TIDMRCP
RNS Number : 8144H
RIT Capital Partners PLC
01 August 2023
Please click here to view the Company's Half-Yearly Financial
Report
http://www.rns-pdf.londonstockexchange.com/rns/8144H_1-2023-7-31.pdf
1 August 2023
RIT Capital Partners plc
Results for the half year ended 30 June 2023
RIT Capital Partners plc today published its results for the
half year ended 30 June 2023.
Summary:
-- Markets continued to face difficult conditions, with persistent
inflation and rapidly increasing interest rates as central
banks balance monetary tightening with the risks of economic
downturn. Nevertheless, many equity indices performed well,
buoyed by a recovery in mega-cap technology stocks, though
the UK market and China ended down
-- Our net asset value per share (NAV) total return for the
period was -0.2%
-- Since inception, RIT has now participated in 74% of monthly
market increases but only 41% of market declines with RIT's
NAV compounding at almost 11% per annum, compared to the
MSCI ACWI at 7%
Financial Highlights:
-- NAV per share of 2,364 pence at 30 June 2023
-- Share price closed at 1,868 pence, a discount of 21.0%
Performance Highlights:
-- Our quoted equities returned almost 7%, contributing 2.6%
to NAV. This reflected good performance from our Japan and
healthcare themes, as well as strong stock selection, with
Builders FirstSource a standout performer
-- Our direct private investments returned 4.5%, with a number
of transactions at or above our December valuations, providing
support for the robustness of our valuation approach. However,
mainly as a result of the receipt of Q4 valuations for our
private funds, the book overall was down slightly. This
portfolio is well positioned for renewed optimism in the
digital transition theme
-- Uncorrelated strategies delivered positive stable returns
helped by credit and interest rate positions as well as
gold
-- Currency translation detracted -2.9% from the NAV performance,
largely due to sterling strength, in particular against
the US dollar
Dividends and Buybacks:
-- Dividend of 19 pence per share was paid in April and maintained
for October, representing an increase of almost 3% over
the previous year's dividend
-- We have continued to meaningfully buyback shares, totalling
5.6 million shares at a cost of GBP105 million. This added
an estimated 0.8% to the NAV per share return and the Board
continues to believe that the opportunity to buyback our
shares at the current discount is a compelling investment
for shareholders
Commenting, Sir James Leigh-Pemberton, Chairman of RIT Capital
Partners plc, said:
"Many of the underlying conditions which made 2022 a
particularly difficult year for markets still prevail today...
Across the US, UK and Europe, rates have risen significantly, with
the fastest average increases in four decades... yield curves
remain inverted... which has in the past been a leading indicator
of a future recession.
Despite this worrying backdrop... the S&P 500 finished the
half year up well into double digits, and the NASDAQ had one of its
strongest gains in a decade, up almost a third... However,
excluding a handful of the largest technology companies, the
remaining stocks in the S&P 500 averaged more modest
returns.
Our NAV per share total return (including dividends) was broadly
flat for the half year at -0.2%, to end June at 2,364 pence per
share. This compares to the MSCI ACWI (50% GBP) which was up 11.0%
and CPI plus 3% at 5.5%. Other equity indices did less well, with
the FTSE 250... declining by nearly 1%. In view of the headwinds...
we maintained a relatively low quoted equity exposure over the
period... Our quoted equity portfolio nevertheless performed well,
helped by some strong stock picks, as well as our healthcare and
Japan exposures.
Private ... direct holdings recorded a modest gain, supported by
a number of transactions at or above our previous carrying
value.
The largest detractor in the first half was currency, driven by
sterling's appreciation... Our uncorrelated strategies portfolio
was additive, with credit and interest rate positions as well as
gold, all in positive territory.
The discount ... remains wider than we believe is warranted ...
The Board ... is responding with a two-pronged approach. Firstly...
in share buybacks, to lock in the accretive benefit for
shareholders... Secondly... enhancing our communications efforts to
provide a more frequent and more detailed flow of
information...
... this complicated backdrop is providing a fertile environment
for our Manager, JRCM, to identify opportunities ... which should,
we believe, offer healthy double-digit returns with a meaningful
margin of safety. The ability to identify these opportunities... is
a core capability of JRCM. The strength in depth which we have...
is a cause for optimism for the future, and I am delighted that
Nick Khuu has been promoted to Co-CIO. Nick is a very experienced
investor who has been instrumental in the management of both our
quoted equities and uncorrelated strategies."
The Manager, J. Rothschild Capital Management Limited,
commented:
"Our NAV... total return for the first half of the year was
-0.2%...
We deliberately kept our technology holdings in the quoted
equity book low, given the exposure to the digital transition theme
in our private investment portfolio. Stripping out the few mega-cap
technology stocks from the S&P 500, the remaining stocks
averaged around 6%. Our quoted equity book returned almost 7% in
the first half, contributing 2.6% to NAV.
We do not believe that there are yet grounds for increasing our
overall exposure to equity markets, and we will continue to focus
on specific themes, such as healthcare, digital transition and
Japan. In addition, we are holding healthy liquidity balances as we
believe these are fertile markets for deploying long-term capital,
in particular in US mid-cap stocks, and European credit.
We aim to hold diversified investments that capitalise on
structural themes and market dislocations, where we can leverage
our network of partners and managers and the advantage of permanent
capital, to take a differentiated view for the benefit of our
shareholders."
ENQUIRIES:
Brunswick Group LLP:
Nick Cosgrove, 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 GBP280
million on
listing in 1988 to over GBP3.5 billion as at 30 June 2023. Lord
Rothschild and his immediate family interests retain a significant
holding.
www.ritcap.com
A description of all terms used above, including further
information on the calculation of Alternative Performance Measures
(APMs) is set
out in the Glossary and APMs section at the end of this RNS.
THE FOLLOWING IS EXTRACTED FROM THE COMPANY'S HALF-YEARLY
FINANCIAL REPORT
Performance for the period 30 June 2023
------------------------------------ ------------
RIT NAV per share total return(1) -0.2%
CPI plus 3.0% 5.5%
MSCI All Country World Index (ACWI) 11.0%
RIT share price total return(1) -11.2%
FTSE 250 Index(2) -0.6%
------------------------------------ ------------
30 June 31 December
Key company data 2023 2022 Change
--------------------------------------- ----------- ----------- ----------
NAV per share 2,364 pence 2,388 pence -1.0%
Share price 1,868 pence 2,125 pence -12.1%
Premium/(discount) -21.0% -11.0% -10.0% pts
GBP3,551 GBP3,722
Net assets million million -4.6%
Gearing(1) 6.8% 6.7% 0.1% pts
Average net quoted equity exposure
for the period 37% 38% -1.0% pts
Ongoing charges figure(1) n/a 0.89% n/a
First interim dividend paid 19.0 pence 18.5 pence 2.7%
Second interim dividend declared/paid 19.0 pence 18.5 pence 2.7%
----------- ----------- ----------
Total dividend in year 38.0 pence 37.0 pence 2.7%
--------------------------------------- ----------- ----------- ----------
Since
Performance history 1 Year 3 Years 5 Years 10 Years inception
---------------------------------------------- --------- ---------- --------- ---------- -------------
RIT NAV per share total return(1) -5.1% 27.1% 36.2% 110.3% 3,229%
CPI plus 3.0% per annum 10.9% 31.6% 43.2% 78.2% 623%
MSCI All Country World Index
(ACWI) 13.3% 34.4% 48.6% 154.8% 1,050%
RIT share price total return(1) -20.7% 9.9% -1.6% 92.9% 3,345%
FTSE 250 Index(2) 1.9% 16.1% 0.5% 73.3% 1,810%
---------------------------------------------- --------- ---------- --------- ---------- -------------
A description of the terms used in this report, including further information on the calculation
of Alternative Performance Measures (APMs), is set out in the Glossary and APMs section.
1 The Group's designated APMs are the NAV per share total return, share price total return,
gearing and the ongoing charges figure.
