TIDMRCP
RNS Number : 2166R
RIT Capital Partners PLC
28 February 2023
Please click here to view the Company's Report and Accounts
http://www.rns-pdf.londonstockexchange.com/rns/2166R_1-2023-2-27.pdf
28 February 2023
RIT Capital Partners plc
Results for the year ended 31 December 2022
RIT Capital Partners plc today published its results for the
year ended 31 December 2022.
Summary:
-- 2022 was one of the most difficult years for financial
markets for more than a decade, and the first one in 150
years where US equities and government bonds both lost
more than 10%
-- Our corporate objective and our investment approach are
both long term in nature
-- Although our net asset value per share (NAV) total return
for the year was down broadly in line with global equity
markets, we continued to outperform over three and five
years. Our three-year NAV return of 24.8% compares favourably
to the MSCI ACWI at 17.7%, and our five-year return of
40.9% also outperformed the index at 35.5%
-- Over the longer term, our 10-year return of 140% compares
favourably against many alternatives. Similarly, since
RIT's inception, the NAV has compounded at almost 11% per
annum, compared to the ACWI at 7%
-- This long-term success is attributed to maintaining a consistent
approach. We combine active management and careful portfolio
construction, with diversified and disciplined investment
selection to target healthy returns over the long term
and through the cycles
-- The Board has approved an increase in dividends for 2023,
and expects to buy back shares accretively when in shareholders'
interests
Financial Highlights:
-- NAV of 2,388 pence at 31 December 2022 (1)
-- NAV total return of -13.3% for the year, broadly in line
with the ACWI at -12.9%
-- Share price ended the year at 2,125 pence representing
an 11.0% discount
Performance Highlights:
-- Equity markets saw widespread declines over the year, with
the S&P 500 down -18%, the NASDAQ down -32% and the FTSE
250 -17%. Government bonds also suffered, with long-term
US bonds down -29% and UK bonds -40%
-- Our quoted equities and private investments saw declines,
partially offset by gains from currency and with stable
returns from absolute return and credit
-- Private investments remain a key feature of the overall
approach and have cumulatively added around a 26% contribution
to the NAV over the last three years. This portfolio is
widely diversified across sectors and styles, with many
investments showing strong performance, and the majority
of the largest direct investments profitable
-- Outside of private investments, proactive portfolio management
helped mitigate losses: maintaining low quoted equity exposure,
and with well-timed shifts to more value and reflationary
assets. Key performers included our exposures to Japanese
and US value stocks, as well as one of our core credit
managers. Weaker performance came from China, biotech and
one of our external macro funds, which was redeemed
-- Returns benefited from ensuring a meaningful proportion
of the currency exposure was outside of a weakening sterling
Dividends and Buybacks:
-- Dividends paid in April and October 2022 totalling 37 pence
per share
-- The Board intends to pay a dividend of 38 pence per share
in 2023 in two equal instalments, in April and October.
This represents an increase of 2.7% over the previous year
-- Over the year, the Company continued to buy back shares
accretively
(1) The final audited NAV per share is unchanged from the preliminary
unaudited NAV per share published on 7 February 2023.
Commenting, Sir James Leigh-Pemberton, Chairman of RIT Capital
Partners plc, said:
"2022 was the most difficult year for financial markets for more
than a decade. The global economy was affected by significant
supply shocks, with particularly sharp rises in energy and raw
material prices... In financial markets almost all asset classes
saw declines. The S&P 500 and the NASDAQ closed the year down
-18% and -32% respectively, while Emerging Markets recorded a loss
of -16%, Europe -10% and the FTSE 250 -17%... Furthermore, these
year-on-year figures, stark though they are, do not tell the whole
story of 2022, which saw significant shifts in investor sentiment
and money flows at different points of the year, resulting in
elevated levels of volatility...
Our NAV per share was not immune to the market declines, and we
ended the year at 2,388p per share... While any decline in NAV is
uncomfortable, it is important to restate that our aims and
objectives are long term. In order to achieve them, we must ensure
that we have enough capital deployed in those areas which will
support future growth, while aiming to mitigate as far as possible
participation in down markets. This we seek to achieve by taking a
holistic and careful approach to portfolio construction, holding a
diversified portfolio of assets, including those which are not
typically correlated with equity markets, and which, through the
cycles, are capable of generating healthy returns... we believe
that this approach remains the most effective means of achieving
our corporate objective over the long term.
Indeed, over the last 10 years, our NAV per share growth
(including dividends) was 140%. Equally, over more recent years,
incorporating both up and down markets, our NAV has grown by 24.8%
over three years compared to 17.7% for the ACWI and 27.5% for CPI
plus 3%. And over five years, our NAV total return was 40.9%
compared to 35.5% for the ACWI, and 39.7% for our inflation index.
Since inception, our share price total return has averaged 11.2%
per annum against markets of 7.0%.
A key driver of RIT's long-term track record has been private
investments, which, whether direct investments or commitments to
funds, have always been an essential part of our portfolio... Over
2020 and 2021 private investments added around 34% to total NAV; it
is this growth in their value which has driven the increased
proportion of NAV which they represent. In 2022, the sharp
correction in public markets, and in particular tech markets, has
meant that we have written down a portion of these significant
gains... However, on a three-year basis, we estimate that our
private investments added approximately 26% to total NAV - a strong
return, and against the backdrop of both positive and negative
years for markets...
While private investments are important, they represent only one
part of our diversified multi-asset portfolio which is constructed
and managed by JRCM on a holistic, top-down basis... Throughout
2022, your Board continued to review the strategy and portfolio
composition in the context of our unchanging corporate objective.
The fundamentals of the multi-asset diversified approach, and our
long-term aims, have not altered. We continue to believe that,
notwithstanding the declines we saw in 2022, this remains the right
approach for our shareholders and is likely to generate the
superior returns through the cycles that RIT is renowned for
producing...
While these are challenging markets, we have managed through
them before, and we remain confident that our approach is the right
one for RIT's long-term performance and for our shareholders."
Commenting, Francesco Goedhuis, Chairman and Chief Executive
Officer of the Company's Manager, J. Rothschild Capital Management
Limited (JRCM), and Ron Tabbouche, Chief Investment Officer of
JRCM, said:
"In years such as this, investing through market cycles can feel
uncomfortable, but we remain confident in our long-term investment
approach, which is supported by our longer-term performance. Over
three years, our NAV has outperformed our equity index, and over
five years, it has outperformed both reference hurdles, while
maintaining lower volatility than the market. Since inception, we
have participated in 74% of the monthly market increases but only
41% of the declines.
