Annual Financial Report

RNS Number : 7530E

RIT Capital Partners PLC

03 March 2020

 

 3 March 2020

RIT Capital Partners plc

Results for the year ended 31 December 2019

RIT Capital Partners plc today published its results for the year ended 31 December 2019.

Financial Highlights:

·	Growth in net assets in 2019 of £368 million (before dividends)
·	Total net assets exceeded £3 billion at year end; a new all-time high
·	Net Asset Value per share1 (NAV) total return of 12.0% for the period
·	NAV of 2,004 pence at 31 December 2019
·	Share price total return over the year of 12.5%

Performance Highlights:

·	The portfolio generated healthy double-digit returns in 2019, following the successful preservation of capital during the global market declines of 2018
·	Defensive portfolio positioning over the year with an emphasis on capital preservation
·	Healthy double-digit returns achieved with prudent net quoted equity exposure averaging 43% over the year
·	Diversified approach successfully produced distinctive sources of return
·	Strong contribution to overall returns from the single stocks portfolio which generated meaningful outperformance of global markets
·	Continued steady returns from the absolute return and credit portfolio
·	Useful contribution from the real assets portfolio driven by gold-related assets
·	Private investments delivered positive returns and we deployed capital into several new investment opportunities
·	Moderate net quoted equity exposure meant the NAV lagged a fully invested equity portfolio

Dividends:

·	Dividends paid in April and October 2019 totalling 34 pence per share
·	The Board intends to pay a dividend of 35 pence per share in 2020, comprising 17.5 pence per share in April and 17.5 pence per share in October. This represents an increase of 2.9% over the previous year

Summary:

·	Over the past five years, the share price total return was 65.2%, an outperformance of the equity index (ACWI)2 over that period
·	Over the same five-year period, the net assets have grown by ~£1 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 12.2% per annum compared to the ACWI of 7.3%
·	£10,000 invested in RIT at inception in 1988 would be worth ~£367,000 today (with dividends reinvested) compared to the same amount invested in the ACWI which would be worth ~£90,000

¹ Diluted NAV per share with debt at fair value.

²   This is the total return index based on 50% of the MSCI All Country World Index (ACWI) measured in sterling and 50% measured in local currencies.

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

"During 2019, I am pleased to report that your Company's net asset value per share (NAV) increased to 2,004 pence, representing a total return (including dividends) of 12.0%. The share price total return was 12.5%...

We maintained our cautious positioning, mindful of the risks inherent in both fully valued equity markets and historically low returns in bond markets…

Considered allocations to a number of key themes, in particular where we saw opportunities to benefit from long-term structural trends, together with rigorous security selection and careful portfolio construction, allowed us to meet our objective of capital growth. This builds on the 2018 results, where we were able to protect capital when global markets suffered a marked correction and many in the industry lost money. As we have explained in previous years, when we choose to emphasise caution in such a way, we do so to remain consistent with our strategy of protecting capital and delivering superior risk-adjusted returns over the long term…

While we are comfortable with our core positions, and continue to uncover areas of opportunity, the environment necessitates an even greater focus on maintaining our disciplined investment approach and rigorous portfolio construction. More than ever, we remain convinced of the relevance of RIT's differentiated approach, and believe we are well positioned for the inevitable challenges and opportunities that the markets will provide."

Commenting, Francesco Goedhuis, Chief Executive Officer of the Company's Manager, J. Rothschild Capital Management Limited (JRCM), and Ron Tabbouche, Chief Investment Officer of JRCM, said:

"Following 2018's broad equity market declines, 2019 saw resurgent markets. Having produced a positive NAV return in 2018, we are satisfied to have generated healthy double-digit performance in 2019...