2 RIT's shares are a constituent of the FTSE 250 Index.
CHAIRMAN'S STATEMENT
Background and performance
Many of the underlying conditions which made 2022 a particularly
difficult year for markets still prevail today. Persistent
inflation has led to a material shift in interest rates, and
'higher for longer' has become an often stated refrain. The US has
seen a reversal of the forecast rate declines which were priced in
following the regional banking crisis in March. Across the US, UK
and Europe, rates have risen significantly, with the fastest
average increases in four decades. In all of these markets, yield
curves remain inverted, a phenomenon which has in the past been a
leading indicator of a future recession.
Despite this worrying backdrop, many equity indices performed
strongly. The S&P 500 finished the half year up well into
double digits, and the NASDAQ had one of its strongest gains in a
decade, up almost a third. A 'tech is everything' narrative, buoyed
by optimism around artificial intelligence, saw a robust recovery
for this sector, with investors viewing technology as a rare source
of innovation and growth in an otherwise low-growth world. However,
excluding a handful of the largest technology companies, the
remaining stocks in the S&P 500 averaged more modest
returns.
Our NAV per share total return (including dividends) was broadly
flat for the half year at -0.2%, to end June at 2,364 pence per
share. This compares to the MSCI ACWI (50% GBP) which was up 11.0%
and CPI plus 3% at 5.5%. Other equity indices did less well, with
the FTSE 250 (of which our shares are a constituent) declining by
nearly 1%. In view of the headwinds which we continue to observe,
we maintained a relatively low quoted equity exposure over the
period. We also deliberately had little exposure to publicly listed
technology stocks in our quoted book, as this sector is
well--represented in our private investment portfolio. Our quoted
equity portfolio nevertheless performed well, helped by some strong
stock picks, as well as our healthcare and Japan exposures. Private
investments were down slightly for the half year. Our direct
holdings recorded a modest gain, supported by a number of
transactions at or above our previous carrying value. For the
private funds, we have received March valuations for 93% of the
portfolio, which show a slight gain, partly offsetting a modest
decrease from the December valuations received earlier in the year.
The largest detractor in the first half was currency, driven by
sterling's appreciation, with the translation impact most
pronounced for our US dollar-denominated assets. Our uncorrelated
strategies portfolio was additive, with credit and interest rate
positions as well as gold, all in positive territory.
Share capital and dividend
The discount at which our shares are trading relative to our NAV
remains wider than we believe is warranted. Part of the increase in
the discount reflects concerns regarding our private investments
book, at a time when private assets generally are out of favour -
notwithstanding that they have been an important contributor to
returns throughout our history. The investment company sector has
also seen a general widening of discounts, particularly in the
second quarter, reflecting broader weakness across the UK
market.
The Board has discussed this situation at length and is
responding with a two-pronged approach. Firstly, we have deployed a
material amount of capital in share buybacks, to lock in the
accretive benefit for shareholders, improve liquidity and help
reduce the volatility in our rating. By 30 June, we had acquired
some 5.6 million shares at a cost of GBP105 million, to hold 6.2
million shares in treasury. The robustness of our private
investment portfolio valuations has been evidenced by three
disposals in the half year at or above our carrying values, and we
continue to believe that the opportunity to buyback our shares at
the current discount is a compelling investment for
shareholders.
Secondly, we are enhancing our communications efforts to provide
a more frequent and more detailed flow of information on our
portfolio and its performance. This has meant an increase in the
frequency of our meetings with shareholders and publishing more
regular commentary on portfolio developments in our monthly NAV
announcements. The reaction to these first steps has been positive,
for which we are grateful. Nevertheless, there is much more that we
can do in this regard, and continuous improvement in this area will
be a key focus for the Company and our Manager in the coming
months.
We paid a first interim dividend of 19 pence per share in April
and have declared a second interim dividend of the same amount to
be paid on 27 October to shareholders registered on 6 October. This
will provide shareholders with a total dividend in 2023 of 38 pence
per share, an increase of almost 3% from 2022.
Outlook
Some recent data releases suggest that the rates of inflation in
Western economies are showing the first signs of moderating.
However, they remain materially above central banks' target rates,
and there is a strong body of evidence pointing to the fact that we
have not yet seen the peak in policy rates, nor can the risk of
recession be ruled out at this point. In view of the time lag on
the full effect of monetary tightening, we may not yet have seen
the full impact of tighter conditions on consumer demand, credit
conditions, corporate margins, earnings and financing costs. We
therefore do not believe that the grounds for our moderate levels
of quoted equity exposure have changed.
Nevertheless, this complicated backdrop is providing a fertile
environment for our Manager, JRCM, to identify opportunities in
both quoted equity and credit markets which should, we believe,
offer healthy double-digit returns with a meaningful margin of
safety. The ability to identify these opportunities and to conduct
the in-depth analysis to assess them is a core capability of JRCM.
The strength in depth which we have in these areas at our Manager
is a cause for optimism for the future, and I am delighted that
Nick Khuu has been promoted to Co-CIO. Nick is a very experienced
investor who has been instrumental in the management of both our
quoted equities and uncorrelated strategies. He is an excellent
addition to JRCM's senior leadership team.
Sir James Leigh-Pemberton
Chairman
31 July 2023
MANAGER'S REPORT
Overview
The first half of 2023 has seen the global economy impacted by
bank failures, persistent inflation and ongoing international
conflict, while advances in artificial intelligence have
re-invigorated investors' convictions that 'technology is
everything'. Meanwhile, central banks are engaged in a difficult
balancing act, maintaining interest rates at a higher level than
expected to curb inflationary pressure, without adversely impacting
the economy.
On the surface, many equity markets appeared unscathed, with the
S&P 500 up 17%, Europe up 11% and Japan up 23%. By contrast,
the UK market suffered from a lack of support with the FTSE 250
down 1%, and MSCI China was down 6%. Beneath the surface,
macroeconomic indicators sent mixed signals. Rapid interest rate
rises and tightening credit conditions have put pressure on company
earnings, with the bulk of the indices' appreciation coming from
multiple expansion rather than earnings growth. By and large
however, the economy has withstood the radical shift in costs of
capital significantly better than many had anticipated. There is
little doubt that this tightening cycle has been unique as it
unfolded at a time of record excess savings, an expansionary fiscal
stance and both corporates and consumers having fixed their funding
obligations at attractive rates. This confluence of factors has
rendered the economy unusually insensitive to higher interest
rates. Ironically, it also pushes central banks to be more
aggressive than otherwise to make a sufficient dent on growth, to
ensure inflation returns to their long-term targets. As rates keep
grinding higher, so the pressure grows on the resilience of the
economy and of a financial system that has been weaned on a diet of
cheap money for more than a decade. These are clearly challenging
waters to navigate.
Performance commentary
Our NAV per share total return for the first half of the year
was -0.2%. Our performance lagged both of our reference indices:
the ACWI (50% GBP) was up 11.0% and the 'inflation plus' hurdle
(CPI plus 3%) was 5.5%.
The principal reasons for the underperformance were the low
weighting of technology stocks in our quoted equity book, and
translation effects. We deliberately kept our technology holdings
in the quoted equity book low, given the exposure to the digital
transition theme in our private investment portfolio. Stripping out
the few mega-cap technology stocks from the S&P 500, the
remaining stocks averaged around 6%. Our quoted equity book
returned almost 7% in the first half, contributing 2.6% to NAV.
Sterling has strengthened since December, appreciating against the
US dollar by 5.1%. While our hedging partially dampened the effect
of this move, sterling's strength reduced the NAV by 2.9% in the
period. Given the outlook for the US and the UK economies, we
continue to believe that sterling's recent strength could leave it
vulnerable.
Quoted equity
Performance was driven by exposure to Japan, healthcare and
reflation themes, and strong stock selection, offsetting a modest
decline from our China exposure. Japan saw the benefits of
corporate governance reforms and our healthcare holdings performed
well as 'big pharma' deployed capital to acquire innovative
companies. In single stocks, a notable contributor was Builders
FirstSource. We bought this distributor of homebuilding products
amidst market volatility in the second half of 2022, believing the
stock to be significantly undervalued. The shares have risen 110%
this year, and we recently sold the bulk of our holding to lock in
this gain.