It may well be that we are witnessing a reversal of a decade's
material outperformance of financial assets over the real economy.
Investors will likely need to adjust their expectations to the very
different environment of a higher cost of capital, labour and raw
materials, and with no safety net provided by central banks...
However, we also believe the macro uncertainty... combined with
the risk of 'financial accidents' can create compelling bottom-up
liquid opportunities in both equities and credit markets. We will
follow our long-standing disciplined approach, focused on
fundamentals-driven investing while looking for strategic openings
which present themselves in such dislocated markets...
We believe that many high-quality companies in our private
investment book as well as our quoted biotech exposure could
benefit from the market taking a more discriminating view of long
duration assets...
We are all shareholders in RIT and firmly believe that our tried
and tested approach remains the best way to manage money over the
long-term, balancing caution with deploying risk capital to ensure
that investors' capital grows through the cycles. Over the last 10
years, our NAV per share total return of approximately 140% stands
up well against other investments and often with considerably less
risk. Even on a shorter time horizon, we believe our approach of
combining capital preservation with capital growth is a powerful
one. Indeed, if we consider the past 20 years of annual NAV
returns, not only have we never lost money on a rolling three-year
basis, but we have generated healthy growth averaging 10.2% per
annum. It is this combination which sets us apart from the majority
of other trusts."
ENQUIRIES:
Brunswick Group LLP:
Tom Burns / Sofie Brewis: +44 (0) 207 404 5959
RIT@brunswickgroup.com
About RIT Capital Partners plc:
RIT Capital Partners plc is an investment company listed on the
London Stock Exchange. Its net assets have grown from GBP280
million on listing in 1988 to GBP3.7 billion at year end. Lord
Rothschild and his immediate family interests retain a significant
holding.
Since inception in 1988, RIT's NAV has participated in 74% of
monthly market upside but only 41% of market declines.
Over the same period, the total shareholder return has
compounded at 11.2% per annum compared to the ACWI of 7.0%.
GBP10,000 invested in RIT shares at inception would be worth
GBP388,000 today (with dividends reinvested) compared to the same
amount invested in the ACWI which would be worth GBP104,000.
www.ritcap.com
A description of all terms used in this RNS, 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 2022
------------------------------------ ------
NAV per share total return* -13.3%
Share price total return* -21.5%
CPI plus 3.0% 13.5%
MSCI All Country World Index (ACWI) -12.9%
------------------------------------ ------
Key data 2022 2021 Change
-------------------------- ---------------- ---------------- ---------
NAV per share 2,388 pence 2,794 pence -14.5%
Share price 2,125 pence 2,750 pence -22.7%
Premium/(discount) -11.0% -1.6% -9.4% pts
Net assets GBP3,722 million GBP4,390 million -15.2%
Gearing* 6.2% 6.1% 0.1% pts
Average net quoted equity
exposure 38% 43% -5% pts
Ongoing Charges Figure
for the year* 0.89% 0.72% 0.17% pts
First interim dividend
(April) 18.5 pence 17.625 pence 5.0%
Second interim dividend
(October) 18.5 pence 17.625 pence 5.0%
---------------- ---------------- ---------
Total dividend in year 37.0 pence 35.250 pence 5.0%
-------------------------- ---------------- ---------------- ---------
Performance history 3 Years 5 Years 10 Years
------------------------------------ ------- ------- --------
NAV per share total return* 24.8% 40.9% 139.9%
Share price total return* 5.6% 17.7% 125.3%
CPI plus 3.0% 27.5% 39.7% 73.8%
MSCI All Country World Index (ACWI) 17.7% 35.5% 157.0%
------------------------------------ ------- ------- --------
The Group's designated APMs (denoted above with an *) are the
NAV per share total return, share price total return, gearing and
the ongoing charges figure.
CHAIRMAN'S STATEMENT
Background and Performance
2022 was the most difficult year for financial markets for more
than a decade. The global economy was affected by significant
supply shocks, with particularly sharp rises in energy and raw
material prices. The consequent resurgence of inflation was met
with a dramatic tightening of monetary policy. Businesses across a
range of sectors faced increased costs of materials, labour and
capital, impacting margins at a time when revenue growth has been
under pressure as economic activity has faltered, consumer
confidence and purchasing power has waned and the risk of recession
has risen. At the same time, the conflict in Ukraine has given rise
to fundamental geopolitical changes in the relatively stable world
order of recent decades.
In financial markets almost all asset classes saw declines. The
S&P 500 and the NASDAQ closed the year down --18% and -32%
respectively, while Emerging Markets recorded a loss of -16%,
Europe -10% and the FTSE 250 -17%. Fixed income markets were no
less adversely affected; long-term US Treasuries lost -29% and UK
government bonds -40%. Corporate bonds also showed marked declines
as both risk-free rates and credit spreads reacted to tighter
monetary policy. It was the first time in 150 years that both US
stocks and bonds were down by more than 10%. Furthermore, these
year-on-year figures, stark though they are, do not tell the whole
story of 2022, which saw significant shifts in investor sentiment
and money flows at different points of the year, resulting in
elevated levels of volatility. A good illustration of this in the
UK was sterling, which started the year at an exchange rate of 1.35
against the US dollar, saw an extraordinarily rapid fall to a low
of 1.04 in September, down 23%, before recovering some 16% from the
lows to end the year at 1.21.
Our NAV per share was not immune to the market declines, and we
ended the year at 2,388p per share. This represented a -13.3% total
return (including dividends) for the year, broadly in line with the
MSCI ACWI (50% GBP) which fell by -12.9%. While any decline in NAV
is uncomfortable, it is important to restate that our aims and
objectives are long term. In order to achieve them, we must ensure
that we have enough capital deployed in those areas which will
support future growth, while aiming to mitigate as far as possible
participation in down markets. This we seek to achieve by taking a
holistic and careful approach to portfolio construction, holding a
diversified portfolio of assets, including those which are not
typically correlated with equity markets, and which, through the
cycles, are capable of generating healthy returns. These
considerations have been the principal determinants of our
portfolio composition for a number of years, and we believe that
this approach remains the most effective means of achieving our
corporate objective over the long term. Indeed, over the last 10
years, our NAV per share growth (including dividends) was 140%.
Equally, over more recent years, incorporating both up and down
markets, our NAV has grown by 24.8% over three years compared to
17.7% for the ACWI and 27.5% for CPI plus 3%. And over five years,
our NAV total return was 40.9% compared to 35.5% for the ACWI, and
39.7% for our inflation index. Since inception, our share price
total return has averaged 11.2% per annum against markets of
7.0%.