In light of the clear risks and our overriding capital preservation focus, we retained a cautious stance in the portfolio, with modest quoted equity exposure complemented by carefully structured allocations to other asset classes. We adjusted the portfolio positioning during the year where we saw opportunities or clear risks…

As we enter 2020, we are cognisant that interest rates remain very low, which for some investors, makes equities the 'only show in town'. Our view is that a significant amount of good news is already priced in, and the market is unlikely to show resilience against any sustained macro or geopolitical volatility. Furthermore, after such a strong run in many of our structural themes we are, if anything, more focused on managing risk rather than adding exposure. This backdrop means that incremental equity additions are likely to be more selective than ever."

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

http://www.rns-pdf.londonstockexchange.com/rns/7530E_1-2020-3-2.pdf

ENQUIRIES: 

Brunswick Group LLP

Tom Burns: 020 7404 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 over £3 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	2019
NAV per share total return	12.0%
Share price total return	12.5%
RPI plus 3.0%	5.2%
MSCI All Country World Index	24.0%

31 December unless otherwise stated	2019		2018		Change
NAV per share	2,004 pence		1,821 pence		10.0%
Share price	2,115 pence		1,910 pence		10.7%
Premium	5.5%		4.9%		0.6%
Net assets	£3,146 million		£2,830 million		11.2%
Gearing	7.2%		11.5%		-4.3%
Average net quoted equity exposure	43%		47%		-4%
Ongoing charges figure for the year	0.68%		0.68%		-
First interim dividend (April)	17.0 pence		16.5 pence		3.0%
Second interim dividend (October)	17.0 pence		16.5 pence		3.0%
Total dividend in year	34.0 pence		33.0 pence		3.0%

Performance history	3 Years	5 Years	10 Years
NAV per share total return	22.2%	48.1%	119.7%
Share price total return	17.9%	65.2%	138.0%
RPI plus 3.0% per annum	19.1%	30.9%	78.4%
MSCI All Country World Index	36.0%	65.0%	168.0%

CHAIRMAN'S STATEMENT

I am delighted to be writing my first Chairman's Statement, following my appointment on 1 October 2019.

I must start by expressing, on behalf of colleagues and shareholders, our respect, admiration and gratitude for Lord Rothschild's exceptional leadership of the Company over many years. Jacob became chairman of the precursor of this Company - Rothschild Investment Trust - in 1971, when it was capitalised at approximately £5 million. Your Company ended 2019 with a market capitalisation in excess of £3.3 billion and net assets of some £3.1 billion. Over the 31 years since this Company's listing in 1988, we have produced annualised returns to shareholders of 12.2% per annum, comfortably in excess of general market indices and a very healthy premium above inflation. It is Lord Rothschild's exceptional drive, vision and values which have contributed so much to making RIT one of the country's most admired investment companies.

I must also pay tribute to the foresight shown by Jacob and Board colleagues for ensuring that a carefully constructed transition plan was in place, and in particular for the establishment and cultivation of an excellent team at our Manager and subsidiary - J. Rothschild Capital Management Limited (JRCM) - led by Francesco Goedhuis (CEO) and Ron Tabbouche (CIO). Succeeding Lord Rothschild is a daunting task, but his legacy is a company which is well positioned to continue to execute its established strategy, delivering long-term capital growth while preserving shareholders' capital, by investing in a diversified portfolio across a range of asset classes, and by allocating funds to exceptional managers to ensure access to the best available external talent.

Performance

During 2019, I am pleased to report that your Company's net asset value per share (NAV) increased to 2,004 pence, representing a total return (including dividends) of 12.0%. The share price total return was 12.5%, with the shares ending the year at 2,115 pence, a premium of 5.5% above the NAV.

Despite a muted outlook for global growth and earnings, 2019 was one of the best years for financial assets, with many investors prepared to take more risks than we considered warranted as risk-free rates moved lower and central banks eased policy. We maintained our cautious positioning, mindful of the risks inherent in both fully valued equity markets and historically low returns in bond markets. As a result, our returns lagged fully-invested market indices. However, this did not stop our portfolio from generating a healthy absolute return. Considered allocations to a number of key themes, in particular where we saw opportunities to benefit from long-term structural trends, together with rigorous security selection and careful portfolio construction, allowed us to meet our objective of capital growth. This builds on the 2018 results, where we were able to protect capital when global markets suffered a marked correction and many in the industry lost money. As we have explained in previous years, when we choose to emphasise caution in such a way, we do so to remain consistent with our strategy of protecting capital and delivering superior risk-adjusted returns over the long term.