We have also added positions in stocks which we believe to be
similarly undervalued, including the mattress company, Tempur
Sealy. Other core stocks continue to perform well overall, with
Mastercard and Marsh & McLennan registering double-digit gains
since December.
Private investments
The private investments book remains a core part of our
long-term investment strategy, comprising diversified funds and
individual holdings, and with exposure across different industry
sectors, themes and vintages.
As the December 2022 GPs' valuations were received in the first
quarter of this year, our private funds saw some write--downs,
following the reset in public markets. The recently received Q1
marks showed a modest overall increase in valuations, resulting in
an aggregate contribution for the half year of -1.3%. As of the
reporting date, 93% of the private funds were valued as at 31
March, with the remainder at 31 December.
Our direct private investments returned 4.5%, contributing 0.5%
to the NAV. This portfolio saw an uplift in valuations for the half
year, reflecting continued underlying performance, a more
constructive market backdrop and some specific transactions. In
late January we sold our holding in Infinity, a UK data-centre
operator, at a price above our December carrying value. We have
recently completed sales of the majority of two of our largest
direct positions at their December carrying values, realising
returns of 2.0x to 3.9x our original investments. Likewise in
April, one of our largest investments, Webull, benefited from a new
fund-raising at a level higher than our December value.
Within this portfolio we have exposure to high-quality
innovative companies within the ongoing digital transition theme.
We estimate that the majority of our investments are either
profitable or have a cash runway of more than a year, which puts
them in a good position to take advantage of renewed optimism.
Over time, we expect the share of NAV in private investments to
naturally rebalance to a lower level as the IPO market reopens, our
funds continue to make distributions, we take advantage of other
opportunities to crystalise gains and fewer new investments meet
our very high hurdles.
Uncorrelated strategies
Our uncorrelated strategies book is designed to provide a
diverse set of returns with low correlation to equity markets. It
includes absolute return and credit positions, real assets,
government bonds and interest rate positions. This book delivered
positive returns for the half year, mainly driven by our credit
investments and our holdings in gold. The early returns from a
recent ESG-related investment into Californian carbon credits (part
of the US carbon offset market) have been encouraging and we have
recently added a holding of senior secured bonds issued by Pizza
Express. These short--term bonds have attractive structural
protection and a healthy coupon, and we were able to purchase them
at a discount to par, further enhancing the return opportunity. We
have also added to our holdings of government bonds, with yields on
UK gilts particularly attractive.
Given our conviction in the portfolio, we continued to buyback
shares at a significant discount to the underlying net asset value.
This has been accretive for shareholders, and so far this year has
added an estimated 0.8% to the NAV per share return.
Outlook
Given choppy waters and unpredictable macroeconomic winds, we
are keeping some slack in our sails. We do not believe that there
are yet grounds for increasing our overall exposure to equity
markets, and we will continue to focus on specific themes, such as
healthcare, digital transition and Japan. In addition, we are
holding healthy liquidity balances as we believe these are fertile
markets for deploying long-term capital, in particular in US
mid-cap stocks, and European credit.
While not owning mega-cap technology stocks influenced our
relative returns over the short-term, we remain resolute in our
careful portfolio construction and diversification, which we
believe remains the best approach for long-term capital growth with
lower volatility. We aim to hold diversified investments that
capitalise on structural themes and market dislocations, where we
can leverage our network of partners and managers and the advantage
of permanent capital, to take a differentiated view for the benefit
of our shareholders.
The combination of our deep bench of talent across the
organisation and access to a wide network globally remains one of
our core differentiators. We are therefore pleased to announce that
Nick Khuu, our Head of Public Markets and a member of our
Investment Committee, has formally been appointed Co-CIO of JRCM.
Nick is a seasoned investor, with more than two decades of
experience covering equities, fixed income, rates and special
situations. He has been instrumental in helping to oversee our
quoted equities and uncorrelated strategies portfolio and is an
excellent addition to our senior team as we navigate the evolving
landscape and opportunities ahead.
ASSET ALLOCATION AND PORTFOLIO CONTRIBUTION
30 June 2023 NAV per share
contribution
Asset category % net assets %
-------------------------------------------- -------------- --------------
Quoted equity 33.9% 2.6%(1)
Private investments 39.8% -0.8%
Uncorrelated strategies: 25.7% 0.7%
Absolute return and credit 21.2% 0.6%
Real assets 1.5% 0.2%
Government bonds and rates 3.0% -0.1%
Currency 0.7% -2.9%(2)
-------------- --------------
Total investments 100.1% -0.4%
Liquidity, borrowings and other -0.1% 0.2%(3)
-------------------------------------------- -------------- --------------
Total 100.0% -0.2%
-------------------------------------------- -------------- --------------
Average net quoted equity exposure(1) 37.0%
-------------------------------------------- -------------- --------------
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, expenses and accretion
from the share buybacks.
ASSET CATEGORY (% OF NAV)
30 June 2023 31 December 2022
Asset category % NAV % NAV
-------------------------- ------------------------- -------------------------------
Quoted equity(1) 33.9% 35.1%
Private investments 39.8% 40.7%
Uncorrelated strategies 25.7% 21.9%
Currency 0.7% 1.1%
Liquidity, borrowings
and other -0.1% 1.2%
-------------------------- ------------------------- -------------------------------
Net assets 100.0% 100.0%
-------------------------- ------------------------- -------------------------------
Note: This table excludes exposure from derivatives.
1 For the period ending 30 June 2023, the underlying net
quoted equity exposure averaged 37% (31 December 2022:
38%).
CURRENCY EXPOSURE (% OF NAV)
30 June 2023 31 December 2022
Currency % NAV % NAV
------------------- ------------------ ----------------------
Sterling 47.1% 53.0%
US dollar 28.5% 24.5%
Euro 7.1% 6.4%
Japanese yen 5.6% 4.4%
Other 11.7% 11.7%
------------------- ------------------ ----------------------
Net assets 100.0% 100.0%
------------------- ------------------ ----------------------
Note: This table excludes exposure from currency options.
REGULATORY DISCLOSURES
Statement of Directors' responsibilities
In accordance with the Disclosure and Transparency Rules 4.2.4R,
4.2.7R and 4.2.8R, we confirm that to the best of our
knowledge:
(a) The condensed set of financial statements has been prepared
in accordance with IAS 34, Interim Financial Reporting, as
contained in UK adopted international accounting standards (UK
adopted IAS), as required by the Disclosure and Transparency Rule
4.2.4R;
(b) The Interim Review includes a fair review of the information
required to be disclosed under the Disclosure and Transparency Rule
4.2.7R in an interim management report. This includes an indication
of important events that have occurred during the first six months
of the financial year, and their impact on the condensed set of
financial statements presented in the Half-Yearly Financial Report.
A further description of the principal risks and uncertainties for
the remaining six months of the financial year is set out below;
and
(c) In addition, in accordance with the disclosures required
under the Disclosure and Transparency Rule 4.2.8R, there were no
transactions with related parties in the first six months of the
current financial year that have had a material effect on the
financial position or performance of the Group, or any changes to
related party transactions described in the Group's Report and
Accounts for the year ended 31 December 2022 that could do so.
Principal risks and uncertainties
The principal risks categories facing the Group for the second
half of the financial year are unchanged from those described in
the Report and Accounts for the year ended 31 December 2022. These
principal risks, as well as emerging risks such as those posed by
artificial intelligence, are kept under continual review. The
principal risks we identify comprise:
-- Investment strategy risk;
-- Market risk;
-- Liquidity risk;
-- Credit risk;
-- Key person dependency;
-- Climate-related risks;
-- Legal and regulatory risk; and
-- Operational risk.
As an investment company, the most significant risk is market
risk. As described in the Chairman's Statement and Manager's
Report, the macroeconomic environment continues to be challenging.
