Annual Financial Report
RNS Number : 8003Q
RIT Capital Partners PLC
02 March 2021
 

Please click here to view the Company's Report and Accounts

http://www.rns-pdf.londonstockexchange.com/rns/8003Q_1-2021-3-2.pdf

 

 2 March 2021

RIT Capital Partners plc

 

Results for the year ended 31 December 2020

 

 

 

RIT Capital Partners plc today published its results for the year ended 31 December 2020.

 

Financial Highlights:

·     

Net Asset Value per share1 (NAV) total return of 16.4% for the year

·     

NAV per share of 2,292 pence at 31 December 2020

·     

Significant outperformance of both reference indices - absolute and relative

·     

Growth in net assets in 2020 of ~£500 million (before dividends)

·     

Total net assets stood at almost £3.6 billion at year end; a new all-time high

·     

Share price ended the year at 2,065 pence

 

Performance Highlights:

·     

The portfolio generated meaningful outperformance in 2020, following a year of healthy absolute returns in 2019 and the successful preservation of capital during the global market declines of 2018

·     

Outperformance was achieved through a diversified approach, successfully producing distinctive sources of return

·     

Moderate net quoted equity exposure averaging 43% over the year

·     

Strong performance from the quoted equity book, particularly through assets exposed to long-term structural themes including healthcare and China

·     

Significant contribution from private investments, which were well positioned to benefit from technology trends in the US and Asia  

·     

The non-equity 'diversifiers' played a useful role, including steady returns from the absolute return and credit portfolio as well as helpful contributions from the real assets portfolio

·     

The main headwinds comprised assets with a more cyclical bias, as well as mark-to-market increases in RIT's fixed-rate loan note liability

 

Dividends and Buybacks:

·     

Dividends paid in April and October 2020 totalling 35 pence per share

·     

The Board intends to pay a dividend of 35.25 pence per share in 2021 in two equal instalments, in April and October. This represents an increase of 0.7% over the previous year

·     

The Company bought back shares at a discount during the last three months of the year, benefiting shareholders; and intends to continue to take the opportunity to selectively purchase shares in the market when it judges that doing so is beneficial

 

Summary:

·     

Over the past three years, NAV total return of 31.5% represents an outperformance of both RIT's reference indices, delivering equity type returns with less risk. Three-year outperformance of equity markets was achieved with significantly less volatility and moderate net quoted equity exposure of 44%

·     

Over the past five years, RIT's net assets have grown by £1.4 billion (before dividends); since inception, RIT has now participated in 73% of market upside but only 38% of market declines

·     

Over the same period, total shareholder return has compounded at 11.7% per annum compared to the ACWI2 of 7.3%

·     

£10,000 invested in RIT at inception in 1988 would be worth ~£366,000 today (with dividends reinvested) compared to the same amount invested in the ACWI which would be worth ~£99,000

 

1 Diluted NAV per share with debt at fair value.

2 The ACWI refers to the MSCI All Country World Index and is calculated using 50% of the index measured in Sterling and 50% measured in a Sterling hedged ACWI.

 

 

Commenting, Sir James Leigh-Pemberton, Chairman of RIT Capital Partners plc, said:

 

"I am pleased to report…RIT's net asset value per share ended the year at 2,292 pence, representing a NAV total return for the year (including dividends) of 16.4%. This compares to the Company's two principal KPIs for investment performance of RPI+3.0% per annum and the ACWI which were 4.2% and 12.7% respectively…

 

…it is pleasing to see a broad spread of strong results across the portfolio, with all of the key asset classes making a positive impact. These included allocations designed to capture long-term structural trends within our public and private positions, and those that target less correlated areas such as absolute return and real assets. The performance drivers also demonstrate the importance of our network of relationships which enable us to identify attractive investments, notably within the fast-evolving Chinese and other Asian economies, and to allocate funds to exceptional external managers…

 

Our objective requires an approach to portfolio management which reflects a subtle balance between caution and opportunity. Caution has been and will continue to be one of our core watchwords, but we also recognise that market stresses provide opportunities for the astute deployment of capital, as we saw in March and October. The privilege of loyal shareholders and a permanent capital base allows us to take a long-term view, and to act decisively where we see fundamental value and the potential to deliver long-term growth in shareholders' capital."