It is a feature of this approach that, while we have a natural bias for equities, we have a broad investment policy. This allows JRCM the freedom to deploy capital across multiple asset classes. As explained in detail in our Manager's Report, the approach seeks to utilise our enviable network and combine diversified and uncorrelated sources of return, targeting a high-quality return through the market cycles.

Dividend

Unlike many trusts, we do not invest with a view to producing a particular income yield from the portfolio. Our core objective is to invest to produce capital growth over the long term. However, we recognise that for many shareholders, dividends are important, and our significant reserves give us the flexibility to support our policy of maintaining or increasing the annual dividend, as long as it does not come into conflict with your Company's core objective. For 2020, we are intending to pay a dividend of 35 pence per share, an increase of 2.9% over the previous year. This will be paid in two equal instalments of 17.5 pence per share in April and October.

Share capital

Your Board monitors the level of premium or discount of the share price relative to the NAV and recognises that shareholders prefer lower volatility in this rating. While we do not use a formal rating target, we have in the past bought back shares when they trade at a discount, to the benefit of shareholders. Equally, when the shares are trading at a premium, it is possible to issue new shares accretively. During the year, we issued approximately 1.5 million new shares at a premium to NAV in order to fund a very interesting new investment. We expect to continue to utilise the flexibility to issue new shares at a premium where we consider it is in shareholders' interests.

Board and governance

I am very grateful to my colleagues on the Board for their support and guidance as I reacquainted myself as a non-executive Director from April 2019 and Chairman from October. We are all mindful of the need to periodically refresh the experience, ideas and composition of the Board and I am delighted to announce that Maxim Parr and Jonathan Sorrell will be joining in April, subject to shareholder approval at the AGM. Maxim is CEO of nr2, a cross-border technology investment platform, focused on China, and has extensive experience in investments, in particular in East Asia. Jonathan is President of Capstone, a global asset manager, having previously been President and CFO of Man Group plc.

Having served on the Board for approximately 10 and 15 years respectively, the Duke of Wellington and Michael Marks have announced they will not be standing for re-election at the forthcoming AGM. Charles and Michael have made an enormous contribution to the success of your Company over the years. Their wisdom and dedication, and their valued contributions to the work of the Board and its Committees, will be much missed. On behalf of all my colleagues, I would like to thank them for their many years of service to the Company.

Outlook

The macro concerns I have highlighted above have not abated since year end. Valuations in many asset classes are already expensive and we find ourselves in the eleventh year of this market cycle. While we are comfortable with our core positions, and continue to uncover areas of opportunity, the environment necessitates an even greater focus on maintaining our disciplined investment approach and rigorous portfolio construction. More than ever, we remain convinced of the relevance of RIT's differentiated approach, and believe we are well positioned for the inevitable challenges and opportunities that the markets will provide.

Sir James Leigh-Pemberton

2 March 2020

MANAGER'S REPORT - EXTRACTS

Overview

Following 2018's broad equity market declines, 2019 saw resurgent markets. Having produced a positive NAV return in 2018, we are satisfied to have generated healthy double-digit performance in 2019.

While our approach is fundamentally long term, we try to blend this with appropriate levels of pragmatism where warranted over the shorter term.

In light of the clear risks and our overriding capital preservation focus, we retained a cautious stance in the portfolio, with modest quoted equity exposure complemented by carefully structured allocations to other asset classes. We adjusted the portfolio positioning during the year where we saw opportunities or clear risks.