With persistent inflation, high interest rates and geopolitical
tensions still present, the elevated levels of volatility and
uncertainty in markets seen in recent years may endure throughout
2023.
From an operational risk perspective, we continue to keep our
internal controls under close scrutiny and remain satisfied that
the control environment is effective.
Going concern
The key factors likely to affect the Group's ability to continue
as a going concern were set out in the Report and Accounts for the
year ended 31 December 2022. As at 30 June 2023 there have been no
significant changes to these factors. Having reviewed the Company's
forecasts and other relevant evidence, the Directors have a
reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for the foreseeable
future. Accordingly, they continue to adopt the going concern basis
in preparing the condensed interim financial statements.
Sir James Leigh-Pemberton
Chairman
31 July 2023
For and on behalf of the Board.
CONDENSED INTERIM FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT AND CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME (UNAUDITED)
CONSOLIDATED INCOME STATEMENT
Six months ended 30 June
2023 2022
GBP million Notes Revenue Capital Total Revenue Capital Total
--------------------------------- ----- ------- ------- ------- ------- -------- --------
Income and gains
Investment income 14.4 - 14.4 5.2 - 5.2
Other income 0.1 - 0.1 0.9 - 0.9
Gains/(losses) on fair value
investments - (14.0) (14.0) - (370.8) (370.8)
Gains/(losses) on monetary items
and borrowings - 3.4 3.4 - 16.1 16.1
--------------------------------- ----- ------- ------- ------- ------- -------- --------
14.5 (10.6) 3.9 6.1 (354.7) (348.6)
Expenses
Operating expenses (17.8) (1.8) (19.6) (15.9) (8.4) (24.3)
--------------------------------- ----- ------- ------- ------- ------- -------- --------
Profit/(loss) before finance
costs and tax 2 (3.3) (12.4) (15.7) (9.8) (363.1) (372.9)
Finance costs (3.4) (13.6) (17.0) (2.0) (8.0) (10.0)
--------------------------------- ----- ------- ------- ------- ------- -------- --------
Profit/(loss) before tax (6.7) (26.0) (32.7) (11.8) (371.1) (382.9)
Taxation - - - - - -
--------------------------------- ----- ------- ------- ------- ------- -------- --------
Profit/(loss) for the period (6.7) (26.0) (32.7) (11.8) (371.1) (382.9)
--------------------------------- ----- ------- ------- ------- ------- -------- --------
Earnings per ordinary share
- basic 3 (4.4)p (17.1)p (21.5)p (7.6)p (238.0)p (245.6)p
Earnings per ordinary share
- diluted 3 (4.4)p (17.1)p (21.5)p (7.6)p (238.0)p (245.6)p
--------------------------------- ----- ------- ------- ------- ------- -------- --------
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
Six months ended 30 June
2023 2022
GBP million Revenue Capital Total Revenue Capital Total
----------------------------------------- ------- ------- ------ ------- ------- -------
Profit/(loss) for the period (6.7) (26.0) (32.7) (11.8) (371.1) (382.9)
Revaluation gain/(loss) on property,
plant and equipment - (0.6) (0.6) - (0.3) (0.3)
Actuarial gain/(loss) in defined benefit
pension plan - - - (0.4) - (0.4)
Deferred tax (charge)/credit allocated
to actuarial gain/(loss) - - - (0.1) - (0.1)
----------------------------------------- ------- ------- ------ ------- ------- -------
Total comprehensive income/(expense)
for the period (6.7) (26.6) (33.3) (12.3) (371.4) (383.7)
----------------------------------------- ------- ------- ------ ------- ------- -------
The notes are an integral part of these condensed interim
financial statements.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
30 June 31 December
GBP million Notes 2023 2022
--------------------------------------------- ----- ------- -----------
Non-current assets
Investments held at fair value 3,476.4 3,586.3
Investment property 37.0 37.9
Property, plant and equipment 19.9 20.7
Retirement benefit asset 0.5 0.5
Derivative financial instruments 1.8 1.0
--------------------------------------------- ----- ------- -----------
3,535.6 3,646.4
--------------------------------------------- ----- ------- -----------
Current assets
Derivative financial instruments 44.9 57.3
Other receivables 183.9 245.3
Amounts owed by group undertakings 4.3 4.5
Cash at bank 242.1 218.0
--------------------------------------------- ----- ------- -----------
475.2 525.1
--------------------------------------------- ----- ------- -----------
Total assets 4,010.8 4,171.5
--------------------------------------------- ----- ------- -----------
Current liabilities
Borrowings (245.3) (236.2)
Derivative financial instruments (10.5) (10.4)
Other payables (69.9) (63.5)
Amounts owed to group undertakings (0.1) (0.1)
--------------------------------------------- ----- ------- -----------
(325.8) (310.2)
--------------------------------------------- ----- ------- -----------
Net current assets/(liabilities) 149.4 214.9
--------------------------------------------- ----- ------- -----------
Total assets less current liabilities 3,685.0 3,861.3
--------------------------------------------- ----- ------- -----------
Non-current liabilities
Borrowings (128.7) (134.4)
Derivative financial instruments (0.2) -
Deferred tax liability (0.2) (0.2)
Provisions (1.8) (1.8)
Lease liability (3.2) (3.2)
--------------------------------------------- ----- ------- -----------
(134.1) (139.6)
--------------------------------------------- ----- ------- -----------
Net assets 3,550.9 3,721.7
--------------------------------------------- ----- ------- -----------
Equity attributable to owners of the Company
Share capital 156.8 156.8
Share premium 45.7 45.7
Capital redemption reserve 36.3 36.3
Own shares reserve (36.6) (46.3)
Capital reserve 3,375.7 3,548.9
Revenue reserve (35.8) (29.1)
Revaluation reserve 8.8 9.4
--------------------------------------------- ----- ------- -----------
Total equity 3,550.9 3,721.7
--------------------------------------------- ----- ------- -----------
Net asset value per ordinary share - basic 4 2,383p 2,414p
Net asset value per ordinary share - diluted 4 2,364p 2,388p
--------------------------------------------- ----- ------- -----------
The notes are an integral part of these condensed interim
financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
Six months ended Capital
30 June 2023 Share Share redemption Own shares Capital Revenue Revaluation Total
GBP million capital premium reserve reserve reserve reserve reserve equity
--------------------------- ------- ------- ----------- ---------- ------- ------- ----------- -------
Balance at 1 January
2023 156.8 45.7 36.3 (46.3) 3,548.9 (29.1) 9.4 3,721.7
Profit/(loss)
for the period - - - - (26.0) (6.7) - (32.7)
Revaluation gain/(loss)
on property, plant
and equipment - - - - - - (0.6) (0.6)
Actuarial gain/(loss)
in defined benefit
pension plan - - - - - - - -
Deferred tax
(charge)/credit
allocated to actuarial
gain/(loss) - - - - - - - -
--------------------------- ------- ------- ----------- ---------- ------- ------- ----------- -------
Total comprehensive
income/(expense)
for the period - - - - (26.0) (6.7) (0.6) (33.3)
--------------------------- ------- ------- ----------- ---------- ------- ------- ----------- -------
Dividends paid
(note 5) - - - - (28.8) - - (28.8)
Purchase of treasury
shares - - - - (104.9) - - (104.9)
Movement in own
shares reserve - - - 9.7 - - - 9.7
Movement in share-based
payments - - - - (13.5) - - (13.5)
--------------------------- ------- ------- ----------- ---------- ------- ------- ----------- -------
Balance at 30
June 2023 156.8 45.7 36.3 (36.6) 3,375.7 (35.8) 8.8 3,550.9
--------------------------- ------- ------- ----------- ---------- ------- ------- ----------- -------
Six months ended Capital
30 June 2022 Share Share redemption Own shares Capital Revenue Revaluation Total
GBP million capital premium reserve reserve reserve reserve reserve equity
--------------------------- ------- ------- ----------- ---------- ------- ------- ----------- -------
Balance at 1 January
2022 156.8 45.7 36.3 (23.0) 4,174.4 (11.4) 11.5 4,390.3
Profit/(loss)
for the period - - - - (371.1) (11.8) - (382.9)
Revaluation gain/(loss)
on property, plant
and equipment - - - - - - (0.3) (0.3)
Actuarial gain/(loss)
in defined benefit
pension plan - - - - - (0.4) - (0.4)
Deferred tax
(charge)/credit
allocated to actuarial
gain/(loss) - - - - - (0.1) - (0.1)
--------------------------- ------- ------- ----------- ---------- ------- ------- ----------- -------
Total comprehensive
income/(expense)
for the period - - - - (371.1) (12.3) (0.3) (383.7)
--------------------------- ------- ------- ----------- ---------- ------- ------- ----------- -------
Dividends paid
(note 5) - - - - (28.9) - - (28.9)
Purchase of treasury
shares - - - - (1.5) - - (1.5)
Movement in own
shares reserve - - - 2.2 - - - 2.2
Movement in share-based
payments - - - - (4.1) - - (4.1)
--------------------------- ------- ------- ----------- ---------- ------- ------- ----------- -------
Balance at 30
June 2022 156.8 45.7 36.3 (20.8) 3,768.8 (23.7) 11.2 3,974.3
--------------------------- ------- ------- ----------- ---------- ------- ------- ----------- -------
The notes are an integral part of these condensed interim
financial statements.
CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
Six months ended 30 June 30 June
GBP million 2023 2022
---------------------------------------------- --------------------------------- ---------------------------------
Cash flows from operating activities:
Cash inflow/(outflow) before taxation and
interest 174.1 (122.8)
Interest paid (17.0) (10.0)
---------------------------------------------- --------------------------------- ---------------------------------
Net cash inflow/(outflow) from operating
activities 157.1 (132.8)
---------------------------------------------- --------------------------------- ---------------------------------
Cash flows from investing activities:
Purchase of property, plant and equipment (0.1) (0.1)
---------------------------------------------- --------------------------------- ---------------------------------
Net cash inflow/(outflow) from investing
activities (0.1) (0.1)
---------------------------------------------- --------------------------------- ---------------------------------
Cash flows from financing activities:
Repayment of borrowings (311.5) (251.7)
Proceeds of borrowings 324.4 310.0
Purchase of ordinary shares by employee
benefit
trust(1) (9.5) (14.9)
Purchase of ordinary shares into treasury (104.9) (1.5)
Dividends paid (28.8) (28.9)
---------------------------------------------- --------------------------------- ---------------------------------
Net cash inflow/(outflow) from financing
activities (130.3) 13.0
---------------------------------------------- --------------------------------- ---------------------------------
Increase/(decrease) in cash in the period 26.7 (119.9)
---------------------------------------------- --------------------------------- ---------------------------------
Cash at the start of the period 218.0 325.9
---------------------------------------------- --------------------------------- ---------------------------------
Effect of foreign exchange rate changes on
cash (2.6) 14.4
---------------------------------------------- --------------------------------- ---------------------------------
Cash at the period end 242.1 220.4
---------------------------------------------- --------------------------------- ---------------------------------
Shares are disclosed in the own shares reserve on the consolidated
(1) balance sheet (unaudited).
The notes are an integral part of these condensed interim
financial statements.
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of accounting
These condensed financial statements are the half-yearly
consolidated financial statements of RIT Capital Partners plc (RIT
or the Company) and its subsidiaries (together, the Group) for the
six months ended 30 June 2023. They are prepared in accordance with
the Disclosure and Transparency Rules of the Financial Conduct
Authority, and with International Accounting Standard (IAS) 34,
Interim Financial Reporting, as adopted by the United Kingdom, and
were approved on 31 July 2023. These half-yearly consolidated
financial statements should be read in conjunction with the Report
and Accounts for the year ended 31 December 2022, which were
prepared in accordance with UK adopted IAS.
The half-yearly consolidated financial statements have been
prepared in accordance with the accounting policies set out in the
notes to the consolidated financial statements for the year ended
31 December 2022.
Critical accounting assumptions and judgements
As further described in the Report and Accounts for the year
ended 31 December 2022, areas requiring a higher degree of
judgement or complexity and areas where assumptions and estimates
are significant to the consolidated financial statements, are in
relation to the valuation of private investments and property.
2. Business and geographical segments
For both the six months ended 30 June 2023 and the six months
ended 30 June 2022, the Group is considered to have three principal
operating segments, all based in the UK, as follows:
AUM(1)
Segment Business GBP million Employees(1)
--------- ---------------------------------- ----------- ------------
RIT Investment trust - -
JRCM(2) Investment manager/administration 3,550.9 51
SHL(3) Events/premises management - 13
--------- ---------------------------------- ----------- ------------
(1) At 30 June 2023
(2) J. Rothschild Capital Management Limited.
(3) Spencer House Limited.
Key financial information for the six months ending 30 June 2023
is as follows:
Net Income/ Operating Profit/
GBP million assets gains(1) expenses(1) (loss)(2)
--------------- ------- -------- ----------- ---------
RIT 3,446.6 2.1 (21.7) (19.6)
JRCM 110.5 20.4 (16.6) 3.8
SHL 0.9 1.8 (1.7) 0.1
Adjustments(3) (7.1) (20.4) 20.4 -
--------------- ------- -------- ----------- ---------
Total 3,550.9 3.9 (19.6) (15.7)
--------------- ------- -------- ----------- ---------
Key financial information for the six months ending 30 June 2022
is as follows:
Net Income/ Operating Profit/
GBP million assets gains(1) expenses(1) (loss)(2)
---------------- -------------- --------------- -------------------- ----------------
RIT 3,860.3 (349.3) (27.0) (376.3)
JRCM 120.1 25.4 (22.1) 3.3
SHL 0.6 1.7 (1.6) 0.1
Adjustments(3) (6.7) (26.4) 26.4 -
---------------- -------------- --------------- -------------------- ----------------
Total 3,974.3 (348.6) (24.3) (372.9)
---------------- -------------- --------------- -------------------- ----------------
(1) Includes intra-group income and expenses.
(2) Profit/(loss) before finance costs and tax.
Consolidation adjustments in accordance with IFRS 10 Consolidated
(3) Financial Statements.
3. Earnings per ordinary share - basic and diluted
The basic earnings per ordinary share for the six months ended
30 June 2023 is based on the loss of GBP32.7 million (six months
ended 30 June 2022: loss of GBP382.9 million) and the weighted
average number of ordinary shares in issue during the period of
156.8 million (six months ended 30 June 2022: 156.8 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.
Six months Six months
ended ended
GBP million 30 June 2023 30 June 2022
--------------------------------------------------- ------------ ------------
Net revenue profit/(loss) (6.7) (11.8)
Net capital profit/(loss) (26.0) (371.1)
--------------------------------------------------- ------------ ------------
Total profit/(loss) for the period (32.7) (382.9)
--------------------------------------------------- ------------ ------------
Six months Six months
ended ended
Weighted average (million) 30 June 2023 30 June 2022
--------------------------------------------------- ------------ ------------
Number of shares in issue 156.8 156.8
Shares held in EBT (2.0) (0.7)
Shares held in treasury (2.8) (0.2)
--------------------------------------------------- ------------ ------------
Basic shares 152.0 155.9
--------------------------------------------------- ------------ ------------
Six months Six months
ended ended
Pence 30 June 2023 30 June 2022
--------------------------------------------------- ------------ ------------
Revenue earnings/(loss) per ordinary share - basic (4.4) (7.6)
Capital earnings/(loss) per ordinary share - basic (17.1) (238.0)
--------------------------------------------------- ------------ ------------
Total earnings per share - basic (21.5) (245.6)
--------------------------------------------------- ------------ ------------
The diluted earnings per ordinary share for the period is based
on basic shares (above) adjusted for the effect of dilutive
share-based payment awards for the period.
This adjustment is not required for either six month period as
an increase in the 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.