 

 

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 an unprecedented year, with global output estimated to decrease by 5% and extreme market volatility, we are delighted to have delivered a NAV total return for the year of 16.4%, outperforming both of our reference hurdles…

 

This year represented the ninth consecutive year of positive returns for the portfolio, including 2018 when global equity markets and many funds experienced negative performance. A healthy participation in market rises while shielding the portfolio from the worst excesses of market sell-offs is a hallmark of our strategic aims. As a result of this favourable asymmetric return profile we have been able to deliver equity-type returns with considerably less risk…

 

In terms of asset allocation, we deployed relatively modest levels of market exposure, with net quoted equity averaging 43% of NAV. As is often the case, it was where this exposure was deployed, rather than the aggregate level, that proved more important for returns…

 

As for 2021, we believe that financial markets will continue to reflect the balance between the pandemic's impact, the roll out and efficacy of the vaccines, and government and central banks' policy responses…

 

Our approach in this regard is to use thoughtful portfolio construction and a security selection process focusing on assets with asymmetric outcomes. We are likely to continue with our modest quoted equity exposure and diversified themes, and have undertaken some de-risking of some of the more frothy areas where we see risks of overstaying our welcome. Ultimately we will seek to continue to reinforce our approach which worked so well in 2020 - namely our belief that robust performance can only be driven by a resilient focus on our long-term convictions, excellent sourcing of investments, and a combination of discipline and agility around our portfolio construction."

 

 

ENQUIRIES:

 

Brunswick Group LLP:

 

Tom Burns: +44 (0) 207 404 5959

 

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 almost £3.6 billion at year end. Lord Rothschild and his immediate family interests retain a significant holding.

 

www.ritcap.com

 

 

The following is extracted from the Company's Report and Accounts

 

COMPANY HIGHLIGHTS

 

Performance for the year

2020

NAV per share total return

16.4%

Share price total return

-0.4%

RPI plus 3.0%

4.2%

MSCI All Country World Index (ACWI)

12.7%

 

Key data*

2020

 

2019

 

NAV per share

2,292 pence

 

2,004 pence

 

14.4%

Share price

2,065 pence

 

2,115 pence

 

-2.4%

Premium/(discount)

-9.9%

 

5.5%

 

-15.4% pts

Net assets

£3,590 million

 

£3,146 million

 

14.1%

Gearing

4.4%

 

7.2%

 

-2.8% pts

Average net quoted equity exposure

43%

 

43%

 

-

Ongoing charges figure for the year

0.66%

 

0.68%

 

-0.02% pts

First interim dividend (April)

17.5 pence

 

17.0 pence

 

2.9%

Second interim dividend (October)

17.5 pence

 

17.0 pence

 

2.9%

Total dividend in year

35.0 pence

 

34.0 pence

 

*31 December unless otherwise stated

 

Performance history

3 Years

5 Years

10 Years

NAV per share total return

31.5%

59.5%

114.9%

Share price total return

11.0%

34.1%

105.9%

RPI plus 3.0% per annum

15.9%

30.9%

72.5%

ACWI

29.6%

77.7%

158.9%

 

 

CHAIRMAN'S STATEMENT

2020 was a year characterised by extraordinary challenges for any investment company, and RIT was no exception. The pandemic required rapid and significant change in our Company's operations and ways of working, and created an exceptionally volatile investment climate. For much of the year, financial markets were driven by the impact on the global economy of the health crisis and the policy reactions to it. Stock market indices initially saw new highs in February, followed by the fastest correction in history and then a swift recovery, buoyed first by stimulus measures and monetary easing of exceptional scope and scale, and latterly by the approval of vaccination programmes. There was wide dispersion in the performance of regional indices, with the US and China up 18% and 17%, whereas the Eurozone and the UK were down by -3% and -11% respectively. Behind these headline index performances lay a complex and quickly changing pattern of asset price behaviour and capital flows. All of this resulted in a market environment which was difficult to navigate, with at times savage movements in most asset classes.

In a difficult environment such as this, the means by which your Company seeks to achieve its corporate objective are severely tested. The objective set by your Board for our Manager, J. Rothschild Capital Management Limited, is to protect shareholders from the worst excesses of market declines, but also to achieve healthy participation over the long term in market rises. The approach taken by JRCM to achieve this has to be sophisticated, dynamic and disciplined in each of the key areas of asset allocation, portfolio construction and security selection. While there may be times in the future when our performance does not meet our high expectations, I am pleased to report that 2020 was not one of them. RIT's net asset value per share ended the year at 2,292 pence, representing a NAV total return for the year (including dividends) of 16.4%. This compares to the Company's two principal KPIs for investment performance of RPI+3.0% per annum and the ACWI which were 4.2% and 12.7% respectively.