A key driver of RIT's long-term track record has been private
investments, which, whether direct investments or commitments to
funds, have always been an essential part of our portfolio. These
are, by design, multi-year investments, which we are not forced to
sell to fund redemptions; we held an investment in the Economist
for 22 years, realising 27x our capital. More recent investments
such as Coupang - one of our most successful ever private
investments - materially boosted returns. Over 2020 and 2021
private investments added around 34% to total NAV; it is this
growth in their value which has driven the increased proportion of
NAV which they represent. In 2022, the sharp correction in public
markets, and in particular tech markets, has meant that we have
written down a portion of these significant gains. During the
course of the year, the lower value of our private direct
investments and fund holdings detracted from the NAV by some 6%.
However, on a three-year basis, we estimate that our private
investments added approximately 26% to total NAV - a strong return,
and against the backdrop of both positive and negative years for
markets. Over this period, we also received in the order of GBP500
million of distributions from this portfolio.
A key feature of private investments is, of course, the
challenge in valuing positions which lack a daily traded share
price. Our independent Valuation Committee has devoted significant
time to ensuring that our investments are marked at levels which
reflect both changes in market conditions and underlying operating
performance. I highlighted the rigorous efforts we made in the
first half of the year to ensure our direct investments were fairly
valued, and we have continued this approach at the year end. For
our private fund investments, we are more naturally reliant on the
external managers or 'GPs'. While there is a well-understood,
industry wide time-lag in their reporting, our NAV will always
reflect the latest available information. As importantly, our
Manager undertakes rigorous due diligence before committing to
these funds - all of which are required to provide us with fair
value.
Critically, the majority of our direct portfolio companies
continue to exhibit strong operating performance. Our funds
exposure is also targeting areas uniquely positioned to capture
some of the most innovative and transformative structural trends
that are underway, and the great bulk of our investments in funds
are with managers with outstanding track records with whom we have
long standing relationships developed over many years. Deploying
our permanent capital in a diversified portfolio in these
profitable areas has been, and remains to this day, a core
ingredient in RIT's long term performance track record.
While private investments are important, they represent only one
part of our diversified multi-asset portfolio which is constructed
and managed by JRCM on a holistic, top-down basis. For example, a
higher allocation to the digital transition theme in our private
investments was deliberately offset with a reduction within our
quoted equity portfolio. Furthermore, our pessimistic outlook for
markets also led us to run with the lowest quoted equity exposure
for more than a decade. Within this book, we were more proactive
than usual, with a continued shift from a bias towards
long--duration growth assets, to more value and reflationary
assets. These changes were broadly accretive to performance, with
some standout performers including our exposure to Japan
value-oriented managers as well as to the energy transition theme.
Exposure management is also deployed in this book, with hedges
against tech markets helping to mitigate some of the declines.
Our absolute return and credit positions held up reasonably
well, notwithstanding the widespread credit market declines,
reflecting the lower-correlation nature of this exposure and
therefore the diversification benefits for the overall
portfolio.
Within currencies, the exposure required careful management
through the volatility, and overall the book made a meaningful
positive contribution. The main driver was holding around half of
the portfolio outside a depreciating sterling. We continue to hold
gold, which, notwithstanding a late comeback, in light of the shift
in inflation expectations, perhaps underperformed expectations. We
do continue to view it as being capable of providing both portfolio
diversification as well as being in a position to benefit from a
number of wider secular trends.
Throughout 2022, your Board continued to review the strategy and
portfolio composition in the context of our unchanging corporate
objective. The fundamentals of the multi-asset diversified
approach, and our long-term aims, have not altered. We continue to
believe that, notwithstanding the declines we saw in 2022, this
remains the right approach for our shareholders and is likely to
generate the superior returns through the cycles that RIT is
renowned for producing.
Share capital and dividend
Throughout your Company's history, the discount or premium at
which our shares have traded relative to our NAV has seen wide
variations. During 2022, we saw the discount widen, in part perhaps
reflecting the monthly nature of our reporting during times of
volatility, and also perhaps some more widespread concerns around
private equity generally. Where not precluded by being in a closed
period or approaching an imminent publication of NAV, we have
continued seeking to capture value for shareholders by buying back
shares as we approached a high single-digit discount. Over the
year, we bought back some 515,000 shares accretively at a cost of
GBP11.0 million and by the year end, we held some 690,000 shares in
treasury. In addition, we have enhanced our reporting, providing
additional commentary outside of our main six-monthly cycle.
Our corporate objective is to deliver long-term capital growth.
However, we recognise the value to shareholders of a modest income
yield; our policy remains to maintain or increase the dividend,
subject to the overriding capital preservation objective. We paid a
total dividend of 37 pence per share during 2022 and intend to
increase the dividend again in 2023 to 38 pence per share,
representing a 2.7% increase. The dividend will be paid as normal
in equal instalments in April and October, funded from our
significant reserves.
Governance and employees
During 2022 we welcomed three new non-executive Directors to the
Board. Jutta af Rosenborg was appointed in May, and Vikas Karlekar
and Cecilia McAnulty in August. These appointments further
strengthened the skills, experience and knowledge of the Board. We
appreciate the benefits which diversity of background and
experience brings to your Board, and I am pleased we comply with
both the FCA's new requirements and the recommendations of the
Parker and Hampton-Alexander Reviews in terms of the composition of
the Board.
After nine years' dedicated service on the Board, Mike Power
will not stand for re-election at the upcoming AGM. I would like to
thank Mike for the expertise, energy and diligence he has devoted
to his role as a Director and for his significant contributions to
the Company over this time, including chairing both the Audit and
Risk, and Valuation Committees. On Mike's retirement and in
accordance with the Board's succession planning, Jutta af Rosenborg
will assume the role of Chair of the Audit and Risk Committee and
Maxim Parr will assume the role of Chair of the Valuation
Committee.
ESG integration remains a core objective of the Board and we are
continuing to develop initiatives aimed at our stakeholders, and
making a positive impact on the society and the environment we work
in. JRCM's Responsible Investment Framework & Policy is fully
integrated into our investment processes and is kept under regular
review, and as a signatory of the UN Principles of Responsible
Investment (UN PRI), we look forward to submitting our first report
under this framework in 2023.
Many commentators have highlighted the impact that the
widespread challenges I described earlier can have, and are having,
on people's mental health. This is important to us, and we have
invested time with our Manager in ensuring that our employees are
appropriately supported. Steps taken in this regard include a
cost-of-living contribution for employees who would benefit most
from a one-off payment, and targeted support for staff well-being.