Six months Six months
ended ended
Weighted average (million) 30 June 2023 30 June 2022
----------------------------------------------------- ------------ ------------
Basic shares 152.0 155.9
Effect of share-based payment awards - -
----------------------------------------------------- ------------ ------------
Diluted shares 152.0 155.9
----------------------------------------------------- ------------ ------------
Six months Six months
ended ended
Pence 30 June 2023 30 June 2022
----------------------------------------------------- ------------ ------------
Revenue earnings/(loss) per ordinary share - diluted (4.4) (7.6)
Capital earnings/(loss) per ordinary share - diluted (17.1) (238.0)
----------------------------------------------------- ------------ ------------
Total earnings/(loss) per ordinary share - diluted (21.5) (245.6)
----------------------------------------------------- ------------ ------------
4. Net asset value per ordinary share - basic and diluted
Net asset value per ordinary share is based on the following
data:
30 June 31 December
2023 2022
----------------------------------------------- ------- -----------
Net assets (GBP million) 3,550.9 3,721.7
----------------------------------------------- ------- -----------
Number of shares in issue (million) 156.8 156.8
Shares held in EBT (million) (1.6) (2.0)
Shares held in treasury (million) (6.2) (0.7)
----------------------------------------------- ------- -----------
Basic shares (million) 149.0 154.1
Effect of share-based payment awards (million) 1.2 1.7
----------------------------------------------- ------- -----------
Diluted shares (million) 150.2 155.8
----------------------------------------------- ------- -----------
30 June 31 December
Pence per share 2023 2022
----------------------------------------------- ------- -----------
Net asset value per ordinary share - basic 2,383 2,414
Net asset value per ordinary share - diluted 2,364 2,388
----------------------------------------------- ------- -----------
5. Dividends
Six months Six months
ended June ended June Six months Six months
2023 2022 ended June ended June
Pence per Pence per 2023 2022
share share GBP million GBP million
------------------------- ---------- ---------- ----------- -----------
Dividends paid in period 19.0 18.5 28.8 28.9
------------------------- ---------- ---------- ----------- -----------
The Board of Directors declared an interim dividend of 19 pence
per ordinary share (GBP28.8 million) on 27 February 2023, which was
paid on 28 April 2023. The Board has declared the payment of a
second interim dividend of 19 pence per ordinary share in respect
of the year ending 31 December 2023. This will be paid on 27
October 2023 to shareholders on the register on 6 October 2023.
Both payments are funded from accumulated capital profits.
Additional commentary may be found in the Report and Accounts
for the year ended 31 December 2022.
6. Financial instruments
IFRS 13 requires the Group to classify its financial instruments
held at fair value using a hierarchy that reflects the significance
of the inputs used in the valuation methodologies. These are as
follows:
-- Level 1: Quoted prices (unadjusted) in active markets
for identical assets or liabilities;
-- Level 2: Inputs other than quoted prices included
within level 1 that are observable for the asset
or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
-- Level 3: Inputs for the asset or liability that are
not based on observable market data (i.e. unobservable
inputs).
The vast majority of the Group's financial assets and
liabilities, investment properties and property, plant and
equipment are measured at fair value on a recurring basis.
The Group's policy is to recognise transfers into and transfers
out of fair value hierarchy levels at the end of the reporting
period when they are deemed to occur.
A description of the valuation techniques used by the Group with
regards to investments categorised in each level of the fair value
hierarchy is detailed below. Where the Group invests in a fund or a
partnership, which is not itself listed on an active market, the
categorisation of such investment between levels 2 and 3 is
determined by reference to the nature of the fund or partnership's
underlying investments. If such investments are categorised across
different levels, the lowest level of the hierarchy that forms a
significant proportion of the fund or partnership exposure is used
to determine the reporting disclosure.
If the proportion of the underlying investments categorised
between levels changes during the period, these will be
reclassified to the most appropriate level.
Level 1
The fair value of financial instruments traded in active markets
is based on quoted market prices at the balance sheet date. A
market is regarded as active if quoted prices are readily and
regularly available from an exchange, dealer, broker, industry
group, pricing service, or regulatory agency, and those prices
represent actual and regularly occurring market transactions on an
arm's length basis. The quoted market price used for financial
assets held by the Group is the current bid price or the last
traded price, depending on the convention of the exchange on which
the investment is quoted. Where a market price is available, but
the market is not considered active, the Group has classified these
investments as level 2.
Level 2
The fair value of financial instruments that are not traded in
an active market is determined by using valuation techniques which
maximise the use of observable market data where it is available.
Specific valuation techniques used to value OTC derivatives include
quoted market prices for similar instruments, counterparty quotes
and the use of forward exchange rates to estimate the fair value of
forward foreign exchange contracts at the balance sheet date.
Investments in externally--managed funds which themselves invest
primarily in listed securities are valued at the price or net asset
value released by the investment manager or fund administrator as
at the balance sheet date.
Level 3
The Group considers all private investments, whether direct or
funds, (as described in the Investment Portfolio) as level 3
assets, as the valuations of these assets are not typically based
on observable market data. Where other funds invest into illiquid
stocks, these are also considered by the Group to be level 3
assets.
Private fund investments are held at the most recent fair values
provided by the GPs managing those funds, adjusted for subsequent
investments, distributions, and currency movements up to the period
end, and are subject to periodic review by the Manager.
Direct co-investments are also held at the most recent fair
values provided by the GPs managing those co-investments, adjusted
for subsequent investments, distributions, currency moves, as well
as pricing events or material changes in public market valuations,
where the Manager has sufficient information to suggest the
period-end valuation should be adjusted. The remaining
directly-held private investments are valued on a semi-annual basis
using techniques including a market approach, income approach
and/or cost approach. The valuation process involves the investment
functions of the Manager who prepare the proposed valuations, which
are then subject to review by the finance function, with the final
valuations being presented to the Valuation Committee, comprised
entirely of independent non-executive Directors, of which the Audit
and Risk Committee Chair is also a member.
Specific valuation techniques used will typically include the
value of recent transactions, earnings multiples, discounted cash
flow analysis, and, where appropriate, industry specific
methodologies. The acquisition cost, if determined to be fair
value, may be used to calibrate inputs to the valuation. The
valuations will often reflect a synthesis of a number of distinct
approaches in determining the final fair value estimate. The
individual approach for each investment will vary depending on
relevant factors that a market participant would take into account
in pricing the asset. These might include the specific industry
dynamics, the company's stage of development, profitability, growth
prospects or risk as well as the rights associated with the
particular security.
Borrowings at 30 June 2023 comprise bank loans and senior loan
notes. The bank loans are revolving credit facilities paying
floating interest and are typically drawn in tranches with a
duration of three or six months. The loans are therefore short-term
in nature, and their fair value approximates their nominal value.
The loan notes were issued in 2015 with tenors of between 10 and 20
years with a weighted average of 16 years. They are valued on a
monthly basis using a discounted cash flow model where the discount
rate is derived from the yield of similar tenor UK Government
bonds, adjusted for any significant changes in either credit
spreads or the perceived credit risk of the Company.
The fair value of investments in non-consolidated subsidiaries
is considered to be the net asset value of the individual
subsidiary as at the balance sheet date. The net asset value
comprises various assets and liabilities which are fair valued on a
recurring basis and is considered to be level 3.
On a semi-annual basis, the Group engages external, independent
and qualified valuers to determine the fair value of the Group's
investment properties and property, plant and equipment held at
fair value.