The Manager's Report provides detail in relation to performance and attribution, and it is pleasing to see a broad spread of strong results across the portfolio, with all of the key asset classes making a positive impact. These included allocations designed to capture long-term structural trends within our public and private positions, and those that target less correlated areas such as absolute return and real assets. The performance drivers also demonstrate the importance of our network of relationships which enable us to identify attractive investments, notably within the fast-evolving Chinese and other Asian economies, and to allocate funds to exceptional external managers. Our objective requires an approach to portfolio management which reflects a subtle balance between caution and opportunity. Caution has been and will continue to be one of our core watchwords, but we also recognise that market stresses provide opportunities for the astute deployment of capital, as we saw in March and October. The privilege of loyal shareholders and a permanent capital base allows us to take a long-term view, and to act decisively where we see fundamental value and the potential to deliver long-term growth in shareholders' capital.

Share capital

We are very much aware that the move in your Company's rating over the year to trade at a discount to the NAV, resulted in shareholders experiencing a flat overall return, lagging the growth in the NAV. However, the nature and composition of our investment portfolio means we do not publish a daily NAV. And so, the strong performance in December, well above many market estimates, was not reflected in the share price, resulting in a discount of 9.9% at year end. This discount narrowed since the year end, and as I mentioned to shareholders in August, we monitor the share price carefully, and bought back approximately 116,000 shares at a discount to NAV during the last three months of the year, benefiting shareholders. We intend to continue to take the opportunity to selectively purchase shares in the market when we judge that doing so is beneficial.

Dividend

We paid a final interim dividend of 17.5 pence per share in October, providing shareholders with a total dividend in 2020 of 35 pence per share. For 2021, we are intending to pay a dividend of 35.25 pence per share, an increase of 0.7% over the previous year, slightly above inflation. This will be paid in two equal instalments in April and October. Supported by our significant reserves, our policy remains to maintain or increase the annual dividend, as long as it does not come into conflict with your Company's core objective of capital preservation.

Governance

In light of the range of matters which we have had to address, the Board and its Committees have been busier than normal this year. We have an experienced and diverse Board who have all engaged with the increased frequency of Board and Committee meetings we felt it necessary to undertake. I would like to express my gratitude and appreciation to Board colleagues for their dedication, support and wise counsel over the year.

Your Board has worked closely to develop and refine our approach to responsible investing and other environmental, social and governance (ESG) matters, looking at how we continually integrate these considerations into our behaviour within both our operating businesses and our investment processes. JRCM is a signatory of the United Nations' Principles for Responsible Investment and we believe that this focus on sustainability is a natural component of how we approach our long-term objectives; for some time now, we have more explicitly incorporated ESG into our fundamental assessment of investments. We will continue to develop our approach in this area, which will necessarily evolve over time.

Finally, I would like to record our thanks to the team at JRCM. The combined challenges of major operational change and extremely demanding investment conditions have been met with admirable determination and success. Led by the JRCM Executive Committee, our employees have been unwavering in their efforts to deliver returns for shareholders and to operate in a way that met our obligations to our regulators, counterparties and suppliers while prioritising the safety and well-being of colleagues. I am very aware of the difficulties that employees have had to operate under at times, and the acute personal challenges many of them and their families have had to face. Everyone in the Group has our sincere thanks for their dedication and professionalism.

Outlook

The pandemic has severely affected the lives of millions of people worldwide. The economic consequences, together with the extraordinary policy responses, will be an enduring feature of markets for some time to come. In the near term, these factors pose the question of whether the recovery in equity and credit markets is justified by underlying economic indicators. The spectre of inflation may well return and could meaningfully alter the investment landscape. These uncertainties are accentuated by a backdrop of significant political change and rapidly shifting societal expectations of the business community. We will continue to apply our tried and tested approach to asset allocation and diversified portfolio composition to protect our shareholders' capital and grow it over the medium term, and although we will be faced with many difficult questions, I am confident that our talented and dedicated team and unique global network provide us with a strong foundation on which to build an appropriate response.

Sir James Leigh-Pemberton

1 March 2021

 

 

MANAGER'S REPORT - EXTRACTS

Overview and performance highlights

In an unprecedented year, with global output estimated to decrease by 5% and extreme market volatility, we are delighted to have delivered a NAV total return for the year of 16.4%, outperforming both of our reference hurdles: RPI plus 3.0% which measured 4.2%, and our fully-invested equity index (ACWI) which returned 12.7%.

This year represented the ninth consecutive year of positive returns for the portfolio, including 2018 when global equity markets and many funds experienced negative performance. A healthy participation in market rises while shielding the portfolio from the worst excesses of market sell-offs is a hallmark of our strategic aims. As a result of this favourable asymmetric return profile we have been able to deliver equity-type returns with considerably less risk. For example, our three-year NAV total return of 31.5% has exceeded the strong market returns, though with lower volatility and reflecting an average net quoted equity exposure of 44%.