We saw strong returns in our quoted equity portfolio, supported by broad returns across our other asset classes. Many of our underlying, long-term structural allocations (for example to China, biotech and technology) performed particularly well.

Overall, the NAV total return for the year was 12.0%, above our absolute KPI, RPI plus 3.0% per annum, and behind the fully-invested equity index (ACWI) which returned 24.0%. With the premium increasing slightly over the year to 5.5%, the TSR was 12.5%. 

Markets, positioning and performance

Notwithstanding the increasing evidence of a deteriorating outlook for global growth and earnings as well as other challenges, developed equity markets ended 2019 more than 20% higher.

There were broadly two phases to the rally. The initial bounce-back followed the treacherous end to 2018, as investors realised that economies were not at the precipice of a recession. Furthermore, global policy accommodation and reduced trade tensions resulted in a sharp decline in risk premia across all asset classes, with little consideration for fundamentals. For example, there was minimal earnings growth throughout the rally. 

Moreover, equities did not attach any risk to what has clearly been a worsening economic outlook. This kind of market behaviour tends to be associated with the early, recovery phase of the business cycle, not some 10 years into the longest expansion on record. This made it a particularly unpredictable year.

Within this context, it should not be surprising that we adjusted our portfolio exposure as the year unfolded. We started 2019 with a somewhat higher quoted exposure following the 2018 sell-off, reducing our hedges and deploying capital to areas where we saw long-term structural support. As we observed clearer indicators of slowdown during the latter part of the year, we reduced our overall exposure to market risk.

Similarly, sterling's politically-induced volatility over 2019 was an area which required careful risk management, to avoid an undue impact on the NAV. 

Overall, the key performance drivers for 2019 were:

·	a significant recovery from structural themes including allocations to China, biotech and technology;
·	the single stocks portfolio delivered strong returns from growth stocks in the first half of the year, then benefitted from a rotation into more value-driven stocks in the second half of the year;
·	steady returns from private investments following an excellent 2018; and
·	a healthy contribution from non-equity investments led by real assets.

The main headwinds were:

·	the broad appreciation of sterling against most major currencies; and
·	on a relative basis, our cautious net quoted equity exposure, which averaged 43% over the year.

Asset allocation and portfolio contribution

Asset category	31 December 2019 % NAV	2019 contribution %	31 December 2018 % NAV	2018 contribution %
Quoted equity	46.7%	12.7%1	47.0%	(6.3%)1
Private investments	25.1%	2.4%	25.7%	4.9%
Absolute return and credit	22.9%	0.7%	23.7%	0.5%
Real assets	2.9%	0.9%	3.1%	0.1%
Government bonds and rates	1.2%	(0.1%)	0.5%	0.4%
Currency	1.3%	(3.1%)2	(0.3%)	2.2%2
Total investments	100.1%	13.5%	99.7%	1.8%
Liquidity, borrowings and other	(0.1%)	(1.5%)3	0.3%	(1.0%)3
Total	100.0%	12.0%	100.0%	0.8%
Average net quoted equity exposure1	43%		47%

^1.   The quoted equity contribution reflects the profits from the net quoted equity exposure during the year. 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 result of the currency hedging and overlay activity included in this category's contribution.

^3.   This category's contribution includes interest, mark-to-market movements on the fixed interest notes and expenses.

Currency exposure as % of NAV ¹

		31 December 2019 % NAV	31 December 2018 % NAV
US dollar		9%	30%
Sterling		69%	44%
Euro		4%	6%
Japanese yen		6%	6%
Swiss franc		0%	5%
Other		12%	9%
Total		100%	100%

¹   This table excludes exposure from currency options

Outlook

As we enter 2020, we are cognisant that interest rates remain very low, which for some investors, makes equities the 'only show in town'. Our view is that a significant amount of good news is already priced in, and the market is unlikely to show resilience against any sustained macro or geopolitical volatility. Furthermore, after such a strong run in many of our structural themes we are, if anything, more focused on managing risk rather than adding exposure. This backdrop means that incremental equity additions are likely to be more selective than ever. 