JRCM colleagues have also been engaged in activities to help
support our community with charitable donations, conscious of our
wider responsibilities.
Our employees and my Board colleagues are central to our
long-term success, and once again, I would like to thank them all
for their hard work and commitment during another particularly
challenging year.
Outlook
In last year's statement written in early 2022, I highlighted
some of the challenges we may see as a result of the removal of
many of the extraordinary underpins for markets of recent years. It
is not clear at all that we are through the fundamental transition
entailed by the end of low interest rates. While the reintroduction
of more rational pricing for risk and capital is welcome, the
consequences of such a significant shift (and at such a fast pace)
are unlikely to be short lived. The existence of 'free money' for
so long, will no doubt have created widespread embedded
distortions, which will take time to resolve. Low rates of economic
growth, continuing pressure on both corporate earnings and consumer
confidence, and limited scope for fiscal stimulus are likely to
remain with us for some time, so that the conditions for a
sustained recovery in markets appear at present to be remote.
In this environment we expect to continue with a relatively
cautious exposure to quoted equities, while at the same time
remaining positive about the opportunities for the long term which
will emerge in stocks and alternatives such as the dislocated
regional credit markets. Where we see interesting investments, we
will be very selective, and the wide network we can call upon, as
well as our Manager's disciplined due diligence, will be
important.
While these are challenging markets, we have managed through
them before, and we remain confident that our approach is the right
one for RIT's long-term performance and for our shareholders.
Sir James Leigh-Pemberton
Chairman
27 February 2023
MANAGERS' REPORT - EXTRACTS
Overview and performance highlights
In 2022, financial markets suffered the worst year since the
global financial crisis. Most major equity indices saw high
double-digit declines, driven by multi-decade high inflation,
leading to unprecedented global monetary tightening. This occurred
amidst a backdrop of geopolitical uncertainty, a war in Ukraine,
and a stifled Chinese economy. In the UK, the Bank of England was
forced into emergency bond-buying to stabilise the government bond
market, after the turmoil of September's mini-budget. With
investors concerned about both inflation and a growth slowdown, the
swings in market sentiment have been extreme.
Amidst this unstable backdrop, the NAV total return was -13.3%,
broadly in line with the ACWI (50% GBP) which was down -12.9% and
below the 'inflation plus' hurdle (CPI plus 3.0%) which hit 13.5%
for the year.
In years such as this, investing through market cycles can feel
uncomfortable, but we remain confident in our long--term investment
approach, which is supported by our longer-term performance. Over
three years, our NAV has outperformed our equity index, and over
five years, it has outperformed both reference hurdles, while
maintaining lower volatility than the market. Since inception, we
have participated in 74% of the monthly market increases but only
41% of the declines.
Overall, the key drivers of performance for the year were:
-- a decline in the value of our private investments, largely as
a result of a reset in markets and public company comparables;
-- our low quoted equity exposure, which provided some mitigation
against the broad declines in equity markets;
-- within the quoted equity book, our exposure to China was impacted
by the government's policy decisions, such as zero-covid and
property deleveraging;
-- a helpful shift in our quoted equity book from growth assets
into assets with a reflationary focus, driven both by conviction
and the desire for further diversification;
-- our investment with Eisler Capital, which was down -17.7%, and
which we redeemed at the year end; and
-- the allocation of the portfolio's currency exposure outside of
sterling, notably to the US dollar, which rallied as investors
searched for a safe haven amidst the enduring volatility.
In order to assist shareholders with their understanding of our
portfolio, we have increased the level of disclosure and provided
more detailed descriptions of our underlying exposures.
Asset allocation and portfolio contribution
31 December 31 December
2022 2022 2021 2021
Contribution Contribution
Asset category % NAV % % NAV %
----------------------------------- ----------- ------------ ----------- ------------
Quoted equity 35.1% (6.7%) (1) 42.6% 1.2%(1)
Private investments 40.7% (6.2%) 36.5% 22.4%
Absolute return and credit 20.1% (0.6%) 17.7% 2.1%
Real assets 1.8% (0.2%) 1.5% (0.1%)
Government bonds and rates 0.0% (0.9%) 0.0% 0.3%
Currency 1.1% 2.1% (2) 0.5% (0.8%) (2)
----------- ------------ ----------- ------------
Total investments 98.8% (12.5%) 98.8% 25.1%
Liquidity, borrowings and other 1.2% (0.8%)(3) 1.2% (1.5%) (3)
----------------------------------- ----------- ------------ ----------- ------------
Total 100.0% (13.3%) 100.0% 23.6%
----------------------------------- ----------- ------------ ----------- ------------
Average net quoted equity exposure
(1) 38% 43%
----------------------------------- ----------- ------------ ----------- ------------
(1) The quoted equity contribution reflects the profits from the net quoted equity exposure held
during the period as well as the costs of portfolio hedges. The exposure can differ from the
% NAV as the former reflects notional exposure through derivatives as well as estimated adjustments
for derivatives and/or liquidity held by managers.
(2) Currency exposure is managed centrally on an overlay basis, with the translation impact and
the results of the currency hedging and overlay activity included in this category's contribution.
(3) This category's contribution includes interest, mark-to-market movements in the fixed interest
notes and expenses.
Outlook
It may well be that we are witnessing a reversal of a decade's
material outperformance of financial assets over the real economy.
Investors will likely need to adjust their expectations to the very
different environment of a higher cost of capital, labour and raw
materials, and with no safety net provided by central banks.
Participating in this market will be remarkably difficult, with
central banks having unfinished business in their fight against
inflation, companies facing margin pressures and uncertainty around
economic growth, and consumers adjusting to the tighter financial
conditions after a period of generous covid support schemes. This
backdrop, in our view, warrants a cautious net quoted exposure
combined with dry powder.
However, we also believe the macro uncertainty discussed above,
combined with the risk of 'financial accidents', can create
compelling bottom-up liquid opportunities in both equities and
credit markets. We will follow our long-standing disciplined
approach, focused on fundamentals-driven investing while looking
for strategic openings which present themselves in such dislocated
markets.
We would note that our patient approach also means we are
unlikely to participate in short-term sentiment driven rallies.
Nevertheless, we have demonstrated our resolve to act quickly and
decisively when there is an opportunity, such as the value-oriented
assets that benefitted from a more reflationary environment. We
believe there will be additional opportunities in the upcoming
year. For example, in 2022, the market disproportionately punished
all long duration assets as a result of higher discount rates,
without discriminating between the fundamental ability for
companies to produce healthy cash flows and continued growth. We
believe that many high-quality companies in our private investment
book as well as our quoted biotech exposure could benefit from the
market taking a more discriminating view of long duration
assets.