Notwithstanding the enormous swings during the year, global equity market indices finished with decent absolute returns. However, there was wide disparity across regions and sectors. Investors passively exposed to the FTSE 100 would have experienced their worst year in a decade, while those invested in the technology-heavy NASDAQ, their best. For the larger part of the year, investors sought top line growth at all costs, shunning businesses whose earnings are more dependent on economic growth. Positive vaccine news late in the year jolted cyclical stocks, with investors pricing in a recovery and a rapid re-opening of economies.

The year saw further cuts in interest rates, with negative or near zero rates across much of the developed world. With central bankers now accepting the prospect of above target inflation, longer maturity yields stayed well behaved in the face of an economic recovery.

Currency markets were also volatile, sensitive to both macroeconomic developments and geopolitical changes. Sterling was particularly affected by the pandemic as well as the developments surrounding Brexit.

In terms of asset allocation, we deployed relatively modest levels of market exposure, with net quoted equity averaging 43% of NAV. As is often the case, it was where this exposure was deployed, rather than the aggregate level, that proved more important for returns. The book was tilted towards Asian equities, particularly China, where we continued to see value opportunities from its expanding domestic market. We retained our allocations to healthcare, a sector whose reputation has seen a rehabilitation as a result of the vaccine efforts. Other themes reflected in the quoted equities portfolio over the course of the year included quality growth stocks, cyclical stocks and ESG-friendly stocks.

Our allocation to private investments often targets firms engaging in disruptive technologies in the US and Asia. We use our unique and extensive global network to invest either directly or indirectly through funds; with these allocations designed to allow us to capture pre-IPO value creation opportunities, which can be sizeable.

Additionally, we continued to deploy significant capital to non-equity strategies, designed to act as portfolio diversifiers with low sensitivity to broad equity markets - including absolute return and credit as well as real assets.

We actively managed our sterling levels over the year, increasing our exposure in the final quarter and also using options to help hedge Brexit risks, before reducing the levels following the strong rally.

Overall the key drivers of performance for the year were: 

 

·     

strong performance from our quoted positions exposed to long-term structural themes;

·     

private investments were very well positioned to benefit from the technology trends in the US and Asia, within both our direct and fund portfolios;

·     

helpful contributions from our non-equity 'diversifiers' including our allocations to absolute return and credit, as well as real assets; and

·     

the main headwinds were assets with a more cyclical bias, which, notwithstanding a significant recovery in the fourth quarter, detracted from returns, as did the mark-to-market increase in our fixed-rate loan note liability, reflecting further declines in interest rates.

 

Asset allocation and portfolio contribution

 

31 December 2020

2020

31 December 2019

2019

Asset category

% NAV

Contribution %

% NAV

Contribution %

Quoted equity

48.4%

6.4%1

46.7%

12.7%1

Private investments

25.6%

9.8%

25.1%

2.4%

Absolute return and credit

22.5%

2.5%

22.9%

0.7%

Real assets

2.0%

0.5%

2.9%

0.9%

Government bonds and rates

0.0%

(0.1%)

1.2%

(0.1%)

Currency

1.2%

(0.6%)2

1.3%

(3.1%)2

Total investments

99.7%

18.5%

100.1%

13.5%

Liquidity, borrowings and other

0.3%

(2.1%)3

(0.1%)

(1.5%)3

Total

100.0%

16.4%

100.0%

12.0%

Average net quoted equity exposure1

43%

 

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.

 

Currency exposure as % of NAV 1

 

 

 

31 December 2020

% NAV 

31 December 2019

% NAV 

US dollar

 

18%

9%

Sterling

 

59%

69%

Euro

 

3%

4%

Japanese yen

 

6%

6%

Other

 

14%

12%

Total

 

100%

100%

 

1                      This table excludes exposure from currency options. Where available, the exposures in this chart are estimated by considering the underlying currency exposure of third-party funds rather than by the fund's currency of denomination.

 

Outlook

As for 2021, we believe that financial markets will continue to reflect the balance between the pandemic's impact, the roll out and efficacy of the vaccines, and government and central banks' policy responses. If there are challenges to the vaccination programme, we are likely to see meaningful market volatility, given the degree of optimism we feel is already embedded in many asset prices. On the other hand, a smooth path to broader immunity, may also pose a risk for stocks as it is likely to bring us closer to the potential resurgence of inflation. Here, the combination of record monetary and fiscal stimulus, with a post pandemic economic recovery could result in the transmission of asset price inflation to price rises in the real economy.