Francesco Goedhuis Chairman and Chief Executive Officer	Ron Tabbouche Chief Investment Officer
J. Rothschild Capital Management Limited	J. Rothschild Capital Management Limited

PRINCIPAL RISKS

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 or geopolitical factors that can influence market risk, as well as consideration of investment-specific risk factors.

As described in the Manager's Report, while 2019 ultimately ended with global equity markets posting sizeable gains, the year saw a material rotation between the areas showing market leadership, increasing signs of macro slowdown and ongoing geopolitical concerns. All of which necessitated a careful 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. 2019 was particularly challenging as a result of the ongoing uncertainty surrounding the UK Government and the Brexit process. While the short-term implications became clearer following the general election, the medium to long-term path remains unclear.

In terms of the Group's operations, we had assessed the implications from the UK's departure from the EU, concluding that there should be no significant impacts to the Manager's operations.

Furthermore, your Company's broad and flexible investment mandate allows the Manager to take whatever action is considered appropriate in mitigating any attendant risks to the portfolio.

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.

Operational risks include those related to the legal environment, regulation, taxation 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. 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, 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. 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. As 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 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).
Operational risks	Mitigation
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 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.
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 Financial Conduct Authority (FCA) and acts as Alternative Investment Fund Manager. The financial services sector continues to experience regulatory change at national and international levels. 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 and taxation matters. In addition, specialist external advisers are engaged in relation to complex or sensitive 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 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, for example, 2019 saw further development of JRCM's investment database. 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 includes the ability to utilise an offsite facility in the event of any business disruption. This was satisfactorily tested during the year. Cyber security continues to receive an enhanced focus, with systems and processes designed to combat the ongoing risk developments in this area.

Consolidated income statement

Year ended 31 December				2019			2018
£ million		Revenue	Capital	Total	Revenue	Capital	Total
Investment income		33.0	-	33.0	20.8	-	20.8
Other income		8.6	-	8.6	4.6	-	4.6
Gains/(losses) on fair value investments		-	365.9	365.9	-	28.3	28.3
Gains/(losses) on monetary items and borrowings		-	(14.2)	(14.2)	-	18.2	18.2
		41.6	351.7	393.3	25.4	46.5	71.9
Expenses
Operating expenses		(24.8)	(5.2)	(30.0)	(24.0)	(4.6)	(28.6)
Profit/(loss) before finance costs and tax		16.8	346.5	363.3	1.4	41.9	43.3
Finance costs		(4.1)	(16.3)	(20.4)	(3.0)	(11.9)	(14.9)
Profit/(loss) before tax		12.7	330.2	342.9	(1.6)	30.0	28.4
Taxation		-	(0.6)	(0.6)	-	(1.3)	(1.3)
Profit/(loss) for the year		12.7	329.6	342.3	(1.6)	28.7	27.1
Earnings/(loss) per ordinary share - basic		8.2p	212.9p	221.1p	(1.0p)	18.6p	17.6p
Earnings/(loss) per ordinary share - diluted		8.2p	212.6p	220.8p	(1.0p)	18.5p	17.5p

The total column of this statement represents the Group's consolidated income statement, prepared in accordance with IFRS as adopted by 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			2019			2018
£ million	Revenue	Capital	Total	Revenue	Capital	Total
Profit/(loss) for the year	12.7	329.6	342.3	(1.6)	28.7	27.1
Revaluation gain/(loss) on property, plant and equipment	-	(1.8)	(1.8)	-	(1.3)	(1.3)
Actuarial gain/(loss) in defined benefit pension plan	(0.8)	-	(0.8)	(0.9)	-	(0.9)
Deferred tax (charge)/credit allocated to actuarial loss	0.1	-	0.1	0.2	-	0.2
Total comprehensive income/(expense) for the year	12.0	327.8	339.8	(2.3)	27.4	25.1

