Last checked at 
28 Feb 2023 07:00
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 20221 |
· | 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 £280 million on listing in 1988 to ~£3.7 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%.
£10,000 invested in RIT shares at inception would be worth £388,000 today (with dividends reinvested) compared to the same amount invested in the ACWI which would be worth £104,000.
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 | £3,722 million | £4,390 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% £) 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 £500 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 £11.0 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% £) 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 2022 | 2022 | 31 December 2021 | 2021 | |
Asset category | % NAV | Contribution % | % NAV | Contribution % |
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 exposure1 | 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 Chairman and Chief Executive Officer J. Rothschild Capital Management Limited
| Ron Tabbouche Chief Investment Officer 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. 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 key risk is that the investment strategy, guided by the Investment Policy: "To invest in a widely diversified, international portfolio across a range of asset classes, both quoted and unquoted; to allocate part of the portfolio to exceptional managers in order to ensure access to the best external talent available." does not deliver the Corporate Objective: "To deliver long-term capital growth, while preserving shareholders' capital; to invest without the constraints of a formal benchmark, but to deliver for shareholders increases in capital value in excess of the relevant indices over time." |
The Board is responsible for monitoring the investment strategy to ensure it is consistent with the Investment Policy and appropriate to meet the Corporate Objective. The Directors receive a detailed monthly report from the Manager to enable them to monitor investment performance, attribution and exposure. They also receive a comprehensive investment report from JRCM in advance of the regular quarterly Board meetings. The overall risk appetite is set by the Board, with portfolio risk managed by JRCM within prescribed limits. This involves careful assessment of the nature and level of risk within the portfolio using qualitative and quantitative methods. The JRCM Investment Committee meets regularly to review overall investment performance, portfolio exposure and significant new investments. |
Market risk Price risk RIT invests in a number of asset categories including stocks, equity funds, private investments, absolute return and credit, real assets, government bonds and derivatives. The portfolio is therefore exposed to the risk that the fair value of these investments will fluctuate because of changes in market prices. Currency risk Consistent with the Investment Policy, the Group invests globally in assets denominated in currencies other than sterling as well as adjusting currency exposure to either seek to hedge and/or enhance returns. This approach exposes the portfolio to currency risk as a result of changes in exchange rates. Interest rate risk In addition, the Group is exposed to the direct and indirect impact of changes in interest rates. | The Group has a widely diversified investment portfolio which significantly reduces the exposure to individual asset price risk. Detailed portfolio valuations and exposure analysis are prepared regularly, and form the basis for the ongoing risk management and investment decisions. In addition, regular scenario analysis is undertaken to assess likely downside risks and sensitivity to broad market changes, as well as assessing the underlying correlations amongst the separate asset classes. 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. Currency exposure is managed via an overlay strategy, typically using a combination of currency forwards and/or options to adjust the natural currency of the investments in order to achieve a desired net exposure. The geographic revenue breakdown for stocks as well as correlations with other asset classes are also considered as part of our hedging strategy. |
Liquidity risk Liquidity risk is the risk that the Group will have difficulty in meeting its obligations in respect of financial liabilities as they fall due. The Group has significant investments in and commitments to direct private investments and funds which are inherently illiquid. In addition, the Group holds investments with other third-party organisations which may require notice periods in order to be realised. Capital commitments could, in theory, be drawn with minimal notice. In addition, the Group may be required to provide additional margin to support derivative financial instruments |
The Group manages its liquid resources to ensure sufficient cash is available to meet its expected needs. It monitors the level of short-term funding, and balances the need for access to such funding and liquidity, with the long-term funding needs of the Group, and the desire to achieve investment returns. Covenants embedded within the banking facilities and long-term notes are monitored on an ongoing basis for compliance, and form part of the regular stress tests.