As investors seek to adjust to such a change, they are likely to demand an additional risk premium. And at a time when much of the invested capital is premised on sustained low-rates and a lack of inflation pressures, a shift in the perception of these, could have a sizeable impact.

Our approach in this regard is to use thoughtful portfolio construction and a security selection process focusing on assets with asymmetric outcomes. We are likely to continue with our modest quoted equity exposure and diversified themes, and have undertaken some de-risking of some of the more frothy areas where we see risks of overstaying our welcome. Ultimately we will seek to continue to reinforce our approach which worked so well in 2020 - namely our belief that robust performance can only be driven by a resilient focus on our long-term convictions, excellent sourcing of investments, and a combination of discipline and agility around our portfolio construction.

 

 

Francesco Goedhuis

Chairman and Chief Executive Officer

Ron Tabbouche

Chief Investment Officer

J. Rothschild Capital Management Limited

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 ultimate 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 described in the Manager's Report, the Covid-19 pandemic and the policy responses were some of the key drivers of markets throughout the year - one of the most volatile in history. While 2020 ultimately ended with global equity markets posting gains, many geographic markets, sectors and stocks saw declines, in some cases sizeable. The year whipsawed between record highs, rapid lows and a progressive recovery. It also saw a material rotation between the areas showing market leadership, ongoing geopolitical concerns and the impact of government and central bank policy responses to the pandemic. All of which necessitated a careful and structured approach to risk management.

In addition to equity markets, currencies were also a key focus. As a UK company with global investments, sterling's exchange rate can have an important impact on the NAV. 2020 was a particularly challenging year, with sterling's fortunes heavily influenced by the uncertainty surrounding the nature of the UK's exit from the transition stage of Brexit. The final deal announcement in late December 2020, saw sterling see its highest level against the US dollar for the year, which necessitated careful management. From an operational point of view, and in line with our expectations, the end of the Brexit transition period had no significant impact on our Manager's operations.

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.

Climate risk, and the ongoing development of the ESG movement, is becoming a key influencer of shareholder behaviour, corporate activity and governmental response. As such, it will continue to influence a number of our principal risk categories, whether in relation to the impact on markets for us as asset owners, or through our own operations and disclosures.

In terms of the Group's operations, again, as with the financial risks, these were dominated by the pandemic. The Manager switched quickly to remote working during March. Reflecting a combination of the nature of the industry, the robustness of the IT infrastructure, and the constructive, flexible and professional reaction from our employees, the Manager was able to continue without interruption. As a relatively small business, the ongoing risks to staff health and well-being receive an especially high focus and are carefully monitored.

Operational risks more generally include those related to the legal environment, regulation, taxation, information security and other areas where internal or external factors could result in financial or reputational loss. These are managed by JRCM with regular reporting to, and review by, the Audit and Risk Committee and the Board.

The Board is 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 the principal risks remain as described below:

Financial risks

Mitigation

 

Investment strategy risk

 

As an investment company, a key risk is that the investment strategy, guided by the Investment Policy:

 

"To invest in a widely diversified, international portfolio across a range of asset classes, both quoted and unquoted; to allocate part of the portfolio to exceptional managers in order to ensure access to the best external talent available."

 

does not deliver the Corporate Objective:

 

"To deliver long-term capital growth, while preserving shareholders' capital; to invest without the constraints of a formal benchmark, but to deliver for shareholders increases in capital value in excess of the relevant indices over time."

 

 

 

The Board is responsible for monitoring the investment strategy to ensure it is consistent with the Investment Policy and appropriate to meet the Corporate Objective. The Directors receive a detailed monthly report from the Manager to enable them to monitor investment performance, attribution and exposure. They also receive a comprehensive investment report from the JRCM CIO in advance of the quarterly Board meetings. In response to the Covid-19 pandemic, the Board and Audit and Risk Committee held ad hoc meetings focused on its impact on the investment portfolio and the Manager's operations, and ensuring that appropriate measures were in place.

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

 

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.

 

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.

 

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 (including during the year in relation to the impact of Covid-19) 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 futures and options to hedge or to increase equity 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 within 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.  The Manager further enhanced, and increased the frequency of, its monitoring of liquidity, borrowings and covenants during March as a result of the Covid-19 induced volatility.

 

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 Securities Services (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.

 

Operational risks

Mitigation

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 legal 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 2020 the Group 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 suppliers, dealing errors, processing failures, pricing errors, fraud, reliability of core systems and IT security issues.