The following table analyses the Group's assets and liabilities
within the fair value hierarchy, at 30 June 2023:
As at 30 June 2023
GBP million Level 1 Level 2 Level 3 Total
--------------------------------------- ------- ------- ------- -------
Financial assets at fair value through
profit or loss (FVPL):
Portfolio investments 644.8 1,039.8 1,652.1 3,336.7
Non-consolidated subsidiaries - - 139.7 139.7
--------------------------------------- ------- ------- ------- -------
Investments held at fair value 644.8 1,039.8 1,791.8 3,476.4
Derivative financial instruments - 46.7 - 46.7
--------------------------------------- ------- ------- ------- -------
Total financial assets at FVPL 644.8 1,086.5 1,791.8 3,523.1
--------------------------------------- ------- ------- ------- -------
Non-financial assets measured at fair
value:
Investment property - - 37.0 37.0
Property, plant and equipment - - 19.9 19.9
--------------------------------------- ------- ------- ------- -------
Total non-financial assets measured
at fair value - - 56.9 56.9
--------------------------------------- ------- ------- ------- -------
Financial liabilities at FVPL:
Borrowings - - (374.0) (374.0)
Derivative financial instruments - (10.7) - (10.7)
--------------------------------------- ------- ------- ------- -------
Total financial liabilities at FVPL - (10.7) (374.0) (384.7)
--------------------------------------- ------- ------- ------- -------
Total net assets measured at fair
value 644.8 1,075.8 1,474.7 3,195.3
--------------------------------------- ------- ------- ------- -------
Other non-current assets 0.5
Cash at bank 242.1
Other current assets 188.2
Other current liabilities (70.0)
Other non-current liabilities (5.2)
--------------------------------------- ------- ------- ------- -------
Net assets 3,550.9
--------------------------------------- ------- ------- ------- -------
Movement in level 3 assets
Investments
Six months ended 30 June 2023 held at fair
GBP million value Properties Total
------------------------------------------------------ ------------ ---------- -------
Opening balance 1,875.3 58.6 1,933.9
Purchases 123.8 0.2 124.0
Sales (107.1) (0.1) (107.2)
Realised gains/(losses) through profit or loss (1.2) - (1.2)
Unrealised gains/(losses) through profit or
loss (100.9) (1.0) (101.9)
Unrealised gains/(losses) through other comprehensive
income - (0.6) (0.6)
Transfer into/out of level 3 2.0 - 2.0
Other (0.1) (0.2) (0.3)
------------------------------------------------------ ------------ ---------- -------
Closing balance 1,791.8 56.9 1,848.7
------------------------------------------------------ ------------ ---------- -------
Further information in relation to the directly-held private
investments is set out in the following table. This summarises the
portfolio by the primary method used in estimating the fair value
of the investments. As we seek to employ a range of valuation
methods and inputs in the valuation process, selection of a primary
method is subjective, and designed primarily to assist the
subsequent sensitivity analysis.
Primary valuation method/approach 30 June 31 December
GBP million 2023 2022
----------------------------------- ---------------------------------------------------------------- -----------
Third-party valuations(1) 246.7 246.3
Recent transaction 74.6 23.6
Discount to recent transaction(2) 53.9 90.5
Other industry metrics 19.5 21.7
Discount to sale proceeds 12.6 10.8
Original invested cost 10.7 -
Earnings multiple 5.0 49.8
----------------------------------- ---------------------------------------------------------------- -----------
Total 423.0 442.7
----------------------------------- ---------------------------------------------------------------- -----------
1. Included in this method are direct private investments held
within the non-consolidated subsidiaries with a total of
GBP25.2 million (December 2022: GBP24.5 million).
2. Included in this method are direct private investments which
have been discounted due to a decline in public market
comparables
or a general decline in markets related to or impacting
the businesses.
The majority of the direct private investments are structured as
co-investments, managed by a GP. For these investments, we
typically use the latest quarterly fair valuations provided by the
GP, adjusted for any subsequent investments/distributions and
currency moves as well as pricing events or material changes in
public market valuations, where there is sufficient information to
suggest the period-end valuation should be adjusted.
Where the Manager has sufficient information to undertake its
own valuation, a range of methods will typically be used. For
companies with positive earnings, we seek to utilise an earnings
multiple approach, typically using EBITDA or similar. The earnings
multiple is assessed by reference to similar listed companies or
transactions involving similar companies. When an asset is
undergoing a sale and the price has been agreed but not yet
completed or an offer has been submitted, we use the agreed or
offered price, with a discount as appropriate to reflect the risks
associated with the transaction completing or any price
adjustments. Where a company has been the subject of a recent
financing round which is viewed as representative of fair value, we
will use this transaction price. Other methods employed include
discounted cash flow analysis and industry metrics such as
multiples of assets under management or revenue, where market
participants use these approaches in pricing assets.
Level 3 assets - sensitivity analysis
The following table provides a sensitivity analysis of the
valuation of directly-held private investments and the impact on
net assets:
Valuation method/approach Sensitivity analysis
------------------------- --------------------------------------------------------------
Third-party valuations A 5% change in the value of these assets would result
in a GBP12.3 million or 0.35% (2022: GBP12.3 million,
0.33%) change in net assets.
Recent transaction A 5% change in the value of these assets would result
in a GBP3.7 million or 0.10% (2022: GBP1.2 million,
0.03%) change in net assets.
Discount to recent Assets in this category are valued using a discount
transaction applied to a recent financing round or secondary transaction.
Discounts range between 27% and 56%, reflecting a number
of different factors including elapsed time since the
transaction, and the movement in market prices of broadly
similar listed companies. A 5% change to the discounts
applied would result in a GBP2.7 million or 0.08% (2022:
GBP4.5 million, 0.12%).
Other industry metrics A 5% change in the value of these assets would result
in a GBP1.0 million or 0.03% (2022: GBP1.1 million,
0.03%) change in net assets.
Discount to sale proceeds The asset in this category is valued at a 10% discount
to the sale proceeds, to account for the time value
prior to receipt. A 5% change in discount would result
in a GBP0.1 million or <0.01% (2022: GBP0.1 million,
<0.01%) change in net assets.
Original invested cost A 5% change in the value of these assets would result
in a GBP0.5 million or 0.02% (2022: n/a) change in net
assets.
------------------------- --------------------------------------------------------------
Earnings multiple Assets in this category are valued using EV/sales multiples
in the range of 4.8x - 9.7x. If the multiple used for
valuation purposes is increased or decreased by 5% then
the net assets would increase/decrease by GBP0.2 million
or 0.01% (2022: GBP2.5 million, 0.07%).
------------------------- --------------------------------------------------------------
The investment property and property, plant and equipment with
an aggregate fair value of GBP56.9 million (2022: GBP58.6 million)
were valued using a third-party valuation provided by Jones Lang
LaSalle. The properties were valued using weighted average capital
values of GBP1,530 per square foot (2022: GBP1,580) developed from
rental yields and supported by recent market transactions. A GBP100
per square foot increase/decrease in capital values would result in
a GBP3.3 million increase/decrease in fair value (2022: GBP3.3
million increase/decrease).
The non-consolidated subsidiaries are held at their fair value
of GBP139.7 million (2022: GBP101.1 million) representing GBP136.8
million of portfolio investments (2022: GBP104.7 million) and
GBP2.9 million of remaining assets (2022: liabilities of GBP3.3
million). A 5% change in the value of these assets would result in
GBP7.0 million or 0.2% (2022: GBP5.1 million, 0.1%) change in total
net assets.
The remaining investments held at fair value and classified as
level 3 were valued using third-party valuations from a GP,
administrator, or fund manager totalling GBP1,254.3 million (2022:
GBP1,355.7 million). A 5% change in the value of these assets would
result in a GBP62.7 million or 1.77% (2022: GBP67.8 million, 1.82%)
change in net assets.
In aggregate, the sum of the direct private investments,
investment property, property, plant and equipment,
non--consolidated subsidiaries and the remaining fund investments
represents the total level 3 assets of GBP1,848.7 million (2022:
GBP1,933.9 million).