Additionally, over the past year, driven by the sharp rise in
the cost of capital, there has been a considerable expansion of the
opportunity set for strategies that do not require rising equity
markets. For example, merger arbitrage, structured credit, and
equity market-neutral strategies can produce healthy returns with
little resort to leverage in the current market environment.
We are all shareholders in RIT and firmly believe that our tried
and tested approach remains the best way to manage money over the
long term, balancing caution with deploying risk capital to ensure
that investors' capital grows through the cycles. Over the last 10
years, our NAV per share total return of approximately 140% stands
up well against other investments and often with considerably less
risk. Even on a shorter time horizon, we believe our approach of
combining capital preservation with capital growth is a powerful
one. Indeed, if we consider the past 20 years of annual NAV
returns, not only have we never lost money on a rolling three-year
basis, but we have generated healthy growth averaging 10.2% per
annum. It is this combination which sets us apart from the majority
of other trusts.
Francesco Goedhuis Ron Tabbouche
Chairman and Chief Executive Officer Chief Investment Officer
J. Rothschild Capital Management J. Rothschild Capital Management
Limited 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.
Day-to-day management is undertaken by JRCM within parameters set
by the Board.
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.
As discussed in the Manager's Report, with inflation rates
reaching multi-decade highs, political and fiscal volatility
impacting the UK, energy price fluctuations magnified and
exacerbated by Russia's invasion of Ukraine, and the
underperformance of China, 2022 was extremely turbulent globally,
with no asset classes outpacing inflation and losses across
equities and bond markets. As such, once again, risk management
remained 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. Part of this approach is to
emphasise or de-emphasise parts of the portfolio to compensate for
risk in other areas. For example, with a decision to deploy capital
to the technology transition theme through the private portfolio,
the exposure to this theme within the quoted equity book was
deliberately smaller. Equally the deployment of hedges, whether to
manage currency translation risk, or to reduce exposure to
particular companies or sectors, was an important part of
mitigating losses over the year.
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.
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. Additional information in relation to market risk, credit
risk and liquidity risk in accordance with IFRS 7 Financial
Instruments.
Operational risks include those related to the legal
environment, regulation, taxation, information 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.
The Board is ultimately responsible for the Group's system of
internal controls and it has delegated the supervision of the
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.
Principal risks
The Board has carried out a robust assessment of the emerging
and principal risks facing the Company, concluding that there are
no material emerging risks, and the principal risks are as
described below:
Risk Mitigation
Investment strategy risk
As an investment company, a The Board is responsible for
key risk is that the investment monitoring the investment strategy
strategy, guided by the Investment to ensure it is consistent with
Policy: the Investment Policy and appropriate
"To invest in a widely diversified, to meet the Corporate Objective.
international portfolio across The Directors receive a detailed
a range of asset classes, both monthly report from the Manager
quoted and unquoted; to allocate to enable them to monitor investment
part of the portfolio to exceptional performance, attribution and
managers in order to ensure exposure. They also receive
access to the best external a comprehensive investment report
talent available." from JRCM in advance of the
does not deliver the Corporate regular quarterly Board meetings.
Objective: The overall risk appetite is
"To deliver long-term capital set by the Board, with portfolio
growth, while preserving shareholders' risk managed by JRCM within
capital; to invest without the prescribed limits. This involves
constraints of a formal benchmark, careful assessment of the nature
but to deliver for shareholders and level of risk within the
increases in capital value in portfolio using qualitative
excess of the relevant indices and quantitative methods.
over time."
The JRCM Investment Committee
meets regularly to review overall
investment performance, portfolio
exposure and significant new
investments.
------------------------------------------
Market risk The Group has a widely diversified
Price risk investment portfolio which significantly
RIT invests in a number of reduces the exposure to individual
asset categories including stocks, asset price risk. Detailed portfolio
equity funds, private investments, valuations and exposure analysis
absolute return and credit, are prepared regularly, and
real assets, government bonds form the basis for the ongoing
and derivatives. The portfolio risk management and investment
is therefore exposed to the decisions. In addition, regular
risk that the fair value of scenario analysis is undertaken
these investments will fluctuate to assess likely downside risks
because of changes in market and sensitivity to broad market
prices. changes, as well as assessing
Currency risk the underlying correlations
Consistent with the Investment amongst the separate asset classes.
Policy, the Group invests globally Exposure management is undertaken
in assets denominated in currencies with a variety of techniques
other than sterling as well including using equity index
as adjusting currency exposure and interest rate futures and
to either seek to hedge and/or options to hedge or to increase
enhance returns. This approach equity and interest rate exposure
exposes the portfolio to currency depending on overall macroeconomic
risk as a result of changes and market views.
in exchange rates.
Interest rate risk
In addition, the Group is exposed Currency exposure is managed
to the direct and indirect impact via an overlay strategy, typically
of changes in interest rates. using a combination of currency
forwards and/or options to adjust
the natural currency of the
investments in order to achieve
a desired net exposure. The
geographic revenue breakdown
for stocks as well as correlations
with other asset classes are
also considered as part of our
hedging strategy.
------------------------------------------
Liquidity risk
Liquidity risk is the risk that The Group manages its liquid
the Group will have difficulty resources to ensure sufficient
in meeting its obligations in cash is available to meet its
respect of financial liabilities expected needs. It monitors
as they fall due. the level of short-term funding,
The Group has significant investments and balances the need for access
in and commitments to direct to such funding and liquidity,
private investments and funds with the long-term funding needs
which are inherently illiquid. of the Group, and the desire
In addition, the Group holds to achieve investment returns.
investments with other third-party Covenants embedded within the
organisations which may require banking facilities and long-term
notice periods in order to be notes are monitored on an ongoing
realised. Capital commitments basis for compliance, and form
could, in theory, be drawn with part of the regular stress tests.
minimal notice. In addition,
the Group may be required to In addition, existing cash reserves,
provide additional margin to as well as the significant liquidity
support derivative financial that could be realised from
instruments 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 Trust Corporation
UK Limited (BNP) has separate
responsibilities in monitoring
the Company's cash flow.