 

 

 

Systems and control procedures are the subject of continued development and regular review.

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 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 revised during 2020 to reflect the remote working protocols implemented to deal with the impact of the Covid-19 pandemic. 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 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 Group further enhanced its security protocols by introducing multi-factor authentication in relation to its upgraded remote working platform. 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 Report and Accounts in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have prepared the Group and Parent Company financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. 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, and of the profit or loss of the Group and Parent Company for that period.

Under the Financial Conduct Authority's Disclosure Guidance and Transparency Rules, the Group financial statements are required to be prepared in accordance with international financial reporting standards (IFRSs) adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union. In preparing these financial statements, the Directors are required to:

 

·     

select suitable accounting policies and then apply them consistently;

 

·     

in respect of the group financial statements, state whether international accounting standards in conformity with the requirements of the Companies Act 2006 and IFRSs adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union 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 international accounting standards in conformity with the requirements of the Companies Act 2006 have been followed, subject to any material departures disclosed and explained in the financial statements;

 

·     

make judgements and accounting estimates that are reasonable and prudent; and

 

·     

prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Parent Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Parent Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006.

The Directors 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.

The Directors are responsible for the maintenance and integrity of the Parent Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors consider that, following advice from the Audit and Risk Committee, the Report and Accounts taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Parent Company's position, performance, business model and strategy. The Audit and Risk Committee had reviewed the draft Report and Accounts for the purpose of this assessment.

Each of the Directors, whose names and responsibilities are listed in the Corporate Governance Report confirm that, to the best of their knowledge:

 

·     

the Parent Company financial statements, which have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006, give a true and fair view of the assets, liabilities, financial position and profit for the Company;

 

·     

the Group financial statements, which have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and IFRSs adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

 

·     

the Strategic Report contains a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

 

 

FINANCIAL STATEMENTS - EXTRACTS

 

Consolidated income statement

 

Year ended 31 December

 

 

 

     2020

 

 

     2019

£ million

 

Revenue

Capital

     Total

Revenue

Capital

     Total

Investment income

 

       14.6 

-

14.6

          33.0

-

      33.0

Other income

 

           8.1

-

8.1

            8.6

-

         8.6

Gains/(losses) on fair value investments

 

-

518.5

518.5

-

     365.9

    365.9

Gains/(losses) on monetary items and borrowings

 

-

21.7

21.7

-

     (14.2)

    (14.2)

 

 

         22.7

540.2

562.9

          41.6

     351.7

    393.3

Expenses

 

 

 

 

 

 

 

Operating expenses

 

      (20.6)

(22.8)

(43.4)

       (24.8)

       (5.2)

    (30.0)

Profit/(loss) before finance costs and tax

 

         2.1

517.4

519.5

          16.8

     346.5

    363.3

Finance costs

 

(3.3)

(13.2)

(16.5)

          (4.1)

     (16.3)

    (20.4)

Profit/(loss) before tax

 

        (1.2)

504.2

503.0

          12.7

     330.2

    342.9

Taxation

 

-

0.9

0.9

-

       (0.6)

      (0.6)

Profit/(loss) for the year

 

       (1.2)

505.1

503.9

          12.7

     329.6

    342.3

Earnings/(loss) per ordinary share - basic

 

          (0.8p)

323.2p

322.4p

          8.2p

   212.9p

  221.1p

Earnings/(loss) per ordinary share - diluted

 

     (0.8p)

321.8p

321.0p

          8.2p

   212.6p

  220.8p

The total column of this statement represents the Group's consolidated income statement, prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union. The supplementary revenue and capital columns are both prepared under guidance published by the AIC. All items in the above statement derive from continuing operations.

 

Consolidated statement of comprehensive income

 

Year ended 31 December

 

 

2020

 

 

2019

£ million

Revenue

Capital

Total

Revenue

Capital

Total

Profit/(loss) for the year

(1.2)

505.1

503.9

12.7

329.6

342.3

Revaluation gain/(loss) on property, plant and equipment

-

(1.8)

(1.8)

-

(1.8)

(1.8)

Actuarial gain/(loss) in defined benefit pension plan

(0.8)

-

(0.8)

(0.8)

-

(0.8)

Deferred tax (charge)/credit allocated to actuarial loss

0.1

-

0.1

0.1

-

0.1

Total comprehensive income/(expense) for the year

(1.9)

503.3

501.4

12.0

327.8

339.8

 

 

Consolidated balance sheet

 

At 31 December

 

 

 

£ million

 

2020

2019

Non-current assets

 

 

 

Investments held at fair value

 