In addition, existing cash reserves, as well as the significant liquidity that could be realised from the sale or redemption of portfolio investments and undrawn, committed borrowings, could all be utilised to meet short-term funding requirements if necessary. As a closed-ended company, there is no requirement to maintain liquidity to service investor redemptions. The Depositary, BNP Paribas Trust Corporation UK Limited (BNP) has separate responsibilities in monitoring the Company's cash flow. |
Credit risk Credit risk is the risk that a counterparty to a financial instrument held by the Group will fail to meet an obligation which could result in a loss to the Group. Certain investments held within the absolute return and credit portfolio are exposed to credit risk, including in relation to underlying positions held by funds. Substantially all of the listed portfolio investments capable of being held in safe custody, are held by BNP as custodian and depositary. Bankruptcy or insolvency of BNP may cause the Group's rights with respect to securities held by BNP to be delayed. Unrealised profit on derivative financial instruments held by counterparties is potentially exposed to credit risk in the event of the insolvency of a broker counterparty. |
The majority of the exposure to credit risk within the absolute return and credit portfolio is indirect exposure as a result of positions held within funds managed externally. These are typically diversified portfolios monitored by the third-party managers themselves, as well as through JRCM's ongoing portfolio management oversight. Listed transactions are settled on a delivery versus payment basis using a wide pool of brokers. Cash holdings and margin balances are also divided between a number of different financial institutions, whose credit ratings are regularly monitored. All assets held directly by the custodian are in fully segregated client accounts. Other than where local market regulations do not permit it, these accounts are designated in RIT's name. The custodian's most recent credit rating was A+ from Standard & Poor's (S&P). |
Key person dependency In common with other investment trusts, investment decisions are the responsibility of a small number of key individuals within the Manager. If for any reason the services of these individuals were to become unavailable, there could be a significant impact on our business. |
This risk is closely monitored by the Board, through its oversight of the Manager's incentive schemes (on which it has received external advice) as well as the succession plans for key individuals. The potential impact is also reduced by an experienced Board of Directors, with distinguished backgrounds in financial services and business. |
Climate-related risks Ongoing climate changes may impact either our own business, the external managers with whom we invest, and/ or the underlying portfolio investments. For our own business this could result in increased costs of complying with new regulations and/or changes to the way we operate. Portfolio companies could see demand pressures, an increased cost of capital, tighter regulation or increased taxation, all impacting profitability. Our ability to make climate-change disclosures may be impacted by our investment approach if the external fund managers with whom we invest do not provide the desired information. More frequent extreme weather could disrupt businesses, travel, global supply chains and profitability. |
We do not consider climate-related risks have material, specific impacts on our own asset management businesses as distinct from the investment portfolio. Our Manager continues to monitor, and minimise, the climate-related impacts of our internal operations; we offset the carbon emissions of this business - categorised as Scope 1 and Scope 2 emissions by the Greenhouse Gas (GHG) Protocol - through participation in an accredited scheme and we are taking steps to further develop our understanding of our indirect emissions impact (categorised as Scope 3 emissions). JRCM is a signatory to the UN PRI, and the Board worked with our Manager to develop JRCM's Responsible Investment Framework & Policy, which incorporates environmental factors into our investment approach. This allows us to consider the potential wider impacts of climate change risks to our investments. JRCM is working with an external adviser to consider our ability to make additional climate-disclosures in relation to our investment portfolio, while acknowledging the likely challenges caused by having external funds. We monitor developments in regulation and disclosures and seek as far as possible to prepare for future changes. The Group's adoption of fair value in relation to its investments, means that the climate-related risks recognised by market participants are incorporated in the valuations |
Legal and regulatory risk As an investment trust, RIT's operations are subject to wide ranging laws and regulations including in relation to the Listing Rules, and Disclosure, Guidance and Transparency Rules of the FCA's Primary Markets function, the Companies Act 2006, corporate governance codes, as well as continued compliance with relevant tax legislation including ongoing compliance with the rules for investment trusts. JRCM is authorised and regulated by the FCA and acts as Alternative Investment Fund Manager. The financial services sector continues to experience regulatory change at national and international levels, including in relation to climate change. Failure to act in accordance with these laws and regulations could result in fines, censure or other losses including taxation or reputational loss. Co-investments and other arrangements with related parties may result in conflicts of interest. |
The Operational Risk Committee of JRCM provides oversight of all legal, regulatory and other operational risks across the Group. This Committee reports key findings to the JRCM Executive Committee and the Audit and Risk Committee. JRCM employs a general counsel and a compliance officer as well as other personnel with experience of legal, regulatory, disclosure and taxation matters. In addition, specialist external advisers are engaged in relation to complex, sensitive or emerging matters. For example, during 2022 the Group again engaged external advisers in supporting its consideration of ESG matters. Where necessary, co-investments and other transactions are subject to review by the Conflicts Committee and/or the FCA. |
Operational risk Operational risks are those arising from inadequate or failed processes, people and systems or other external factors.
Key operational risks include reliance on third-party managers and suppliers, dealing errors, processing failures, pricing or valuation errors (including under or over-stating the valuations of private investments leading to the incorrect valuation of these portfolio holdings), fraud, reliability of core systems and IT security issues. |
Systems and control procedures are the subject of continued development and regular review. During the year the Audit and Risk Committee reviewed, and satisfied itself with, the Manager's approach to due diligence as part of its investment decision making. Processes are in place to ensure the recruitment and ongoing training of appropriately skilled staff within key operational functions. Suitable remuneration policies are in place to encourage staff retention and the delivery of the Group's objectives over the medium term. Independent pricing sources are used where available and performance is subject to regular monitoring. In relation to more subjective areas such as private investments and property, the valuations are estimated by experienced staff and specialist external managers and valuers using industry standard approaches, with the final decisions taken by the independent Valuation Committee, and subject to external audit as part of the year-end financial statements. A business continuity and disaster recovery plan is maintained, and 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 | |||||
£ 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 | |||||
£ 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 | |||
£ 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
£ million | Share capital | Share premium | Capital redemption reserve | Ownshares reserve | Capital reserve | Revenue reserve | Revaluation reserve | Total 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
Year ended 31 December | Consolidated cash flow | |||||
£ 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 EBT1 | (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 £577.2 million (2021: profit of £859.2 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.
£ 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 (£ 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 | £ million | £ 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%.
£ 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% £), 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.
£ 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.