI All Country World Index: The MSCI All Country World Index is a total
return, market capitalisation-weighted equity index covering major developed
and emerging markets. Described in this report as the ACWI or the ACWI (50%
£), this is one of the Company's KPIs or reference hurdles and, since its
introduction in 2013, has incorporated a 50% sterling measure. This is
calculated using 50% of the ACWI measured in sterling and therefore exposed to
translation risk from the underlying foreign currencies. The remaining 50%
uses a sterling-hedged ACWI from 1 January 2015 (from when this is readily
available). This incorporates hedging costs, which the portfolio also incurs,
to protect against currency risk and is an investable index. Prior to this
date it uses the index measured in local currencies. Before December 1998,
when total return indices were introduced, the index is measured using a
capital-only version.
Net asset value (NAV) per share: The NAV per share is calculated by dividing
the total value of all the assets of the trust less its liabilities (net
assets) by the number of shares outstanding. Unless otherwise stated, this
refers to the diluted NAV per share, with debt held at fair value.
NAV total return*: The NAV total return for a period represents the change in
NAV per share, adjusted to reflect dividends paid during the period. The
calculation assumes that dividends are reinvested in the NAV at the month end
following the NAV going ex-dividend. The NAV per share at 31 December 2023 was
2,426 pence, an increase of 38 pence, or 1.6%, from 2,388 pence at the
previous year end. As dividends totalling 38 pence per share were paid during
the year, the effect of reinvesting the dividends in the NAV is 1.6%, which
results in a NAV total return of +3.2%.
Net quoted equity exposure: This is the estimated level of exposure that the
trust has to listed equity markets. It includes the assets held in the quoted
equity category of the portfolio adjusted for the notional exposure from
quoted equity derivatives, as well as estimated cash balances held by
externally-managed funds and estimated exposure levels from hedge fund
managers.
Notional: In relation to derivatives, this represents the estimated exposure
that is equivalent to holding the same underlying position through a cash
security.
Ongoing charges figure (OCF): As a self-managed investment trust with
operating subsidiaries, the calculation of the Company's OCF requires
adjustments to the total operating expenses. In accordance with AIC guidance,
the main adjustments are to remove non-recurring costs as well as direct
performance-related compensation from JRCM, as this is analogous to a
performance fee for an externally-managed trust.
£ million 2023 2022
Operating expenses 42.7 43.6
Adjustments (15.0) (7.6)
Ongoing charges 27.7 36.0
Average net assets 3,614 4,045
OCF 0.77% 0.89%
In addition to the above, managers charge fees within the external funds (and
in a few instances directly to RIT in relation to segregated accounts). We
have estimated that, based on average net assets across the year and annual
management fee rates per fund (excluding performance fees), these represent an
additional 0.94% of average net assets (2022: 0.88%).
Premium/discount: The premium or discount (or rating) is calculated by taking
the closing share price on 31 December 2023 and dividing it by the NAV per
share at 31 December 2023, expressed as a net percentage. If the share price
is above/below the NAV per share, the shares are said to be trading at a
premium/ discount.
Share price total return or total shareholder return (TSR)*: The TSR for a
period represents the change in the share price adjusted to reflect dividends
paid during the period. Similar to calculating a NAV total return, the
calculation assumes the dividends are notionally reinvested at the daily
closing share price following the shares going ex-dividend. The share price on
31 December 2023 closed at 1,882 pence, a decrease of 243 pence, or 11.4%,
from 2,125 pence at the previous year end. Dividends totalling 38 pence per
share were paid during the year, and the effect of reinvesting the dividends
in the share price is 1.8%, which results in a TSR of -9.6%. The TSR is one of
the Company's KPIs.
Basis of presentation
The financial information for the year ended 31 December 2023 has been
extracted from the statutory accounts for that year. The auditor's report on
these accounts is unqualified and does not contain a statement under either
Section 498(2) or (3) of the Companies Act 2006. The statutory accounts will
be delivered to the Registrar of Companies following the Company's Annual
General Meeting.
The financial information for the year ended 31 December 2022 has been
extracted from the statutory accounts for that year which have been delivered
to the Registrar of Companies. The auditor's report on these accounts is
unqualified and does not contain a statement under either Section 498(2) or
(3) of the Companies Act 2006.
Report and Accounts
The full statutory accounts are available to be viewed or downloaded from the
Company's website at www.ritcap.com. Neither the contents of the Company's
website nor the contents of any website accessible from the Company's website
(or any other website) is incorporated into, or forms part of, this
announcement.
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