3,520.2

3,086.1

Investment property

 

37.8

36.1

Property, plant and equipment

 

23.6

24.2

Deferred tax asset

 

2.5

1.5

Retirement benefit asset

 

0.7

1.0

Derivative financial instruments

 

0.3

0.7

 

 

3,585.1

3,149.6

Current assets

 

 

 

Derivative financial instruments

 

57.3

50.4

Other receivables

 

105.3

172.2

Cash at bank

 

296.8

61.1

 

 

459.4

283.7

Total assets

 

4,044.5

3,433.3

Current liabilities

 

 

 

Borrowings

 

(189.0)

(50.0)

Derivative financial instruments

 

(4.5)

(2.9)

Other payables

 

(63.5)

(55.3)

Amounts owed to group undertakings

 

(5.3)

(3.3)

 

 

(262.3)

(111.5)

Net current assets/(liabilities)

 

197.1

172.2

Total assets less current liabilities

 

3,782.2

3,321.8

Non-current liabilities

 

 

 

Borrowings

 

(181.5)

(166.4)

Derivative financial instruments

 

(5.4)

(7.9)

Provisions

 

(1.1)

(1.4)

Lease liability

 

(3.8)

(0.5)

 

 

(191.8)

(176.2)

Net assets

 

3,590.4

3,145.6

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

 

(15.3)

(7.8)

Capital reserve

 

3,350.1

2,894.1

Revenue reserve

 

5.1

7.0

Revaluation reserve

 

11.7

13.5

Total equity

 

3,590.4

3,145.6

Net asset value per ordinary share - basic

 

2,303p

2,007p

Net asset value per ordinary share - diluted

 

2,292p

2,004p

The financial statements were approved by the Board and authorised for issue on 1 March 2021.

 

 

Consolidated statement of changes in equity

 

£ million

Share   capital

Share premium

         Capital

redemption
        reserve

Own shares reserve

Capital reserve

Revenue reserve

Revaluation reserve

Total  equity

Balance at 1 January 2019

155.4

17.3

36.3

(13.4)

2,624.3

(5.0)

15.3

2,830.2

Profit/(loss) for the year

-

-

-

-

329.6

12.7

-

342.3

Revaluation gain/(loss) on property, plant and equipment

-

-

-

-

-

-

(1.8)

(1.8)

Actuarial gain/(loss) in defined benefit plan

-

-

-

-

-

(0.8)

-

(0.8)

Deferred tax (charge)/credit allocated to actuarial gain

-

-

-

-

-

0.1

-

0.1

Total comprehensive income/(expense) for the year

-

-

-

-

329.6

12.0

(1.8)

339.8

Dividends paid

-

-

-

-

(52.6)

-

-

(52.6)

Movement in own shares reserve

-

-

-

5.6

-

-

-

5.6

Movement in share-based payment reserve

-

-

-

-

(7.2)

-

-

(7.2)

Share issuance

1.4

28.4

-

-

-

-

-

29.8

Balance at 31 December 2019

156.8

45.7

36.3

(7.8)

2,894.1

7.0

13.5

3,145.6

Balance at 1 January 2020

156.8

45.7

36.3

(7.8)

2,894.1

7.0

13.5

3,145.6

Profit/(loss) for the year

-

-

-

-

505.1

(1.2)

-

503.9

Revaluation gain/(loss) on property, plant and equipment

-

-

-

-

-

-

(1.8)

(1.8)

Actuarial gain/(loss) in defined benefit plan

-

-

-

-

-

(0.8)

-

(0.8)

Deferred tax (charge)/credit allocated to actuarial gain

-

-

-

-

-

0.1

-

0.1

Total comprehensive income/(expense) for the year

-

-

-

-

505.1

(1.9)

(1.8)

501.4

Dividends paid

-

-

-

-

(54.7)

-

-

(54.7)

Purchase of treasury shares

 

 

 

 

(2.3)

 

 

(2.3)

Movement in own shares reserve

-

-

-

(7.5)

-

-

-

(7.5)

Movement in share-based payments

-

-

-

-

7.9

-

-

7.9

Balance at 31 December 2020

156.8

45.7

36.3

(15.3)

3,350.1

5.1

11.7

3,590.4

 

 

Consolidated cash flow statement                       

 

Year ended 31 December

 

Consolidated cash flow

£ million

 

2020

2019

Cash flows from operating activities:

 

 

 

Cash inflow/(outflow) before taxation and interest

 

172.3

155.9

Interest paid

 

(16.4)

(20.4)

Net cash inflow/(outflow) from operating activities

 