Consolidated balance sheet

At 31 December
£ million		2019	2018
Non-current assets
Investments held at fair value		3,086.1	2,808.0
Investment property		36.1	35.4
Property, plant and equipment		24.2	26.2
Deferred tax asset		1.5	2.0
Retirement benefit asset		1.0	1.3
Derivative financial instruments		0.7	8.3
		3,149.6	2,881.2
Current assets
Derivative financial instruments		50.4	24.6
Other receivables		172.2	248.9
Cash at bank		61.1	210.9
		283.7	484.4
Total assets		3,433.3	3,365.6
Current liabilities
Borrowings		(50.0)	(275.0)
Derivative financial instruments		(2.9)	(38.2)
Other payables		(55.3)	(51.7)
Amounts owed to group undertakings		(3.3)	(11.8)
		(111.5)	(376.7)
Net current assets/(liabilities)		172.2	107.7
Total assets less current liabilities		3,321.8	2,988.9
Non-current liabilities
Borrowings		(166.4)	(155.1)
Derivative financial instruments		(7.9)	(0.6)
Provisions		(1.4)	(2.5)
Lease liability		(0.5)	(0.5)
		(176.2)	(158.7)
Net assets		3,145.6	2,830.2
Equity attributable to owners of the Company
Share capital		156.8	155.4
Share premium		45.7	17.3
Capital redemption reserve		36.3	36.3
Own shares reserve		(7.8)	(13.4)
Capital reserve		2,894.1	2,624.3
Revenue reserve		7.0	(5.0)
Revaluation reserve		13.5	15.3
Total equity		3,145.6	2,830.2
Net asset value per ordinary share - basic		2,007p	1,827p
Net asset value per ordinary share - diluted		2,004p	1,821p

The financial statements were approved by the Board and authorised for issue on 2 March 2020.

Consolidated statement of changes in equity

£ million	Share capital	Share premium	Capital redemption reserve	Own shares reserve	Share-based payment reserve	Capital reserve	Revenue reserve	Revaluation reserve	Total equity
Balance at 1 January 2018	155.4	17.3	36.3	(17.6)	4.6	2,648.4	(2.7)	16.6	2,858.3
Profit/(loss) for the year	‒	-	-	-	-	28.7	(1.6)	-	27.1
Revaluation loss on property, plant and equipment	-	-	-	-	-	-	-	(1.3)	(1.3)
Actuarial gain/(loss) in defined benefit plan	-	-	-	-	-	-	(0.9)	-	(0.9)
Deferred tax (charge)/credit allocated to actuarial gain	-	-	-	-	-	-	0.2	-	0.2
Total comprehensive income/(expense) for the year	-	-	-	-	-	28.7	(2.3)	(1.3)	25.1
Dividends paid	-	-	-	-	-	(51.0)	-	-	(51.0)
Movement in own shares reserve	-	-	-	4.2	-	-	-	-	4.2
Movement in share-based payment reserve	-	-	-	-	(6.4)	-	-	-	(6.4)
Transfer to capital reserve	-	-	-	-	1.8	(1.8)	-	-	-
Balance at 31 December 2018	155.4	17.3	36.3	(13.4)	-	2,624.3	(5.0)	15.3	2,830.2
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 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 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 payments	-	-	-	-	-	(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