------------------------------------------
Credit risk
Credit risk is the risk that The majority of the exposure
a counterparty to a financial to credit risk within the absolute
instrument held by the Group return and credit portfolio
will fail to meet an obligation is indirect exposure as a result
which could result in a loss of positions held within funds
to the Group. managed externally. These are
Certain investments held within typically diversified portfolios
the absolute return and credit monitored by the third-party
portfolio are exposed to credit managers themselves, as well
risk, including in relation as through JRCM's ongoing portfolio
to underlying positions held management oversight.
by funds. Listed transactions are settled
Substantially all of the listed on a delivery versus payment
portfolio investments capable basis using a wide pool of brokers.
of being held in safe custody, Cash holdings and margin balances
are held by BNP as custodian are also divided between a number
and depositary. Bankruptcy or of different financial institutions,
insolvency of BNP may cause whose credit ratings are regularly
the Group's rights with respect monitored.
to securities held by BNP to All assets held directly by
be delayed. the custodian are in fully segregated
Unrealised profit on derivative client accounts. Other than
financial instruments held by where local market regulations
counterparties is potentially do not permit it, these accounts
exposed to credit risk in the are designated in RIT's name.
event of the insolvency of a The custodian's most recent
broker counterparty. credit rating was A+ from Standard
& Poor's (S&P).
------------------------------------------
Key person dependency
In common with other investment This risk is closely monitored
trusts, investment decisions by the Board, through its oversight
are the responsibility of a of the Manager's incentive schemes
small number of key individuals (on which it has received external
within the Manager. If for any advice) as well as the succession
reason the services of these plans for key individuals. The
individuals were to become unavailable, potential impact is also reduced
there could be a significant by an experienced Board of Directors,
impact on our business. with distinguished backgrounds
in financial services and business.
------------------------------------------
Climate-related risks
Ongoing climate changes may We do not consider climate-related
impact either our own business, risks have material, specific
the external managers with whom impacts on our own asset management
we invest, and/ or the underlying businesses as distinct from
portfolio investments. For our the investment portfolio. Our
own business this could result Manager continues to monitor,
in increased costs of complying and minimise, the climate-related
with new regulations and/or impacts of our internal operations;
changes to the way we operate. we offset the carbon emissions
Portfolio companies could see of this business - categorised
demand pressures, an increased as Scope 1 and Scope 2 emissions
cost of capital, tighter regulation by the Greenhouse Gas (GHG)
or increased taxation, all impacting Protocol - through participation
profitability. in an accredited scheme and
Our ability to make climate-change we are taking steps to further
disclosures may be impacted develop our understanding of
by our investment approach if our indirect emissions impact
the external fund managers with (categorised as Scope 3 emissions).
whom we invest do not provide JRCM is a signatory to the UN
the desired information. PRI, and the Board worked with
More frequent extreme weather our Manager to develop JRCM's
could disrupt businesses, travel, Responsible Investment Framework
global supply chains and profitability. & Policy, which incorporates
environmental factors into our
investment approach. This allows
us to consider the potential
wider impacts of climate change
risks to our investments.
JRCM is working with an external
adviser to consider our ability
to make additional climate-disclosures
in relation to our investment
portfolio, while acknowledging
the likely challenges caused
by having external funds.
We monitor developments in regulation
and disclosures and seek as
far as possible to prepare for
future changes.
The Group's adoption of fair
value in relation to its investments,
means that the climate-related
risks recognised by market participants
are incorporated in the valuations
------------------------------------------
Legal and regulatory risk
As an investment trust, RIT's The Operational Risk Committee
operations are subject to wide of JRCM provides oversight of
ranging laws and regulations all legal, regulatory and other
including in relation to the operational risks across the
Listing Rules, and Disclosure, Group. This Committee reports
Guidance and Transparency Rules key findings to the JRCM Executive
of the FCA's Primary Markets Committee and the Audit and
function, the Companies Act Risk Committee.
2006, corporate governance codes, JRCM employs a general counsel
as well as continued compliance and a compliance officer as
with relevant tax legislation well as other personnel with
including ongoing compliance experience of legal, regulatory,
with the rules for investment disclosure and taxation matters.
trusts. JRCM is authorised and In addition, specialist external
regulated by the FCA and acts advisers are engaged in relation
as Alternative Investment Fund to complex, sensitive or emerging
Manager. matters. For example, during
The financial services sector 2022 the Group again engaged
continues to experience regulatory external advisers in supporting
change at national and international its consideration of ESG matters.
levels, including in relation
to climate change. Failure to
act in accordance with these Where necessary, co-investments
laws and regulations could result and other transactions are subject
in fines, censure or other losses to review by the Conflicts Committee
including taxation or reputational and/or the FCA.
loss.
Co-investments and other arrangements
with related parties may result
in conflicts of interest.
------------------------------------------
Operational risk
Operational risks are those Systems and control procedures
arising from inadequate or failed are the subject of continued
processes, people and systems development and regular review.
or other external factors. During the year the Audit and
Risk Committee reviewed, and
Key operational risks include satisfied itself with, the Manager's
reliance on third-party managers approach to due diligence as
and suppliers, dealing errors, part of its investment decision
processing failures, pricing making.
or valuation errors (including Processes are in place to ensure
under or over-stating the valuations the recruitment and ongoing
of private investments leading training of appropriately skilled
to the incorrect valuation of staff within key operational
these portfolio holdings), fraud, functions. Suitable remuneration
reliability of core systems policies are in place to encourage
and IT security issues. 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 was updated in 2022 following
the move to a hybrid working
arrangement.
Cyber security continues to
receive an enhanced focus, with
systems and processes designed
to combat the ongoing risk developments
in this area. Such processes
are kept under regular review
including multi-factor authentication,
ensuring effective firewalls,
internet and email gateway security
and anti-virus software. This
is complemented with staff awareness
programmes (including periodic
mock phishing exercises) which
monitor and test both the robustness
of our systems as well as keeping
staff alert to potential risks.
During the year, the Manager
was awarded the government's
'cyber essentials plus' security
certification in March 2022,
the highest level of certification
offered under this scheme. The
Group has specific insurance
cover in place to cover information
security and cyber risks.