155.9

135.5

Cash flows from investing activities:

 

 

 

Sale/(purchase) of property, plant and equipment

 

(0.2)

(0.2)

Investments in subsidiary undertakings

 

-

-

Net cash inflow/(outflow) from investing activities

 

(0.2)

(0.2)

Cash flows from financing activities:

 

 

 

Repayment of borrowings

 

(295.0)

(225.0)

Drawing of borrowings

 

445.0

-

Purchase of ordinary shares by EBT1

 

(10.1)

(7.1)

Purchase of ordinary shares into treasury

 

(2.3)

-

Equity dividend paid

 

(54.7)

(52.6)

Net cash inflow/(outflow) from financing activities

 

82.9

(284.7)

Increase/(decrease) in cash in the year

 

238.6

(149.4)

Cash at the start of the year

 

61.1

210.9

Effect of foreign exchange rate changes on cash

 

(2.9)

(0.4)

Cash at the year end

 

296.8

61.1

Reconciliation:

 

 

 

Cash at bank

 

296.8

61.1

Cash at the year end

 

296.8

61.1

 

1               Shares are disclosed in the own shares reserve on the consolidated balance sheet.

 

 

NOTES TO THE FINANCIAL STATEMENTS - EXTRACTS

 

Earnings/(loss) per ordinary share - basic and diluted

The basic earnings per ordinary share for 2020 is based on the profit of £503.9 million (2019: profit of £342.3 million) and the weighted average number of ordinary shares in issue during the period of 156.3 million (2019: 154.8 million). The weighted average number of shares is adjusted for shares held in the employee benefit trust and in treasury in accordance with IAS 33.

£ million

2020

2019

Net revenue profit/(loss)

(1.2)

12.7

Net capital profit/(loss)

505.1

329.6

Total profit/(loss) for the year

503.9

342.3

 

pence

2020

2019

Revenue earnings/(loss) per ordinary share - basic

(0.8)

8.2

Capital earnings/(loss) per ordinary share - basic

323.2

212.9

Total earnings per share - basic

322.4

221.1

The diluted earnings per ordinary share for the period is based on the weighted average number of ordinary shares in issue during the period adjusted for the effect of all dilutive share-based payment awards.

Weighted average (million)

2020

2019

Number of shares in issue

156.8

155.4

Own shares

(0.5)

(0.6)

Basic shares

156.3

154.8

Effect of share-based payment awards

0.7

0.2

Diluted shares

157.0

155.0

 

pence

2020

2019

Revenue earnings/(loss) per ordinary share - diluted

(0.8)

8.2

Capital earnings/(loss) per ordinary share - diluted

321.8

212.6

Earnings per ordinary share - diluted

321.0

220.8

 

 

Net asset value per ordinary share - basic and diluted

Net asset value per ordinary share is based on the following data:

31 December

2020

2019

Net assets (£ million)

3,590.4

3,145.6

Number of shares in issue (million)

156.8

156.8

Own shares adjustment (million)1

(0.9)

(0.1)

Basic shares (million)

155.9

156.7

Effect of share-based payment awards (million)

0.8

0.2

Diluted shares (million)

156.7

156.9

 

1          EBT and treasury shares.

 

2020

2019

31 December

pence

pence

Net asset value per ordinary share - basic

2,303

2,007

Net asset value per ordinary share - diluted

2,292

2,004

 

 

Dividends

 

 

2020

Pence

2019

Pence

2020

2019

 

per share

per share

£ million

£ million

Dividends paid in year

35.0

34.0

54.7

52.6

The above amounts were paid as distributions to equity holders of the Company in the relevant year from accumulated capital profits.

On 4 March 2020 the Board declared a first interim dividend of 17.5 pence per share in respect of the year ended 31 December 2020 that was paid on 30 April 2020. A second interim dividend of 17.5 pence per share was declared by the Board on 4 August 2020 and paid on 30 October 2020.

The Board declares the payment of a first interim dividend of 17.625 pence per share in respect of the year ending 31 December 2021. This will be paid on 30 April 2021 to shareholders on the register on 6 April 2021, and funded from the accumulated capital profits.

 

Event after the reporting period

 

On 1 March 2021, one of the Company's direct private investments - Coupang - published an amended pre-IPO filing with the US Securities and Exchange Commission.  This filing included an initial estimate of the pricing range for a planned IPO.  The actual price achieved on any future IPO will depend on a number of factors, including market conditions and investor demand at that time.

 

Basis of presentation

 

The financial information for the year ended 31 December 2020 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 2019 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.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
 
END
 
 
FR UUVARABUORRR