The following table analyses the Group's assets and liabilities
within the fair value hierarchy, at 31 December 2022:
As at 31 December 2022
GBP million Level 1 Level 2 Level 3 Total
--------------------------------------- ------- ------- ------- -------
Financial assets at fair value through
profit or loss (FVPL):
Portfolio investments 506.8 1,204.2 1,774.2 3,485.2
Non-consolidated subsidiaries - - 101.1 101.1
--------------------------------------- ------- ------- ------- -------
Investments held at fair value 506.8 1,204.2 1,875.3 3,586.3
Derivative financial instruments 6.4 51.9 - 58.3
--------------------------------------- ------- ------- ------- -------
Total financial assets at FVPL 513.2 1,256.1 1,875.3 3,644.6
--------------------------------------- ------- ------- ------- -------
Non-financial assets measured at fair
value:
Investment property - - 37.9 37.9
Property, plant and equipment - - 20.7 20.7
--------------------------------------- ------- ------- ------- -------
Total non-financial assets measured
at fair value - - 58.6 58.6
--------------------------------------- ------- ------- ------- -------
Financial liabilities at FVPL:
Borrowings - - (370.6) (370.6)
Derivative financial instruments - (10.4) - (10.4)
--------------------------------------- ------- ------- ------- -------
Total financial liabilities at FVPL - (10.4) (370.6) (381.0)
--------------------------------------- ------- ------- ------- -------
Total net assets measured at fair
value 513.2 1,245.7 1,563.3 3,322.2
--------------------------------------- ------- ------- ------- -------
Other non-current assets 0.5
Cash at bank 218.0
Other current assets 249.8
Other current liabilities (63.6)
Other non-current liabilities (5.2)
--------------------------------------- ------- ------- ------- -------
Net assets 3,721.7
--------------------------------------- ------- ------- ------- -------
Movements in level 3 assets
Investments
Year ended 31 December 2022 held at fair
GBP million value Properties Total
------------------------------------------------------ ------------ ---------- -------
Opening balance 1,914.3 61.4 1,975.7
Purchases 222.2 0.1 222.3
Sales (210.3) - (210.3)
Realised gains/(losses) through profit or
loss 8.7 - 8.7
Unrealised gains/(losses) through profit or
loss (59.7) (0.4) (60.1)
Unrealised gains/(losses) through other comprehensive
income - (2.1) (2.1)
Transfer into level 3 - - -
Transfer out of level 3 - - -
Other 0.1 (0.4) (0.3)
------------------------------------------------------ ------------ ---------- -------
Closing balance 1,875.3 58.6 1,933.9
------------------------------------------------------ ------------ ---------- -------
During the period no investments were reclassified between level
2 and level 3.
7. Comparative information
The financial information contained in this Half-Yearly
Financial Report does not constitute statutory accounts as defined
in section 434 of the Companies Act 2006. The financial information
for the half years ended 30 June 2023 and 30 June 2022 has been
neither reviewed nor audited.
The information for the year ended 31 December 2022 has been
extracted from the latest published audited financial
statements.
The audited financial statements for the year ended 31 December
2022 have been filed with the Registrar of Companies and the report
of the auditors on those accounts contained no qualification or
statement under section 498(2) or (3) of the Companies Act
2006.
GLOSSARY AND ALTERNATIVE PERFORMANCE MEASURES
Glossary
Within this Half-Yearly Financial Report, 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
is used as a measure of inflation in one of the Company's key
performance indicators (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
(with debt at par value) and expressed as a 'net' percentage, e.g.
110% would be shown as 10%.
30 June 31 December
GBP million 2023 2022
--------------------------------------- ------- -----------
Total assets 4,010.8 4,171.5
Less: cash (242.1) (218.0)
--------------------------------------- ------- -----------
Sub total(a) 3,768.7 3,953.5
--------------------------------------- ------- -----------
Net assets (with debt at fair value) 3,550.9 3,721.7
--------------------------------------- ------- -----------
Net assets (with debt at par value)(b) 3,529.1 3,705.5
--------------------------------------- ------- -----------
Gearing(a/b) 6.8% 6.7%
--------------------------------------- ------- -----------
Note: Gearing has been amended slightly following a
clarification from the AIC to use debt as par value (rather than
debt at fair value, which had been previously used).
Leverage: Leverage, as defined by the UK Alternative Investment
Fund Managers Directive (AIFMD), is any method which increases the
exposure of the portfolio, whether through borrowings or leverage
embedded in derivative positions or by any other means.
MSCI All Country World Index: The MSCI All Country World Index
is a total return, market capitalisation-weighted equity index
covering major developed and emerging markets. Described in this
report as the ACWI or the ACWI (50% GBP), this is one of the
Company's KPIs or reference hurdles and, since its introduction in
2013, has incorporated a 50% sterling measure. This is calculated
using 50% of the ACWI measured in sterling and therefore exposed to
translation risk from the underlying foreign currencies. The
remaining 50% uses a sterling-hedged ACWI from 1 January 2015 (from
when this is readily available). This incorporates hedging costs,
which the portfolio also incurs, to protect against currency risk
and is an investable index. Prior to this date it uses the index
measured in local currencies. Before December 1998, when total
return indices were introduced, the index is measured using a
capital-only version.
Net asset value (NAV) per share: The NAV per share is calculated
by dividing the total value of all the assets of the trust less its
liabilities (net assets) by the number of shares outstanding.
Unless otherwise stated, this refers to the diluted NAV per share,
with debt held at fair value.
NAV total return*: The NAV total return for a period represents
the change in NAV per share, adjusted to reflect dividends paid
during the period. The calculation assumes that dividends are
reinvested in the NAV at the month end following the NAV going
ex-dividend. The NAV per share at 30 June 2023 was 2,364 pence, a
decrease of 24 pence, or 1.0%, from 2,388 pence at the previous
year end. As dividends totalling 19 pence per share were paid
during the period, the effect of reinvesting the dividends in the
NAV is 0.8%, which results in a NAV total return of -0.2%.
Net quoted equity exposure: This is the estimated level of
exposure that the trust has to listed equity markets. It includes
the assets held in the quoted equity category of the portfolio
adjusted for the notional exposure from quoted equity derivatives,
as well as estimated cash balances held by externally-managed funds
and estimated exposure levels from hedge fund managers.
Notional: In relation to derivatives, this represents the
estimated exposure that is equivalent to holding the same
underlying position through a cash security.
Ongoing charges figure (OCF)*: As a self-managed investment
trust with operating subsidiaries, the calculation of the Company's
OCF requires adjustments to the total operating expenses. In
accordance with AIC guidance, the main adjustments are to remove
JRCM compensation which is linked directly to investment
performance, as this is analogous to a performance fee for an
externally-managed trust. This calculation is performed annually
with further information in the 2022 Report & Accounts.
% Average
net
GBP million 2022 assets
--------------------------------------------- ------- ---------
Average net assets 4,044.7
--------------------------------------------- ------- ---------
Operating expenses 43.6 1.08%
JRCM direct performance-related compensation (7.6) (0.19)%
Other adjustments 0.0 0.00%
--------------------------------------------- ------- ---------
Ongoing charges 36.0 0.89%
OCF 0.89%
--------------------------------------------- ------- ---------
In addition to the above, managers charge fees within the
external funds (and in a few instances directly to RIT in relation
to segregated accounts). We have estimated that, based on average
net assets across the year and annual management fee rates per fund
(excluding performance fees), these represented an additional 0.88%
of average net assets for 2022.
Premium/discount: The premium or discount (or rating) is
calculated by taking the closing share price on 30 June 2023 and
dividing it by the NAV per share at 30 June 2023, expressed as a
net percentage. If the share price is above/below the NAV per
share, the shares are said to be trading at a premium/discount.
Share price total return or total shareholder return (TSR)*:
The TSR for a period represents the change in the share price
adjusted to reflect dividends paid during the period. Similar to
calculating a NAV total return, the calculation assumes the
dividends are notionally reinvested at the daily closing share
price following the shares going ex-dividend. The share price on 30
June 2023 closed at 1,868 pence, a decrease of 257 pence, or 12.1%,
from 2,125 pence at the previous year end. Dividends totalling 19
pence per share were paid during the period, and the effect of
reinvesting the dividends in the share price is 0.9% which results
in a TSR of -11.2%. The TSR is one of the Company's KPIs.
END OF HALF-YEARLY FINANCIAL REPORT EXTRACTS
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