------------------------------------------
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 2022 2021
GBP million Revenue Capital Total Revenue Capital Total
----------------------------- ------- -------- -------- ------- ------- ------
Investment income 19.1 - 19.1 12.7 - 12.7
Other income 7.6 - 7.6 3.8 - 3.8
Gains/(losses) on fair value
investments - (555.5) (555.5) - 901.8 901.8
Gains/(losses) on monetary
items and borrowings - 20.2 20.2 - 18.0 18.0
------------------------------ ------- -------- -------- ------- ------- ------
26.7 (535.3) (508.6) 16.5 919.8 936.3
Expenses
Operating expenses (36.0) (7.6) (43.6) (29.6) (24.8) (54.4)
------------------------------ ------- -------- -------- ------- ------- ------
Profit/(loss) before finance
costs and tax (9.3) (542.9) (552.2) (13.1) 895.0 881.9
Finance costs (5.0) (20.0) (25.0) (4.0) (16.0) (20.0)
------------------------------ ------- -------- -------- ------- ------- ------
Profit/(loss) before tax (14.3) (562.9) (577.2) (17.1) 879.0 861.9
Taxation - - - (0.2) (2.5) (2.7)
------------------------------ ------- -------- -------- ------- ------- ------
Profit/(loss) for the year (14.3) (562.9) (577.2) (17.3) 876.5 859.2
------------------------------ ------- -------- -------- ------- ------- ------
Earnings/(loss) per ordinary
share - basic (9.2p) (362.1p) (371.3p) (11.1p) 561.4p 550.3p
Earnings/(loss) per ordinary
share - diluted (9.2p) (362.1p) (371.3p) (11.0p) 556.5p 545.5p
------------------------------ ------- -------- -------- ------- ------- ------
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 2022 2021
GBP million Revenue Capital Total Revenue Capital Total
------------------------------------- ------- ------- ------- ------- ------- -----
Profit/(loss) for the year (14.3) (562.9) (577.2) (17.3) 876.5 859.2
Revaluation gain/(loss) on
property, plant and equipment - (2.1) (2.1) - (0.2) (0.2)
Actuarial gain/(loss) in defined
benefit pension plan (4.5) - (4.5) 1.9 - 1.9
Deferred tax (charge)/credit
allocated to actuarial gain/(loss) 1.1 - 1.1 (1.1) - (1.1)
-------------------------------------- ------- ------- ------- ------- ------- -----
Total comprehensive income/(expense)
for the year (17.7) (565.0) (582.7) (16.5) 876.3 859.8
-------------------------------------- ------- ------- ------- ------- ------- -----
Consolidated Balance Sheet
At 31 December
GBP million 2022 2021
--------------------------------------------- ------- -------
Non-current assets
Investments held at fair value 3,586.3 4,291.8
Investment property 37.9 38.3
Property, plant and equipment 20.7 23.1
Retirement benefit asset 0.5 3.8
Derivative financial instruments 1.0 2.9
---------------------------------------------- ------- -------
3,646.4 4,359.9
--------------------------------------------- ------- -------
Current assets
Derivative financial instruments 57.3 32.7
Other receivables 245.3 262.8
Amounts owed by group undertakings 4.5 3.7
Cash at bank 218.0 325.9
---------------------------------------------- ------- -------
525.1 625.1
--------------------------------------------- ------- -------
Total assets 4,171.5 4,985.0
---------------------------------------------- ------- -------
Current liabilities
Borrowings (236.2) (240.0)
Derivative financial instruments (10.4) (8.2)
Other payables (63.5) (168.8)
Amounts owed to group undertakings (0.1) -
---------------------------------------------- ------- -------
(310.2) (417.0)
--------------------------------------------- ------- -------
Net current assets/(liabilities) 214.9 208.1
---------------------------------------------- ------- -------
Total assets less current liabilities 3,861.3 4,568.0
---------------------------------------------- ------- -------
Non-current liabilities
Borrowings (134.4) (168.9)
Derivative financial instruments - (2.9)
Deferred tax liability (0.2) (1.3)
Provisions (1.8) (1.0)
Lease liability (3.2) (3.6)
---------------------------------------------- ------- -------
(139.6) (177.7)
--------------------------------------------- ------- -------
Net assets 3,721.7 4,390.3
---------------------------------------------- ------- -------
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 (46.3) (23.0)
Capital reserve 3,548.9 4,174.4
Revenue reserve (29.1) (11.4)
Revaluation reserve 9.4 11.5
---------------------------------------------- ------- -------
Total equity 3,721.7 4,390.3
---------------------------------------------- ------- -------
Net asset value per ordinary share - basic 2,414p 2,819p
Net asset value per ordinary share - diluted 2,388p 2,794p
---------------------------------------------- ------- -------
The financial statements were approved by the Board and
authorised for issue on 27 February 2023.
Consolidated Statement of Changes in Equity
Capital Own
Share Share redemption shares Capital Revenue Revaluation Total
GBP million capital premium reserve reserve reserve reserve reserve equity
----------------------------- -------- -------- ----------- -------- -------- -------- ----------- -------
Balance at 1 January
2021 156.8 45.7 36.3 (15.3) 3,350.1 5.1 11.7 3,590.4
Profit/(loss) for the
year - - - - 876.5 (17.3) - 859.2
Revaluation gain/(loss)
on property, plant and
equipment - - - - - - (0.2) (0.2)
Actuarial gain/(loss)
in defined benefit plan - - - - - 1.9 - 1.9
Deferred tax (charge)/credit
allocated to actuarial
gain/(loss) - - - - - (1.1) - (1.1)
----------------------------- -------- -------- ----------- -------- -------- -------- ----------- -------
Total comprehensive
income/(expense) for
the year - - - - 876.5 (16.5) (0.2) 859.8
----------------------------- -------- -------- ----------- -------- -------- -------- ----------- -------
Dividends paid - - - - (55.0) - - (55.0)
Purchase of treasury
shares - - - - (1.4) - - (1.4)
Movement in own shares
reserve - - - (7.7) - - - (7.7)
Movement in share-based
payments - - - - 4.2 - - 4.2
----------------------------- -------- -------- ----------- -------- -------- -------- ----------- -------
Balance at 31 December
2021 156.8 45.7 36.3 (23.0) 4,174.4 (11.4) 11.5 4,390.3
----------------------------- -------- -------- ----------- -------- -------- -------- ----------- -------
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
----------------------------- -------- -------- ----------- -------- -------- -------- ----------- -------
Consolidated Cash Flow Statement
Consolidated cash
Year ended 31 December flow
GBP million 2022 2021
------------------------------------------ -------------- -------------
Cash flows from operating activities:
Cash inflow/(outflow) before taxation
and interest 57.7 71.8
Interest paid (25.0) (20.0)
--------------------------------------------- -------------- -------------
Net cash inflow/(outflow) from operating
activities 32.7 51.8
--------------------------------------------- -------------- -------------
Cash flows from investing activities:
Sale/(purchase) of property, plant and
equipment (0.1) (0.1)
Investments in subsidiary undertakings - -
------------------------------------------ -------------- -------------
Net cash inflow/(outflow) from investing
activities (0.1) (0.1)
--------------------------------------------- -------------- -------------
Cash flows from financing activities:
Repayment of borrowings (591.6) (421.9)
Drawing of borrowings 555.4 469.8
Purchase of ordinary shares by EBT (1) (40.4) (21.0)
Purchase of ordinary shares into treasury (11.0) (1.4)
Dividends paid (57.6) (55.0)
--------------------------------------------- -------------- -------------
Net cash inflow/(outflow) from financing
activities (145.2) (29.5)
--------------------------------------------- -------------- -------------
Increase/(decrease) in cash in the year (112.6) 22.2
--------------------------------------------- -------------- -------------
Cash at the start of the year 325.9 296.8
--------------------------------------------- -------------- -------------
Effect of foreign exchange rate changes
on cash 4.7 6.9
--------------------------------------------- -------------- -------------
Cash at the year end 218.0 325.9
--------------------------------------------- -------------- -------------
Reconciliation:
Cash at bank 218.0 325.9
--------------------------------------------- -------------- -------------
Cash at the year end 218.0 325.9
--------------------------------------------- -------------- -------------
(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 2022 is based on the
loss of GBP577.2 million (2021: profit of GBP859.2 million) and the
weighted average number of ordinary shares in issue during the
period of 155.5 million (2021: 156.1 million). The weighted average
number of shares is adjusted for shares held in the employee
benefit trust (EBT) and in treasury in accordance with IAS 33.