Consolidated cash flow statement 

Year ended 31 December		Consolidated cash flow
£ million		2019	2018
Cash flows from operating activities:
Cash inflow/(outflow) before taxation and interest		155.9	151.7
Interest paid		(20.4)	(14.9)
Net cash inflow/(outflow) from operating activities		135.5	136.8
Cash flows from investing activities:
Sale/(purchase) of property, plant and equipment		(0.2)	(0.2)
Disposal of subsidiary1		-	3.0
Investments in subsidiary undertakings		-	-
Net cash inflow/(outflow) from investing activities		(0.2)	2.8
Cash flows from financing activities:
Repayment of borrowings		(225.0)	-
Purchase of ordinary shares by Employee Benefit Trust (EBT)2		(7.1)	(6.6)
Equity dividend paid		(52.6)	(51.0)
Net cash inflow/(outflow) from financing activities		(284.7)	(57.6)
Increase/(decrease) in cash and cash equivalents in the year		(149.4)	82.0
Cash and cash equivalents at the start of the year		210.9	122.9
Effect of foreign exchange rate changes on cash and cash equivalents		(0.4)	6.0
Cash and cash equivalents at the year end		61.1	210.9
Reconciliation:
Cash at bank		61.1	210.9
Cash and cash equivalents at the year end		61.1	210.9

¹  Deferred consideration.

²  Shares are disclosed in the own shares reserve on the consolidated balance sheet.

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

The basic earnings per ordinary share for 2019 is based on the profit of £342.3 million (2018: profit of £27.1 million) and the weighted average number of ordinary shares in issue during the period of 154.8 million (2018: 154.5 million). The weighted average number of shares is adjusted for shares held in the employee benefit trust in accordance with IAS 33.

£ million	2019	2018
Net revenue profit/(loss)	12.7	(1.6)
Net capital profit/(loss)	329.6	28.7
Total profit/(loss) for the year	342.3	27.1

pence	2019	2018
Revenue earnings/(loss) per ordinary share - basic	8.2	(1.0)
Capital earnings/(loss) per ordinary share - basic	212.9	18.6
Total earnings per share - basic	221.1	17.6

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 weighted average dilutive effect of share-based payment awards at the average market price for the period.

Weighted average (million)	2019	2018
Number of shares in issue	155.4	155.4
Own shares	(0.6)	(0.9)
Basic shares	154.8	154.5
Effect of share-based payment awards	0.2	0.5
Diluted shares	155.0	155.0

pence	2019	2018
Revenue earnings/(loss) per ordinary share - diluted	8.2	(1.0)
Capital earnings/(loss) per ordinary share - diluted	212.6	18.5
Earnings per ordinary share - diluted	220.8	17.5

Net asset value per ordinary share - basic and diluted

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

31 December	2019	2018
Net assets (£million)	3,145.6	2,830.2
Number of shares in issue (million)	156.8	155.4
Own shares adjustment (million)1	(0.1)	(0.4)
Basic shares (million)	156.7	155.0
Effect of share-based payment awards (million)	0.2	0.4
Diluted shares (million)	156.9	155.4

¹   EBT shares offset by deferred shares.

	2019	2018
31 December	pence	pence
Net asset value per ordinary share - basic	2,007	1,827
Net asset value per ordinary share - diluted	2,004	1,821

Dividends

	2019 Pence	2018 Pence	2019	2018
	per share	per share	£ million	£ million
Dividends paid in year	34.0	33.0	52.6	51.0

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

On 4 March 2019 the Board declared a first interim dividend of 17.0 pence per share in respect of the year ended 31 December 2019 that was paid on 30 April 2019. A second interim dividend of 17.0 pence per share was declared by the Board on 2 August 2019 and paid on 31 October 2019.

The Board declares the payment of a first interim dividend of 17.5 pence per share in respect of the year ending 31 December 2020. This will be paid on 30 April 2020 to shareholders on the register on 3 April 2020, and funded from the accumulated capital profits.

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 Financial Reporting Standards as adopted by the European Union (IFRS). 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. In preparing these financial statements, the Directors are required to:

·	select suitable accounting policies and then apply them consistently;
·	state whether applicable IFRS as adopted by the European Union have been followed for both the Group and Company financial statements, 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 and, as regards the Group financial statements, Article 4 of IAS Regulation.

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 IFRS, 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 IFRS, 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.

Basis of presentation

The financial information for the year ended 31 December 2019 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 2018 has been extracted from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors' 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.

 

END

 

 

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