GBP million 2022 2021
--------------------------------- ------- ------
Net revenue profit/(loss) (14.3) (17.3)
Net capital profit/(loss) (562.9) 876.5
--------------------------------- ------- ------
Total profit/(loss) for the year (577.2) 859.2
--------------------------------- ------- ------
Weighted average (million) 2022 2021
--------------------------- ----- -----
Number of shares in issue 156.8 156.8
Shares held in EBT (1.0) (0.5)
Shares held in treasury (0.3) (0.2)
--------------------------- ----- -----
Basic shares 155.5 156.1
--------------------------- ----- -----
pence 2022 2021
--------------------------------------------------- ------- ------
Revenue earnings/(loss) per ordinary share - basic (9.2) (11.1)
Capital earnings/(loss) per ordinary share - basic (362.1) 561.4
--------------------------------------------------- ------- ------
Total earnings per share - basic (371.3) 550.3
--------------------------------------------------- ------- ------
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 is not required for 2022 as an increase in
shares in issue would reduce the basic loss per ordinary share. As
a result, there is no difference between the basic and diluted loss
per ordinary share.
Weighted average (million) 2022 2021
------------------------------------- ----- -----
Basic shares 155.5 156.1
Effect of share-based payment awards - 1.4
------------------------------------- ----- -----
Diluted shares 155.5 157.5
------------------------------------- ----- -----
pence 2022 2021
----------------------------------------------------- ------- ------
Revenue earnings/(loss) per ordinary share - diluted (9.2) (11.0)
Capital earnings/(loss) per ordinary share - diluted (362.1) 556.5
----------------------------------------------------- ------- ------
Total earnings per ordinary share - diluted (371.3) 545.5
----------------------------------------------------- ------- ------
Net asset value per ordinary share - basic and diluted
Net asset value per ordinary share is based on the following
data:
31 December 2022 2021
----------------------------------------------- ------- -------
Net assets (GBP million) 3,721.7 4,390.3
----------------------------------------------- ------- -------
Number of shares in issue (million) 156.8 156.8
Shares held in EBT (million) (2.0) (0.9)
Shares held in treasury (million) (0.7) (0.2)
----------------------------------------------- ------- -------
Basic shares (million) 154.1 155.7
Effect of share-based payment awards (million) 1.7 1.4
----------------------------------------------- ------- -------
Diluted shares (million) 155.8 157.1
----------------------------------------------- ------- -------
2022 2021
31 December pence pence
--------------------------------------------- ----- -----
Net asset value per ordinary share - basic 2,414 2,819
Net asset value per ordinary share - diluted 2,388 2,794
--------------------------------------------- ----- -----
Dividends
2022 2021
Pence Pence 2022 2021
per share per share GBP million GBP million
----------------------- --------- --------- ----------- -----------
Dividends paid in year 37.0 35.25 57.6 55.0
----------------------- --------- --------- ----------- -----------
The above amounts were paid as distributions to equity holders
of the Company in the relevant year from accumulated capital
profits.
On 28 February 2022 the Board declared a first interim dividend
of 18.5 pence per share in respect of the year ended 31 December
2022 that was paid on 29 April 2022. A second interim dividend of
18.5 pence per share was declared by the Board on 1 August 2022 and
paid on 28 October 2022.
The Board declares the payment of a first interim dividend of 19
pence per share in respect of the year ending 31 December 2023.
This will be paid on 28 April 2023 to shareholders on the register
on 11 April 2023, and funded from the accumulated capital
profits.
Glossary and Alternative Performance Measures
Glossary
Within this 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%.
GBP million 2022 2021
------------- ------- -------
Total assets 4,171.5 4,985.0
Less: cash (218.0) (325.9)
------------- ------- -------
Sub total 3,953.5 4,659.1
------------- ------- -------
Net assets 3,721.7 4,390.3
------------- ------- -------
Gearing 6.2% 6.1%
------------- ------- -------
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% GBP), 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 2022 was 2,388 pence,
a decrease of 406 pence, or 14.5%, from 2,794 pence at the previous
year end. As dividends totalling 37.0 pence per share were paid
during the year, the effect of reinvesting the dividends in the NAV
is 1.2%, which results in a NAV total return of --13.3%.
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
direct performance-related compensation from JRCM, as this is
analogous to a performance fee for an externally-managed trust.
GBP million 2022 2021
--------------------------------------------- ----- ------
Operating expenses 43.6 54.4
JRCM direct performance-related compensation (7.6) (24.8)
Other adjustments 0.0 (0.1)
--------------------------------------------- ----- ------
Ongoing charges 36.0 29.5
Average net assets 4,045 4,085
--------------------------------------------- ----- ------
OCF 0.89% 0.72%
--------------------------------------------- ----- ------
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 0.88%
of average net assets (2021: 0.87%).
Premium/discount: The premium or discount (or rating) is
calculated by taking the closing share price on 31 December 2022
and dividing it by the NAV per share at 31 December 2022, 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 2022
closed at 2,125 pence, a decrease of 625 pence, or 22.7%, from
2,750 pence at the previous year end. Dividends totalling 37.0
pence per share were paid during the year, and the effect of
reinvesting the dividends in the share price is 1.2%, which results
in a TSR of --21.5%. The TSR is one of the Company's KPIs.
Basis of presentation
The financial information for the year ended 31 December 2022
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 2021
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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END
FR UBVRROOUUUUR
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